In this news, we discuss the Exclusive: Malaysia Airlines group low on cash, big discounts from lessors sought.
SINGAPORE (Reuters) – Malaysia Aviation Group, the holding company of Malaysia Airlines Bhd, said in a letter to donors that the group is unlikely to be able to make payments due after November unless it receives more financing of the Khazanah State Fund.
The letter, reviewed by Reuters, follows a request from the ailing carrier for deep discounts on aircraft leases from its lessors as part of a sweeping restructuring plan, three sources familiar with the matter said.
The letter added that in the absence of a restructuring implemented by the end of the year, Khazanah, its sole shareholder, “intends to divert all efforts and funds towards a alternative company with an existing air operator’s license to provide connectivity for Malaysia (i.e. Plan B). “
the alternative the company was not named. Malaysia has two major airlines, the other being AirAsia Group AIRA.KL, along with other small carriers.
The letter was sent to donors last month but the exact date was not immediately clear.
The Malaysia Aviation Group later confirmed in a statement Friday that Malaysia Airlines recently contacted lessors, creditors and major suppliers as it embarks on urgent restructuring due to the impact of the coronavirus pandemic.
According to the letter seen by Reuters, the aerospace group has “an average monthly consumption of operating cash of $ 84 million”, but had only $ 88 million in cash as of August 31 and an additional $ 139 million available from Khazanah.
“Based on the current going rate, in the absence of additional financing from shareholders, the group will likely be unable to meet its obligations, including payments to donors, after November 2020,” he said. .
Sovereign wealth fund Khazanah said in an email response to questions from Reuters that he supports the airline’s restructuring efforts aimed at creating a path towards a financially self-sustaining post-COVID airline. But if they prove unsuccessful, he will have to assess options on how to maintain connectivity for Malaysia, he said.
He did not say whether he would provide additional funding beyond November.
In the letter, Malaysia Aviation Group said additional shareholder support beyond December 2020 was conditional on “agreeing successful restructuring terms with all stakeholders”.
Globally, governments have bailed out crumbling airlines this year, but that hasn’t been enough to prevent layoffs.
Last month, Thai Airways International’s THAI.BK debt restructuring was approved by a bankruptcy court. Singapore Airlines SIAL.SI has raised $ 11 billion as part of a bailout led by state investor Temasek Holdings.
The Malaysian national airline struggled to recover from two tragedies in 2014 – the mysterious disappearance of flight MH370 and the downing of flight MH17 over eastern Ukraine.
Khazanah deprived it that year as part of a $ 1.5 billion restructuring, but efforts to turn around its business were further disrupted by the pandemic.
Malaysia Aviation Group said in its statement that its plan was “highly dependent on the individual contributions of all relevant stakeholders to support the group”.
“This restructuring exercise is expected to be completed within the next few months. However, if such a result is not possible, the group will have no choice but to take more drastic measures, ”he said.
Since last year, Malaysia has been looking for a strategic partner for its airline, which suffers from high costs and a bloated workforce.
Sources said the carrier plans to negotiate discounts with lessors via a restructuring plan that it seeks to implement through a UK court process.
Donors, who were given a deadline on Oct. 7 to respond to the letter, and other stakeholders were surprised by the tough stance, said the sources, who declined to be identified due to the sensitivity. of the question.
“Donors are already under pressure in this market and what Malaysia Airlines is asking is just not feasible,” a banking source said, adding that the carrier was looking for discounts of up to about 75%.
The airline’s global lessors include AerCap AER.N, Avolon and Standard Chartered’s rental subsidiary STAN.L. Avolon and Standard Chartered declined to comment, although there was no immediate response from Aercap.
Besides Malaysia Airlines, the group of holding companies includes other local carriers and entities involved in rental and ground handling services.
The letter also stated that the group was in the process of restructuring around $ 2 billion in “similar debt / liabilities” with support from its shareholder.
Reporting by Anshuman Daga in Singapore and Tim Hepher in Paris; Additional reporting by Liz Lee in Kuala Lumpur; Editing by Miyoung Kim, Edwina Gibbs and Susan Fenton
Original © Thomson Reuters