AirAsia plans special dividend payout from sale of aircraft leasing arm

PETALING JAYA: AirAsia Bhd (AAB), which is selling its aircraft leasing operations Asia Aviation Capital Ltd, for US$1.18 billion (RM4.64 billion) to BBAM Ltd Partnership’s managed entities, is planning to use the bulk of the cash proceeds to pay out a special dividend to shareholders and settle bank borrowings to improve its financial leverage.
Under the terms of the agreements, FLY Leasing Ltd (FLY), Incline B Aviation Limited Partnership, Nomura Babcock and Brown will acquire a portfolio of 84 aircraft and 14 engines of which 79 aircraft and 14 engines will then be leased back to AirAsia and its affiliates.
FLY and Incline have also entered into agreements to acquire 48 aircraft to be delivered to AAB and an option to acquire a further 50 aircraft to be delivered.
As part of the disposal consideration, AAB will take up a 10.2% stake in FLY for US$50 million and commit another US$50 million into Incline Parallel Funds, which will invest alongside the Incline Aviation Master Fund in global aviation investments.
AAB told Bursa Malaysia in its filing that 74% of the RM3.5 billion gross proceeds will be used to pay out dividends, while 22% will be to repay bank borrowings, which will save the airline RM22 million in interest costs annually.
The deal will see AAB recognise a gain on sale of RM967.1 million.
Besides improving its financial leverage, AAB said, the deal with allow AAB Group to establish long-term partnerships with BBAM, the world’s third-largest and longest-standing manager of commercial aircraft which services over 200 airline customers worldwide.
Its investments in Incline Funds gives AAB exposure to the largest aircraft leasing institutional fund managed by BBAM, while its investment in FLY enables it to continue to participate in the future growth of a leading global aircraft lessor with a diversified lessee portfolio.
“Today’s sale is much in line with our stated strategy of disposing non-core assets and businesses, an undertaking which we have successfully executed over the last six months – starting with our training centre, ground handling unit and now our leasing unit – and unveiling the true value of AirAsia,” AirAsia Group CEO Tan Sri Tony Fernandes said in a statement today.
“When we bought these planes, our gearing was high and some people could not see why we wanted to own these assets. This deal shows it was the right strategy as we have something of value to dispose in return for cash and an equity relationship in two great companies, while removing residual risks,” he added.
The deal values Asia Aviation at an enterprise value of US$2.85 billion.