By Isabella Steger
Soaring oil prices and jittery markets don’t seem to be standing in the way of Asian low-cost airlines: AirAsia Bhd. has announced details of the initial public offering of its Thai unit, and more listings wait on the runway.
Thai AirAsia, 49%-owned by AirAsia and 51%-owned by its Thai management, is seeking to raise US$150 million or more by selling at least 25% of the company in an IPO, the company said on Monday. That would follow last month’s IPO by state-owned PT Garuda Indonesia, which raised US$529.7 million, and offerings by Cebu Pacific of the Philippines and Singapore’s Tiger Airways in October and January last year, respectively.
AirAsia has also expressed interest in listing its Indonesian unit in an IPO. Group Chief Executive Tony Fernandes said last year that AirAsia’s goal was to list its affiliates in their home markets, and has also said he’s considering a secondary group listing in Hong Kong or the U.S. The parent company is currently listed in Malaysia.
Andrew Orchard, an aviation analyst at The Royal Bank of Scotland PLC in Hong Kong, said the plan to listi affiliates in their own markets would take advantage of the “bumper year” in profitability in 2010, during which stocks in the sector rose an average 62%.
“The Indonesian and Thai associates currently don’t have any planes on their own books,” said Mr. Orchard, as they’re part of the parent company. “Listing these associates allows for a cash injection into those subsidiaries and will enable them to make aircraft acquisitions on their own. It also gives investors a bit of confidence in terms of transparency of the balance sheet.”
But emerging Asia is not exactly outperforming other equities markets so far this year, and a jump in fuel prices, driven by turmoil in the Middle East, is giving airline stocks a beating. Carriers will be hoping to convince investors that the long-term structural story of aviation in Asia will outlive what (they hope) is just a short-to-medium-term aberration in fuel prices.
Citi believes that low-cost carriers are actually better positioned to weather cost inflation than their full-service counterparts. The Asian low-cost carrier industry is “still in a multiyear structural growth cycle, driven by rising consumption power, increasing aviation liberalization, and improving infrastructure,” it writes in a note, adding that ticket-price increases can be absorbed in most markets.
So it comes as no surprise that most of the money being raised is going toward fleet expansion. According to Dow Jones Newswires, Thai AirAsia’s IPO take will partly go to financing the purchase of 20 new Airbus 320 aircraft, expected to be delivered by 2016. Even more ambitious is Indonesia’s privately-owned Lion Air, which has 137 aircraft on order — little wonder that the company aims to raise US$1 billion in an IPO next year.
Following Garuda, another state-owned player in the region could be joining the rush to market. Vietnamese state media Monday reported that Vietnam Airlines Corp. will sell 20% to 30% of the company in an IPO later this year or in 2012.
The carrier has reversed more than once in the past. Earlier this year, the airline said that because it didn’t have time to complete preparatory procedures by a July 1 deadline, it would cancel plans to sell shares in the second half of 2011, and instead sell them at a later time decided by the government. In 2008 it said it was looking to sell shares that year; it’s unclear why the listing did not go ahead.
If this time it does come off, even a low-cost-carrier revolution in the region may not be enough to persuade investors to buy—given the macroeconomic problems that have dogged the country and a default by state-owned shipbuilder Vinashin last year.
“There’s so many IPOs on the way, why put your capital in Vietnam when you can put it in AirAsia or Hong Kong Airlines?” said Mr. Orchard. “There are a lot of alternatives if you’re looking to participate in a growth market.” Budget carrier Hong Kong Airlines Ltd., part-owned by HNA Group, the parent company of China’s fourth-largest airline by revenue, Hainan Airlines Co., is rumored to be considering a listing in Hong Kong next year.