AirAsia Group Bhd co-founder Tan Sri Tony Fernandes is looking to reduce the airline’s reliance on expensive private credit as soaring fuel prices and mounting financial obligations put further pressure on the budget carrier.
“I don’t want to take any more private credit debt because it’s expensive,” Fernandes said at a briefing last week. “I don’t want more debt. I don’t like debt.”
Fernandes is pursuing a US$1 billion (RM4.09 billion) refinancing package that could help cut AirAsia’s interest costs, with some of its existing debt carrying rates as high as 11%.
However, analysts say securing cheaper financing could prove challenging unless the airline can demonstrate stronger cash flow or obtain additional credit support.
“AirAsia likely needs either a real improvement in operating cash flow or credit enhancement. Without that, cheaper money is difficult to justify,” said Linus Benjamin Bauer, founder of aviation consultancy BAA & Partners.
AirAsia has suffered two consecutive quarterly losses amid soaring fuel prices, with the Iran conflict adding further pressure on the airline industry.
Unlike some carriers, AirAsia does not hedge its fuel costs, leaving it exposed to fluctuations in oil prices. Its total debt reached a record US$4.1 billion at the end of June, according to Bloomberg data.
The increase was largely linked to Fernandes consolidating all of AirAsia’s airline businesses under AirAsia from sister company Capital A Bhd.
Despite that, AirAsia’s liabilities exceeded its assets by RM606 million as of the end of June, according to its first-half financial report.
The report showed the airline had RM954 million in cash against RM18.4 billion in current liabilities due within the next 12 months — equivalent to just 5% coverage.
Independent aviation analyst Andrew Light said the cash represented only 4.3% of AirAsia’s annualised revenue of RM22 billion, compared with what he described as normal airline practice of maintaining cash and facilities equivalent to at least 10% to 20% of annualised revenue.
Fernandes has received a US$1 billion financing offer from Middle Eastern banks to refinance existing debt, but has yet to give final approval as he continues looking for cheaper alternatives.
AirAsia is also seeking RM700 million in local credit facilities and aims to complete the refinancing by December or January.
AirAsia declined to comment on its latest fundraising efforts or whether discussions with creditors were linked to liquidity pressures or concerns about its ability to meet its obligations without additional financing.
Gerry Soejatman, an independent aviation analyst based in Jakarta, said AirAsia could face increasing difficulty raising funds on commercial terms unless Fernandes can demonstrate a credible plan to return the airline to positive cash flow.
“That challenge will only get harder if oil prices stay elevated or rise further,” he said.
The airline’s financial strain has already extended to its suppliers and aircraft lessors. Bloomberg reported in June that AirAsia had fallen behind on payments to some suppliers and asked lessors to defer rental payments on more than 16 aircraft after fuel costs surged.
The carrier had also reportedly asked private-credit lenders Ares Management Corp and Indies Capital Partners Pte Ltd to allow aircraft lessors to share revenue from routes pledged to a US$200 million facility.
Since the beginning of 2025, AirAsia has also sold six brand-new Airbus aircraft without putting them into service.
Fernandes denied renegotiating with Ares and disputed Bloomberg’s report regarding the aircraft sales, saying the company was returning planes it did not need “in this crisis”.
If AirAsia manages to refinance its existing debt at an interest rate of 7% to 8%, down from around 11%, the US$1 billion refinancing could save the airline about RM200 million a year in interest costs, according to Samuel Yin, associate director of equity markets research at Maybank Investment Bank.
“The debt isn’t maturing this year, but the airline wants to prepare ahead of upcoming obligations. Given the rise in fuel prices, the costs are increasing,” Yin said after meeting AirAsia management earlier this month.
AirAsia’s cash-generation problem remains a key concern. Its operations consumed RM582 million during the first half of 2026, according to its financial statement.
Citigroup also downgraded AirAsia’s stock from buy to sell this week, citing limited cash and equity buffers that leave the airline with little room to absorb another fuel-price shock.
“We see jet fuel prices as the key determinant of future liquidity and profitability as balance sheet constraints remain,” Citigroup said.
Budget airlines have been particularly vulnerable to higher fuel costs because they generally have less room than full-service carriers to pass the additional expense on to passengers.
The impact has already been severe elsewhere in the industry, with US low-cost carrier Spirit Aviation Holdings Inc collapsing in May amid soaring fuel prices and the failure of a government bailout.
Despite the pressure, Fernandes has rejected calls for government intervention, saying AirAsia does not need to be rescued by the Malaysian government.
“AirAsia survived the pandemic without a government bailout and the brand has shown demand resilience,” Bauer said.
However, he cautioned that with AirAsia’s liquidity position remaining tight, the airline has limited room for mistakes as it works to strengthen its finances.
