Malaysia Airlines is asking for a bailout from Malaysia’s sovereign wealth fund. Malaysia’s Khazanah Nasional Berhad wealth fund wholly owns the embattled Malaysia Airlines. The news comes as Malaysia Airlines faces a cash crunch and senior management attempts to restructure and save the airline.
A report in Reuters on the weekend suggests Malaysia Airlines wants up to US$500 million to meet its immediate cash needs.
“Malaysia Aviation Group has requested financial support from our shareholder Khazanah Nasional,” Reuters quotes a Malaysian Airlines spokesperson saying.
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Trouble at Malaysia Airlines predates 2020 travel downturn
In trouble before 2020, this year’s travel downturn has hit Malaysia Airlines hard. For much of the last decade, Malaysia Airlines has struggled to make a profit, and there have been several attempts to turn the airline around. Variously, that turnaround has involved a rationalization, rebranding, and restructuring. But 2020 has brought the airline’s financial problems to the fore.
In early October, Malaysia Airlines’ CEO warned the airline could shut down if lessors rejected a restructuring plan. Malaysia Airlines wrote to lessors saying the airline was burning through $84 million a month and had only $88 million in available liquidity and a further $139 million from Khazanah Nasional Berhad it could draw against. At the time, Malaysia Airlines said could not continue to keep up its lease payments from the end of November. That deadline is fast approaching.
Malaysia Airlines also says it expects to spend $5 billion over the next five years just to stay in the air. That’s a lot of money when you don’t have any. Also, Khazanah Nasional Berhad, who has progressively upped its stake in Malaysia Airlines over the years to assume full ownership, said enough was enough in October. If Malaysia Airlines cannot get a decent restructuring plan in place and work out a deal with lessors, the sovereign wealth fund would pull the plug on Malaysia Airlines and start afresh with a new carrier.
Malaysia Airlines CEO battles to wrangle aircraft lessors
It was reported Malaysia Airlines wanted a hefty 75% discount on its aircraft leases. According to planespotters.net, there are 83 aircraft in the Malaysia Airlines fleet. Fifty-eight of those 83 planes are marked as leased.
But the majority of lessors were not getting onboard. By mid-October, most lessors were knocking back the restructuring proposal, calling it “inappropriate and fatally flawed.” Since then, Malaysia Airlines has continued to negotiate with creditors.
Izham Ismail, CEO at Malaysia Airlines, said later that month;
“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.”
Mr Ismail was also resistant to the idea that Malaysia Airlines’ days may be numbered, also 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.”
Is Malaysia Airlines inching closer to a deal?
With Malaysia Airlines’ coffers now almost dry, negotiations have intensified. According to Izham Ismail, some aircraft lessors have agreed to a new deal, some have refused to renegotiate the original deals, and others remain undecided. Mr Ismail needs to get that undecided group on board to get his restructuring proposal over the line.
“There are creditors who have agreed already. There are others still resisting, and another group still 50:50,” the Bangkok Post reports him saying.
“I need to get the 50:50 ones onboard with those who have agreed.”
It’s not just the lessors Malaysia Airlines needs to talk around. The airline needs a cash injection to get through the next year. Having publicly stated it would not keep throwing good money after bad at Malaysia Airlines, whether Khazanah Nasional Berhad now comes to the party remains unknown.