In a significant move that underscores the growing influence of private credit in Asia, AirAsia Bhd has secured a $443 million dual-tranche private financing deal. The funds are earmarked for refurbishing aircraft that were grounded during the pandemic, as well as refinancing lease liabilities. This financing arrangement highlights the increasing reliance on private credit in the region, which is emerging as a serious rival to traditional lending.

Details of the Financing Deal

The financing package comprises two tranches. The first tranche, amounting to $200 million, was provided by private credit funds Ares Management Corp. and Indies Capital Partners Pte. Ltd. This tranche is specifically allocated for the refurbishment of AirAsia’s grounded planes, enabling the budget carrier to get its fleet back in the air. The second tranche, worth $243 million, was provided by aircraft lessors and is intended for refinancing lease liabilities.

The structure of the deal is particularly noteworthy. It is arranged as privately-placed bonds linked to AirAsia’s future airline ticket sales from its key routes. This innovative structure not only secures the financing but also aligns the repayment with AirAsia’s revenue generation capabilities. The private credit tranche of the deal offers an attractive 11% coupon rate per annum and has a four-year tenor. The lessor tranche, on the other hand, provides a 7% annual return and carries a two-year maturity.

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The Growing Role of Private Credit in Asia

AirAsia’s financing deal is another example of the growing trend of private credit in Asia. This alternative financing method is gaining popularity due to its ability to offer higher, floating rates of return, making it an increasingly attractive option for companies seeking capital. Private credit funds, such as those involved in this deal, are becoming significant players in the Asian financial landscape, providing flexible and tailored financing solutions that rival traditional bank loans.

AirAsia's Ambitious Expansion Plans

The financing comes at a crucial time for AirAsia, which is looking to expand its medium to long-haul network. The airline has its sights set on Europe and the West Coast of North America, reflecting its ambition to grow globally throughout the decade. This expansion plan underscores AirAsia’s commitment to recovering from the pandemic's impact and positioning itself as a leading global budget carrier.

AirAsia's Track Record in Private Credit

This is not the first time AirAsia has tapped into the private credit market. In April 2023, the airline’s engineering and maintenance affiliate, Asia Digital Engineering Sdn. Bhd., secured $100 million from investment firm OCP Asia Ltd. This previous deal, along with the latest financing, highlights AirAsia’s strategic use of private credit to fund its operations and growth initiatives.

Conclusion

AirAsia’s latest $443 million financing deal is a testament to the growing role of private credit in Asia. The structured deal, which links repayment to future ticket sales, not only provides the airline with the necessary funds to refurbish its grounded fleet but also supports its ambitious global expansion plans. As AirAsia continues to navigate the post-pandemic landscape, this financing arrangement positions the airline to capitalize on emerging opportunities and solidify its presence in the global market.

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