Opinion: What Islamic finance can do for AirAsia’s restructuring

AIRASIA’S recent financial struggles have been covered on an almost daily basis, but a deeper look suggests that, unlike the narrative being offered today, it is not simply about liquidity. The group can still generate substantial revenues and Ebitda; where it has struggled is turning that operational scale into a sufficiently resilient cash flow.

Foreign-exchange arrangements, fuel price volatility, aircraft leases and maintenance, affiliate exposures and working-capital demands have all exerted their share of pressure on its books. The question as it seeks to refinance its existing debts is whether the new capital will merely delay the inevitable or be part of a restructuring capable of making the underlying business more resilient to such pressures.

Five short-haul airlines came under the enlarged AirAsia Group when AirAsia X acquired Capital A’s aviation arm in January 2026, and while Malaysia and Cambodia’s operations were profitable, three more — Thailand, Indonesia and the Philippines — were under varying levels of financial pressures.  

Thai AirAsia’s listed parent reported a substantial loss even after excluding foreign exchange; Indonesia AirAsia’s listed parent had deeply negative equity; and the  Philippine and Malaysian operations faced regulatory demands over various airport and passenger charges. Hence while management’s FY25 pro-forma figures provide a reasonable illustration, they are by no means reflective of the financial situation of any one segment or operation.

Within the previous parameters AirAsia X was clearly profitable: revenue in 1Q 2025 came in at RM940.1 million; RM660.8 million in 2Q, RM803.5 million in 3Q and  RM920.8 million in 4Q. Notably, operating profits fluctuated markedly — between RM50.5 million and RM1.4 million, then RM12.0 million between the first, second and third quarters — signifying an underlying weakness where the airline could make money, but with little operating cushion.

Foreign exchange — be it from aircraft leases, jet fuel contracts or international fees — also figured prominently, regardless of what transpired operationally. In 2Q 2025, for  example, a RM36.9 million forex gain helped lift profit after tax to RM35.2 million, even as net operating profit fell to RM1.4 million, reflecting the former’s influence on PAT.

The picture looked much healthier in 1Q 2026. But while the enlarged group recorded RM5.95 billion in revenue, RM1.009 billion in Ebitda and a RM199 million operating profit, a RM232 million non-cash foreign-exchange loss meant the group was RM128.7 million in the red instead.  

The deterioration continued in the next quarter: revenue fell to approximately RM5.1 billion, Ebitda more than halved to RM442.6 million and net loss came to RM830.5 million. AirAsia attributed RM331 million of that loss to foreign exchange, but crucially, even after excluding that amount, the group would still have lost approximately RM499.6 million. While forex was a major factor, therefore, it was clearly not the only one.

Simply put, its biggest issue is the currency’s structural mismatch. Fuel, aircraft leases, maintenance, spare parts and many aviation contracts are commonly dollar-linked,  while AirAsia earns across several Asian currencies — many of which have suffered in the last six months.

AirAsia X’s 2025 statements show the magnitude of this gap: forex gains of RM4.4 million in 1Q, RM36.9 million in 2Q and RM18.9 million in 3Q, with several unrealised. Any restructuring should therefore clearly distinguish realised from unrealised movements, and identify the exposures attached to leases, maintenance reserves, trade payables and related-party balances.

And while fuel costs have been cited as a major contributing factor, it was not the principal reason. AirAsia X, for example, struggled through the first three quarters of 2025, when average fuel prices fell year-on-year, but margins still remained weak. 1Q maintenance and overhaul expense rose to RM202.8 million from RM125.0 million a year earlier, while cost excluding fuel increased 24% per available seat kilometre. In 2Q, fuel expense fell to RM275.3 million, yet operating profit was only RM1.4 million.

By early 2026 then, fuel price pressures had risen exponentially: AirAsia cited market prices exceeding US$200 per barrel in late March and Malaysia’s weekly fuel-pricing  mechanism as major drags on its 1Q bill, forcing it to increase its fares and fuel surcharges, suspend several routes and reduce capacity by 10%.

It is almost impossible to calculate year-on-year fuel expenses, given the change in group structure. What is clear, however, is that Ebitda fell 56% to RM442.6 million. Load factors and revenue growth on their own cannot do all the heavy lifting, when the margins are too thin to buffer fuel, maintenance, airport charges and lease obligations.

AirAsia X’s cash fell to RM69.1 million in 1Q 2025, from RM174.8 million three months before. Operating cash flow was negative RM14.4 million, while RM86.5 million went to its lease liabilities. By 2Q it was down to RM51.4 million, with first-half lease repayments at RM161.8 million. And while cash and bank balances recovered the next quarter to RM81.0 million against cumulative lease repayments of RM238.7 million, lease liabilities remained at approximately RM1.3 billion, with around RM200 million categorised as current.

Here its wider disclosures are also material. The group reported RM3.84 billion of aircraft purchase commitments not provided for in its 1Q 2025 statements, significant  exposures to Thai AirAsia X, and approximately RM282.9 million of unrecognised losses in a dormant Indonesian joint venture. Its 3Q filing also disclosed RM301.3 million of lease-rental and maintenance-reserve receivables connected to a joint venture through a third-party leasing intermediary. The consolidated income statement therefore captures only part of the group’s economic and financial complexity.

Recent reporting puts the enlarged group’s current liabilities at RM18.4 billion, with cash and bank balances at RM954 million as of June 30, 2026. Numerous publications  have also reported an outstanding amount of at least RM500 million due to Malaysia Airports Holdings Bhd for passenger service charges (PSC), landing and parking  services.

Beyond Malaysia, the most serious, documented airport-fee arrears episode involved AirAsia Philippines: in 2026, CAAP demanded payment for navigation, landing, parking and passenger-service charges, including PSC collected on tickets; after the initial RM54.5 million demand was reduced through payments, CAAP confirmed settlement of its approximately RM17.7 million remaining demand in June 2026,  subject to reconciliation. Elsewhere, AirAsia has challenged a passenger-fee increase in Thailand and negotiated aircraft-parking costs in Indonesia.

Any refinancing or financial restructuring would need to address a maze of contracts and maturities with regional airports, lessors and suppliers, aircraft and route  profitability, new aircraft commitments, affiliate and related-party balances, currency  exposure and the capital structure itself. Any proposed platform should be weighed 
keenly against those requirements, and not purely on Ebitda.

Islamic finance offers structural options that address unique, standalone parts of the problem, while facilitating a much larger consolidation of the group’s resources.

A holistic structure in compliance with applicable Shariah requirements would see

None of this alters the underlying economics: Islamic finance cannot transform an unprofitable route or remove fuel, currency or fleet risks, and conventional bonds could  equally provide long-term funding.

Its relevance lies in the financing discipline. Legally binding funding to identifiable assets, cash flows, use of proceeds and governance provides cohesion and stability to a problem that extends beyond any given quantum of liability.

AirAsia's story as well as its eco-system has changed considerably in recent years. It has moved from the global disruption caused by the pandemic to a complete recovery in demand and consequent rebuilding of its network, only to find that restoring the operation was easier than restoring the balance sheet around it.

While revenues and Ebitda can still be substantial, its operating model’s margins leave little room for geopolitical shocks; dollar-denominated leases continue to absorb cash, and the enlarged group's obligations now extend well beyond the operating performance of any single airline.

This is what makes its next financing decisions more consequential than any conventional exercise. AirAsia needs capital, but it also needs time, a more manageable liability structure, disciplined fleet and route decisions and greater clarity around the risks sitting across the region, and perhaps more strikingly, a boost to the investor’s long-term confidence.

Islamic finance’s framework that connects capital more closely to assets, cash flows, use of proceeds and governance provides the coherence and stability to better handle surprises. Harnessed as part of a broader restructuring rather than as a substitute for one, it can transform the narrative from just another extension of the balance sheet into the fabric of its larger repair.