MAB’s negotiation with lessors suspended in a stalemate

The national carrier is, however, still hanging on to the hope of closing the year with an agreement

by AZREEN HANI & RAHIMI YUNUS / pic by BLOOMBERG

MALAYSIA Airlines Bhd (MAB) is racing against time to survive, as the targeted timeline for its restructuring talks with creditors and lessors has been pushed back at least until the end of the year.

The existential dilemma of the national carrier now weighs heavily on the outcome of the negotiations by parent company, Malaysia Aviation Group Bhd (MAG), which seeks to restructure liabilities estimated at RM16 billion.

According to sources familiar with the matter, the negotiations between MAB and lessor companies seem to have reached a stalemate.

“It is difficult for lessors because as it is, almost all other airlines are also requesting for an extension, so their position is understandable.

“At the same time, MAB, in essence, is asking for time, as there is an improved outlook next year. This year’s pandemic is really unprecedented and the lessors will get their money back as the situation improves,” one source said.

In October, FlightGlobal reported that lessors baulked at MAB’s restructuring plan.

It said leasing executives from some of those lessors, who spoke to Cirium on condition of anonymity, were not happy about the plan, which could see some of them forced to take debt cuts.

There are about 16 third-party lessors with exposure to MAB involving 62 aircraft such as AerCap Holdings NV, Air Lease Corp and BBAM Ltd, among the major ones, according to Cirium fleets data.

Some of the lessors were said to have objected to the UK restructuring that MAB embarked on, with one of them citing the airline as “trying to slice and dice their creditor base” based on the UK’s Companies Act 2006.

Part 26A of the UK’s Companies Act 2006 is attractive to MAB because it only requires approval from one class of creditors, rather than all creditor classes, one of the persons said.

The national carrier is, however, still hanging on to the hope of closing the year with an agreement.

“The company continues to make progress towards a consensual restructuring, and discussions have entered the final stage with a target to reach a commercial agreement before the year ends,” stated an official MAB reply to The Malaysian Reserve via email.

Either way, the talks seem to have taken more time than expected, especially due to the complexity and intensity of the negotiations. MAB is also tightlipped on its business outlook in 2021.

The results of the restructuring talks are also critical for MAB to justify any additional funding from its sole shareholder, Khazanah Nasional Bhd.

If all schemes fail to materialise, Khazanah might just opt to close MAB and make FlyFirefly Sdn Bhd the new national airline under “Plan B”.

As it is, Firefly will start jet operations in the first quarter of next year with an addition of 10 narrow-body jets to its fleet in phases.

Firefly is also expected to serve the domestic, Asean and Asia-Pacific markets out of Penang International Airport.

With the commencement of jet operations, MAG said Firefly will be complementing MAB in serving the leisure market, while diversifying its base, connecting secondary cities in Malaysia to East Malaysia, Thailand, Indonesia and Singapore.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said in a recent Dewan Rakyat sitting that as at Aug 31, MAG’s liquidity stood at RM366 million.

“MAB is not spared of Covid-19 as 75% of its planes are currently not operating due to the border control which affected its revenue,” he said.


Read our earlier report

More job cuts imminent at MAB