No-frills airline AirAsia today said it has secured a RM100 million loan from Southern Bank and Singapore's DBS for the acquisition of four aircraft to help its expansion plans.

"Each bank will provide a loan of RM50 million," Kamarudin Meranun, Air Asia's executive director told AFP .

Kamarudin said the bridging loan facility was for two years and it would be repaid by bond issue. The agreement was signed late on Monday.

Air Asia had initially planned to issue a seven-year Islamic bond to purchase and lease 11 Boeing aircraft but higher bond yeilds forced the airline to delay the issue.

Kamarudin said the interim financing would be repaid by the RM160 million bond issue.

AirAsia had said the review in funding strategy would not result in any delay in the delivery of the aircraft.

The budget airline has placed fixed orders for 11 aircraft. It is buying four aircraft and will lease seven.

Going IPO

"The first delivery of the aircraft under the bank financing would be on Nov 17," Tony Fernandes, chief executive officer was quoted as saying by the Business Times newspaper.

"We were having a tough time trying to convince banks to give us loans when we first started the business," he said.

"But after looking at our current achievements, I think the banks are more receptive towards our business plan and this will assists us in our growth."

Fernandes said AirAsia would still consider bonds as one of its sources of financing despite easier access to bank loans.

AirAsia would first try to improve its ratings before it decides to do so, he said.

Fernandes said AirAsia was seriously considering going for an initial public offering (IPO) due to Malaysia's favourable market conditions.

"Looking at our increasing interest in the capital markets, the plan to go for an IPO may not be so far away," he said.

Gunning Indian market

AirAsia carried two million passengers within 18 months of operation and targets 3.2 million in 2003.

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

AirAsia is expanding fast. One new aircraft arrived Saturday and another is expected by end of the month to bring to a total nine aircraft. By mid-2004, it expects to have 18 carriers.

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

AirAsia's future direct flights from Labuan and Miri in Malaysia to Senai could also draw travellers from the sultanate of Brunei to Singapore.

The low-cost carrier also plans to fly to neighbouring Thailand, Indonesia and southern coastal states of India. - AFP