Malaysia Airlines parent company seeks big discounts from lessors

Malaysia Aviation Group, the parent company of Malaysia Airlines, said in a letter to lessors the group is unlikely to be able to make payments owed after November unless it receives more funding from state fund Khazanah.

The letter, reviewed by Reuters, follows a request by the troubled carrier for steep discounts on aircraft rentals from its lessors as part of a broad restructuring plan, three sources with knowledge of the matter said.

The letter added that in the absence of an implemented restructuring by the end of the year, Khazanah, its sole shareholder, “intends to divert all efforts and funds to an alternative company with an existing air operator’s permit to ensure connectivity for Malaysia (Plan B).”

The alternative company was not named. Malaysia has two major airlines, the other being AirAsia Group, as well as other smaller carriers.

The letter was sent to lessors last month but the exact date was not immediately clear.

Malaysia Aviation Group later confirmed in a statement on Friday that Malaysia Airlines had reached out to lessors, creditors and key suppliers recently as it embarks on an urgent restructuring due to the impact of the coronavirus pandemic.

According to the letter seen by Reuters, the aviation group is experiencing “an average monthly operating cash burn of $84 million” but only had $88 million in liquidity as of August 31 and an additional $139 million available from Khazanah.

“Based on the current run-rate, absent further funding from shareholders, the group will likely be unable to meet its obligations, including payments to lessors, post November 2020,” it said.

Sovereign wealth fund Khazanah said in an emailed response to Reuters’ queries that it was supportive of the airline’s restructuring efforts aimed at creating a pathway to a financially self-sustainable post-COVID airline”. But if they prove unsuccessful, it will need to evaluate options on how to maintain connectivity for Malaysia, it said.

It did not provide clarity on whether it would provide additional funding beyond November.

In the letter, Malaysia Aviation Group said that additional shareholder support beyond December 2020 was conditional upon “agreeing successful restructuring terms with all stakeholders.”

Globally, governments have bailed out shattered airlines this year but that hasn’t been enough to prevent layoffs. Last month, Thai Airways International’s debt restructuring was approved by a bankruptcy court. Singapore Airlines has raised $11 billion in a rescue package led by state investor Temasek Holdings.

Malaysia’s national airline has struggled to recover from two tragedies in 2014 - the mysterious disappearance of flight MH370 and the shooting down of flight MH17 over eastern Ukraine. Khazanah took it private that year as part of a $1.5 billion restructuring but efforts to turn around its business have been further upended by the pandemic.

Malaysia Aviation Group said in its statement that its plan was “highly dependent on the individual contributions of all relevant stakeholders in supporting the group.” “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,” it said.

Reuters