Saudi Fund To Invest $100 Million In AirAsia

Saudi Arabia’s Public Investment Fund (PIF) is set to invest approximately $100 million in AirAsia Group, a move that could further strengthen the kingdom’s growing ties with Southeast Asia, a major tourism hub. This investment is part of a broader AirAsia fundraising effort aimed at securing 1 billion Malaysian ringgit (roughly $226 million), according to sources familiar with the negotiations.

PIF is expected to be the largest contributor to this round of funding, which is still in discussions. Other potential investors, including those from Singapore and Japan, are also reportedly in talks, the sources said, although the deal has yet to be finalized. An official announcement is anticipated within the coming weeks, though these sources caution that negotiations remain fluid and could still fall through.

The investment will help AirAsia recover from the financial setbacks it faced during the COVID-19 pandemic. The airline group is offering up to 15% of its equity to external investors at a company valuation of approximately $2 billion. The timing of this investment is significant as Capital A Bhd, the controlling shareholder of AirAsia, approaches regulatory approval for a major restructuring, which includes merging its aviation businesses with AirAsia X Bhd.

Shares of Capital A rose by as much as 1.8% in Kuala Lumpur on Friday, while AirAsia X saw a 6.5% increase.

Strategic Jet Deals and Investments

AirAsia’s attraction for investors lies not only in its post-pandemic recovery potential but also in its substantial order backlog with European aircraft manufacturer Airbus SE. The airline currently operates a fleet of 225 narrowbody Airbus jets and has over 350 additional aircraft on order.

In a strategic move, Saudi Arabia’s Riyadh Air, which is owned by the PIF, has acquired a portion of these delivery slots, helping AirAsia reduce near-term financial obligations. This deal benefits Riyadh Air, which is set to launch later this year but currently has only one spare aircraft. The airline had initially planned to purchase 100 Boeing 737 jets but chose to instead take over AirAsia’s Airbus delivery slots.

PIF’s involvement in aviation extends beyond AirAsia, as it also controls various assets in Saudi Arabia’s aviation sector, including an aircraft leasing company, a helicopter division, and companies in space and defense. The fund, which manages assets totaling around $930 billion, also holds a 15% stake in London’s Heathrow Airport.

Crown Prince Mohammed bin Salman, who oversees the PIF, has made transforming Saudi Arabia into a global travel hub a central part of his economic diversification strategy. This effort includes the development of Neom, a $1.5 trillion city on the Red Sea coast, and significant investments in global sports, including soccer, auto racing, golf, and tennis.

AirAsia’s Financial Recovery Plans

Since the pandemic, Capital A, the parent company of AirAsia, has faced financial difficulties and was classified as financially distressed by the Malaysian stock exchange. The airline had to abandon a planned US listing through a special purpose acquisition company (SPAC) last year, a deal that could have raised over $1 billion.

As part of its recovery strategy, AirAsia is looking to attract new investors before placing an order for 100 regional jets, potentially from Airbus (A220) or Embraer (E2). This move would further support the airline’s growth ambitions as it looks to navigate the post-pandemic aviation landscape.