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SINGAPORE: Malaysia Airlines parent has warned leasing companies that the Khazanah state fund will stop financing the group and force it to go through a liquidation process if restructuring talks with lessors are unsuccessful, according to a letter to which it had access Reuters.
The warning from Malaysia Aviation Group (MAG), the holding company of the state airline, raises the stakes in negotiations for a financial restructuring known as “Plan A” and sets out an alternative plan to divert funds to a sister airline unit called Firefly.
“In the event that Plan A fails, the shareholder (Khazanah) will stop financing MAG and trigger the liquidation / liquidation process of MAG,” according to the document, the content of which was confirmed by six people familiar with the matter.
Khazanah, MAG’s sole shareholder, declined to comment.
In an email response to Reuters on Wednesday, MAG said it will “describe its final position in reaching a resolution with the parties it is negotiating with.” He said the restructuring plan was a crucial step for it to emerge as a “sustainable and profitable organization in the future.”
MAG’s comments in the letter reviewed by Reuters came days after the airline group asked lessors in a letter for steep discounts on jet rentals as part of a comprehensive restructuring plan, some of the people said.
According to the latest document, in a “Plan B” scenario, Khazanah “would inject funds directly into Firefly to start new aircraft operations in Kuala Lumpur on a much smaller scale, focusing first on domestic services.”
The low-cost airline Firefly, which operates a fleet of 12 twin turboprops, mainly domestically, is currently a wholly owned subsidiary of MAG.
According to the document, Firefly would market narrow-body aircraft and subsequently wide-body aircraft in the “Plan B” scenario.
PREVIOUS RESTRUCTURING
Malaysia’s national airline has struggled to recover from two tragedies in 2014: the mysterious disappearance of Flight MH370 and the downing of Flight MH17 over eastern Ukraine.
Khazanah took it private that year as part of a $ 1.5 billion restructuring, but efforts to reverse his business have been further disrupted by the COVID-19 pandemic.
Since last year, Malaysia had been seeking a strategic partner for its airline, which has been beset by high costs and an inflated workforce.
The airline has a total fleet of 88 aircraft, of which 25 are in storage, according to data from Cirium, an aviation analytics company.
Late on Tuesday, AirAsia X of Malaysia
, AirAsia’s long-haul arm Group, a competitor to Malaysia Airline, said it needed to restructure $ 15.3 billion of debt to avoid liquidation.
Globally, governments have bailed out wrecked airlines this year, but that hasn’t been enough to prevent layoffs.
The sources, who declined to be identified due to the sensitivity of the matter, say Malaysia Airlines is negotiating discounts with lessors through a restructuring plan that it seeks to implement through a court process in the United Kingdom.
Freshfields Bruckhaus Deringer and Clifford Chance are among the law firms involved in the restructuring process, while some landlords and other financiers have also turned to other law firms. Freshfields declined to comment while there was no immediate response from Clifford Chance.
The lessors had been given an October 7 deadline to respond to the MAG, but sources said the lessors were also exploring bilateral negotiations with the aviation group.
The Khazanah wealth fund told Reuters last week that it supported Malaysia Airlines’ restructuring efforts, but that if they were unsuccessful, it would need to weigh options on how to maintain connectivity for Malaysia.
– Reuters
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