MAB not footing the bill for new Boeings, says CEO

Large global leasing firms and lenders will purchase the aircraft and then lease the planes to MAB


Malaysia Airlines Bhd (MAB) will not finance and own the 16 new Boeing aircraft bought from the US aviation giant, but will undertake leasing arrangements with global lessors and lenders who will foot the bill for the planes.

The national carrier, which has not yet turned a full-year profit and is still undergoing a lengthy turnaround plan, inked a memorandum of understanding (MoU) to purchase 16 aircraft from Boeing Co last week.

The deal includes eight 787-9 Dreamliners by converting a previous order of eight Boeing 737 MAX and eight 737 MAX 8s. Boeing’s Global Fleet Care service is also thrown into the deal.

MAB CEO Peter Bellew said large global leasing firms and lenders will purchase the aircraft and then lease the planes to MAB on the operating sale and leaseback agreement.

“These aircraft will not be owned by Malaysia Airlines, but are planned to be on operating leases, which is a norm in modern airlines,” he said in an internal memo dated Sept 15 sighted by The Malaysian

The deal with the American plane maker was inked during Prime Minister Datuk Seri Mohd Najib Razak’s visit to the US last week.

MAB had justified the purchase as part of the airline’s plan to become a premier airline. But sceptics had questioned the purchase of the aircraft, especially when the national airline had yet to return to profitability.

Khazanah Nasional Bhd, which owns the carrier, had injected RM6 billion to stop the bleeding at the airline. About 6,000 staff from the old national carrier had been axed and flights, especially to unprofitable routes to Europe, had been shelved as part the multibillion restructuring. The airline expects to be profitable next year.

In a lengthy and detailed memo to the airline’s 14,000 staff, Bellew said the recent purchase of the Boeing MAX and the 787-9 Dreamliners coincided with the end of the other lease agreements.

The first delivery of the eightwide-body Boeing 787-9 Dreamliner, with a list price of US$2.5 billion (RM10.5 billion), is expected in the third quarter of 2019.

Bellew said the airline’s current 48 737-800 fleet will reach the end of the lease period from early 2019.

The new orders were placed as pure replacements for existing planes and will arrive on the same month that the other aircraft are retired, he said.

Bellew said the latest orders from Boeing, claiming they were within the 25 firm orders for the 737-MAX 8 aircraft with another 25 options, which was inked last year.

“In all of this, I would like to reiterate that as of now, we have a firm order of 25 Boeing 737 aircraft with everything else being optional,” he said.

The total value of this Boeing MAX 8 order of 50 was US$5.5 billion, with the order now having an option to take delivery of some of the larger Boeing MAX 9 and MAX 10 aircraft, instead of the MAX 8.

The MAX 10 aircraft are expected to commence delivery in early 2021.

The initial 787-9 Dreamliner aircraft will operate MAB’s Asian services, said Bellew.

“The growth of the Malaysian economy and the increasing globalisation will allow these aircraft to commence new long-haul services from 2020 onwards, if sufficient profitable demand exists.

“The Dreamliner gives the company complete flexibility to manage a variety of market opportunities over the next 20 years,” he said.

The 787-9 can fly non-stop from Kuala Lumpur to any point in Europe and key cities on the West Coast of the US.

In September 2017, MAB signed a non-binding MoU with Boeing to facilitate negotiations with Boeing to change eight of the firm 737 orders to eight Boeing 787-9 Dreamliner aircraft. In addition to this, the airline also placed purchase rights for an additional eight 737 MAX 8, all while maintaining the total firm order at 25.

Bellew said the decision to have the purchase option and other arrangements will give MAB the flexibility in deciding the aircraft that suits its operational environment.

“Having said this, the management will continue carefully evaluating all options available to us to ensure our purchases make both business and operational sense.

“This is necessary and in line with ongoing prudent fleet management and cost containment efforts across the group,” he said.