Can Capital A return to profitability next year?

AT the height of the pandemic, airliners all around the world were literally brought down by a tiny virus.

Capital A Berhad which was formerly known as AirAsia was also a casualty which saw it financially bleed profusely.

However now that the borders have reopened, Capital A said it has closed its financial year 2022 on a strong recovery path.

Capital A said its aviation operations had recovered strongly post-pandemic transition with added impetus from rapid resumption of international travel.

Can Capital A fly out of turbulence next year?

Exiting PN17 Status

Capital A chief executive officer Tan Sri Tony Fernandes expects the carrier to exit Practice Note 17 status by year end.

Fernandes said a regularisation plan would be submitted within this month.

Associate Professor Major Dr Mohd Harridon Mohamed Suffian said the regularization plan of Capital A Berhad should be formulated in a comprehensive and fair manner. 

"The creditors should gain their financial capitals and it’s usually the norm for the payback scheme to be actuated through a predetermined time frame where instalments are paid in trenches where the value of each trench is agreed by several parties. 

It has to be noted that the regularization plan should be numerically optimum in order for Capital A to still have sufficient amount of funds to execute daily operations and benign projects," said Harridon who is a lecturer at Universiti Kuala Lumpur Malaysian Institute of Aviation Technology.

Business diversification could augur well for Capital A

During the movement control order, the firm diversified to widen its earnings base.

Fernandes even became a food delivery rider to drive home the point.

Therefore, the diversification of Capital A into a myriad of services such as finance technology is seen as a positive approach to diversify its revenue stream. 

"This would also instil confidence among investors and creditors and if actuated adequately, the revenue stream would be much greater than the operational and other miscellaneous costs and this in turn would garner profits for Capital A.

Harridon said thus, all the entities, such as diversification and spendings and future projects, should be spelled out in great details in the regularization plan in order for milestones, which are not subjective in nature, to be scrutinized and acceptable by various parties who have stakes in Capital A.

Turnaround plan must be convincing

It is also imperative for the regularization scheme to be convincing of which, Bursa Malaysia, as the de facto regulator, would definitely and obligatory raise several questions to gauge the formidability of the plan. 

By any standard, the regularization plan should also include a growth plan which entails the expected expansion, if any, of its operation and organization.

"Capital A is also obliged to elucidate the sustainability of their operations and projects, and given the prospect of concurrent aviation scenario where passenger volumes are steadily increasing, evidences of sustainability are plentiful and this should be utilized extensively by the company.  

Managing planes is costly

Another point to ponder is the cost of maintaining the aircrafts owned by Capital A.

Periodic maintenance is a must in order to adhere to safety protocols set by the Civil Aviation Authority of Malaysia (CAAM). 

Due to the increase in demand, flights are in abundance and the aircrafts are frequently flown thus it is vital for a holistic maintenance process be actuated before wear and tear thresholds take place.

The incurred maintenance cost should be empirically quantified in the regularization plan and several avenues should be discerned and stated to fund the maintenance cost.

Meanwhile Jets Aero Pilot Training Center chief pilot Captain Kamarul Ariff Abd Karim has always been optimistic to ensure his share prices remain robust.

"That is what most corporate captains do to attract and instil investors’ confidence," Kamarul told DagangNews.

"Capital A's revenue will no doubt increase as borders reopen but yield will be lower due higher operating cost of fuel, aircraft leasing and aircraft maintenance."

The skies ahead will also not be as blue like before Capital A will also have to grapple with other carriers and an ever-challenging business landscape. – DagangNews