And What About AirAsia's Earnings?

My last update of AirAsia's earnings was done on May 2011 : Update On AirAsia Earnings.

Last night AirAsia reported its earnings. It's earnings wasn't impressive at all. That was expected as a stronger USD will cause huge damage to its books. ( Most of AirAsia's borrowings are denominated in US$ )

Here's some flashback. I think it's rather important to know what has happened.

Well, I had noted the positive changes in the company since Aug 2010.

In the posting , Positive Move That AirAsia Defers Their AirBus Order I had said the following...

• However, let me say this, I have to give AirAsia some credit for eating the humble pie and for successfully persuading AirBus to allow them to defer the delivery of the air crafts and more so, this move really gives them a fighting chance to survive and to overcome their insanity of building a company which was clearly over burdened by the immense corporate debts they took upon to finance the building of their business.
  
  Yeah.. AirAsia should be ok for the next one year or so... yeah.. this is a POSITIVE CORPORATE exercise... it's certainly extremely crucial that AirAsia made this postponement of delivery.... but... deferring is only a postponement.... and in regardless, these air crafts order still needs to be delivered!

And AirAsia the stock had done fairly well since then.

On 4 Dec 2010: A Look At AirAsia Stellar Earnings.

The positive moves from the deferment of the aircrafts was visible on the balance sheet. I made the following remarks.

• The cash/debt level, has it improved?
• The c.c or capital commitment column 'improved'. Would I pay attention to the value? Or should I pay attention to the number of aircraft to be delivered?

On 24 Feb 2011: What Do You Thnk Of AirAsia's Earnings?

• Cash actually improved a lot compared to the previous quarter.
• And debt increased slightly.
• But the capital commitment... there was a huge improvement, yes?

I was focused on the improvement in the balance sheet.
 
For me, this is the MOST crucial thing. AirAsia used the debt leverage game to build its empire. Instead of just borrowing, it BORROWED. Way too hedge and in my opinion, it's like it's building a corporate which will be too huge to fail. And the massive borrowings is of course used to finance that rather insane order of aircrafts. Capital commitment contracted to purchased new aircrafts at one time stood close to 28 billion ringgit. ( do refer fy 2007 earnings ) and with AirAsia already saddled with a debt of 3.7 billion then (in fy 2007), the risk was so huge. My mind was thinking, how was AirAsia going to repay the debts, let alone finance its rather grossly optimistic aircraft purchase. That was my reasoning.
 
But as mentioned in Aug 2010, when AirAsia deferred its aircraft delivery, it gave itself a chance to survive. By not accepting new aircraft delivery, its loans ( which now has ballooned to some 7.8 billion - remember back in fy 2007, AirAsia loans was only 3.7 billion! - yeah it's loans doubled!!) stopped growing. The cash flow from AirAsia's operations is now used to rebuild its piggy bank and it also managed to pare down its debts. ( Ah.. that one private placement of shares did helped its balance sheet too!)
 
The chances could be seen.
 
Then came June 2011. 
 
Another historical purchase order of aircrafts was made.
 
It blew my mind. 
 
At that moment of time, out of an order of 175 new aircrafts, AirAsia only receive 89. Yeah remember in Aug 2010, it had to get a deferment in aircraft deliveries.  

And less than a year later, in June 2011, after some improvement in its balance sheet, AirAsia did the unthinkable! It ordered 200 new aircrafts!

OMG!

I was thinking what grandiosity!

How will AirAsia finance its aircraft purchase???

Why the need to order so soon and so big??????

It blew my small mind. I was left speechless. So there's where we are at now.

So last night, when I saw AirAsia released its earnings, I was so interested to see its balance sheet.

Here's the updated earnings table I made. C.C stands for Capital Commitment for new aircrafts.




Cash shrunk a little and its debts were relatively unchanged but the most glaring thing is the current capital commitment of 57.450 BILLION!

Exactly!

AirAsia is committed to purchase aircrafts worth some 57.4 billion!

And what does AirAsia currently have in its balance sheet? 1.6 billion cash and loans of 7.6 billion.

And the question on my mind is how will AirAsia going to finance this order of such grandiosity???