Shares in Malaysia’s AirAsia Group were temporarily halted today after its auditor said there were “material uncertainties” that cast doubt on the budget carrier’s ability to continue as a going concern.

In an unqualified audit opinion on the airline’s earnings results for 2019 issued on Tuesday, Ernst & Young said the financial statements were prepared on a going concern basis – which is dependent upon a recovery from the Covid-19 pandemic and the success of fundraising efforts.

AirAsia posted an RM803.3 million ($188 million) loss on Monday for the three months to March 31, its biggest first-quarter loss since being listing in November 2004.

The airline said it was evaluating proposals for raising capital to strengthen its equity base and liquidity. It has also applied for bank loans and is weighing proposals to raise additional capital.

AirAsia said on Monday there were ongoing deliberations for joint ventures and collaborations that might result in additional third party investments in specific segments of the group’s business.

The trading halt was due to be lifted from 2.30pm local time, a release to the exchange said.

The Ernst & Young audit is detailed on the airline’s website.

It drew attention to notes on the airline’s annual financial statements, which indicate that the group had a net loss of RM283 million for the financial year ended December 31, 2019 and the current liabilities exceeded its current assets by RM1.8 billion ($430 million).

“Further, in early 2020, the global economy, in particular the commercial airlines industry, faces uncertainty as a result of the unprecedented Covid-19 pandemic,” the report added.

“The travel and border restrictions implemented by countries around the world has led to a significant fall in demand for air travel which impacted the Group’s financial performance and cash flows.”

These events “indicate existence of material uncertainties that may cast significant doubt on the group’s and the company’s ability to continue as a going concern”.

Ernst & Young added: “Nevertheless, with the recent progressive uplifting of restriction on interstate travel and domestic tourism activities within the operating countries, the group has seen positive developments on its business operations as passenger seat booking trends, flight frequencies and load factors are gradually improving to cater for the increasing demand.

“The financial statements of the group and the company have been prepared on a going concern basis, the validity of which is dependent on successful recovery from the Covid-19 pandemic in conjunction with the actions undertaken by the government of the respective countries, favourable outcome of the ongoing discussions with the financial institutions and investors to obtain required funding and successful implementation of the management’s plans for future actions in responding to the conditions.”

Chief executive Tony Fernandes said in a statement reported by the BBC: “This is by far the biggest challenge we have faced since we began in 2001. 

“Every crisis is an obstacle to overcome, and we have restructured the group into a leaner and tighter ship.”

“We are positive in the strides we have made in bringing cash expenses down by at least 50% this year, and this will make us even stronger as the leading low-cost carrier in the region.”

AirAsia said it was in talks over joint ventures and collaborations that may result in additional investment.

“The lockdown and restriction in travels issued by the government in the countries the group operates in has reduced the passenger capacity in the second quarter ended 30 June 2020,” the carrier said.

“However, in the month of June 2020 where domestic flights have started in the various countries, average load factors range between 45% to 65%.”

The airline added: “The gradual increase in passenger seat booking, flight frequencies and load factor during the progressive upliftment of travel restriction signifies positive development with strong demand for air travel anticipated.”