AirAsia gets US$1bn offer to acquire leasing firm

Kuala Lumpur / Bloomberg

AirAsia Bhd. received an offer valued at about $1 billion for its aircraft-leasing business, Chief Executive Officer Tony Fernandes said, prompting the shares to reach a new 14-month high in Kuala Lumpur trading.
Asia’s biggest discount carrier intends to divest the fully-owned unit called Asia Aviation Capital Ltd. at some point, Fernandes said in an interview with Bloomberg Television Monday. The company needs to further discuss the offer with the board, he said, without identifying the bidder.
“We actually had an offer to buy it and I think this is a very powerful cash generator,” Fernandes said. “There’s tremendous value and cash equation there.”
As airlines serving Asia Pacific move to triple their fleet, they’re finding it can be cheaper to lease jets instead of buying them from Boeing Co. or Airbus Group SE. The leasing business can be more lucrative than operating an airline, which has prompted conglomerates led by Hong Kong billionaires Li Ka-shing and Cheng Yu-tung to enter the industry. Fernandes’s comments comes as Asia’s biggest lessor is slated to start trading in Hong Kong on Wednesday after a HK$8.7 billion ($1.1 billion) initial public offering.

‘Valuable Assets’
AirAsia shares gained 0.4 percent to 2.41 ringgit, the highest closing price since March 6, 2015. They rose as much as 4.2 percent earlier in the day. The stock has jumped 87 percent this year, helped by the carrier’s surge in profits.
“It was interesting that we haven’t even gone to the market and someone approached us on it, because obviously we have some very valuable assets in our A320s and a very strong order book,” Fernandes said.
AirAsia, one of the biggest customers of Airbus’s single-aisle A320 jets, started the leasing company in 2014. It made its first deal outside the group by leasing out aircraft to Pakistan International Airlines Corp., Fernandes said, adding that more airlines are seeking to rent its planes. The unit had 43 A320s in its fleet as of the end of March.
“AirAsia doesn’t need to sell the leasing arm now because its balance sheet is alright and it will get cash infusion from founding shareholders,” said Mohshin Aziz, an analyst at Malayan Banking Bhd. in Kuala Lumpur. “As a business you want to have as many avenues and the leasing arm opens an avenue for AirAsia should it need to raise cash.”

Airline Affiliates
AirAsia operated 171 A320s in its fleet at the end of March. The group’s medium- and long-haul budget carrier, AirAsia X Bhd., had 29 A330s. Asia Aviation Capital will only manage those group aircraft leased to affiliates outside Malaysia, including Thai AirAsia Co., PT Indonesia AirAsia and AirAsia India Pvt., according to filings in 2014.
Airlines in Asia will fly more than 16,000 planes within 20 years, almost tripling the current number, according to estimates by Boeing.
Fernandes said in 2014 that AirAsia’s jet-leasing arm is a potential candidate for a stock exchange listing that could command half the then-value of its $2 billion airline operation. Free cash-flow of about $40 million to $50 million will be generated in the spun-off unit’s first few years, before expanding toward $100 million as it taps demand for planes from airlines in China and Africa, he said then.
BOC Aviation Ltd., the aircraft leasing arm of Bank of China, owned and managed 270 aircraft at the end of 2015, with narrow-body planes from Airbus and Boeing making up 79 percent of the total, according to its website. It had 241 airplanes on order at the end of last year. The company will list in Hong Kong on Wednesday.