No-frills airline AirAsia expects to offer its first Islamic bond issue later this year to help finance the purchase and lease of 11 Boeing 737-300 aircraft, officials said today.

"The issuing of Islamic bonds is progressing well. We are happy with the progress. The debt market is showing lots of confidence in AirAsia," its chief executive Tony Fernandes told reporters.

The company aims to offer RM160 million in 7-year Islamic bonds by September or October. An Islamic bond is a debt instrument that adheres to Syariah principles which prohibit the payment of interest.

Earlier, Fernandes launched the company's multi-lingual website which allows customers to book on-line.

Internet booking

Over 45 percent of AirAsia's total sales are generated the Internet. In the last 14 months since AirAsia introduced online booking, it has recorded sales of over RM60 million through the Internet alone.

Kamarudin Meranun, AirAsia's executive director told AFP that the carrier is hopeful that the bonds could be issued by September or October and is aiming for a 7-year issue at the lowest yield.

"At the moment, the lowest yield is about four percent," he said, adding: "We hope to get a favourable rating that reflects truly the underlying value of the company."

Kamarudin said numerous groups have expressed interest in the bond, including foreign institutions. "We have a lot of interested parties."

Asked what was the immediate outlook in terms of passenger volume for AirAsia, he said: "The growth in passenger numbers is going to be exponential."

"We have placed fixed orders for 11 aircraft. We are buying four aircraft and will lease seven. By the end of 2004, AirAsia will have 18 aircraft."

New destinations

AirAsia has flown two million passengers within 18 months of operation. It currently has seven aircraft.

The fleet expansion is needed to serve new destinations, including southern Johor state, which neighbours Singapore, and Sarawak's oil rich town of Bintulu on Borneo island.

The airline, which began domestic flights in December 2001, has been described as a "vibrant and profitable low cost airline" after early criticism that it would fail within three months.

Kamarudin said AirAsia's three new foreign partners have already injected US$26 million into the carrier.

"We have secured the funds. We will use them as a buffer to purchase the new aircraft if the bond issue is delayed," he said.

The investors are the Bahrain-based Islamic Development Bank (IDB), Gulf-linked Crescent Venture Partners and Deucalion Capital, a Frankfurt-based global private equity fund.

At the right time

Fernandes reiterated AirAsia's stance of not rushing into flying regional destinations.

"We will go when the time is right. At that stage, we will go regional," he said.

AirAsia has previously indicated that it would like to fly to Singapore, Thailand and neighbouring Indonesia.

Adding to the list, Fernandes Tuesday said that the southern coastal states of India, including Kerala could be one of their potential regional destinations, taking into account the close ties Malaysia's Indian population here have with India.

"But, we will not rush to go regional," he added. - AFP