Saudi Arabia’s Public Investment Fund (PIF) is preparing to invest approximately $100 million in the Malaysian airline group AirAsia. This investment is poised to enhance the Gulf kingdom’s connections with a region that serves as a significant source of tourism, as reported by sources familiar with the negotiations.

The PIF is expected to be the largest contributor in AirAsia’s fundraising initiative, which aims to secure around 1 billion ringgit (approximately $226 million). AirAsia is currently in discussions with other potential investors from Singapore and Japan, who are also looking to participate in this fundraising round. Although an announcement regarding the investment may be made within weeks, sources caution that the agreement remains uncertain and could still fall through.

AirAsia is actively seeking funds to rejuvenate its growth strategies after suffering financial losses due to the COVID-19 pandemic. The low-cost airline group is offering outside investors a stake of up to 15% at a company valuation of $2 billion. The urgency of this investment is heightened as Capital A Bhd, AirAsia’s controlling shareholder, is on the verge of receiving approval to restructure ownership and merge its aviation operations with its sister company, AirAsia X Bhd.

Representatives from both the Public Investment Fund and AirAsia have declined to comment on the ongoing discussions.

One of the appealing aspects of AirAsia for investors is its substantial backlog of over 350 narrowbody aircraft ordered from European manufacturer Airbus SE. Currently, AirAsia operates an all-Airbus fleet of 225 narrowbody planes. Recently, Riyadh Air, a new airline owned by the PIF, took over a portion of the delivery slots from AirAsia. This arrangement allows AirAsia’s owner, Tony Fernandes, to reduce jet commitments, thereby delaying financing obligations in the near to medium term.

The acquisition of delivery slots provides Riyadh Air, which plans to launch later this year with only one spare technical aircraft, with essential aircraft. Initially, Riyadh Air intended to purchase 100 Boeing 737 jets but opted for the Airbus slots from AirAsia instead, according to the sources.

The PIF manages around $930 billion in assets and has various aviation-related investments within Saudi Arabia, including an aircraft leasing company and a helicopter unit. Additionally, it holds a 15% stake in London’s Heathrow Airport. Crown Prince Mohammed Bin Salman, who chairs the fund, is focused on transforming Saudi Arabia into a global travel hub while diversifying the economy beyond oil dependency. A key project in this vision is Neom, a $1.5 trillion city being constructed on the kingdom’s west coast.

AirAsia’s parent company, Capital A, has been classified as financially distressed by the Malaysian stock exchange since the pandemic, forcing it to cancel plans to list its brand unit in the United States through a special purpose acquisition company (SPAC) last year, which would have raised over $1 billion.

Looking ahead, AirAsia intends to attract new investors before placing another aircraft order for around 100 regional jets, considering either the Airbus A220 or the Embraer E2.