Tuesday, November 29, 2016

The true fact on Airasia's sale and leaseback

To those who have read my blogs, you would know that I have written about Airasia and some other airlines for many years. Throughout that, I have learned a lot through my own research as well as being part of the community that have been using the services provided by Airasia, MAS, Malindo, Firefly as well as several other airlines.

As an investor, I am always on the mission to know further what these companies are doing and I am not entirely and purely a numbers person (although my background is). I am fascinated with the business as much as the numbers. In my previous short article, I have highlighted that the Bloomberg's article is not quite correct. I respect Bloomberg as my source of business news and have pointed their articles to many of my friends but this time around it is with a wrong message.

Below is another after I said to myself, did I miss something. I looked through Airasia's AUDITED accounts since 2013 and try to search for any sense of sale and leaseback from the airline as I have said I have been following the airline and this also mean I read their annual reports year after year.

For FY2014, there was not even a mention of sale and leaseback. There are leases that Airasia embarked on being a lessor as well as lessee (if you are not sure what is lessor and lessee, check it out) but they did not do sale and leaseback.

Further for FY2015, as I checked further - this time around there are such arrangement - i.e. as in sale and leaseback. This shows that sale and leaseback has been a new thing since 2015 only, not prior. As shown below, where in 2015 there are sales of RM1.527 billion with gain of RM27 million. This shows that the gain that was registered is not as much as purported in the Bloomberg article.

2015 sale and leaseback as shown for FY2015 while there were no numbers for FY2014
Again disposals as shown for FY2015
What the above shows that Airasia was getting ready for an upgrade of planes with Airbus to deliver the new 320neo. Airasia, in my mind wanted better fuel efficient planes and 3rd quarter 2016 is the time which started to get these deliveries. Obviously, it cannot be operating with much lesser planes hence the sale and leaseback. I guess once it starts to get deliveries of the newer and one which has 186 seats, it will start to let go of the older planes. If you have noticed, Airasia over the last few years have had its maintenance costs increased and these shows that its fleet is getting older.

What some have been thinking that these older planes do not have value. They actually have, especially the narrow body planes as compared to a lesser sellable wide body planes.

Airasia has been having a depreciation policy of 12 years straight line for its plane assets and besides operating as an airline, it definitely knows what is best for its operations.

What Airasia has been doing in this case is not so much an accounting ploy but a business decision i.e. reducing its debt level, while preparing for purchases of newer planes. It is not buying new planes at low price (because of its bulk deal), sell them and lease them back. It is selling older planes, lease them back while waiting for newer planes.

I hope Bloomberg can get its facts correct.

No comments: