After Indonesian authorities threatened to suspend the operating license of the Indonesian unit (Indonesia AirAsia) of Malaysia’s budget carrier AirAsia, shares of the latter (AirAsia Berhad) on the Kuala Lumpur Stock Exchange plunged over 12 percent on Wednesday morning (08/07). Indonesia AirAsia is among 13 Indonesian airlines that were found to have negative equity and were ordered by the Indonesian Transportation Ministry to turn this positive before 31 July 2015 in order to retain their operating licenses.
Indonesia orders that equity of these local airlines are turned positive (by acquiring capital) before the end of the month in order to ensure the safety of the passengers. Although it is a serious threat, some analysts believe that it is highly unlikely that the Indonesian government is to suspend 13 domestic airlines (jeopardizing thousands of jobs), particularly as the deadline is extremely tight.
Investors have been dumping shares of Kuala-Lumpur listed AirAsia Berhad as they are concerned that the company’s Indonesian unit may fail to meet the deadline. It is estimated that the local unit needs to raise at least USD $230 million within the next three weeks (for example through issuing new debt or shares). Indonesia AirAsia is for 49 percent owned by Malaysia-based AirAsia, Asia’s largest low-cost carrier. On Tuesday (07/07), AirAsia said that it would request for a meeting with Indonesia’s Transportation Ministry to discuss the matter. Indonesia is a key market for the company.
In June 2015, shares of AirAsia were effected negatively after Hong Kong-based GMT Research accused the airline of using transactions with associated companies to boost earnings.