AirAsia in talks for $3.6b loan

AirAsia in talks for $3.6b loan

Bloomberg, Kuala Lumpur

AirAsia Bhd., Southeast Asia's biggest discount carrier, said it's in talks with Citigroup Inc., HSBC Holdings Plc. and other lenders to negotiate a US$3.6 billion loan to finance the planned purchase of 60 new aircraft.

AirAsia wants to buy rather than lease the Airbus SAS A320 planes and pay for them with loans instead of money raised in an initial share offer last year because it's generating enough cash from operations to pay the debt, Chief Executive Officer Tony Fernandes said in an interview on May 5.

Other lenders in talks with AirAsia include France's Calyon and Deutsche Bank AG.

The airline, which currently operates 24 Boeing Co. 737- 300s, wants to expand its fleet to meet travel demand in Southeast Asia, where there are 500 million people within three hours' flying time of its Kuala Lumpur base.

AirAsia is also betting increased flight frequencies and more destinations will help the company meet its own profit forecasts.

"We're in that situation where we're not short of people wanting to lend us money," Fernandes, 41, said. AirAsia will have European credit agency guarantees, a type of sovereign bank guarantee, he added.

The three agencies that provide guarantees for Airbus plane orders are the U.K.'s Export Credits Guarantee Department, Coface of France and Germany's Hermes Kreditversicherung AG.

Government-owned export credit agencies guarantee the creditworthiness of borrowers or provide funding to help exporters sell products, including computer-chip manufacturing equipment, trains and aircraft, to developing countries.

Jason Collins, the Singapore-based spokesman for Deutsche Bank, declined to comment. Gareth Hewett, the Hong Kong-based spokesman for HSBC, and Calyon also declined to comment. Yvonne Chan, the Kuala Lumpur-based spokeswoman for Citigroup didn't return emails seeking comment.

Toulouse, France-based Airbus, the world's largest maker of commercial aircraft, said in March it won an order for the 60 planes, under a contract valued at catalog prices at $3.8 billion.

The order was 20 more than Airbus had indicated in December AirAsia had planned to buy.

It's cheaper for AirAsia to buy the planes than lease them, Fernandes said, without elaborating.

AirAsia's "aggressive expansion plan" needs financing and it's too early for the carrier to issue more equity, said Teng Chee Wai, who oversees the equivalent of $526 million at Hwang- DBS Asset Management in Kuala Lumpur. He doesn't own stock in the carrier.

AirAsia forecast in the prospectus for its 863 million ringgit ($227 million) share sale last year that it would earn 147.4 million ringgit in the year ending June 30. The airline earned 49.1 million ringgit in the previous 12 months.

Too few aircraft may cause the airline to miss that profit forecast by about 25 million ringgit, Credit Suisse First Boston analyst Peter Hilton said last week.

AirAsia is scheduled to start taking delivery of the A320s in December at a rate of one a month, Fernandes said.

The airline plans to expand in Malaysia and on routes to Thailand, Indonesia, the Philippines and China, where it has ventures with local partners.