AirAsia on the Brink of Collapse: Can the Airline Survive the Coronavirus Carnage?

Tata Sons, which holds 51 percent stake in the Malaysian low-cost airline, is also reportedly mulling over shedding its entire stake in AirAsia India

The coronavirus pandemic has left the global airline industry in tatters, with AirAsia on the verge of becoming one of its biggest casualties. Last week, the company reported a record loss of MYR 803 million ($188 million) in the first quarter of 2020. Also, Tata Sons, which holds majority stake in the Malaysian low-cost airline, is reportedly mulling over shedding its entire stake in AirAsia India, its joint venture (JV) with AirAsia.

AirAsia has been ailing for quite some time and speculations are rife that the mounting losses owing to the COVID-19 pandemic might compel the airline to finally fold its wings. The airline has taken several steps to minimize costs over the past few quarters, including trimming its workforce but that has not helped it.

Coronavirus Acting as Headwind

AirAsia last week reported a record loss of MYR 803 million or $188 million in the first quarter of 2020 Pixabay

AirAsia had been feeling the heat for a while, and its condition worsened further due to the coronavirus outbreak. Auditors Ernst & Young in an unqualified audit option statement recently told the Kuala Lampur Stock Exchange that travel restrictions owing to the coronavirus have seen demand for air travel declining significantly, which "impacted the group's financial performance and cash flows."

On July 8, trading of the company's shares had to be suspended after they began plummeting, declining 23 percent by the end of the day. Since then, its shares have recovered around 10 percent but the troubles seem endless.

After incurring losses for a few quarters, the airline is trying to inject cash into its business. However, banks are unlikely to lend without consent from shareholders for a capital-raising exercise. Hence, a combination of funding options is likely to be required to bail out the airline.

AirAsia's Turbulence

AirAsia alerts public on online scam claiming to give free flight tickets
On July 8, trading of AirAsia's shares had to be suspended after its shares started plummeting, which had declined 23 percent by the end of the day Reuters

AirAsia has been facing turbulent weather for quite some time and with the crisis mounting, stakeholders are fast losing faith in the once-popular low-cost airline that revolutionized air travel in Asia. According to sources, Tata Sons is reportedly planning to shed its entire 51 percent stake in AirAsia India, which is also incurring huge losses.

In fact, the source told Indian publication Mint that AirAsia Bhd had approached Tata Sons to sell its 49 percent stake in AirAsia India in June but later used its first right to refuse according to the terms of the joint venture to reject the deal.

Needless to say, AirAsia's fortunes have drastically changed over the past few quarters. The airline was founded by charismatic Malaysian entrepreneur Tony Fernandes in 2001, taking over from the Malaysian government's conglomerate DRB-Hicom, months after the airline industry was rocked by the 9/11 attacks.

A Profit-making Machine

Fernandes, along with partner and co-founder, Kamarudin Meranun, turned the airline into a profit-making venture within a year, flying over 200,000 passengers in 2002. By 2007, the airline, which started off with two almost-obsolete Boeing 737-300 aircraft, had added 68 new planes to its fleet, with 5,000 employees.

By 2017, AirAsia boasted of 220 aircraft and 20,000 employees, and in 2019 it had won the Skytrax World's Best Low-Cost Airline award for the 11th consecutive year. However, in spite of the accolades, it could not escape the coronavirus' onslaught. Unless it manages to inject cash into its ailing business, the once successful airlines now seems to be on the brink of collapse.

Related topics : Coronavirus