AirAsia to sell leasing unit to Castlelake for $768 million

KUALA LUMPUR (Prosyscom Tech News) — Malaysian discount carrier AirAsia Group said Monday it has signed a pact to sell a leasing unit with 25 aircraft to U.S. private investment firm Castlelake in a deal worth $768 million.

The company will lease back those 25 planes from Castlelake and another four new A320-200ceo planes due for later delivery at a price to be determined later, AirAsia said.

AirAsia, Southeast Asia’s largest budget carrier by fleet, is expected to book 174.9 million ringgit ($41.92 million) in net gain and cut its gross gearing ratio to 0.24 times if both the deals goes through, it said.

“As we move towards becoming a travel technology company, the disposal of these aircraft will not only unlock significant value but also bring us closer to our goal of being a truly digital company,” AirAsia Group CEO Tony Fernandes said in a statement.

The move dovetails with AirAsia’s strategy to keep its total assets light although analysts have previously flagged risks of loss of leasing income from the aircraft disposal and higher expenses with a sales-and-leaseback arrangement.

If successful, the sale would mark another round of asset disposal after the company completed a sale-and-leaseback deal involving 84 aircraft and 14 engines worth nearly $1.2 billion. AirAsia Group has also disposed its 25% stake in travel portal Expedia Group for $60 million earlier this year.

The deal with Castlelake will allow AirAsia to preserve its existing funds for future business and provide a platform to expand its route network without the capital-intensive ownership of aircraft, the airline said.

AirAsia’s fleet size stood at 127 planes, according to September’s data. The company has also placed orders for 100 Airbus A330neo wide-body jets for long-haul flights.

Rental expenses under the lease arrangements for the 25 aircraft is estimated at about 348 million ringgit a year, AirAsia said. However, the company is expected to derive annual savings of 90.1 million ringgit in finance expense and in depreciation expense of 196.8 million ringgit.

The whole transaction is expected to be completed by the second quarter of next year, AirAsia said.

“This transaction is part of AirAsia’s ongoing transformation into something more than an airline,” Fernandes said. “In a few years, our digital strategy will be understood.”

Shares of AirAsia rose 1.5% to 2.74 ringgit while the benchmark FTSE Bursa Malaysia KLCI ended 0.8% higher on Monday.

–Jason Ng