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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 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 airline’s holding company, 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.
READ: Malaysia Airlines parent company says group is running out of cash
In an email response to Reuters, MAG said details related to its restructuring plan were strictly subject to confidentiality agreements between the parties involved.
“MAG will describe its final position in reaching a resolution with the parties it is negotiating with,” he said, adding that the restructuring plan was a crucial step for it to become a “sustainable and profitable organization in the future.”
He also said that the restructuring comes after various cost-cutting and cash-conserving initiatives to keep its business afloat proved inadequate due to the lingering effect of the coronavirus crisis.
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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 into Firefly directly to start new aircraft operations in Kuala Lumpur on a much smaller scale, focusing first on domestic services.”
Low-cost airline Firefly, which operates a fleet of 12 twin turboprops, primarily domestically, is currently a wholly owned subsidiary of MAG.
According to the document, Firefly would source narrow-body aircraft and later wide-body aircraft from the market.
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.
Reuters reported last week that MAG had told landlords that it was unlikely it would be able to make payments due after November unless it received more funds from Khazanah.
Khazanah told Reuters last week that he supported Malaysia Airlines’ restructuring efforts, but if they were unsuccessful, he would have to weigh options on how to maintain connectivity for Malaysia.
MAG said last week that the airline had contacted key lessors, creditors and suppliers recently as it embarked on an urgent restructuring due to the impact of the pandemic.
