Remind Me: What’s The Situation At Malaysia Airlines

As Malaysia Airlines continues to deal with the fallout brought about by COVID-19, plans to keep the national flag carrier operating are an ongoing process. Malaysia Airlines’ parent company, the country’s Sovereign Wealth Fund, is busy negotiating with creditors and lessors. Still, the talks are taking much longer than was anticipated, according to a memo seen by media.

Malaysia Airlines Airbus A350
Patience is running out with Malaysia Airlines. Photo: Getty Images

In a memo to staff seen by Reuters, Izham Ismail, chief executive of Malaysia Airlines and group CEO of parent Malaysia Aviation Group (MAG), said

“The negotiations are still ongoing and taking longer than the planned timeline, but we are gaining encouraging traction from the lessors and creditors thus far.”

Restructuring is ongoing

In response to Reuters’ email question over the weekend, the Malaysia Airlines Group said it is “continuing discussions with creditors on its ongoing restructuring exercise.”

The Malaysian Airlines Group added that the memo was sent out to address concerns employees had over what was going to happen with the airline. Currently, Malaysia Airlines is looking to restructure its operations after being forced to ground flights due to the COVID-19 emergency.

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Malaysia Airlines
Malaysia Airlines suffered two aircraft losses in 2014 and has never recovered Photo: Getty Images

The carrier was already forced to restructure its operations in 2014 following two deadly crashes. Unlike then, the Malaysian government is now unwilling to inject more cash to keep the airline in business.

Reuters reported last week that the lessors had rejected a restructuring plan asking them to accept steep discounts, which looks like a forthcoming showdown over the carriers’ existence is now on the cards. In the memo to employees, Izham was eager to convince them that a restructuring of the airline was still a work in progress saying,

“Do you see me throwing in the towel yet? Together with the senior leadership team, we are here still fighting for the company’s survival.”

Firefly could become the national airline

Last Thursday, the Malaysian Airlines Group said that its subsidiary Firefly Airlines would start flying in early 2021 as part of a realigned group-wide business strategy. According to Reuters, the Malaysian Airline Group warned lessors that if they were not onboard with the discounts being asked, the company’s sole shareholder (Khazanah Sovereign Wealth Fund) would lose faith in Malaysian Airlines and make Firefly the national carrier.

Firefly Airlines
Firefly could become the flag carrier of Malaysia. Photo: calflier001 via Wikimedia

The boss of Khazanah, Shahril Ridza Ridzuan, said that the fund was ready to stop giving money to bailout Malaysia Airlines and instead would concentrate on Firefly.
Firefly is a Malaysian regional airline focused on short-haul flights between Malaysia, Singapore, and Thailand.

“Khazanah is ready to stop channeling funds towards Malaysia Airlines and will finance Firefly to expand its operations. If we succeed, Firefly has the potential to become Malaysia’s national carrier,” Shahril was quoted as saying by Bahrain News.

The Sovereign Wealth Fund manager also said that the Malaysia Airlines Group is not in a strong financial position and operates at a loss. Shahril said,

“If we continue to fund Malaysia Airlines, which does not hold a strong financial position and often experiences losses, Khazanah will have to dispose of other assets or increase our debt.”

Malaysian Airlines was struggling before COVID-19

Malaysian Airlines struggled long before the COVID-19 crisis after flight MH370 went missing and the shooting down of flight MH17 over eastern Ukraine. Since then, the government has injected funds to keep the airline in business and is now not prepared to inject more funds under the current conditions.

Do you think that Khazanah is just playing hardball with the creditors and lessors, or are they prepared to pull the plug on Malaysia Airlines? Please tell us what you think in the comments.