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SINGAPORE: Malaysia Aviation Group, the holding company for Malaysia Airlines Bhd, said in a letter to lessors that the group is unlikely to be able to make payments due after November unless it receives more funds from the state Khazanah fund.
The letter, reviewed by Reuters, follows a request by the troubled airline for deep discounts on aircraft rentals from its lessors as part of a comprehensive restructuring plan, three sources with knowledge of the matter said.
The letter added that in the absence of a restructuring implemented by the end of the year, Khazanah, its sole shareholder, “intends to divert all efforts and funds to an alternative company with an existing air operator permit to ensure connectivity to Malaysia ( that is, Plan SECOND). “
The alternative company was not named. Malaysia has two main airlines, the other is AirAsia
Group, as well as other smaller carriers.
The letter was sent to the landlords last month, but the exact date was not immediately clear.
Malaysia Aviation Group later confirmed in a statement on Friday that Malaysia Airlines had contacted key lessors, creditors and suppliers recently as it embarked on an urgent restructuring due to the impact of the coronavirus pandemic.
According to the letter seen by Reuters, the aviation group is experiencing “an average monthly operating cash burn of $ 84 million,” but only had $ 88 million in liquidity as of Aug. 31 and an additional $ 139 million available from Khazanah.
“Based on the current execution rate, without further funding from shareholders, it is likely that the group will not be able to meet its obligations, including payments to lessors, after November 2020,” he said.
The Khazanah sovereign wealth fund said in an email response to Reuters inquiries that it supported the airline’s restructuring efforts aimed at creating a path to a financially self-sustaining post-COVID airline. “But if they are unsuccessful, options will need to be evaluated. on how to maintain connectivity for Malaysia, he said.
It did not provide clarity on whether it would provide additional funding beyond November.
In the letter, Malaysia Aviation Group said that additional shareholder support beyond December 2020 was conditional on “agreeing successful restructuring terms with all stakeholders.”
Globally, governments have bailed out wrecked airlines this year, but that has not been enough to prevent layoffs.
Last month, Thai Airways International’s debt restructuring was approved by a bankruptcy court. Singapore Airlines has raised $ 11 billion in a rescue package led by state investor Temasek Holdings.
STRONG DISCOUNTS
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 roll back his business have been further affected by the pandemic.
Malaysia Aviation Group said in its statement that its plan was “highly dependent on individual contributions from all relevant stakeholders to support the group.”
“This restructuring exercise is expected to be completed in the coming months. However, if such a result is not possible, the group will have no choice but to take more drastic measures,” he said.
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 sources said the airline plans to negotiate discounts with lessors through a restructuring plan that it is trying to implement through court proceedings in the UK.
Landlords, who have been given an October 7 deadline to respond to the letter, and other stakeholders have been surprised by the hard-line stance, said the sources, who declined to be identified due to sensitivity of the affair.
“Lessors are already under pressure in this market and what Malaysia Airlines is asking for is simply not feasible,” said a banking source, adding that the airline was seeking discounts of up to about 75%.
The airline’s global lessors include AerCap, Avolon and the leasing arm of Standard Chartered. Avolon and Standard Chartered declined to comment, while Aercap did not immediately respond. In addition to Malaysia Airlines, the group of holding companies includes other local companies and entities involved in leasing and ground handling services.
The letter also said that the group was in the process of restructuring about $ 2 billion of “debt / similar liabilities” with the support of its shareholder.
– Reuters
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