Malaysia’s Capital A has divested its aviation business in Southeast Asia to associate AirAsia X, in a deal valued at around MYR6.8 billion ($1.4 billion). 

The move will see the formation of a new AirAsia Group, comprising the former AirAsia Aviation Group’s airline units in Malaysia, Thailand, Indonesia and the Philippines, as well as AirAsia X and Thai AirAsia X. 

According to AirAsia Group advisor Tony Fernandes, the acquisition makes AirAsia the largest low-cost airline group in Asia. 

AirAsia A320 9M-RAO KLIA2

Source: Wikimedia Commons

The divestment will be fulfilled through share issuance and debt settlement: AirAsia Group, as a newly-incorporated entity, will issue MYR3 billion in new shares to Capital A to acquire AirAsia units outside of Malaysia, and will assume MYR3.8 billion in debt from Capital A through the divestment of Malaysia-based AirAsia Berhad. 

The acquisition is expected to be completed in September, following shareholder and court approvals. 

Although the deal will not see the immediate merger of AirAsia X and the short-haul AirAsia units, Fernandes says the longer-term goal will be to bring the two groups together. 

Fernandes, who was speaking at a media event on 26 April, added that the divestment and acquisition is “timely” in helping the airline group reach its goal of being the “world’s first low-cost network carrier”. 

In a separate filing on the Bursa Malaysia stock exchange, AirAsia says the newly formed group allows for “the streamlining of administrative, operational, reporting and decision-making processes through a centralised management and leadership”. 

The new AirAsia Group will be led by current chief Bo Lingam, with Fernandes as advisor. Lingam will be assisted by two deputy CEOs, former regulatory chief Chester Voo, who will oversee airline operations, as well as Farouk Kamal, who oversees corporate functions. An independent board will also be appointed soon, adds Fernandes. 

AirAsia Group envisages cross-deployment of aircraft types within its units through wet-lease agreements. Pre-merger, AirAsia and AirAsia X adopted “focused aircraft fleet operations”. 

“[The new group] will be more flexible in effectively and more conveniently deploying the suitable type of aircraft based on the prevailing needs from each airline within the enlarged aviation group, passenger volume and take-up rate,” it adds. 

9M-XXZ_(30637267411) AIrAsia X

Source: Wikimedia Commons

Fernandes notes that AirAsia X’s restructuring during the Covid-19 pandemic saw it defer aircraft deliveries, which is constraining its short-term growth plans. Still, the carrier has “valuable traffic rights and valuable brand recognition”, as well as access to markets that the short-haul units do not have. 

On the other hand, AirAsia’s short-haul units are limited by their fleet type – now comprising A320-family jets – even as they hold a large orderbook of over 360 jets. 

“We are managing the best of both [AirAsia and AirAsia X]. We’ll always have some widebody aircraft, but we’re principally going to be a narrowbody aircraft [operator],” says Fernandes, who calls the combination of both orderbooks “an enormous opportunity that cannot be wasted”. 

“We can now deploy A330s to Singapore for instance, and the A321s can replace marginal routes. With [this new group], we can do routes [with narrowbody aircraft] that were previously too difficult for AirAsia X to do: [like] all the secondary cities in Japan and South Korea,” says Fernandes. 

In January this year, Capital A announced it would be divesting its aviation businesses to AirAsia X, under a definitive sale and purchase agreement that will see all units under a single AirAsia brand. 

Capital A has previously floated the prospect of a divesting its airline businesses, but envisaged two separate airlines businesses operating under a consolidated group.