MAB nearing bankruptcy in industry-wide crisis

To ensure the company can sustain itself through this critical time, more hard decisions will have to be taken soon, says Boo

by RAHIMI YUNUS / pic by BLOOMBERG

MALAYSIA Airlines Bhd (MAB) is at risk of bankruptcy and staff are encouraged to take the voluntary unpaid leave programme, said the group CFO Boo Hui Yee in an internal memo addressed to the airline’s 13,000 staff.

Boo, in the memo seen by The Malaysian Reserve (TMR), cited that the widespread Covid-19 outbreak disrupted travel sentiments that resulted in passengers calling the carriers’ global contact centre and social media accounts to cancel bookings.

“Many airlines are now at the risk of going bankrupt and Malaysia Airlines is no different. To ensure the company could sustain itself through this critical time, more hard decisions will have to be taken soon,” Boo said.

She said the recent political shakeup in the country also compounded the sharp decline on travel demand.

The national airline also faced a double whammy with weakening ringgit and collapse in oil price that further drives up its operational cost.

MAB reported a net loss in the financial year ended Dec 31, 2018 (FY18), of RM792 million.

The airline previously confirmed with TMR that its parent company Malaysia Aviation Group Bhd (MAG) has offered staff two voluntary options, either five days of unpaid leave per month for at least three months or unpaid leave between one and three months beginning April following capacity cuts.

The national flag carrier previously said more than 2,000 flights have been cancelled up to April due to travel restrictions imposed by countries within the company’s network.

Earlier, the company had slashed the salary of the senior management staff by 10% and removed all allowances effective this month as it battles the financial fallout from the virus outbreak.

The International Air Transport Association has projected a total global lost revenue of between

US$63 billion (RM265.6 billion) and US$113 billion in the passenger business, more than double its previous assessment of US$29.3 billion in revenue loss.

Markets in Australia, China, Japan, Malaysia, Singapore, South Korea, Thailand and Vietnam are estimated to see a 23% reduction in passenger numbers that translates into a loss of US$49.7 billion in revenue.

A 40-year-old British discount airline Flybe has succumbed to the virus crisis and entered bankruptcy after months of bailout talks.

Sobie Aviation analyst and consultant Brendan Sobie said airlines are facing the biggest crisis in decades that even companies that were relatively in good financial position entering the virus crisis will have issues in the coming weeks.

“All governments will need to consider the health of their airline industry and look at providing help to ensure their airlines, whether government-owned or private, can get through this extremely difficult period,” Sobie told TMR.

TMR reported that MAB would need more capital injection from Khazanah Nasional Bhd to keep the company afloat amid the Covid19 pandemic.

Last October, Khazanah MD Datuk Shahril Ridza Ridzuan said in a report to the Public Accounts Committee that the government needs to pump about RM1 billion per year to MAB to sustain the entity amid overcrowded market — but that was before the Covid-19 appeared.

One analyst who declined to be named said drastic measures are needed for MAB, which may include the consideration of more pay cuts for the top management.

“Let’s tighten our belts, focus on driving costs down and reduce wastage to conserve cash,” Boo said at another line in the message.