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UPDATE 1-Malaysia's AirAsia Q1 loss narrows, weighed by asset depreciation

* Net loss 4.5% lower than a year ago; revenue down 87%

* Expect no fuel hedging losses from Q2

* Well prepared to rely solely on domestic operations this year

* Obtained approval letters from banks for govt-guaranteed scheme (Adds details, background)

KUALA LUMPUR, May 27 (Reuters) - A first-quarter net loss at Malaysian flagship budget airline AirAsia Group Bhd narrowed 4.5%, primarily dragged down by depreciation in leased assets and interest on lease liabilities, a stock exchange filing on Thursday showed.

However, the airline which marked its seventh consecutive quarterly loss, saw fair value gains on derivatives and said it had successfully negotiated for deferrals with lessors that resulted in 80% reduction in repayment of borrowings and lease liabilities. Fixed costs also fell 54%, it said.

The airline reported a 767.4 million ringgit ($185.45 million) net loss for the January-March quarter compared with 803.8 million ringgit in losses a year ago. The performance superseded the 234 million ringgit net loss an analyst forecast on Refinitiv.

Revenue plunged 87% to 298.2 million ringgit, as lockdowns in Malaysia at the start of the year to curb coronavirus infections further dampened the sales during the quarter.

Passengers carried totalled 976,968, a 90% drop from a year ago, while the load factor, which measures how full planes are, fell 10 percentage points to 67%.

The group said it focused on providing limited domestic operations in the countries it operates.

“Even if borders remain closed, the Group is well prepared to rely solely on domestic operations alone this year. We remain focused and committed to further strengthen our domestic position at this juncture as we await developments in regards to international air travel,” it said.

The airline also expects to see improved stability in operations as vaccinations continue to be rolled out in all key markets and travel bubbles could be introduced.

“We have restructured our fuel hedges with supportive counterparties, and thus, expect to see no fuel hedging losses from (the second quarter) onwards,” President for airlines business Bo Lingam said in a separate statement.

Chief Executive Tony Fernandes said sufficient liquidity was the key priority to support the airline’s strong return, and AirAsia had “obtained approval letters from certain banks”, for a government-guaranteed financing scheme.

The airline has raised 336.5 million ringgit so far through private placements to funds and individuals during the quarter.

Last month, he said the group expected clarity on its fundraising efforts in two to three months, as it continues talks with prospective funders. He had said the group expected to secure 1 billion ringgit in loans from three Malaysian banks pending regulatory approvals.

AirAsia has initially aimed to secure 2.5 billion ringgit by the end of last year, to weather the slump in global travel since the pandemic began.

Last month, an unnamed investor agreed to inject up to 3.15 billion baht ($100.41 million) into AirAsia’s Thai unit, as part of a restructuring plan proposed by parent company Asia Aviation PCL. ($1 = 4.1380 ringgit) (Reporting by Liz Lee; editing by David Evans)

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