Shares of Capital A Bhd and AirAsia Group Bhd tumbled today following reports that the government is weighing contingency plans for the budget airline’s domestic operations.

The fall in the entities’ shares came after a Reuters report yesterday, which quoted sources as claiming that Putrajaya has asked Malaysia Airlines (MAS) and Batik Air whether they could absorb AirAsia’s domestic market share.

The talks involving the Finance Ministry and Malaysia Airports Holdings Bhd (MAHB) with the flag carrier and Indonesia’s Lion Air Group subsidiary are said to have increased in recent weeks amid growing concerns over financial pressures faced by AirAsia.

With AirAsia’s financial burdens stemming from soaring jet fuel costs linked to the war on Iran, MAS and Batik Air reportedly informed the government that they would only take over AirAsia’s operations on a large scale if they could also assume its aircraft leases.

Considering how absorbing AirAsia’s routes and passenger volumes without increasing the number of deployable aircraft would be “far more difficult,” as detailed by a source, MAS and Batik Air allegedly also signified their preference to absorb AirAsia’s routes and passengers instead of acquiring its whole business.

Another source said AirAsia’s financial challenges are a “significant concern” for the government as the airline has said it commands about 40 percent of Malaysia's overall aviation market and 60 percent of domestic flying.

'Endorsement' provision

Earlier this month, Reuters reported that other options which have been discussed include Putrajaya providing some form of “endorsement” to reinforce AirAsia’s plan to raise fresh capital from external investors.

At the midday break today, Capital A dropped 14.55 percent, or four sen, to 23.5 sen, with 88.75 million shares changing hands, while AirAsia slid 17.19 percent, or 11 sen, to 53 sen, on volume of 95.81 million shares.

With Capital A remaining AirAsia Group's largest shareholder via a 19.5 percent stake, their stocks were respectively ranked as the second and third most actively traded counters on Bursa Malaysia, according to the New Straits Times.

Based on these prices, Capital A's market capitalisation came in at RM1.03 billion, while AirAsia's stood at RM1.73 billion.

It was previously reported that AirAsia is seeking to raise as much as US$1 billion (RM4.1 billion) in international debt markets and RM700 million in local credit, separately.

The airline has since affirmed that it is seeking to consolidate its debt into a unified, lower-cost structure with extended maturities and better terms.

Previously, opposition lawmaker Ahmad Fadhli Shaari questioned whether taxpayers could eventually be called upon to bail out AirAsia, following a report on the Finance Ministry hiring Alton Aviation Consultancy to assess the airline’s financial standing.

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