Exclusive: AirAsia CEO tells investors plans up to $300 million bonds, jet sales as shares skid

Mon Jun 15, 2015 6:14am EDT
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By Anshuman Daga

SINGAPORE (Reuters) - AirAsia Bhd (AIRA.KL: Quote) Group Chief Executive Tony Fernandes has written to investors spooked by a report questioning accounting at Asia's biggest budget airline, saying it will raise funds at loss-making associates and may sell planes to cut group debt.

In a response to AirAsia shares falling to five-year lows, the CEO said the group plans to issue as much as $150 million in convertible bonds at each of its Philippine and Indonesian associates. Fernandes, who has led AirAsia's rise to a billion-dollar business from a two-plane operation in 2002, wrote in his letter that the company may also sell and lease back up to 20 aircraft in the group's fleet this year.

The comments in Fernandes' letter, sent on Monday and reviewed by Reuters, came days after Hong Kong-based firm GMT Research issued a report questioning AirAsia's accounting practices. In its report, GMT said AirAsia used transactions with associate companies to boost earnings, startling investors and leading the airline's shares to fall to a five-year intra-day low on June 12.

Fernandes' plans also come as some analysts question a strategy they say hinges on a raft of associate airlines, some of which are losing money amid stiff competition and now overdue on loan repayments to AirAsia. AirAsia has become the world's second-worst performing large and mid-sized airline stock this year after Virgin America VA.O, with a decline of 34 percent, Reuters data shows.

"Some of the details here are still work-in-progress but what is written will more or less be reality," Fernandes said in the letter to investors. "Due to the recent movement in our share price, we are sharing the details with you earlier than planned," he said, without making reference to the GMT report.

AirAsia officials declined to comment on GMT's report or the letter from Fernandes.

Though a leader in the world's fastest-growing aviation market, AirAsia has been hit by competition from the likes of the Jetstar unit of Australia's Qantas Airways Ltd (QAN.AX: Quote) and Indonesia's Lion Air, and slid to a net loss for October-December 2014 before rebounding on lower fuel costs.

The carrier, the biggest Asian customer of plane maker Airbus (AIR.PA: Quote), is now taking on fewer new aircraft to manage capacity. On Monday, AirAsia's shares dropped as much as 3.9 percent, after falling a total of as much as 18 percent since GMT published its report on June 10.   Continued...

Passengers check in an AirAsia flight at Soekarno-Hatta International Airport in Jakarta December 28, 2014. 
REUTERS/Pius Erlangga