Malaysia Airlines Owner Warns Of Dropping Cash Reserves

In a letter to lessors, the Malaysia Aviation Group, the holding company for Malaysia Airlines, says that it is unlikely to meet payments after November unless it receives more funding from state fund Khazanah. The letter asks its lessors to provide steep discounts as part of the airline’s restructuring plan.

Malaysia Airlines Airbus A350
Malaysia Airlines is burning through $84 million per month. Photo: Getty Images

The letter, seen by Reuters, added that  it’s sole shareholder, Khazanah, “intends to divert all efforts and funds to an alternative company with an existing air operator’s permit to ensure connectivity for Malaysia (i.e., Plan B).” There was no mention of the other airline’s name in the letter, but besides Malaysia Airlines, the country has the AirAsia Group Bhd, AIRA.KL, and several smaller carriers.

Malaysia Airlines is burning $84 million per month

The letter says that Malaysia Airlines is experiencing an operating monthly cash burn of $84 million. As of the end of August, it only had $88 million in liquidity and around $139 available from Khazanah. Based on current figures and the absence of further funding, the group would not meet its obligations, including payments to lessors after November 2020.

According to Reuters, the letter was sent out last month, but the exact date remains unclear.

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What is Khazanah?

Khazanah is the Malaysian government sovereign wealth fund and is entrusted with growing the country’s long-term wealth via distinct commercial and strategic objectives. The fund’s objective is to grow its financial assets and provide revenue for Malaysia while adding long-term economic benefits.

Malaysia Airlines will run out of money by December. Photo: Masakatsu Ukon via Wikimedia

When asked about its support for the Malaysia Aviation Group, Khazanah has said that it favors the restructuring. However, there was a caveat that said should it prove unsuccessful, the fund would look at other air options for Malaysia. Khazanah made no mention as to whether or not they would provide funds after November.

Malaysia Airlines suffered two significant tragedies

In 2014 the Malaysian national flag carrier suffered the disappearance of flight MH370 and the shooting down of flight MH17 while crossing over eastern Ukraine. These were two severe blows for the airline and something from which it struggled to recover. The same year as the two tragedies, Khazanah invested $1.5 billion to restructure the airline and has now seen Malaysia Airlines fall victim to the coronavirus.

Along with the decrease in business brought on by COVID-19, Malaysia Airlines has more employees than it needs and a messy strategy that depends on further investments. When talking about its restructuring plan, the oneworld alliance member said:

“It is intended that this restructuring exercise be completed over the next few months. However, if such an outcome is not possible, the group will have no choice but to take more drastic measures.”

Malaysia airlines
Malaysia Airlines will need more money to survive. Photo: Malaysia Airlines

According to Reuters, the lessors have been given a deadline of October 7 to reply to the letter. Without being named, several of the parties involved say they have been taken aback by the hard-line the airline is taking.

“The lessors are already under pressure in this market and what Malaysia Airlines is asking is just not doable,” said a banking source, adding that the airline was looking for a 75% discount.

It seems like we cannot go more than a few weeks without an airline asking to be bailed out by the government or, in this case, a state wealth fund. Malaysia Airlines, Air India, South African Airways, and Alitalia all need to be scrapped. State-run airlines all suffer from overstaffing, corruption, and incompetence.

What do you think will happen to Malaysia Airlines? Will they go broke or will the government step in to bail them out? Please let us know what you think in the comments