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14. Investment in associates (cont’d.)
Acquisition of additional interests in associates in prior year
(a) On 19 February 2016, AAIL, a wholly-owned subsidiary of the Company, subscribed to 21,000,000 shares in JAA for a cash
consideration of JPY1,470 million (equivalent to RM53.4 million). On 29 December 2016, AAIL subscribed to an additional
7,000,000 shares in JAA for a cash consideration of JPY490 million (equivalent to RM18.7 million). The Group’s equity interest
in JAA remains as 49%.
(b) On 29 August 2016, AAIL, a wholly-owned subsidiary of the Company, invested an additional 114,905,000 ordinary shares in
AirAsia (India) Private Limited (“AAIPL”) for a cash consideration of USD17.2 million (equivalent to RM71.1 million). The Group’s
equity interest in AAIPL remains as 49%.
(c) On 16 December 2016, the Company subscribed to perpetual capital security issued by IAA amounting to IDR3,042 billion
(RM1,013 million). IAA has the discretion to defer interest payment and has no obligation to redeem the principal amount.
Therefore, the Company’s investment in this perpetual capital security is deemed in substance to be an extension to the
Company’s net investment in IAA and is accounted for as “Investment in Associate”. The investment in perpetual capital security
was satisfied via capitalisation of amounts due from IAA.
Impairment testing on investment in an associate
As at 31 December 2017, the Group’s investment in JAA was tested for impairment due to additional investment from the Company
to address their continuing losses incurred. The recoverable amount of the investment was computed using fair value less cost
to sell method based on discounted cash flow projections covering a five-year period from 2018 to 2022. Assumptions applied in
determining the recoverable amount include operational fleet size, load factor, average fare and jet fuel price.
No impairment is recorded for the investment in JAA.
The key assumptions used in determining the recoverable amount of the investment in JAA are as follows:
• Discount rate of 9.5%
• Long-term growth rate of 0%
The recoverable amount of the investment in JAA is within level 3 of the fair value hierarchy.
Valuation process
The finance department of the Group includes a team that performs the valuations of the investments in associates required for
financial reporting purposes, including level 3 fair values. The team reports directly to the Group Chief Financial Officer. The main
level 3 inputs used by the Group are derived and evaluated as follows:
• Discount rates are determined using a capital asset pricing model to calculate a pre-tax rate that reflects current market
assessments of the time value of money and the risk specific to the asset.
• Long-term growth rate are estimated based on market information for similar types of companies in similar geographical location.
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AirAsia Berhad
REPORTS AND FINANCIAL STATEMENTS