Still No Solution For Malaysia Airlines, Carrier Faces Shut Down While Losing US$84 Million Each Month

5 Comments

Malaysia Airlines has it’s back against the wall as the carrier continues to bleed money and is running out of liquidity at the end of the month which is just two weeks away at this point.

Despite several overhaul efforts during the recent years MH hasn’t been able to slim itself down enough to become profitable, let alone to a degree that they can survive the Covid-19 situation without casualties.

Malaysia Airlines owner, sovereign wealth fund Khazanah has already warned the leasing companies that the company is no longer able to meet it’s financial obligations and will soon stop paying the leasing rates for aircraft and is even considering to let the airline collapse entirely.

An article in the Straits Times emphasizes this situation once more and also quotes sources of the aviation industry that more cooperation between airlines and governments is required to bring the industry back on track.

Malaysia Airlines (MAS) has told lessors that it will not be able to make payments for aircraft after next month unless it receives more money from state-run sovereign fund Khazanah.

According to Reuters, MAS is burning US$84 million (S$114 million) in cash every month, but had only US$88 million of liquidity at end-August, plus an additional US$139 million available from Khazanah, its sole shareholder.

Now, Khazanah has warned leasing companies that it will stop funding the airline group, while its group chief executive Izham Ismail has warned that it would have “no choice but to shut it down” if lessors decide against backing the restructuring plan.

MAS is not the only Asia-Pacific carrier in this predicament.

Singapore Airlines, which is operating at less than 10 per cent capacity now, is burning cash to the tune of almost $300 million every month. …

In Hong Kong, 73-year-old Swire Group-controlled Cathay Pacific, faced with a 90 per cent collapse in passenger numbers, has parked more than 40 per cent of its planes and is deferring deliveries of larger planes as it mulls over switching to a fleet of smaller aircraft with fewer business-class seats.

Thai Airways, which is 48 per cent owned by the Thai government, is in bankruptcy proceedings after defaulting 85 billion baht (S$3.7 billion) and facing 333 billion baht in liabilities. …

Asia-Pacific’s international traffic is down 96 per cent year on year. Capacity has dived 91 per cent and international load factor is barely 35 per cent. Most carriers are operating at 10 per cent capacity on international routes. …

Asia-Pacific carriers are staring at a loss of US$29 billion this year.

Iata has just warned that the global airline industry will collectively burn through US$77 billion in cash during the second half of this year (almost US$13 billion per month), and almost US$6 billion per month next year. …

Khazanah has been pouring money into MH for years and while the situation has gotten a bit better the airline has been bleeding money even before Covid-19.

These (looming) bankruptcies or restructuring programs also push the leasing companies into a corner because if an airline stops paying their leasing rates then there is very little they can do except taking back the aircraft for which there is currently no other market. No airline needs aircraft right row so the chances to repo them and then find a new customer are slim to none.

Mr Subhas Menon, director-general of the Association of Asia-Pacific Airlines (AAPA) points out, hopes that international air travel will gradually return in the second half of this year have proved to be premature.

“Whilst there have been discussions about air corridors, travel bubbles and green lanes, these have so far failed to take off due to their impracticality and inability to scale up to meet the reasonable expectations of travellers,” he noted. “Progress is being made on testing, contact tracing, wearing of masks and social distancing, measures which are also applied in the context of international air travel. Unfortunately, their adoption is neither consistent nor coordinated amongst states.” …

“This crisis is not of aviation’s making,” said AAPA’s Mr Menon. “Neither is it the only sector affected. Yet, more than six months into the pandemic, most international flights remain grounded by border closures even as lockdowns are gradually eased. The economic consequences of shutdowns are widespread, with job losses within and outside the industry.”

But it does not need to be this way.

Singapore, for one, has started unilaterally opening up its borders to selected, deemed low-risk countries such as Australia, New Zealand, Brunei and Vietnam. …

Asia-Pacific countries need to move beyond statements of good faith and get their act together. Every day, every week and every month of shuttered borders and grounded planes further strain their economies and stress their people.

International isolation is not a sustainable policy for any state. …

I only agree partly that the crisis and situation airlines find themselves in right now are not their own making. Many airlines most affected by this have been teetering on the edge of bankruptcy for years including Malaysia Airlines and Thai Airways. As soon as Covid hit and ticket revenue dwindled the cash flow dried up and that was the end.

We’ve already seen many airlines fold including several Air Asia entities but also legacy carriers such as Thai Airways. And there will be many more as being grounded long term or operating with 10% capacity isn’t a viable way forward.

As John wrote earlier this month, according to documents seen by Reuters the plan is to restart the airline through the FireFly subsidiary unless an agreement with the plane lessors is reached.

FireFly, an ATR operator, currently flying tertiary routes, would acquire jets and fly select domestic routes before acquiring widebody jets for regional/long-haul routes.

Conclusion

Should Malaysia Airlines go under I wouldn’t say it’s impossible that a new airline will emerge in the next few days after. Previously it has been said that Malaysia doesn’t need a national airline and that Air Asia could very well service the countries aviation needs but judging by the current situation that would just be putting lipstick on a pig.

Malaysia would be capable of running an efficient new airline if there is a clean slate to start from and the company isn’t burdened with incompetent, corrupt management and an abundance of staff as is the case right now.

The AAPA director is right however that there won’t be any travel as long as quarantine requirements are in place. It’s way too costly and inconvenient for people to deal with such mandatory isolation for both business and leisure travel. This needs to go away before there will be any meaningful improvement.

YOU MIGHT ALSO LIKE