Table of Content

Section Page No.

1.0 Introduction
1.1 Brief Overview
1.2 Share Price Graph
1.3 Company Credit Rating
2.0 Related Conditions of Malaysia
2.1 Economic Condition
2.2 Airline Industry Condition
3.0 Analysis
3.1 Expert Basis
3.1.1 Character
3.1.2 Capacity
3.1.3 Condition
3.1.4 Capital & Collateral
3.2 Altman Z-Score
4.0 Conclusion of Analysis
5.0 Journal Review
5.1
5.2
5.3
References

AirAsia Credit Risk Report

1.0 Introduction
For this assignment we have chosen AirAsia as our chosen company applying for credit
facilities from our hypothetical financial institution. All references made where humanly
possible. Note that we have used AirAsia X as a comparison to AirAsia for industry and
company performance.

1.1 Brief Overview

Air Asia is a Malaysian low-cost airline company, which has its headquarters in the capital
city of Malaysia, Kuala Lumpur. Air Asia was established on 20th December 1993 by Tony
Fernandes and it began operations on 16th November 1996. Basically, the Air Asia group
operates a schedule in both domestic and international flights to over 100 destinations or 22
countries. Its main hub is the low-cost carrier terminal located at Kuala Lumpur International
Airport (KLIA) in Sepang, Malaysia which is called KLIA2. Whereas, all of its secondary hubs
are located in other states in Malaysia as well such as Kota Kinabalu International Airport in
Sabah, Penang International Airport, Kuching International Airport in Sarawak, Senai
International Airport in Johor Bahru and Langkawi International Airport. Moreover, Air Asia also
has affiliate airlines overseas such as Thai AirAsia, Indonesia AirAsia, Philippines AirAsia,
AirAsia Zest and AirAsia India.
The Air Asias CEO is Dato Seri Tony Fernandes. The Deputy CEO of Air Asia is Dato
Kamaruddin bin Meranun. Moving on, the CEOs of Air Asia at different countries is Mr.
Dharmadi who is the CEO Indonesia and Mr.Ta S Spon the CEO in Thailand. The Secretary of
the management is Mr. Bo Lingam. The chief financial officer is Mr. Rozman Omar. The group
Head of cargo is Captain Chin Nyok. The Head of Corporate Quality and Safety is Mr.
Saidulkhadri Hamzah. Next, Regional Head of Engineering is Mr. Azhari bin Mohd Dahlan.
The Head honcho of Innovation, Commercial & Technology (ICT) is Lau Kin Choy. The Head
of Commercial is Kathleen Tan. The Regional Director of Communication is Joyce Lai. Lastly,
the Head of Flight Operations is Captain Adrian Jenkins.

1.2 Share Price Graph

We show AirAsias recent share price movements for the years 2013-2014 following the
available financial statements and the recent years of 2014-2015 to Jan 2016. Note: Print out
Share Graph from AR.
Figure 1: AirAsia Stock Recent Stock Price

As can be seen from the above graphs, AirAsias share price has been somewhat erratic over
the past three years with several highlights. In the year of 2013, its share traded at an average
high of about RM2.93 and average low of RM2.65 as compared to the year of 2014 where it
traded at an average high of RM2.55 and average low of RM2.33. What is notable is that the
number of shares traded spiked to 382,589,100 issued shares in December of 2014 as compared
to previous years. For the recent year up to Jan 2016, AirAsias share price tumbled to about
RM1.40.

1.3 Company Credit Rating

For this section, we attempt to estimate AirAsias Credit Rating. This is because AirAsia
does not have a rating or is unrated despite issuing having issued bonds in recent years. We will
be using both the ratings guide of Moodys Global Rating Scales (both short and long-term) and
Standard & Poors (S&P) Issuer Credit Ratings. The rating guides are included in the soft-copy
handout.
One fact presents itself for AirAsia. Despite being officially unrated, it has issued bonds in
recent years to cover losses and the weakening of the RM in an attempt to stave of financial
impairment. These recent bonds are issued via chosen supporting financial institutions. The
recent RM200 million bond in the year of 2015 was issued via Credit Suisse and CIMB and a
planned RM1 billion bond in 2016 using AirAsias investment arm, AirAsia Global Notes Ltd. Is
will be issued via CIMB, Barclays and RHB who are already planning investor meetings in
multiple countries such as Singapore. The above demonstrates that while AirAsia does not have a
credit rating, it is willing to work alongside those established institutions who have favourable
credit ratings to encourage investors. Credit Suisse currently has a Moodys Rating of P-1 and
S&Ps of A-1 which is the highest rating given in the short-term for creditworthiness. CIMB
currently has a Moodys A3 and S&Ps A- in terms of long-term creditworthiness.
It should be noted that not only must AirAsia rely on using supporting institutions for its
bond issue, its recent performance in the years from 2013 until current has not been a smooth
one. Granted, external factors as detailed in the section Related Conditions of Malaysia are a
most likely cause for this poor performance but the fact remains that the forward-looking
creditworthiness of AirAsia and its ability to repay loans or use credit facilities is a poor one.
Further study on an Expert Basis in the Analaysis section shows that while its management
practices are sound and accounting standards, audited by PricewaterhouseCoopers, is up to par
with regulations which gives it good character and it has a high stake in its own business giving
it good standing in terms of capital, its overall performance in terms of capacity and collateral is
poor.
In summary, we have decided that the estimated credit rating for AirAsia should be
Moodys NP in short-term, Ba long-term and S&Ps B short-term and B long-term. This rating is
only an estimate given the information we have gathered and detailed in other sections of this
assignment and our own outlook on AirAsia.

2.0 Related Conditions of Malaysia

2.1 Economic Condition
From an economy dominated by the production of raw natural resource materials, such as
tin and rubber, even as recently as the 1970s, Malaysia today has a differentiated economy and
has turned into a main exporter of electrical apparatuses, electronic parts and segments, palm oil,
and natural gas. After the Asian financial crisis of 1997-1998, Malaysia kept on posting strong
development rates, averaging 5.5 percent for every year from 2000-2008. Malaysia was hit by
the Global Financial Crisis in 2009 yet recouped quickly, posting development rates averaging
5.7 percent since 2010.
Development was accompanied by a dramatic reduction in poverty from 49.3 percent in
1970 to 1.0 percent in 2014. However, poverty remain and income imbalance remains high
compared to other country. Income disparity increased at 0.41 in 2014, compared with 0.31 and
0.33 in the Republic of Korea and Japan (both as of 2010), for example. Real income of the
bottom 40 percent of households increased by an average 6.3 percent per year between 2009 and
2012, compared to 5.2 percent for the average household, proposing the advantages from
development were being shared.
In 2015, government has taken step to increase national revenue by introducing Good and
Service Tax. Short-term risks include further decreases in oil price and oil related charges that
still record for around 30 percent of public revenue, despite the fact that this is mostly repaid by
removing the fuel subsidies in 2014. Other risks are identified with the unpredictability in capital
flows from the standardization of US monetary policy. The long haul manageability of this ideal
viewpoint relies on structural reforms to strengthen medium-term fiscal planning, and to support
abilities and rivalry inside of the economy.Plus, the Ringgit is slowing down affected by the slow
growth in international market in recent years. The latest Ringgit level is at 4.21 compared to US
Dollar. Besides that, the dropping of world oil price which is at RM 32.15 per barrel.

2.2 Airline Industry Condition

Passenger traffic in Malaysia Airports grew by about 4.7% in 2014 to 83.3 million,
including 4.9% international growth to 40.1 million and 4.5% domestic growth to 43.2 million.
This compares to record growth of 18% in 2013 to 79.6 million, including 18% domestic growth
and 20% international growth.
For passenger from KLIA shows that just only increased by 3% to 48.9 million. The slowest
growth compared to several years before. But in 2013, it was the fastest growth in airline
industry which at 19% in 2013.
The slow growth of performance in airline industry is caused by the two tragedies happen in
2014. MH370 reported missing during flight from Kuala Lumpur to Beijing while MH17 during
flight from Amsterdam to Kuala Lumpur being shot down in Ukraine. March 2014 MH370
incident impacted the demand, particularly in the Malaysia-China market, this only slightly
accelerated the slowdown. The July 2014 MH17 incident also had a relatively slight impact on
passenger traffic, which was already an extremely challenging market suffering from
overcapacity.

3.0 Analysis
In this section, we analysed AirAsia accordingly on an Expert Basis and also used Altmans
Z-Score to supplement our findings. Some of the previous sections will have already detailed
observations and facts founded, hence they will be referred to where appropriate.

3.1 Expert Basis

3.1.1 Character
For this section, we listed recent events that AirAsia had done as well as relevant internal
factors of our chosen company. This is because credit reports such as CCRIS from Bank Negara
cannot be obtained without permission from AirAsia or being a registered agent on behalf of
AirAsia due to privacy and security laws of Malaysia. We settled for the next best alternative,
studying recent events and AirAsias actions as well as their internal factors and characteristics to
deduce their character.
EVENTS FROM THE YEAR 2012-2015
Year Events
2013 January RHB ASEAN Corporate Day
February Q4 2012 Announcement
March Asian Excellence Recognition Awards 2013 by Corporate
Governance Asia
April -HSBC Aviation Day
-Investors Luncheon by Maybank
-Non-Deal Roadshow by Maybank
-Bank of America Merril Lynch ASEAN Conference
-CLSA Asean Corporate Forum
May -Q1 2013 Announcement
-CLSA Europe Non-Deal Roadshow
June -20th Annual General Meeting
-Nomura Asia Equity Forum
 -Invest Malaysia by Maybank
-CIMB Asia Pacific Conference
- Air Asia A320 near Kolkota on 9th June 2013, engine shut down in
flight
July -Malaysia Investor Relations Association Berhad(MIRA) Awards
-Malaysia Minister of Tourism visits AirAsias headquarters
August -Q2 2013 Announcement
-Macquarie ASEAN Conference
Septembe -Company visit by TA Securities for investors to Indonesia AirAsia
r -CLSA Investor Forum
October -Investors visit to AirAsias headquarters and operations in LCCT
hosted by Daiwa Capital Markets Hong Kong
-Investors Relations one-on-one Workshops for selected members
of the media
November -AirAsias Luncheon with Members of Parliament
-AirAsias Presentation to the Economic Council of Malaysia
-AirAsias Investor Relations team hosts a special workshop for
members of the media
December -AirAsias Non-Deal Roadshow hosted by RHB
-3Q 2013 Announcement
- AirAsia A320 at Phuket on December 27th 2013, bird strike

Year Events
2014 January -AirAsias Non Deal Roadshow hosted by CIMB
-Alliance IBs Investor Conference
-AirAsias Non-Deal Roadshow hosted by CLSA
-AirAsias Non-Deal Roadshow hosted by Deutsche Bank
February -Tonys Session with Local Analysts and Investors
-Q4 2013 Announcement
-Analysts Visit to Airbus Factory in Tianjin
-EU-ASEAN Aviation Summit
- AirAsia A320 at Taipei on February 28 th 2014, engine fire
indication
March -Credit Suisse 17th Asian Investment Conference 2014
-Strategy Paper Preparation Workshop for Port and Airport under
the 11th Malaysia Plan(11MP)
April -AirAsias Presentation to the Public Accounts Committee(PAC) at
the Parliament
-Local Investors Visit to AirAsias Office and Operations by
Kenanga
-Asian Excellence Recognition Awards 2014 by Corporate
Governance Asia
May Q1 2014 Announcement
June -AirAsias Non Deal Roadshow hosted by UBS
-4th Malaysia Investor Relations Awards Ceremony by Malaysian
 Investor Relations Website(MID CAP)
-AirAsias Non Deal Roadshow hosted by CIM
- AirAsias Non Deal Roadshow hosted by RHB
-CIMB 4th Annual Asia Pacific Conference and Invest Malaysia
Conference
-AirAsia launches Investor Relation APP
21st Annual General Meeting
August -Macquarie ASEAN Conference
-Q2 2014 Announcement
Septembe -CLSA Investor Forum
r -AirAsias Non Deal Roadshow hosted by UBS
November -Equities Tracker 2014 Value Investors Day
-Q3 2014 Announcement
December -AirAsias Non-Deal Roadshow hosted by KAF
- Indonesia AirAsia Flight 8501 on December 28th 2014 founded
crash in the sea

Year Events
2015 January -AirAsia A320 at Sibu on December 17th 2015, burst main tyre and
damaged runway light

BOARD OF DIRECTORS
Non-Independent Executive Chairman Datuk Kamarudin bin Meranun
Non Independent Executive Director and Tan Sri Dr. Anthony Francis Fernandes
Group Chief Executive Director and Group
Chief Executive Officer
Executive Director and Chief Executive Aireen Omar
Officer
Non-Independent Non-Executive Director Dato Abdel Aziz @ Abdul Aziz bin Abu
Bakar
Independent Non-Executive Director Amit Bhatia
Independent Non-Executive Director Uthaya Kumar A/L K Vivekananda
Senior Independent Non-Executive Dato Fam Lee Ee
Director
Independent Non-Executive Director Robert Aaron Milton
NUMBER OF EMPLOYEE
For the year ended in 2014, the total numbers of employee that Air Asia had was 6304
employees.
EMPLOYEE MOTIVATION
Tony Fernandes motivates his employee by giving bonuses based on each employees
contribution to Air Asia. This would expect to increase the employees loyalty through its ESOS
[employee share ownership scheme] which will be given to all employees. Furthermore, Tony
Fernandes also provides his employee with an non-financial reward such as free flights. It will
help to create an intrinsic motivation within the employees. Other than that, the management also
inspires open communication which develops a vibrant working environment such as the
employees can communicate directly with Tony Fernandes and provide suggestions on how Air
Asia can be more productive and efficient.
EMPLOYEE BENEFFIT
1. Short term employee benefits
- Wages, salaries, paid annual leave and sick(private medical care) leave, bonuses and
non-monetary benefits are accrued in the financial year in which the associated services
are rendered by the employees of the group. The criteria for the bonuses and non-
monetary benefits are dependent on various performance measures of the group, together
with an assessment of each individuals performance during the period.
2. Defined contribution retirement plan
- The Groups contributions to the Employees Provident Fund are charged to profit or
loss in the financial year to which they relate. Once the contributions have been paid, the
Group has no further obligations. Prepaid contributions are recognised as an asset to the
extent that a cash refund or a reduction in the future payments is available.
NUMBER OF AIRCRAFTS
Type of Aircrafts Total
Airbus A320 103
Boeing 737 34
Boeing 747 3
McDonnell Douglas MD-11 1
NUMBER OF ALLSTARS
The total number of all stars (employees sponsored by AirAsia to pursue other interests.
Basically a program designed to create more rounded employees) in Air Asia is 6300 which
includes the pilots, flight attendants, cabin crew, ground grew, aviation engineers and ramp
agents.
NUMBER OF PASSENGERS
Total number of passenger in 2014 are 22, 138 796 people.
CORPORATE STRUCTURE
AirAsia have 11 subsidiary companies:
AirAsia Investment Ltd.
AirAsia Corporate Service Limited
AirAsia(Mauritius) Ltd.
AirAsia Ltd.
AirAsia Global Shared Services Sdn. Bhd
Asia Aviation Capital Limited
Ground Team Red Sdn. Bhd.
Koolred Sdn. Bhd.
AirAsia Go Holiday Sdn. Bhd.
MadCience Consulting Sdn.Bhd
AirAsia Exp Pte. Ltd.

There are a number of recent events that have also come to light at the time of typing this
assignment; A Hong Kong GMT report claiming that AirAsias accounting practices were below
standard by accusing AirAsia of using transactions with associate companies to boost its
earnings. Another report stated that AirAsia was planning to go fully private. Both of these
happened in middle to late 2015.
Based on our opinion regarding Air Asia, its character seems likely viable given the stellar
records of its founders and its management practices. AirAsia is the Worlds Best Low Cost
Airline company which is preferred by many because it is more affordable than any other airline.
This is because their strategy is extremely aggressive, up-to-date and effective with its no-frills
airline business model, different streamline operations, point to point network and lean
distribution system, Air Asia will have no problem growing in the future.

3.1.2 Capacity
Note: Print out AR 2013-2014 Balance Sheet and Cash Flow Statement.
As can be seen from the extracts of the balance sheet and cash flow statements in the annual
report for both years; The year end 2013 showed AirAsia having a total of RM2,572,255 current
liabilities and RM10,282,907 non-current liabilities which include borrowings of RM1,119,436
and RM 9,051,416 respectively. Cash Flow of 2013 showed a final end-year value of
RM1,194,490 which seems just about enough to cover their current liabilities for the year given
that they had interest expense of RM428,406 and paid only RM411,117 of said interest.
For the year 2014, AirAsia had current liabilities of RM4,112,253 and non-current liabilities
of RM11,996,774 which includes borrowings of RM2,274,928 and RM10,453,090 respectively.
Their end-year cash flow was RM1,337,849 and paid interest expense of RM470,613 out of a
total interest expense of RM533,967. In short, for the years 2013-2014, AirAsia was unable to
maintain significant cash flow to fully repay its interest expenses which becomes a point of
contention.

3.1.3 Condition
For this section, please refer to section 2.0 for detailed information on the economic and
airline industry conditions of Malaysia.
Based on my opinion, the performance of the airline industry in a few years later will be
hard years for them to gain profit. This is because the slow growth of the world market which
affected the Ringgit which mean you have to use more Ringgit to buy US Dollar. Consumers will
reduce their activity to travel around because of their cost has increased. Eventually this reduces
the airline industrys profit. Other than that, the two tragedies that happen in 2014 which involve
the Malaysia Airline and AirAsia aircrafts, it reduces buyer confidence level toward airline
industry safety aspect of Malaysia. This also reduces the number of buyer of the airline tickets. It
will be hard for two main airlines in Malaysia which are Malaysia Airline and AirAsia to survive
in the next few years.

3.1.4 Capital & Collateral

For this section, we calculated several financial ratios based on AirAsias Annual Reports
for the years 2013-2014 and compared them against AirAsia X to gauge AirAsias performance
objectively.
AIRASIA BERHAD
Profitability Ratio Formula Air Asia Berhad 2013 Air Asia Berhad 2014
(RM000) (RM000)
Return on Assets Net Income 362,124 82,836
(ROA) Average Total Assets 17856094 + 15728810/2 18,130,740 +
= 0.04056027 2,533,378/2
= 0.00801738
Return on equity Net Income 362,124 82,836
(ROE) Average Stockholders 5,000,932 + 4,555,091+ 5,000,932/2
Equity 4,860,369/2 =0.0173369
= 0.0734434
Return on Common Net Income 362,124 82,836
Equity (ROCE) Average Common 278,106 + 277,991/2 278,297+ 278,106/2
Stockholders Equity = 1.302377 = 0.2977554
Profit Margin Net Income 362,124 82,836
Sales 5,111,822 5,415,744
= 0.07084 = 0.0152954
Earnings Per Share Net Income 362,124 82,836
(EPS) Number of Common 2,781,064 2,782,974
Shares Outstanding =0.13021 = 0.029765

Efficiency Ratio Formula Air Asia Berhad 2013 Air Asia Berhad 2014
(RM000) (RM000)
Assets Turnover Sales 5,111,822 5,415,744
Ratio Average Total Assets 17856094 + 15728810/2 18,130,740 + 2,533,378/2
= 0.30441 = 0.524168
Accounts Sales 5,111,822 5,415,744
Receivable Average Accounts 731,506 + 771,820 682,909 + 731,506/2
Turnover Ratio Receivable = 3.400342 = 7.657928

Inventory Cost of Goods Sold 1,010,875 853,591

Turnover Ratio Average Inventories 29,520 + 23,725 18,152 + 29,520
= 1,010,875 = 853,591
53245 47672
= 18.98535 = 17.90550

Liquidity Ratio Formula Air Asia Berhad 2013 Air Asia Berhad 2014
(RM000) (RM000)
Current Ratio Current Assets 2,923,185 2,533,378
Current Liabilities 2,572,255 4,112,253
= 1.136429 = 0.616056
Quick Ratio Quick Assets 2,923,185 - 29,520 2,533,378 - 18,152
Current Liabilities 2,572,255 4,112,253
Quick Assets = = 1.124953 = 0.611641
Current Assets -
Inventories
Net Work Capital Net Working Capital 2,923,185 - 2,572,255 2,533,378 - 4,112,253
Ratio Total Assets 2,923,185 + 14,932,909 18,130,740 + 2,533,378
Net Working Capital = 350930 = -1578875
= Current Assets - 17856094 20664118
Current Liabilities = 0.0196532 = - 0.0764066

Financial Stability Formula Air Asia Berhad 2013 Air Asia Berhad 2014
(RM000) (RM000)
Equity Ratio Owners Equity 5,000,932 4,555,091
 Total Asset 14,932,909 + 2,923,185 18,130,740 + 2,533,378
= 0.280068642 =0.2204348
Gearing Ratio Liability 2,572, 255 + 10,282,907 4,112,253 + 11,996,774
Total Assets 2,923,185 + 14,932,909 18,130,740 + 2,533,378
= 12855162 = 16109027
17856094 20664118
= 0.719931 = 0.779565

Debt to Equity Ratio Liability 2,572, 255 + 10,282,907 4,112,253 + 11,996,774

Owners Equity 5,000,932 4,555,091
= 12855162 = 16109027
5,000,932 4555091
= 2.5705532 = 3.5364885

AIR ASIA X
Profitability Ratio Formula Air Asia X 2013 Air Asia X 2014
(RM000) (RM000)
Return on Assets Net Income (0.0220) (0.1390)
(ROA) Average Total Assets

Return on equity Net Income (0.0714) (0.7382)

(ROE) Average Stockholders
Equity

Return on Common Net Income 0.0100 (0.0980)

Equity (ROCE) Average Common
Stockholders Equity

Profit Margin Net Income (0.0382) (0.1768)

Sales

Earnings Per Share Net Income (0.0372) (0.2191)

(EPS) Number of Common
Shares Outstanding

Profitability Ratio Formula Air Asia X 2013 Air Asia X 2014

(RM000) (RM000)
Return on Assets Net Income (0.0220) (0.1390)
(ROA) Average Total Assets

Return on equity Net Income (0.0714) (0.7382)

(ROE) Average Stockholders
 Equity

Return on Common Net Income 0.0100 (0.0980)

Equity (ROCE) Average Common
Stockholders Equity

Profit Margin Net Income (0.0382) (0.1768)

Sales

Earnings Per Share Net Income (0.0372) (0.2191)

(EPS) Number of Common
Shares Outstanding

Liquidity Ratio Formula Air Asia X 2013 Air Asia X 2014

(RM000) (RM000)
Current Ratio Current Assets (0.5941) (0.3448)
Current Liabilities

Quick Ratio Quick Assets (0.5928) (0.3438)

Current Liabilities
Quick Assets =
Current Assets -
Inventories
Net Work Capital Net Working Capital 0.3038 0.5263
Ratio Total Assets
Net Working Capital
= Current Assets -
Current Liabilities

Financial Stability Formula Air Asia X 2013 Air Asia X 2014

(RM000) (RM000)
Equity Ratio Owners Equity 0.3089 0.1883
Total Asset

Gearing Ratio Liability 0.1183 (0.2030)

Total Assets

Debt to Equity Ratio Liability 0.3830 (1.0780)

Owners Equity
 According to the ratios calculated, the Return on Assets(ROA) for AirAsia Berhad has
decreased by 0.03% but AirAsia X has increased by 0.12%. Moreover, the Return on Equity
(ROE) of AirAsia Berhad has decreased by 0.06% which is a good image for the company but
Air Asia X had increased by 0.67% which is bad for the company. The profit margin for Air Asia
Berhad has decreased by 0.06% maybe due to some poor performance of the company but for
Air Asia X the profit margin increased by 0.14%. The accounts receivable turnover ratio for Air
Asia Berhad has increased by 4.26% which shows also an increase in their current assets. On the
other hand, the equity ratio shows the relative proportion of equity used to finance a company's
assets. So Air Asia Berhad has decreased by 0.06% to finance its company and also Air Asia X
has decreased by 0.12%.
Liquidity ratio provides information whether the company is able to pay its short term loan
or not. For the current ratio, Airasia Berhad it has decreased for 0.5203 as for Airasia X Berhad,
its current ratio had increased for 0.2493. But for this current ratio, Airasia Berhad is better as it
has a positive value as Airasia X Berhad has a negative value. The quick ratio for Airasia Berhad
had decreased 0.5134 as Airasia X Berhad 0.2490. Even though it is like this, Airasia Berhad still
has the advantage on hand since it has a positive value while Airasia X has negative value.
For net working capital ratio, Airasia Berhad had faced some problem as it value decreased
from positive value to a negative value. The difference for year 2013 and 2014 is 0.09606. As for
Airasia X Berhad, it had a better ratio and its ratio increased 0.2225 from 2013 to 2014.
The equidity ratio for Airasia Berhad had decreased from 0.2081 to 0.2204 from year 2013 to
2014, it has decreased 0.0597 such condition is bad for company as it shows less assets of the
company is owned by its shareholders. For Airasia X Berhad, its equidity ratio also decreased for
0.1206 from 0.3089 to 0.1883. Since both company also have decreased ratio, Airasia Berhad is
better than Airasia X Berhad since it has a higher ratio.
Lastly, the gearing ratio measures the commitment of company to pay its long term loan.
Airasia Berhad has increased in the gearing for 0.0597 means it has a higher commitment to
repay its loan while gearing ratio for Airasia X Berhad had decreased for 0.3213 means its
commitment to repay its loan become lower.

3.2 Altman Z-Score

 In this section, we calculated the Altman Z-Score for the year with the most recent financial
statement available, the year of 2014 and 2013. We compared both values. All values multiplied
by 1000 and denoted in RM.
For the year 2014:
Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4+ 1.0X5, where:
X1 = Working Capital (Current Assets-Current Liabilities)/Total Assets = -1,5788,875/20,664,118
= -0.7641
X2 = Retained Earnings/Total Assets = 2,898,035/20,664,118 = 0.1402
X3 = Earnings Before Interest and Tax or Operating Profit/Total Assets = 853,591/20,664,118 =
0.0413
X4 = Shareholders Equity/Total Liabilities = 4,555,091/16,109,027 = 0.2828
X5 = Revenue/Total Assets = 5,415,744/20,664,118 = 0.2621
Z-Score = 1.2(-0.7641) + 1.4(0.1402) + 3.3(0.0413) + 0.6(0.2828) + 1.0(0.2621) = -0.15257
AirAsias Z-Score is below 1.81, an indicator of default.

For the year 2013:

X1 = 350,930/17,856,094 = 0.0197
X2 = 2,926,491/17,856,094 = 0.1639
X3 = 1,010,875/17,856,094 = 0.0566
X4 = 5,000,932/12,855,162 = 0.3890
X5 = 5,111,822/17,856,094 = 0.2863
Z-Score = 1.2(0.0197) + 1.4(0.1639) + 3.3(0.0566) + 0.6(0.3890) + 1.0(0.2863) = 0.95958
Z-Score is below 1.81, an indicator of default.

4.0 Conclusion of Analysis

5.0 Journal Review
References
AirAsia. Company Biography. Retrieved February 15, 2016 from
http://www.airasia.com/my/en/about-us/ir-directors-biography.page
Asian Development Bank. (n.d). Malaysia: Economic. Retrieved on February 25, 2016 from
http://www.adb.org/countries/malaysia/economy
AirAsia and AirAsia X Annual Reports for the years 2013-2014.
AirAsia.com. (n.d). IR Calendar. Retrieved on February 25, 2016 from
http://www.airasia.com/my/en/about-us/ir-calendar.page#
CAPA. (13 March 2015). Malaysia aviation outlook Part 1: growth slows but competition is still
intense as MAS restructures. Retrieved on February 25, 2016 from
http://centreforaviation.com/analysis/malaysia-aviation-outlook-part-1-growth-slows-but-
competition-is-still-intense-as-mas-restructures-213525
CAPA. (17 March 2015). Malaysia aviation outlook Part 2: AirAsia and AirAsia X focus on
improving yields as growth slows. Retrieved on February 25, 2016 from
http://centreforaviation.com/analysis/malaysia-aviation-outlook-part-2-airasia-and-airasia-
x-focus-on-improving-yields-as-growth-slows-213994
Chong, P. K. (January 6, 2016). AirAsia plans $1 Billion bond program to finance debt, planes.
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