Khazanah to stop funding Malaysia Airlines if rescue talks with lessor fail
- Malaysia Aviation Group sets out an alternative plan to divert funds to a sister airline unit if the state carrier’s bailout talks with lessors are unsuccessful
- Malaysian finance minister said that the government would not provide financial relief to the national airline
The warning from Malaysia Aviation Group (MAG), the holding company for the state carrier, raises the stakes in negotiations for a financial shake-up known as “Plan A” and sets out an alternative plan to divert funds to a sister airline unit called Firefly.
“In the event Plan A fails, shareholder (Khazanah) will cease funding for MAG and will trigger winding down/liquidation process for MAG,” according to the document, the contents of which were confirmed by six people familiar with the matter.
Khazanah, MAG’s sole shareholder, declined to comment.
Can Malaysia cope with a ‘triple whammy’ economic shock?
Finance Minister Tengku Zafrul Abdul Aziz said in a radio interview on Thursday that the government would not provide financial relief or debt guarantees to the airline.
When asked whether the government would close down the airline, he said: “That is up to Khazanah as the shareholder of Malaysia Airlines. I have never ever said to close down Malaysia Airlines.”
In an email response to Reuters on Wednesday, MAG said it will “depict its final position upon achieving resolution with the parties it is negotiating with.” It said the restructuring plan was a crucial step for it to come out as a “sustainable and profitable organisation in future.”
01:23
Malaysia Airlines flight 370 ‘manipulated’ off course deliberately, investigators say
MAG’s comments in the letter came days after the airline group asked lessors in a missive for steep discounts on aircraft rentals as part of a broad restructuring plan, some of the people said.
According to the latest document, under a “Plan B” scenario, Khazanah would “inject funds into Firefly directly to start new jet operations at Kuala Lumpur on a much smaller scale, focusing first on domestic services.”
Low-cost carrier Firefly, which operates a fleet of 12 twin turboprops, mainly within the country, is currently a fully owned subsidiary of MAG.
According to the document, Firefly would obtain narrow-body planes and subsequently widebody aircraft from the market in the “Plan B” scenario.
How far should the government go to keep Malaysia Airlines aloft?
The carrier has a total fleet of 88 planes, of which 25 are in storage, according to data from Cirium, an aviation analytics company.
Late on Tuesday, Malaysia’s AirAsia X, the long-haul arm of AirAsia Group, Malaysia Airline’s competitor, said it needed to restructure US$15.3 billion of debt to stave off liquidation.
Globally, governments have bailed out shattered airlines this year but that has not been enough to prevent lay-offs.
Sources, who declined to be identified due to the sensitivity of the matter, say Malaysia Airlines is negotiating discounts with lessors via a restructuring plan it is seeking to implement through a UK court process.
Freshfields Bruckhaus Deringer and Clifford Chance are among the law firms involved in the restructuring process, while some lessors and other financiers have also tapped other law firms. Freshfields declined to comment while there was no immediate response from Clifford Chance.
Lessors had been given an October 7 deadline to respond to MAG but sources said lessors were also exploring bilateral negotiations with the aviation group.
