MAB in catch-22 as govt insists no further cash injection

MAB is doing the restructuring to manage the current situation, and negotiations are still ongoing, says source


MALAYSIA Airlines Bhd (MAB) may see the writing on the wall soon, if it fails to restructure and reach favourable decision with creditors and lessors, as the government insisted to no longer provide cash injection for the airline.

Winair AS founder and aviation consultant Hans Jørgen Elnæs said the government needs to consider very carefully between the cost of giving aid and closing the company, considering the strategic role and economic importance of MAB being a flag carrier airline.

He said downsizing the airline is an option if MAB is considered to be too expensive to be saved.

The worst-case scenario, Elnæs said, is to put the company to the ground and that too would be costly to the nation.

“One has to define how important MAB is for domestic and international transport infrastructure. If the airline was simply put to the ground and out of business, there is a vacuum that the government must understand, and other airlines will not automatically take over the role.

“Malaysia cannot rely on airlines in neighbouring countries to focus on the Kuala Lumpur (KL) route, and low-cost carriers are of a different concept,” Elnæs told The Malaysian Reserve (TMR).

To put into a perspective, Elnæs said Deutsche Lufthansa AG is suffering a cash burn of about €1 million (RM4.88 million) per hour and it will be receiving a state aid rescue package of €10 billion.

He said it will take a long time to set up a new airline like MAB and the cost to save it might be less than the long-term cost of dissolving the company, including the job losses factor.

“One has to run the figures to see which would be the most costly, either giving an aid package or letting it be grounded,” he said.

On the downsizing front, the consultant said airlines are cutting range of 25% to 40% globally due to Covid-19 impacts. Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz yesterday reiterated that the government will not provide any more cash to MAB and it is up to the airline’s sole shareholder Khazanah Nasional Bhd to make its step.

“We have consistently said this is a matter where Khazanah has to be involved. The Ministry of Finance will not be injecting any (more) cash or capital into the airline through Khazanah…so, Khazanah (as the sole owner) will have to undertake its own exercise to ensure the survival of MAB,” Tengku Zafrul was quoted as saying in an interview with BFM radio.

Nonetheless, the minister also said: “I have never ever said to close down MAB.”

Malaysia Aviation Group (MAG), the holding company of MAB, had warned leasing companies that Khazanah would stop funding the group, forcing it into a winding-down process if restructuring talks with lessors failed, Reuters reported.

MAG has raised the stakes in negotiations for a financial shake-up known as “Plan A” and set out an alternative plan to divert funds to a sister airline, FlyFirefly Sdn Bhd, according to a document sighted by Reuters.

Under a “Plan B” scenario, Khazanah was said to “inject funds into Firefly directly to start new jet operations in KL on a much smaller scale, focusing first on domestic services”.

MAB in a statement last week said it has reached out to its lessors, creditors and key suppliers recently as the company embarked on an urgent restructuring exercise that includes network reworking and fleet plans; and a comprehensive restructuring of the MAG business and capital structure.

A spokesperson at MAB told TMR that the company is doing the restructuring plan as stated to manage the current situation, and negotiations are still ongoing with creditors and lessors.

Reuters reported that MAG is unlikely to be able to make payments owed after November, unless it receives more funding from Khazanah, according to a letter, which followed a request for steep discounts on aircraft rentals from its lessors.

An analyst said the MAB situation may involve political factors that would determine the decision at the government level.

“Commercially speaking, MAB needs to be wound down and a smaller airline is created with selective routes, hence, Firefly comes in the picture.

“Morally, it is 50-50 because given the constraints now, the government might as well give the money to the people. Politically, it would be damaging because there are a lot of jobs at stake,” the analyst, who declined to be named, told TMR.

It is a tricky situation, the analyst said, but in the end, MAB needs to be viewed holistically as not a profit-making entity.


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