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KUALA LUMPUR – The Malaysian government approved a RMB 1 billion ($ 242 million) loan as a lifeline for low-budget airline AirAsia Group as it struggles to contain the consequences of the coronavirus pandemic, Nikkei Asia has learned.
The loan will be granted by a group of local banks under a government scheme to help companies deal with the pandemic. It will be 80% guaranteed by the Malaysian Ministry of Finance, according to ministry and airline sources familiar with the plan.
“The RM 1 billion is seen as very crucial for AirAsia as it will be used to pay off short-term loans and finance working capital,” said a source close to the ministry. Disbursement is expected next month.
AirAsia will also embark on another round of job cuts next month, a source within the airline told Nikkei Asia.
Like airlines around the world, AirAsia has taken a major hit from the coronavirus pandemic, which has dramatically reduced demand for travel. The group, controlled by CEO Tony Fernandes, has already cut more than 10% of its workforce and plans to reduce its fleet of planes to try to contain costs.
In an interview with Nikkei in July, Fernandes revealed that the airline needed to raise 2 billion ringgit over the next six months to be in a “very comfortable” position. “With one billion ringgit, we are comfortable. But if we can raise 2 billion ringgit, we would be in a very comfortable position,” he said at the time.
The sources said that the government had originally offered a RM 500 million loan, but gave in to the RM 1 billion request.
Fernandes did not respond to inquiries from Nikkei Asia seeking comment. AirAsia said it had nothing to announce at this time and declined to comment.
The loan to AirAsia would be disbursed by local financial institutions under the 50 billion Danajamin Prihatin Guarantee Scheme, operated by Danajamin Nasional, a state-owned financial guarantor.
The scheme was introduced by Prime Minister Muhyiddin Yassin to provide financial assistance to companies affected by the coronavirus pandemic. The government guarantee is for the first five years of the funding period.
Local media reports quoted Fernandes on Friday as saying the airline has laid off more than 2,400 employees since Malaysia’s borders were closed in March. Before the pandemic, the airline’s total workforce was more than 20,000.
The source said the next round could involve more than 400 employees, similar to the latest round of layoffs that ended last week.
“The last round was cabin crew and pilots. This time it will include all divisions,” said one of the sources.
On Thursday, Reuters quoted Fernandes as saying he wanted to return part of AirAsia’s aircraft fleet to its lessors. The airline is also in talks with Airbus to reduce backorders for A320 and A321 narrow-body and A330 wide-body aircraft.
Fernandes wants to reduce AirAsia’s fleet to 180 aircraft by the end of 2021 compared to 245 today, according to Reuters.
During the first six months of the year, AirAsia reported a net loss of RM1.8 billion against a net profit of RM111.78 million for the same period in 2019. Revenue also fell more than half to RM2.43 billion from RM5,650. million ringgit previously.
Last Monday, the airline also announced the cessation of AirAsia Japan, after three years of operations.
Meanwhile, the Malaysian Ministry of Finance has distanced itself from providing further assistance to the national flag carrier Malaysia Airlines. The airline, which has been suffering financially since the twin air disasters in 2014, received a $ 1.5 billion injection that year for a five-year recovery plan, but has thus far been denied any other direct financial assistance from the government.
The media quoted Finance Minister Tengku Zafrul Aziz as saying that the government would not interfere in the running of the company and that the state fund Khazanah Nasional, which owns the airline, would have to decide any measure with its own resources.
According to Reuters, Malaysia Airlines has started negotiations with the lessors of its jets and could terminate operations if restructuring talks fail.
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