Airlines need soft loans, not merger talk

Analyst says the priority now is for airlines to get soft loans first to save them from collapsing

by RAHIMI YUNUS/ graphic by MZUKRI

LOCAL airlines need a financial lifeline to survive the Covid-19 crisis, therefore any merger talk involving Malaysia Airlines Bhd (MAB) will need to be pushed to the back burner for now.

The merger chatter between MAB and AirAsia Group Bhd was reignited following a Reuters report citing Senior Minister Datuk Seri Mohamed Azmin Ali who said the situation is becoming more complex due to the pandemic and the government is looking at all options.

Azmin said the talk of a possible MAB-AirAsia merger has taken place since last year even before the pandemic came and the discussion needs to continue, according to the report.

Sobie Aviation Pte Ltd analyst and consultant Brendan Sobie said there would still be huge challenges to overcome to make an MAB-AirAsia merger successful in any circumstance.

“It should be an option that is explored, but should not be rushed into just because of Covid-19. Malaysia should be supportive of each airline individually and urgently help them get through this incredibly difficult time,” Sobie told The Malaysian Reserve (TMR).

He said Malaysia’s aviation industry needs a broader discussion and should rethink on strategies to ensure it can be profitable and eventually growing again.

“I would suggest interim support for all airlines followed by a thorough process that looks again at the potential future of MAB and the role of its three airline subsidiaries, while in parallel looking at what is best for Malaysia in terms of maintaining, adjusting and developing the overall aviation industry,” Sobie said.

Azmin said in the Parliament last year that Khazanah Nasional Bhd, the sole owner of MAB, had shortlisted four strategic partners for the airline out of some 20 proposals received.

Market observers have been speculating that the four bidders were Japan Airlines Co Ltd, Qatar Airways Co, Najah Air Sdn Bhd and AirAsia X Bhd.

The coronavirus pandemic has decimated air passenger services as the stay-home order was imposed and state borders closed.

The International Air Transport Association (IATA) predicted that Malaysia could see passenger demand in 2020 reduced by 39% based on a scenario where severe restrictions on travel are lifted after three months, followed by gradual recovery, a possible reduction of over 25 million passenger demand, some US$3.3 billion (RM14.36 billion) revenue impact, close to 170,000 job losses and a US$3.8 billion potential GDP impact.

IATA has made an urgent call for governments in the Asia-Pacific region, including Malaysia, to quickly roll out an aviation-specific relief package to help local carriers.

An aviation analyst said the priority now is for airlines to get soft loans first to save them from collapsing.

“A merger will take too long. Soft loans from the government can be executed in days. Every day is a cash burn now and time is not on both sides of MAB and AirAsia,” the analyst, who asked for anonymity, told TMR.

The analyst said a merger exercise is tricky, including the process to get shareholders’ approval.

“Just get that soft loan disbursed. Aircraft lessors, aircraft manufacturers are chasing for payments already,” the analyst said, “otherwise we will see another Virgin Australia (Airlines Pte Ltd) here in Malaysia.”

Virgin Australia recently said in a statement that it entered a voluntary administration — an Australian equivalent of restructuring and insolvency — the biggest casualty yet in the Covid-19 aviation crisis after the Brisbane-based carrier failed to secure financial help from the government.

A 40-year-old British discount airline Flybe has succumbed to the virus crisis in early March, followed by regional carriers Compass Airlines LLC, RavnAir Group and Trans States Airlines in the US.

Malaysia Aviation Group group CFO Boo Hui Yee warned last month that the company was no different than other airlines that are at risk of going bankrupt.

TMR reported earlier that MAB has slashed the salary of its top management, including its CEO, by 35%, reduced 50% of the directors’ monthly fee and imposed sweeping operational expenses cut in the most drastic measures to save the struggling carrier from financial ruin, according to an internal communication sighted.

Similarly, AirAsia Group CEO Tan Sri Dr Tony Fernandes said in a statement that he and executive chairman Datuk Kamarudin Meranun are taking no salary during this period, while the staff have accepted between 15% and 75% of temporary pay reductions depending on seniority.

Fernandes said in a Bloomberg TV interview early this month that AirAsia is in talks with the government for loans, but he insisted the company does not need a “bailout”.