SINGAPORE/KUALA LUMPUR: Malaysia Airlines is struggling to make payments owed to creditors and lessors amid the coronavirus pandemic that has forced it to slash its operations.
The national airline, which restructured after two deadly crashes in 2014, has a new plan involving big discounts from creditors, but unlike last time the cash-strapped government is unwilling to bail it out.
How long has it been in trouble and why?
The airline has been loss-making for about a decade. Losses were aggravated by two tragedies in 2014 – the mysterious dis-appearance of flight MH370 and the shooting down of flight MH17 over eastern Ukraine.
In the price-sensitive domestic market, it faced rising competition from low-cost rivals AirAsia Group and Malindo Air, an offshoot of Indonesia’s Lion Air.
In the international market, cashed-up Gulf carriers Emirates, Etihad Airways and Qatar Airways used the heft of their global networks to encroach on lucrative long-haul routes. Budget rival AirAsia X, now itself in financial trouble, offered discounted fares on routes within Asia.
What are the creditors and lessors saying?
A group of leasing companies claiming to represent 70% of the airplanes and engines leased to Malaysia Airlines have rejected its plan, calling it “inappropriate and fatally flawed”. The airline group has said it was pleased with the level of support from lessors but warned it will have to shut down if they don’t back the plan.
The airline, which has a fleet of 88 planes, leases aircraft from about a dozen leasing companies, including Avolon, Aercap, BBAM, Air Lease and Standard Chartered’s leasing arm. All of them declined to comment, while another lessor SMBC Aviation did not respond to a Reuters query.
What happens if there’s no deal?
Under a “Plan B” scenario, Khazanah would inject funds into Firefly, an operator of 12 turboprops that is a fully owned subsidiary of Malaysia Airlines’ parent.
According to a document seen by Reuters, Firefly would obtain narrowbody planes and subsequently widebody aircraft from the market. Lease rates have fallen sharply due to a lack of demand from airlines.
Before the pandemic hit, Malaysia Airlines had pushed back its order for Boeing Co 737 MAX jets and industry sources said it was considering smaller planes such as Airbus SE A220s or Embraer SA E190s.
“It’s quite clear that the future of Malaysia Airlines has to be a very smaller airline if it has any chance of surviving,” said one leasing executive. – Reuterss
