Higher bond yields have forced AirAsia, Malaysia's no-frills airline, to rethink the issue of a RM160-million (US$42 million) Islamic bond issue to purchase and lease 11 Boeing aircraft, an official said.

Kamarudin Meranun, AirAsia's executive director told AFP Saturday the carrier would make a final decision at the end of August on how to fund the purchase of the new 737-300 aircraft.

"When we first looked at the seven-year bond, yields were low. But it has gone up now. So we are re-evaluating the actual cost effectiveness of using the Islamic bond route," he said.