Management insists current negotiations are standard industry practice
KUCHING: AirAsia X is facing growing financial pressure as rising fuel costs linked to the Iran conflict strain the low-cost carrier’s cash flow.
According to an English news portal, AirAsia X Bhd has fallen behind on payments to suppliers and sought payment deferrals on at least a dozen aircraft, citing people familiar with the matter.
Among those affected is Rolls-Royce Holdings Plc, which has reportedly informed the airline that payments under its TotalCare engine maintenance agreement were overdue.
Rolls-Royce supplies and services engines for roughly one-tenth of AirAsia’s fleet of about 250 aircraft.
The report also said AirAsia has requested several leasing companies to defer rental payments on more than 16 aircraft as fuel prices surged following the Iran conflict.
The exact number of aircraft involved could not be immediately verified.
Like most budget carriers, AirAsia relies heavily on leased aircraft, with aviation consultancy Cirium estimating that leased planes account for 98 per cent of its fleet.
AirAsia X group chief executive officer Bo Lingam acknowledged earlier this week that some lessors had granted the company additional time to meet payment obligations.
AirAsia co-founder Tony Fernandes meanwhile disputed suggestions that the airline was facing financial difficulties.
He said the company may be involved in a disagreement with Rolls-Royce regarding the treatment of its engines, while describing lease payment arrangements as “nothing out of the ordinary”.
“The company was not in financial trouble because if it were, it would not have been able to borrow money from the likes of Deutsche Bank AG,” he said.
Earlier this year, AirAsia secured US$230 million through a private-credit financing deal arranged by Deutsche Bank.
A Rolls-Royce representative declined to comment, while several aircraft lessors did not respond to requests for comment.
The financial strain comes as higher fuel costs continue to weigh on budget airlines, which have limited ability to pass rising expenses on to fare-sensitive travellers.
Last month, AirAsia reported its largest quarterly loss in three years, while its debt levels remain elevated relative to earnings and equity, according to a Bloomberg Intelligence index tracking Asian budget carriers.
Nevertheless, the airline’s operating earnings remain strong enough to cover interest expenses about five times over, outperforming the average level within the index.
AirAsia, which does not hedge fuel prices, has seen its share price fall more than 30 per cent since fighting erupted between Iran and Israel, making it one of the weakest performers on the Bloomberg World Airlines Index during that period.
The stock has since recovered some ground after US President Donald Trump signalled that a peace agreement between Washington and Tehran may be near, easing pressure on oil prices.
Although jet fuel prices have retreated from recent highs, they remain elevated by historical standards.
The International Air Transport Association estimates that airlines worldwide could face an additional US$100 billion in fuel costs this year, potentially halving industry profits in 2026.
Other budget carriers have also come under pressure.
In the United States, Spirit Aviation became one of the conflict’s biggest casualties after collapsing last month, while Britain’s EasyJet has reportedly attracted takeover interest from investment firm Castlelake LP.
India’s SpiceJet has cut more than 40 per cent of its flights in June compared with February and has repeatedly delayed salary payments to staff.
“Employee payments are being disbursed in a phased manner,” the airline said.
Despite the challenging environment, Fernandes remains focused on expansion.
The airline recently announced a multibillion-dollar agreement to purchase 150 Airbus A220 aircraft and believes the company can weather the latest crisis, just as it did during the Covid-19 pandemic.
“Why waste a crisis? There are opportunities in a crisis.
“We can’t control what happens in the Middle East, but we have to take a view that it’s not going to last for two years,” he said.
