A lifeline for Malaysia Airlines?

HIT hard by the COVID-19 pandemic, airlines around the world are battling cash crunch amid plunging demand caused by travel restrictions and border closures.

Closer to home, Malaysia Airlines' survival has been in question for a while now as it struggles to meet debt obligations while burning through a staggering amount of cash to remain afloat.

Yet, it appears that the airline may be inching closer to a deal as Finance Minister, Tengku Datuk Seri Zafrul Tengku Abdul Aziz told Nikkei Asian Review today hinted that the government would step in to aid the beleaguered airline after saying, "no to a bailout" previously.

READ: Tengku Zafrul sends 'strong signal' Malaysia Airlines will receive financial aid

What is the situation?

• In early October, the national carrier announced it is embarking on an urgent restructuring exercise.
• The measure includes reworking the airline's network and fleet.
• It is also negotiating RM16 billion worth of debt with creditors but talks have dragged on. Reuters earlier reported that lessors rejected a restructuring plan that involved steep discounts.
• Malaysia Airlines may not be able to service its debt after November unless the group received more capital from Khanazah Nasional, its sole shareholder.
• Chief Executive Officer (CEO) Captain Izham Ismail has warned the airline could shut down if lessors rejected a restructuring plan.
• The carrier’s parent company, Malaysia Aviation Group is reportedly seeking as much as USD500 million from Khazanah to meet its cash needs.

READ: Malaysia Airlines seeks aid from shareholder as creditor talks continue

Will Malaysia Airlines make it through?

• Tengku Zafrul has consistently said the government would not inject capital into Malaysia Airlines and it is solely up to Khazanah to resolve the matter (Khazanah is wholly-owned by the government).
• According to a report by Nikkei Asian Review on Tuesday, Tengku Zafrul suggests that MOF will step in to ensure the airline’s survival. "The Ministry of Finance has spoken to Khazanah and asked them to ensure that MAS continues to be in the position of strength to support the economy when it recovers," Tengku Zafrul was quoted as saying.

In trouble, even before the pandemic:

• Malaysia Airlines has been operating at a loss for a while. In January 2020, before the pandemic, the carrier said it needed nearly USD5 billion to continue operations until 2025.
• In a letter to lessors last month, the airline said it was burning through $84 million a month and had only $88 million in liquidity as of August 31 and an additional USD139 million from Khazanah.
• "Khazanah is doing what they have to do as a shareholder to ensure MAS survives the crisis," Tengku Zafrul, who sits on Khazanah’s board, said to Nikkei Asian Review. "Khazanah, being the big government-linked investment company, has the resources to ensure that MAS (can) survive and hopefully use this crisis as an opportunity to rebuild the airline industry, and of course MAS."
• The carrier had restructured in 2014 with Khazanah pumping in RM6 billion ringgit.
• To date, Malaysia Airlines still retains over 12,000 employees across the group but a salary cut has been implemented since March this year.

KHAZANAH'S 'PLAN B'?

• According to a report, if Malaysia Airlines’ RM16 billion debt restructuring plan fails, Malaysia Airlines Group (MAG) would consider to execute Plan B, which means injecting funds into low-cost airline Firefly, fully owned by MAG.
• This is to ensure continued air operations. Khazanah will have to transfer Malaysia Airlines’ Air Operator’s Certificate to another carrier.

READ: Malaysia Airlines or Firefly? It is Khazanah's call