Tuesday, February 24, 2009

Maybank and Air Asia: When giants need cash

When a giant bank like Maybank needs to raise RM5 billion to RM6 billion, we need to ask why? Why conduct sexy corporate exercises that you obviously cannot afford?

I do not ask this question for fun.

I am a depositor.

I have the standing to ask.

I want a bank that is solid and safe in which to put my money.

I don't care that your shareholders and managers want to "sex up" the bank.

I don't care that you have insecurities about market share or expansion or dominance.

I really don't care that you have international plans.

http://picture-book.com/files/userimages/1082u/savertooth.jpgPicture from here.

Just don't blow the bank chasing some hare-brained nonsense strategy that results in the bank having funding problems.

That is not the Maybank I grew up with.

Air Asia
When a no-frills airline borrows RM2.5 billion to buy 15 new aircraft and, needs RM13 billion more to buy 104 aircraft by 2014, I begin to wonder.

Is it to expand their footprint?

Is it to gain market share?

Is it to provide better service than the cattle-class that they champion?

Does it mean they are doing well?

Does it mean they are doing even better than ever?

Or, does it mean that they have found a way to "sex up" their cashflow via sexy and complicated musical kama sutra-type financing structures?

http://www.tranism.com/weblog/images/musical-kamasutra.jpg.Picture from here.

But, what do I know?


kuldeep said...

Isn't FD in licensed banks protected by some govt insurance scheme?Any idea of wats the limits?

On Air Asia planned capex..contrarian strategies may reap benefits if there is staying power,cashflow and presumably there are good discounts on planes now.

Sincerely,I hope Air Asia can pull it off as they have been good to lots of consumers,me included.

de minimis said...

FDIC has a cap. It won't refund ringgit for ringgit. But that's not what I fear. What I fear is the slow death of a great institution by buccaneering people who run the bank in a cavalier fashion thinking that M&A is the panacea when they should be working hard to keep the bank's fundamental organic growth and strength in place. But, in this day and age safe is boring. That is what I fear.

Air Asia has been wonderful in so many ways. And, at the same time, ypu worry about their aggression. A business that explodes into the scene and keeps exponentially expanding at supernova levels can only risk implosion at some stage. This is not only the law of physics. It applies equally to business. I worry about how many victims it takes with it upon implosion. This is where I would be having sleepless nights if I was Air Asia's public auditor. Watch the accounting provisions. Where does an asset provision end and where does a liability start? It's all in the accounting provisions. Where does cashflow end and debt provisions begin? The devil is in the details. I am rooting for Air Asia. But, unfortunately, I know the corporate sector all too well. *sigh*

kuldeep said...

Almost every quarter there are new Accounting Standards..supposedly improvements to give a clearer picture of the state of the biz..so many MASBs as such.And there's the external Auditors,Internal Auditors,Internal Audit Comms,Risk Mgmt Comms...and we even have pro active shareholders such as the EPFs,PNBs,Luth and MSWGs.If they can't smell a rat wats the chance for a dumb investor like me?

Lots of the CEOs are seasoned accountants with numbers flowing from their ears and paid tons of monies to do honest top notch work.

Outside of fraud..I must be assured the numbers are pretty representative of the business or else its a systemic failure.


etheorist said...

It's called macrocredit.

de minimis said...


A witty remark, indeed :D

walla said...


Zawi said...

For simpletons like me I look at AirAsia as digging a bigger hole to fill the earlier holes they dug. A time will come when there is no more new hole to dig.
The simplest way to say that their cash flow is screwed is when they don't pay MAHB for the airport tax they have already collected from the passengers some of which had been paid months in advance. Those who do not travel after purchasing their tickets never collect their airport tax and were retained/forfeited by AirAsia. This is a bad sign for me.
No doubt we all could fly now but are they making enough to cover expense and have enough to pay their massive loans? With a Malaysian population of just 26 millions will there be enough market to support this too rapid an expansion?

de minimis said...

bang zawi

First of all, you are definitely no simpleton. Secondly, you are spot on. An aviation universe that expands exponentially based on debt and borrowings sounds scary.

Anonymous said...

airasia horizon goes beyond our shores..they hv internal ops in indonesia and thailand...and setting up in china soon.

they are also pioneering long haul cheap flites..i believe they are the only cheap airline flying routes of more than 2 hours.

Don't be surprised if they acquire a European lowcost flyer soon.Valuations are quite attractive...

Anonymous said...

air asia was withholding only the "disputed" portion of the air port tax...and I think the matter have been resolved.Not cash constraints lah.

I will be more concerned about MAS then AirAsia...they hv been shrinking routes,got no more assets to sell and behind the curve on so many compared to their peers.Hope there will not be anymo bailouts for Mas,

Anonymous said...

The rate Air Asia is expanding on debt and borrowings financing and with their limited resources at their disposal is scary.

For a new airline on a big buying spree, and with the operational cost growing rapidly the strain on cashflow is very obvious.

Even the established airlines like KLM and MAS could not afford to have such an aggressive policy and is compounded by the deteriorating world economy.

The tell tale signs will be shown and magnified 2-3 years down the road when repayment of loans and interest servicing will form a big chunk of their expenditure.

Let's see !

flyer168 said...

Been in the Aviation Industry (Operations & Corporate) for 4 decades.

My take on AA issue is this :

The CEO is a very smart & a lucky man to be at the "Right Place at the Right Time"

The initial "Infrastructure" cost incurred by Hicom was about RM2.0Billion for the Boeing 737 planes, ground support equipment, aircraft spares, etc.

Most of the B737 aircrafts then were on "Lease" basis.

In every IPO there will be the "Grandoise" idea that they can float a brand to seek the needed funds for the purchase of new planes from Boeing, Airbus, etc. for their route & network expansion, etc...but there will always be "Leakages & shortfalls" in the process.

Projections vs Dynamic Actuals is something that can sometimes suffer "Shortfalls".

The initial IPO was RM4.0 Billion

When one leases planes, ships, bus, cars, etc you are able to work backwards to arrive at the (Dry, Wet,Complete, part, etc) basic unit cost per year, per month, per day, per hour, etc.

With the projected pax/cargo load you can then decide how much "Revenue/Profit" you want to make & it will definitely be cheaper than MAS....based on Local & Regional routes & not International.

It can range from 40% to 60% margins, so you can afford to sell 5%, 10%, 15% of your seats/capacity at RM9.90 per seat/per Kilo cargo, etc.

With the initial "Guarantees" of "National Service Perks" at your price - Airport Pax facilities landing fees, Transit parking & night-stop parking fees, ticketless operations, landing rights, etc.

Now that is a Multi Million RM savings so it is sure profit money with eyes closed....yet they still owe MAB about RM110 million ?

Now why Airbus & not Boeing ?

RM4.0 Billion to buy the planes.

Boeing caters to the Big boys & National carriers.

Airbus caters to the Big boys (newer models) & for the small boys (older & "end of the line models").

For new models planes both Boeing & Airbus can offer up to 40% & more discount (better with end of the line models at your risk !) for "Lead Asian" customer buying several planes with options.

"Must have" Flt, Cabin, Ground Personnel Training/Retraining package costs, Basic Spareparts, ground support equipment, Documentations, etc. can come up to about 20% the cost of the plane.

So when AA buys their own planes vs leasing them the whole equation changes as they now have "Holding Costs" & "Real Costs" vs "National Service Perks" at your price.

This new Real costs is running every minute the planes are on the ground & not flying earning revenue.

Just how can they justify continueing to sell seats at RM9.90 & make "Absolute" profits ?

Given the tickets payments are upfront...but with the escallating "Holding" cost, the small margins cannot sustain the Leasing repayments, Insurance costs, Fuels costs, Flight/Cabin/Ground staff costs, etc.

Just how much of the original RM4.0 Billion (assuming with no leakages) supposedly to finance the 100 planes remains now to finance the batches of new planes being delivered (to make up the 100 planes)?

The government helped build the LCCT why now the Labu issue keep getting recycled?

Why the syndicated loan financing from Barclays ? To pay for the new batch of planes !

You go figure out.

Nice to visit your Financial site.



With the Aviation Industry we talk in terms of Megabucks with Equipments, groung support, etc, etc, Insurance, Fuel & Holding costs.

Why AirBus & not Boeing ?

Billion was not the

flyer168 said...

Btw now Air Asia "Owns their Planes" with the "Real Holding & Operating costs" with no "Perks" worst still in the Regional and International Route Structure context...how to get daddy & mummy to help out !!!!

They are now an adult like MAS swimming in the "Ocean" with man eating "Sharks" all around - no mummy or daddy to help out !

MAS has a 70% average seat factor break even cost for most of their sectors, so they fill the 30% on a "standby" Low cost fare structure.

Further MAS has the International /Regional Structure to support & cover the Domestic shortfalls ...which Air Asia does not have...

Most Aviators fly a multi-engined plane (risk management safety consideration) to let us say... Darwin Australia whilst Air Asia is flying a "Single engined" plane across....

If the single engine fails in the middle of the ocean with man eating "Sharks" all around....guess how safe is it???

Air Asia cannot sustain with their new aircrafts costs therefore they would need a 90% to 100% load factor to break even.


flyer168 said...

They can continue "Crunching Numbers, Cooking Numbers, etc" some more at the top Political/ Corporate/Management level...but they will be "Caught out" with the "Weakest" link "Downstream"...SOON.

Why did KJ & 4th floor guys move Amirsham from Maybank to Dy Minister ; Swap Khaleb into TNB & put the TM guy in Maybank; Murshid into Sime; now trying to swap/move Hassan Marican from Petronas ?

They are the Malaysian Pirates of Bolehland....

Nineth malaysia Plan has now become "Mine Family Plan" !

Just look at Enron, Citibank, Satyam, etc...the "Weakest Link" broke & the Financial bubble burst causing this Global Financial meltdown...

What I call the US of A "Planned" Pearl Harbour" attack on the World - Financial Weapons of Mass Destruction !

Their Y2K sting conned the whole world USD Trillions - Fear & Chaos Principle !

Back to Aviation talk....

Further, all it needs is "One" accident like Adam Air Indonesia on a tight budget...to "Cripple & Collapse" itself.

Air Asia only needs one or two bad weather "Diversions" to alternative airports Regionally/Internationally or have an Aircraft On Ground with Malfunctions/Defects situation(which we very often operate/experienced)...

Having to put 200 passengers at Hotels at FULL cost late at night overseas, transportation, food, etc costs can wipe out your KUL/LHR/KUL profits !

Just how many AA planes are flying Regionally/Internationally in the winter months & do they have sufficient margins for those situations....at MR9.90?

Just for your info...

In Mas, SQ, etc - One B747-400 plane require 08 sets of Flight/Cabin crews

-02 pilots x 08 x MR18,000pm aver.
-18 cabin crews x 08 x MR8,000 aver.

So if we go right down the line we have to have about 1500 staff extra & if a B747-400 is removed from the structure it means a "Displacement" of 1500 staff !

Yes it is a Mega-buck & Mega size Logistic !

So if MAS needs help soon...not surprised with "Left Hand PNB Master" buying the planes & the "Right Hand MAS Slave" Operating the Airlines with no "Cross-talk" on each's costs...where got meaning....how lah...sure die one lor ?

Tune Money? Tune Hotels? and/or Air Asia? also operate nearly the same way...so will now suffer the same fate, maybe slightly delayed behind MAS.

Both like GLC modus operandi/ mentality...

So what is new in this great Bolehland...YOUR MONEY, NOT MINE so I spend, spend & pocket...no money can ask mummy for some more lor!


Anonymous said...

thanks guys...so airasia will surely die and there will be no more cheap air tickets?or will some other guy pick up the crumbs and start a new air asia?then..they will go the same route and collapse again?

so in reality the the much ballyhooed lowcost airline business model is just a house of card?

flyer168 said...

Yes mate, with the Global Financial meltdown, many, many, Airlines will collapse.

Like in the US, the Bosses will cream off their Bonuses now instead of stock options.

Who are the "Suckers"?

The small time share holders with no insider information network, the Goverments (although their reps on the Board are wined,dined & entertained by the stewardesses, etc,), the vendors already paid months later, now might not be able to collect anything, the staff retrenchments, the customers, etc.

Just like the vendors asking the UNMO goons about their RM218 Million outstanding after the last G/E - sorry not our bill...please ask BN to settle !!!

Whilst major Airlines like SQ, etc are cutting down on their route frequencies...AA is trying to expand their network/ frequencies at this critical period...just to justify their new planes are not on the ground - might be "suicidal" ???

So for those MAS & AA share holders....maybe cut loss now before the "crash".


Anonymous said...

People still have to fly?Its not discretionary travelling but essential for certain reasons>>so if i can't afford MAS,SQ and other full service airlines ,I will use the lowcost carriers.More people will be doing that in coming months...so, Airasia might actually benefit.

Airasia is buying planes for all their operational hubs..not only in Malaysia but also for Indonesia,Thailand,China..so their routes selections are wider..they got bigger playing field.With that sort of footprint..200 planes is too little..cos their market is 15 times bigger then SQ or MAS.

I have more fears for MAS..they need non conventional thinking that is beyond the current crop of most corporate executives.Their textbook driven methodologies prevails through snow,sleet or a heatwave.

Air Asia is a global brand..MAS is a misfit that pretends they're special.


Currency Rates said...

Good questioning, that's what need the knowledge to a depositor. I am agreeing with you.