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SINGAPORE / KUALA LUMPUR (13 Oct): Malaysia Airlines is struggling to make payments owed to creditors and lessors amid the coronavirus pandemic that has forced it to cut back on operations.
The national carrier, which restructured after two fatal accidents in 2014, has a new plan that involves deep discounts from creditors, but unlike last time, the cash-strapped government is unwilling to bail it out.
How long have you been in trouble and why?
The airline has had losses for about a decade. The losses were compounded by two tragedies in 2014: the mysterious disappearance of Flight MH370 and the downing of Flight MH17 over eastern Ukraine.
In the price-sensitive domestic market, it faced increasing competition from low-cost rivals AirAsia Group Bhd and Malindo Air, a branch of Indonesia’s Lion Air.
In the international market, the Gulf airlines charged Emirates, Etihad Airways and Qatar Airways used the weight of their global networks to invade lucrative long-haul routes. Budget rival AirAsia X Bhd, now in financial trouble, offered discounted fares on routes within Asia.
How was it restructured previously?
The state fund Khazanah Nasional became the sole shareholder in its parent company, delisting it in 2014 as part of a $ 1.5 billion restructuring that reduced its staff by 6,000, or about 30%. It aimed for a return to earnings in three years, but it hasn’t been profitable yet.
Analysts and lessors say the airline has been beset by high costs, a messy strategy and an inflated workforce even after the restructuring.
“We are at this stage because the airline has run out of money, out of ideas and the government seems to have run out of patience,” said Shukor Yusof, an analyst at Endau Analytics.
Before the pandemic, the government was looking for a strategic partner to invest in the airline, but those plans fell through when stakeholders like Air France-KLM and Japan Airlines were hit by a revenue collapse in their domestic markets.
What is the government’s position on financing?
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said last week that the government will not provide financial relief or debt guarantees, raising questions about the fate of the airline.
The president of the National Union of Flight Attendants of Malaysia (Nufam), Ismail Nasaruddin, called the statement of the finance minister “irresponsible”.
“As a government, you should be able to show some sense of responsibility,” Ismail said. Reuters on Tuesday. “It’s detrimental (to) morale (and) trust. People don’t trust you now.”
Any support measures for the carrier will need to be addressed by Khazanah, Tengku Zafrul said last week.
Tengku Zafrul is chairman of the Khazanah junta, which is chaired by Prime Minister Tan Sri Muhyiddin Yassin, who is struggling to stay in power.
Reuters reported last week that Khazanah warned leasing companies that it will stop financing the airline group and force it into a liquidation process if restructuring talks with the lessors are unsuccessful.
What do creditors and landlords say?
A group of leasing companies that claim to represent 70% of the planes and engines leased from Malaysia Airlines have rejected their plan, calling it “inappropriate and fatally flawed.” The airline group has said it was satisfied with the level of support from lessors, but has warned that it will have to close if they don’t support the plan.
The airline, which has a fleet of 88 aircraft, leases aircraft from a dozen leasing companies, including Avolon, Aercap, BBAM, Air Lease and Standard Chartered’s leasing division. They all declined to comment, while another lessor, SMBC Aviation, did not respond to a Reuters query.
What if there is no deal?
Under a “Plan B” scenario, Khazanah would inject funds into Firefly, a 12 turboprop operator that is a wholly owned subsidiary of Malaysia Airlines parent.
According to a document seen by Reuters, Firefly would get narrow-body aircraft and later wide-body aircraft from the market. Leasing rates have dropped dramatically due to lack of demand from airlines.
Before the pandemic, Malaysia Airlines had delayed its order for Boeing Co 737 MAX jets and industry sources said it was considering smaller jets like the Airbus SE A220 or Embraer SA E190.
“It’s pretty clear that the future of Malaysia Airlines has to be a very small airline if it has any chance of survival,” said one leasing executive.
Read also:
Lessors reject Malaysia Airlines restructuring plan
Malaysia Airlines to seek significant cut from creditors
Up to Khazanah to solve Malaysia Airlines dilemma, says Tengku Zafrul
Khazanah to stop financing Malaysia Airlines if landlord negotiations fail: letter
Malaysia Airlines group is short on cash, seeking deep discounts from lessors
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