KUALA LUMPUR -- AirAsia Group shares were temporarily suspended on Wednesday after the company's external auditor told the Kuala Lumpur stock exchange that it had "significant doubt" over the budget airline's ability to operate amid the lingering pandemic.
In a report, Ernst & Young said it has found "material uncertainties" that may cast "significant doubt" on the carrier's ability to continue as a going concern now that the coronavirus has forced many countries to close their borders and restrict travel.
"We draw attention to Note 2.1 and Note 48 to the financial statements, which indicate that the group has a net loss of 283 million ringgit ($66.2 million) for the financial year ended 31 December 2019 and the current liabilities exceeded its current assets by 1,843 million Ringgit," the report says.
"The travel and border restrictions implemented by countries around the world have led to a significant fall in demand for air travel which impacted the Group's financial performance and cash flows," the report said.
AirAsia's shares were suspended at mid-day when they were trading at 0.86 ringgit, giving AirAsia a total market capitalization of 2.86 billion ringgit.
AirAsia shares fell to 0.76 ringgit per share upon resumption of trading at 2.30pm, falling to 0.71 ringgit at 4.30 pm, bringing the company's market capitalization down to 1.99 billion ringgit. The shares closed 0.70 ringgit, down 17.5% from Tuesday's closing price.
AirAsia on Monday reported a first-quarter loss of 804 million ringgit, reversing a 96 million ringgit profit for the year-earlier period.
The COVID-19 crisis has closed the borders of most of AirAsia's key markets, including Malaysia, Thailand, Indonesia, the Phillippines, China and India. As a result, the budget airline carried 9.85 million passengers in the first quarter, 22% of the year-earlier total.
Ernst & Young noted that AirAsia has seen positive developments in its business operations, saying passenger seat booking trends, flight frequencies and load factors are gradually improving.
It added that AirAsia's financial statements were prepared on a going concern basis, the validity of which is dependent on a successful recovery from the pandemic.
Its success also depends on favorable outcomes of ongoing discussions with the financial institutions and investors, the auditing firm said.
Raymond Choo of Kenanga Investment Bank said that over the medium term AirAsia is expected to face a tough operating environment due to the widespread travel disruptions. It also must deal with lower load factor requirements governments are likely to mandate.
"The group has applied for bank loans in their respective operating countries to shore up liquidity, with net cash currently at 1 billion ringgit as of 31 March 2020," he said. "In addition, AirAsia has ongoing deliberations with a number of parties for joint-ventures and collaborations that may result in additional third-party investments in specific segments of the group's business."
According to Public Investment Bank's Nur Farah Syifaa Mohamad Fuad, AirAsia expects to resume international flights by the third quarter of 2020 and for the market to normalize in late 2021.
She also noted that AirAsia has expressed an intention to seek loans and explore new ways to raise capital to ensure sufficient liquidity for the year.