Is AirAsia in breach of any of its loan covenants?

AirAsia's financial results for the quarter ended 30 September 2008 included disclosure that net cash flow from operating activities was -RM 202,198,000.

According to Tony Fernandes AirAsia has been cashflow positive from the day he took control.

AirAsia reported a loss after tax of RM466 million, but this did not include, as it should have, losses from its associates that ought to have been equity accounted. For the quarter ended 30 September 2008, AirAsia's share of losses from its 2 associates, Thai AirAsia and Indonesia AirAsia totalled RM 165.3 million.
Therefore AirAsia's pre-tax loss should have read RM 669.62800 million NOT RM 504.328 million.


The deferred tax asset has grown from RM 479.705 million to RM 627.971 million. This item has been booked as a current asset. Only in some fantasy can this item be regarded as an asset that can be liquidated quickly to meet current debt and obligations. It is worth noting that this item comprises 9.06% of current assets.
If that "asset" , realisable only if the Company makes future profits, and even then only available as a deduction against tax expense, is excluded from Current Assets, AirAsia's would be in a negative current asset position, suffering a deficit of RM 272,835,000.

If not for borrowings of RM 2,682,141,000, AirAsia would have shown a fall, and possibly , a deficit in its cash position.

Given all of the above, and in particular the deficit in operating cash flow, it is hard to see that AirAsia's bankers would not be concerned. Indeed it is hard to see that they would have advanced AirAsia any money without covenants requiring that its operations be cash flow positive.

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