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SINGAPORE: Malaysia Airlines’ parent has warned leasing companies that state-owned fund Khazanah Nasional Bhd will stop funding the group and force it into a liquidation process if restructuring talks with lessors are unsuccessful, according to a letter to the that Reuters had access to.
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 its sister airline, Firefly. .
“In the event that Plan A fails, the shareholder (Khazanah) will stop financing MAG and this will 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 on Wednesday, MAG said it would “represent its final position in reaching a resolution with the parties with which it is negotiating.” 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 came days after the airline group asked lessors 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 into Firefly directly 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 source narrow-body aircraft and subsequently wide-body aircraft from the market in the “Plan B” scenario.
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 impacted 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
, AirAsia’s long-haul arm Malaysia Airline’s competitor, Group, 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 said Malaysia Airlines was negotiating discounts with lessors through a restructuring plan that it seeks to implement through court proceedings in the UK.
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. – Reuters
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