Malaysia Airlines May Need To Shut Down Without Restructuring

Malaysia Airlines is making plans to shut down if lessors do not accept its restructuring bid. The deadline for accepting the restructuring plan is Sunday, which means we could know the fate of the airline soon. The airline’s sole owner has also said it will no longer fund the struggling airline if the plan does not pass. So will Malaysia Airlines survive?

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Malaysia Airlines might have to shut down if it is unable to restructure the company quickly. Photo: Getty Images

Financial situation comes to a head

Malaysia Airline’s financial woes date far back from the current crisis. The airline had been operating at a loss for a while and expected to need nearly $5bn to continue operations until 2025. However, the pandemic has decimated business for the ailing flag carrier, with reserves quickly falling and airline burning through a staggering $84mn every month.

Last week, the airline’s owner, Khazanah, said that it intends to stop funding the carrier and plan an alternate airline if Malaysia cannot restructure. This has sent the airline scrambling to pass its restructuring plans by creditors, which would also see it renegotiate contracts with aircraft lessors.

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A group of lessors has rejected Malaysia’s proposal, putting the airline is jeopardy. Photo: Getty Images

Malaysia CEO Izham Ismail is quoted in The Edge Malaysia as saying this week that the carrier will have no choice but to shut down unless the plan passes, according to Bloomberg. He also added that the airline does have sizeable support but needs to flip a few more undecided creditors to pass the restructuring plans.

According to Reuters, however, a leading group of creditors has rejected Malaysia’s plans, calling it “fatally flawed.” This group claims comprise nearly 70% of the airline’s lessors, which could spell trouble for Malaysia Airlines. Khazanah does have a plan if the airline shuts down, known as “Plan B.”

Plan B to go into effect

Malaysia Airlines’ parent, Khazanah, has a plan to ensure continued air operations. If the airline fails, Khazanah will place Malaysia into liquidation and transfer its Air Operator’s Certificate (AOC) to another carrier. This airline would then fly the essential air routes as needed.

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Time is ticking for the carrier. Photo: Getty Images

Time seems to be running out for Malaysia Airlines as it struggles to stay afloat without a bailout from its owner. The airline is reportedly requesting a 75% discount on its leases, an exceptionally high figure. If this is true, it’s unlikely that lessors will back such a deal which would only result in losses.

Malaysian carriers in trouble

The flag carrier is not the only Malaysian carrier in trouble. Asian low-cost giant AirAsia is also in talks to restructure its long-haul subsidiary AirAsia X. This decision comes just days after the airline shut it’s Japan subsidiary and plans to cut it’s 24,000 employee workforce by 10% soon.

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AirAsia is also facing strong headwinds, forcing the airline to make deep cuts. Photo: Getty Images

The coming days will be critical for Malaysia Airlines, as it tries to prevent liquidation. The crisis also underscores how important a strong balance sheet or generous state aid is in this downturn. We will be sure to keep you updated on any developments in the deal.

What do you think about the future of Malaysia Airlines? Will the carrier survive this crisis? Let us know your thoughts in the comments.