Wow: Malaysia Airlines Needs $5 Billion To Stay Afloat

The latest financials are suggesting that Malaysia Airlines will be operating at a loss. Reports indicate that if the flag carrier of Malaysia can’t turn its situation around or find a major investor, it will require up to RM21 billion (US$5.15 billion) of government assistance in order to keep it going until 2025.

malaysia-airlines-airbus-330-pressurisation
The airline has been looking for an investor for the last year. Photo: lasta29 via Flickr.

According to media outlet Today, the numbers come from a memo based on Malaysia Airline’s 2019-2025 business plan. Involved with this business plan is the airline’s main investor, Khazanah Nasional – the sovereign wealth fund of the Malaysian Government – which has invested the equivalent of over US$196 million in the carrier according to The Edge Markets.

“The RM21 billion financing is a ‘high-level estimate’ based on Khazanah’s projections, which included aircraft purchases if [Malaysia Airlines] continued bleeding red…That would mean the fund would need to pump in roughly RM3.5 billion a year with RM1 billion to RM1.6 billion going to operations and the rest for aircraft. Based on [Malaysia Airlines’] own estimates which Khazanah considered optimistic, RM10.3 billion would be needed,” -Khazanah memo

4% growth is too optimistic

The business plan put together by Malaysia Airlines calls for “driving revenue” and “managing costs” while maintaining a “premium customer experience”. The airline estimates that it would break even in 2022 and become stable in 2024.

However, Khazanah does not see a difference between the proposed business model and the previous one, saying that the plan’s forecasted 4% jump in revenue is unlikely. With a 1% per year growth rate between 2016 and 2018, the memo observed that the airline would never break even should it continue at this rate.

Wow: Malaysia Airlines Needs $5 Billion To Stay Afloat
The airline’s major investor does not see a significant change put forward in the latest business plan. Photo: Getty Images

Even with Malaysia Airlines’ estimates, Khazanah would still be required to inject an additional RM10.3 billion. Some of this money would be used to pay off the RM5.6 billion loan needed for six Airbus 380s and finance operations. Sources indicate that the airline has already risked defaulting on this loan.

The conclusion that Khazanah has reached is that this latest business plan is overly optimistic and does not offer any new solutions that will change the airline’s financial situation. According to Today, Khazanah cites the airline’s weak track record, execution capacity and an inability to address revenue decline as the main reasons why it lacks confidence in the plan.

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Malaysia Airlines has a lot of turnaround work to do. Photo: Boeing

Conclusion

Of course, despite the challenging financial situation, Khazanah is still hoping for an investor to come in and rescue the airline. Various reports suggest that Malaysia Airlines is currently being courted by five different airlines; Qatar, AirAsia, Malindo Air, China Southern, and Japan Airlines. KLM-Air France was rumored to have made an offer for 49% of the airline but recent reports indicate that the European airline group has opted out.

The numbers are clear – the airline is not operating sustainably. Its largest shareholder, Khazanah, believes it needs more change in order to survive and thrive in today’s highly competitive environment.

What do you think needs to change at Malaysia Airlines in order to once again become profitable? Let us know in the comments!

We reached out to Malaysia Airlines with a request for comment. However, no response was received at the time of publishing this article.

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