AirAsia Group's efforts to refinance its debt at lower costs are complicated by sustained high oil prices, which significantly impact airline operating expenses. The airline, which has reported two consecutive quarterly losses, relies heavily on jet fuel, accounting for approximately 60% of its operating costs. Despite hedging 13% of its third-quarter fuel consumption at $89 per barrel for Thai AirAsia, jet fuel prices remain high at around $150 per barrel, nearly double its usual level of $85-$90, making it difficult to improve its financial outlook and attract favorable debt terms.
The airline's financial difficulties are further highlighted by its request to Ares Management Corp. and Indies Capital Partners to amend the terms of a $200 million private credit loan. AirAsia is seeking to reallocate revenue from certain flight routes, currently pledged to these lenders for loan repayment, to aircraft lessors. This move, intended to secure payments for lessors, signals the airline's struggles to manage its existing financial commitments and could be perceived negatively by potential new lenders.
Adding to the concern, the Malaysian government is monitoring AirAsia's financial health, engaging with rival airlines like Malaysia Airlines and Batik Air to assess their capacity to absorb AirAsia's domestic market share. AirAsia reportedly owes airport operator MAHB at least 500 million ringgit. While AirAsia aims to raise $1 billion in international debt markets and 700 million ringgit in local credit facilities by the fourth quarter to refinance existing high-cost debt and consolidate its balance sheet, the current environment of high oil prices and its recent financial maneuvers may deter potential investors and make securing these funds on favorable terms challenging.
