National carrier has been struggling to transform its operations and return to profitability even before pandemic

by AFIQ AZIZ / graphic by TMR

KHAZANAH Nasional Bhd made RM3 billion worth of impairment for Malaysia Airlines Bhd (MAB) in 2020, following the ailing companies’ poor performance made worse by the impact of the Covid-19.

Khazanah MD Datuk Shahril Ridza Ridzuan attributed the amount to the sovereign wealth fund’s financial support to the national carrier and the write-down of asset values in line with the fall of the aviation sector last year.

“One of it was due to the direct financial support as we helped the company with its cashflow requirement they needed throughout 2020 plus the write-down of value — the value of assets employed in the aviation sector essentially all declined tremendously as a result of the fall in revenue and ridership,” he said in a virtual briefing of Khazanah’s Annual Review 2021 yesterday.

Shahril Ridza said in total, the impact of the Covid-19 pandemic has led to higher losses of RM6 billion in 2020 for Khazanah, particularly in aviation and hospitality assets, compared to RM4.9 billion impairment made in 2019.

MAB has been struggling to transform its operations and return to profitability even before the pandemic starts.

The downturn of the country’s flag carrier fortunes began with the two disasters struck in 2014, when flight MH370 mysteriously disappeared and flight MH17 was shot down over eastern Ukraine.

It was also the year when MAB was taken private by Khazanah as part of a five-year turnaround programme.

Last month, Khazanah announced the commitment to inject RM3.6 billion in new capital into the national carrier’s holding company Malaysia Aviation Group Bhd (MAG), to fund the group’s business until 2025.

In total, some RM28 billion had been injected into MAB by Khazanah, said Finance Minister Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz last November.

Moving forward, Shahril Ridza said Khazanah will continue to provide full support to ensure MAB’s sustainability post-Covid-19.

“What we have done with MAB restructuring plan is to essentially negotiate well with our stakeholders.

“Khazanah has committed to putting in up to RM3.6 billion over the course of five years for the restructuring plan.

“The idea of injection funds into Malaysia Airlines is essentially to give certainty to creditors so that in turn, they could provide their kind of discounts, haircuts and debt-to-equity conversion that are required for us to fix the carrier’s balance sheet,” he said.

“We expect any recovery (of MAB) will be hardpress and unlikely to happen earlier than 2024 and this really depends on the reopening of global aviation as well as border restrictions that will allow us to travel,” Shahril Ridza added.

Last October, Khazanah thought to channel funds to the low-cost carrier Firefly, which is under MAG, and transform it to become the country’s national airline if Malaysia Airlines was shut down.

This was part of Khazanah’s plan to still be up in the aviation business if the lessors did not agree to steep discounts required to revive MAB.

On Feb 22, the High Court of Justice of England and Wales sanctioned a scheme of agreement between MAG’s leasing entity, MAB Leasing Ltd, and the majority of MAG’s aircraft operating lessors following unanimous support from the lessor.

It was an important component of the airline’s wider restructuring exercise — that MAG will achieve a reduction in liabilities of over RM15 billion.

Aviation analysts had opined ailing aviation firms should consider consolidation to bring down the operation cost during the challenging period and after the demand is recovered.

As for Malaysia, Shahril Ridza said the country has had an oversupply situation in the industry for a very long time.

“What you see now is essentially a situation whereby some form of consolidation in the airline industry is inevitable,” he added.

In 2018, MAB accounted for half of Khazanah’s whopping RM7.3 billion in impairments.