Appendices:
1. List price for A320neo : http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/new-airbus-aircraft-list-prices-for-2012/
2. AirAsia hedging for aircrafts: slide 11 of http://www.airasia.com/docs/common-docs/investor-relations/airasia-bhd-3q16-presentation.pdf
3. Discount on A320neo : https://airinsight.com/2016/05/16/aircraft-pricing-list-vs-market/
4. Deposits on aircraft purchase : Page 4 of http://www.airasia.com/docs/common-docs/investor-relations/airasia_bursa-announcement-q32016_24nov.pdf

R3D3, yes, we are talking about 28 new planes, which worth USD 1,224 million if 54.8% discount. In RM term it's RM 4,770 million. The number could be lesser as it's well known secret AirAsia get very big discount from Airbus.
Just like car purchase, aircraft purchase doesn't require full payment when take delivery. A 10% deposit is around RM 477 million. Looking into AirAsia's latest balance sheet, the current portion of Deposits on aircraft purchase is RM 330 million while non-current portion is RM 350 million. These figures excluding the RM 275 million from private placement.
Is it really true AirAsia couldn't pay for it?
For financing, the truth is AirAsia could outright sell and lease back the aircraft during delivery. They did it for many times. Do you know BOC Aviation even provide financing to 3 of AAX's A330 in last two years when AAX is really broke? Don't talk without fact.

R3D3, for 2017 AirAsia could utilise proceed from private placement (MYR 275 million). They could probably save another USD 100 million for aircraft financing from AAC's disposal

eskaylien, thank you and that's exactly what I think. MIDF declared that Passenger Load Factor of MAA is around 93%, which actually mean Malaysia AirAsia is running out of capacity addition ability.
(My tracking show that while on paper MAA is operating 77 aircrafts in 4Q16, that's actually excluding a wet lease of 1 A320 from IAA (PK-AXV) and 2 A330 from IAAX (PK-XRA & PK-XRC). As A330's seat number is double of standard A320, that translate into 5nos of A320 wet leasing from Indonesia. 77+5 = 82. That mean the capacity is still running short despite operating 82 aircrafts. MAA really don't have enough aircraft for peak season in FY2016. Additional 7 aircrafts for MAA in 2017 is merely just enough to keep to 2016 demand.)

Back to AirAsia the stock, 28 aircraft deliveries is big and would definitely hurt AirAsia's balance sheet for now. However, if AirAsia do not take bigger delivery of aircrafts in coming years when they are running out of ability to add capacity now, they will lose their moat (widest network in Asia) to Lion Air and IndiGo. The capacity addition is strategical.
If you hold AirAsia for short term, then you should sell it after AAC spin-off, as AirAsia's balance sheet will most likely deteriorate from here.
Unlike Lion Air and IndiGo, which based in countries with population of 250 millions and 1.2 billions respectively and still far from mature, AirAsia is from a weakening economic entity with population of only 30 millions. It's either expand oversea and try to survive it, or starve to dead in future. The effect of this is, Lion Air and IndiGo no need to share 51% profit of biggest market with others, while AirAsia could only keep 100% of cake in smallest market.

Nonetheless, I believe that reporter is not purposely misleading, just not do his homework before reporting, just like that columnist in Bloomberg who remove leasing profit of AAC from AirAsia income statement but didn't remove leasing cost of AAC.

R3D3, yes and now you notice it.
When compare system-wide number to Malaysia-only number of competitors, it's enough to say The Star is misleading.

"MALAYSIA Airlines Berhad and Boeing last week announced a US$5.5 billion deal for 50 units of 737 Max aircraft – 25 firm orders and 25 purchase rights – with the first delivery commencing in 2019."
Source: http://www.ttgasia.com/article.php?article_id=27677

It means, no narrow body for MAS in 2017.

"Malindo plans to end 2016 with a fleet of 42 and take at least 10 additional aircraft in 2017."
Source: https://centreforaviation.com/analysis/malindo-air-plans-more-rapid-expansion-in-2017-as-it-rebrands-and-closes-in-on-malaysia-airlines-315448

While concerns are mounting about an overcapacity in the Asian markets next year, Fernandes thinks otherwise as he expects demand to grow at a faster pace. """""AirAsia Group""""" itself is deploying an """additional 28 aircraft""" for its """""system-wide""""" operations in 2017, a 15.9% increase to 204 from 176.

R3D3, he said that, 28 for AirAsia Group, yes AirAsia Group, Group, Group, Group.
Not just Malaysia, ok?
The whole The Star article is just talking about Malaysian aviation market, not everywhere where AirAsia Group operate, so it's not an apple to apple comparison, but an apple to fruit comparison. If The Star would like to talk about all 28 aircrafts, then they should talk about whole Lion Group, not just Malindo. They should talk about whole MAS group (i.e MAS + Firefly + MAS Wing).

The total narrow body aircrafts for airlines in Malaysia as of now is 196, the increase in 17 narrow body aircrafts (exclude MAS as all new deliveries are A350, which will replace A380 for long haul destinations) represent a 8.7% increase, it's quite moderate.

sorry, this year, it's 2017 now, haha

Note that my statement above is only talk about Malaysia AirAsia, not AirAsia Group. There is no point to mention about aircrafts to be deployed to other market here, unless we would like to discuss about whole ASEAN or Asia Pacific market, which number of new aircrafts deployment would be more than 200 next year.

R3D3, you could read this from HL, which provide breakdown of new aircraft to each affiliates.
http://cdn1.i3investor.com/my/files/dfgs88n/2016/12/06/1485699141--413442291.pdf

The Star's article is quite misleading, Malaysia AirAsia will only add 7 aircrafts for 2017 instead of 28 aircrafts. The remaining 21 aircrafts will go to overseas associates.
Therefore instead of 40 aircrafts, 2017 will only add 19 aircrafts, including 7 for AirAsia, 10 for Malindo and probably 2 net addition for MAS. MAS will phase out A380 but add 4 A350 in last quarters. Firefly is reducing its ATR72 while 10 for Malindo probably include some ATR72.

Can share the link if interview?

Haha, really, if anyone disclose their email here, he will spammed by those spammer, haha.
Or maybe u can create a temporary email and we exchange our true email from there?

Btw, i found that you are right about passenger number, it doesn't include AAX group, but does include flights operated by IAAX on behalf of IAA. (i.e 3rd party passenger number we always saw in prelim Operating Statistic.

Cruger,
1. the responsibility of maintenance and overhaul (MRO) in on lessee, not lessor. Alternatively, lessor will charge lessee a fee called maintenance reserve for MRO. As AAC is a lessor, it doesn't has to spend cash from their own pocket, they could even earn interest on lessee's maintenance deposit.
2. For the lifespan, i don't have the breakdown but we do know the average age of all aircraft, it's safe to use average age for modelling.
3. future adding/selling of aircraft is beyong current valuation of AAC's current profolio worthy.

For 1 above, the reason I think it's safe to assume aircraft lifespan of 25 years is due to internationally acceptance of depreciation rate of aircraft. I found from AA & BOC Aviation annual report that both of them are depreciate aircraft in 25 years. If you interest I could send you the spreadsheet of my summary on their depreciation rate, together with my spreasheet of IRR calculation, just give me your email =)

Ricky, the definition of pricing power is "an economic term referring to the effect that a change in a firm's product price has on the quantity demanded of that product." In the low fuel cost environment, competitors are fighting each other with lower fare or by introducing more aircraft/capacity (Malindo add 5 ATR72 and 10 Boeing 737 in last 6 months), but MAA is still able to maintain their price.
(Source: http://www.investopedia.com/terms/p/pricingpower.asp)
For the inflation rate, I do agree that MAA airfare doesn't inline and may even lag behind inflation rate.

Sorry guys for disturbing your discussion about what secret news the shortie know, just wish to share a little boring topic: Competitiveness and Pricing Power of AirAsia
http://klse.i3investor.com/blogs/valuegrowth/112668.jsp

I am really stupid, I saw this info last month, but forgot it and twit Tony Fernandes asking for hedging price, LOL.

found this info which maybe useful for felicity's question above.
Please look at slide 11 of this 3Q16 presentation slide: http://www.airasia.com/docs/common-docs/investor-relations/airasia-bhd-3q16-presentation.pdf

USD loan:
47% - MAA aircraft hedged at 3.2348!!!
33% - MAA aircraft unhedged
20% - Associates aircraft, natural hedged as they pay in USD

I will take it as due to higher supply/demand ratio, i.e. High load factor. AirAsia ticket fare is much higher after it hit 90%.
According to MIDF, past 2 months PLF is 93%. If it's true, that's record high. Do note that this quarter MAA wet lease 1 A320 from IAA and 2 A330 from IAAX

Cruger, I make some study on IRR and analyse base on operation cash flow, result are:
Expected operation cash flow = USD 1.72 billion
Net PV based on 10% IRR = USD 0.75 billion
Total worth of AAC = USD 1.05 billion (0.75+0.3)

For comparison, WACC of BOC aviation is 7%.
If I take IRR based on 7%, total worth = USD 1.23 billion

Above based on no addition or disposal of aircrafts until end of all aircraft useful life (i.e age = 25).

ignissimia, good article. Thank you.

http://mycreativeinvest.blogspot.sg/2015/07/auntie-uncle-stock-indicator-proven.html

if auntie uncle say buy at 1.9, that mean AirAsia wouldn't drop to that level.
Reason: based on auntie uncle track record, LOL.

supermx2, stock market isn't god, the price isn't golden rule to tell if anything happen. If market is so accurate, nobody will believe in concept of Mr. Market.

cruger, i actually work out the NPV of AAC income (not cashflow) last night, let see if i could fine tune it and share.

haha, let see~

MIDF research: "Meanwhile, AirAsia recently recorded a cumulative nine-month (9MFY16) load factor of 89% which was a group record. Looking ahead, the fourth quarter of 2016 will be even better as October–November loads have already hit 93%."

Crazy load factor.

Last thing about AAC & AAI, we could see from AAC IS that there is maintenance and overhaul expenses. This is highly abnormal, as a normal leasing company will put it totally under lessee, as "month rental + maintenance reserve".
The reason i could think about is, while AirAsia Berhad/AAC "overcharge" its associate in leasing agreement, AAB/AAC actually took up part of the maintenance responsibility and use their own money for maintenance. An aircraft engine could only last for 8 years before major overhaul/replacement is needed. list price for 2 pieces of engine is USD 20 million, if 50% discount is USD 10 million, divide it by 8 years and 12 month/year is USD 100 thousand per month. This doesn't include cost for Heavy Structural Check for airframe when it's 13 year old. Is it really an "overcharge" if above is true?

above is reason why I don't believe in Indian media reporting and why I am not worry about Indian authorities's investigation on AAI. If there is anything could kill AirAsia India, it's the brand licensing agreement matter, but I doubt Tata will allow it from happen.

Thinking of write a blog article to show my analysis above, but I am too tired for that~ haha.

Cruger, I am not sure if P/E is good ratio to use or not, as although recent acquisition of leasing company all come at P/E of around 20~25, those listed leasing companies i know are currently trade at P/E of 8~10 (Aercap, Air Lease Corp & BOC).

For my (non-standard) analysis, I try to look at what is the total future profit of AAC based on current profile. The amount I get is USD 915 million over next 19 years.
Previously TF has mentioned that he would put 30% of AirAsia's 100 A321neo order book under AAC. It's open secret that at this size of order Airbus will give AirAsia much bigger discount than others. I would say it may worth USD 10 millions per aircraft, total worth 300 million.

An asset could earn USD 1.2 billion in future, a valuation of USD1 billion is probably reasonable?


If you look at MQ research article about AirAsia, they suggest USD 1.8 billion for AAC, if rumour saying that AirAsia will put 100 A320neo order under AAC is true. It's quite logical, as that could mean about additional USD 600 million saving for buyer. What make it even worth more is if you order a A320neo now, the earliest you can take 1st delivery is 2021, but if you buy from AirAsia, you can get first delivery probably in 2018 or 2019.

From P/Es data above, it actually show now is good timing to spin-off AAC, as Chinese investors is in buying spree at irrational price. I hope AirAsia could dispose 100% of it due to
(1) high current market price,
(2) to totally remove all doubt on related party transactions, and
(3) i see it as sale & lease back of aircraft transactions in massive scale. when you dispose those average 6 year old aircraft it actually provide you an opportunity to replace it with new model aircraft in future. As IAA & PAA turnover is imminent, they could also take new aircraft under financial lease, which is good for their IS & BS.
There is no point to keep 20% of ownership.

(note to others: this is not a buy call. make your own study or judgement. Don't blame me if you make lose, but I am open for ang bao if you make profit XD)

supermx2, looking into question asked by ED, i will say the chance of any issue may arise would be near to zero.

JN88, it's not related and no point to discriminate.
All country are implementing protectionism, just matter of degree. Although of these hardship, this protectionism is exactly the reason why AAI is so important. AirAsia is the only foreign LCC allowed to operate in India.

want to see how hostile Indian Media against AAI?
read how they call AAI: http://zeenews.india.com/companies/ed-to-resume-questioning-of-air-asia-cfo-in-fema-violation-case_1961743.html

When a properly register company can be called illegal, you know how hard for AAI to survive and triumph.

http://indiatoday.intoday.in/story/enforcement-directorate-airasia-cfo-fraud-case-fema-tata-sons-airasia-berhad-cyrus-mistry/1/842835.html

R3D3, dont worry, i got you. Not everyone can accept a company that have to rely on hedging to protect their profit, which may anytime backfire and jeopardise the operating profit itself.
It's a pleasure discussing with you, Merry Christmas!

some news in the edge weekly:
1. AirAsia is considering listing PAA & IAA in HKSE by reverse takeover
2. Current non-malaysian shareholders holding 52.8% of AirAsia share, based on Bloomberg data.
3. Morgan Stanley view AirAsia & AAC remain undervalued. "Despite the combined entity's EBITDAR base being 82% higher than 2014~2015 levels, its enterprise value is still 11% below its 2014 average." (TP RM3.82)

note: this is not a buy/sell call, make your own judgement.

it's last day before Christmas, Merry Christmas guys~

"Similarly, since AirAsia India, the other airline started by the Tatas in association with Air Asia, is incurring losses, Tata Sons had in the same board meeting, approved infusion of $25 million into this airline to support its operation."

http://www.thehindu.com/business/Vistara-to-turn-profitable-in-2020-21/article16926692.ece

lcwin & jimtph, thanks for pointing out on the short selling rule and statistics.

R3D3, I was looking at 股海無涯's blog and saw his article about aircraft leasing, then I recall one of the most important advantage TAA, IAA, PAA & AAI can get from leasing aircraft from AIrAsia group : no grounding of aircraft when no payment done.
In usual case, when you couldn't pay the lessor when you have financial difficulty, the lessor will ground the aircraft immediately, forcing the airline to cease operation. This is one of the highest risk startup airline have to deal with, as their operating cash flow may not be able to cover all expenses. When you lease from your holding company, they will allow you to defer the payment until you are able to pay. (This is also why IAA's amount due to holding company can snow ball to the scale we saw. Other lessor will have ground their aircraft probably in 2nd/3rd month.)
This risk of no payment is staying with AirAsia Group, a risk cost AA billions of ringgit. It's like lease your asset out to a co-own business, earn a little income but cannot take back the asset when the co-own business cannot pay its monthly rental. If I am hostile analyst, I would have asked why AA do this stupid deal, instead of doubt the related party transactions, which probably make no sense in aircraft profession's eye.

Anyway, this is a risk associated to invest in AirAsia, think about it if you considering to invest in AirAsia.
(Thank you to 股海無涯's article)

An Airline involve in/support terrorism? Seem like after Brexit everything is possible.

When Ratan Tata kick Cyrus Mistry out of Tata group, we thought AirAsia India will have more bullet to spend, end up Mr. Cyrus make AirAsia India its bullet, lol

The key battlefields are in India and ASEAN, fight among AirAsia, Lion air and indiGo.
Lion Air lose in Malaysia and they convert Malinda to full service. They won in Indonesia and Thailand is still an unknown. They are going into Vietnam, which will have a dog fight with Jetstar.
Lion Air can't get into India, but Indigo is there and trying very hard to kill AirAsia and Vistara.
All three of them will survive, but there will be only one winner.

Cruger, I read that too and I learn a lot from 股海。
However, to protect our principal while waiting for end for this gigantic war we would need proceed/dividend from AAC.