Khazanah likely to fund part of MAB purchase


Khazanah Nasional Bhd is likely to be the primary source to fund Malaysia Airlines Bhd’s (MAB) planned purchase of 16 new aircraft worth over US$3 billion.

The government-owned sovereign fund which owns the national carrier, has already injected RM6 billion under a massive and lengthy turnaround plan at the airline.

Maybank Investment Bank Bhd aviation analyst Mohsin Aziz said Khazanah as MAB’s principal shareholder, could be the primary funder for the US$3.06 billion (RM12.8 billion) deal.

“Chances are, it would be them. But, there could also be more than one source of funding as different organisations may step in to fund (the purchase) as well.

“There are many bodies that would be interested to do so. It is very common for them where they can become the financier of the aircraft. Even Khazanah can either fund them on their own, or under Penerbangan Malaysia Bhd,” he told The Malaysian Reserve.

Mohsin said, despite bouncing back in the final quarter of last year, MAB’s decision over the purchase of the new aircraft was necessary to maintain its status as a premium airline.

“It is the name of the game. If you do not do it, you will be left with your aircraft getting old. So, the best thing to do is to buy some for expansion and some for replacement,” he said.

MAB yesterday signed a memorandum of understanding (MoU) with Boeing Co to purchase the Boeing 787-9 Dreamliners and Boeing 737 MAX 8s as the national carrier readied itself to reactivate its long-haul ambition.

The proposed deal valued at US$3.06 billion, based on list price, involved eight 787-9 Dreamliners, by converting eight of MAB’s existing order for the Boeing 737 MAX and eight additional purchase rights of the 737 MAX 8s.

The MoU also includes Boeing’s Global Fleet Care, which would allow the two companies to build a world-class maintenance and repair operations for the aircraft.

The deal with the US aircraft maker was signed in Washington and witnessed by Prime Minister Datuk Seri Mohd Najib Razak.

Najib said the Malaysian government intended to increase the number of Boeing planes purchased by MAB.

“We are committed to 25 planes of the 737 MAX 8s, plus eight 787 Dreamliners. And there is a strong probability — not possibility — that we will add 25 more 737 MAX 10 in the near future.

“So within five years, the deal will be worth beyond US$10 billion,” he was reported as saying according to Bernama.

Najib who is also the finance minister said the government will try to persuade AirAsia Bhd to purchase General Electric engines.

MAB MD and CEO Peter Bellew said the purchase of the new wide-body aircraft is the key to making Malaysia Airlines (MAS) a premium airline offering a five-star product again.

“The extraordinary range of the 787-9 gives an ability to operate to any point in Europe and some US destinations in the future from Kuala Lumpur,” he said in a statement.

The national carrier had abandoned many unprofitable routes, especially to Europe and other parts of the world as the airline restructured its cost structure, and stopped the losses.

But analysts welcome the return of the national carrier to international routes.

Mohsin said it was wise move based on the choice of aircraft purchased by MAB.

“Long-haul flights are generally challenging. There will be times when the flights are full and others when nobody wants to fly.

“The good thing is that they have chosen good aircraft which are light and fuel efficient. This will certainly help their long-haul business.

“However, there is no guarantee that it will be a successful exploration,” he said.

Meanwhile, a transportation equity analyst who declined to be named, said it was the right time for MAB to purchase the aircraft and return to their long-haul business.

“They are in the middle of rebuilding. Previously they had cut many of their long-haul flights. Now is a good time for them to start again.

“Considering the time buffer they have from now until the delivery of the aircraft at the end of 2019, they can do the necessary arrangements to ensure premium services,” said the analyst.