Thursday, November 17, 2016

Airasia's forex hedge

I am reading some of the articles or even comments that came from analysts or other investors per se. They are saying that the rise in USD against MYR would be bad for Airasia as I am presuming that they think since the aircrafts are bought at USD pricing, it would be bad for Airasia. I am also asking did they read the financial report? As below is the financial report that is extracted from the 2Q16 announcement.


It is clear that a substantial portion of its liabilities are hedged at a low 3.2368 exchange rate. Yes, Airasia will take some losses in forex, but most of them are book numbers - it will be reversed in the event MYR strengthens.

Also, some may think that all transactions for Airasia is in MYR. It is not. They have Renminbi, Thai Baht, USD, AUD, SGD etc. Airasia is not a domestic business only. MYR comprise of perhaps around 40%. Hence, that is already balanced by the hedge.

What about future planes? Other airlines that compete against Airasia face the same thing. So, they will increase price as well - hence evened out. This is not like MAS, SIA, Qatar, Lion Air are buying in their own currencies but Airasia is doing it in USD.

What could even be positive for Airasia is in the event it sells its leasing arm - that is in USD, would even translate to even bigger profits for Airasia and this is real number as I do not think it is even provided for anywhere.

13 comments:

Jill said...
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felicity said...

HI Jack

To me it is not so interesting anymore although it is below book value. The businesses are unlike previous. Until it is able to have a good business, it may not be interesting anymore.

However for those who are looking for a company below book value, it is below book value.

Regards

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