Malaysia's AirAsia is seeking to cement its status as Asia's dominant low-cost carrier through an initial public offering (IPO) that will give it several hundred million dollars in cash for expansion.
The fast-growing airline has been planning an IPO since early this year and by early October had secured regulatory approvals from the Malaysian Securities Commission Ministry of International Trade and Industry, and Foreign Investment Committee.
AirAsia plans to sell 700.5 million shares through the IPO, 23 million of which will be allocated for directors, employees and business associates. A further 117 million shares will be sold to the public, with the remainder due to go to Malaysian and foreign institutional investors.
The IPO is expected in November, after which the airline will be listed on the main board of the Bursa Malaysia in Kuala Lumpur. AirAsia has not said specifically how much it hopes to raise or what percentage of the company will be floated.
Most observers expect around 30% to be sold, with shares priced somewhere near 1.5 ringgit (¢4) each. The high-end estimates are for the share sale to raise 1.2 billion ringgit, while the more conservative estimates are for 875 million ringgit.
AirAsia says the flotation will help strengthen its balance sheet, further cut its cost base of ¢2.5 cents per seat kilometre (¢4 per mile) and help it expand operations to more parts of Asia.
One way it plans to defend its status as the region's largest low-cost airline against new challengers in South-East Asia is by further expanding its fleet and launching services to more international destinations.
It currently operates more than 20 Boeing 737-300s domestically within Malaysia as well as within Thailand through associate carrier Thai AirAsia. Other countries and territories served include Indonesia, Macau and Singapore, while there are also plans for China. The group fleet of mainly leased aircraft is expected to grow to 36 737-300s by the middle of 2005, although early in 2006 it hopes to start replacing them with new Airbus A319/A320s or Boeing 737-700/800s.
Requests for proposals were issued to the two manufacturers in June detailing plans to place firm orders for 40 aircraft and take 40 options, although there have been recent suggestions that the size of the planned order could be larger. A deal is expected around the time of the IPO.
AirAsia was established in the 1990s as a small full-service airline, but it consistently lost money until a group of private investors acquired it late in 2001 from local conglomerate DRB-Hicom and relaunched it as a low-fares operator early in 2002. Since then its fleet has expanded rapidly from just two 737-300s and it has been recording profits.
Only last year a 26% stake was sold to three foreign investment groups - the Islamic Development Bank Infrastructure Fund, Crescent Venture Partners and Deucalion Capital II - for $26 million, valuing the company at $100 million. The sale left group chief executive Tony Fernandes and his business partners with 73.4% through their company Tune Air, and Malaysian company Mofaz Air with 0.6%.
Analysts have been generally positive about the IPO's success prospects despite the impact of high fuel prices and new well-capitalised low-fare challengers in the region.
These include the planned associate of Qantas Airways in Singapore to be known as Jetstar Asia, Tiger Airways, which is associated with Singapore Airlines and began services in mid-September, and Thai Airways International's recently launched Nok Air. Other independent carriers have also been launched in Indonesia, Singapore and Thailand.
Source: Airline Business
