This article first appeared in The Edge Financial Daily on August 19, 2019
KUALA LUMPUR: Khazanah Nasional Bhd has pumped another RM300 million into the country’s flag carrier Malaysia Airlines Bhd, via its holding company Malaysia Aviation Group Bhd (MAG), taking the total amount of capital injected so far this year to RM800 million.
In March the sovereign wealth fund pumped RM500 million into MAG, which also has FlyFirefly Sdn Bhd, MASwings Sdn Bhd and MAB Kargo Sdn Bhd under its wings.
A spokesperson for Khazanah, which wholly owns the loss-making airline, told The Edge Financial Daily that the RM800 million capital injection into MAG is part of the earlier RM6 billion funding approved under the 12-point MAS Recovery Plan (MRP) announced in 2014.
The spokesperson declined to disclose the total sum that Khazanah has disbursed under the MRP except to say that “in the interim, MAG will continue to require funding to operate on a business-as-usual basis while making efforts in enhancing its customer experience and containing losses”.
Under the MRP, Malaysia Airlines was to have broken even in 2018, achieve profitability and be listed in 2019. However, it missed the target amid a challenging operating environment. Its group chief executive officer Izham Ismail blamed 2018’s poor performance on crew shortage, intense competition, oversupply of capacity and volatility in fuel prices and foreign exchange.
Filings with the Companies Commission of Malaysia (SSM) show that Malaysia Airlines’ net loss increased by 85% year-on-year (y-o-y) to RM812.11 million for the financial year ended Dec 31, 2017 (FY17). It lost RM2.35 billion between 2015 and 2017. The airline has said it ended 2018 with a lower y-o-y loss, but did not state the amount. It has yet to file its financial statements for FY18 with SSM.
The latest disbursement comes at a time when US-based investment bank Morgan Stanley had reportedly been hired as adviser to explore possible options to turn around the airline, including a stake sale.
On the progress of the evaluation, the Khazanah spokesperson said several parties have publicly expressed their interests in MAG.
“Khazanah will evaluate all serious offers, specifically their capabilities financially and from the execution point of view. At this stage, we cannot comment on the process and progress of the evaluation.”
The spokesperson said MAG is also working with Khazanah on reassessing its strategy and evaluating all strategic options, to steer the group towards financial sustainability.
“Ultimately, the airline’s future is a policy decision for Khazanah’s shareholder/the government to decide on and all strategic options (including a partnership with other airlines and MAG’s long-term business plan) are being evaluated,” the spokesperson added.
Last month, Izham unveiled a new long-term business plan (LTBP), which is awaiting approval from Khazanah’s board of directors, that would see Malaysia Airlines achieving financial break-even by 2022 and generating enough income to cover the cost of capital for its operations two years later.
Still positioning Malaysia Airlines as a premium airline, the LTBP consists of four pillars, which include rightsizing the airline’s fleet of Airbus and Boeing aircraft and network expansion that is focused on the Asia-Pacific. The three other pillars involve providing a premium customer experience, having a partnership strategy and diversifying the national carrier’s revenue.
It was previously reported that Malaysia Airlines had attracted four suitors, comprising Najah Air Sdn Bhd (a six-man group led by former AirAsia Group Bhd chairman Datuk Pahamin Ab Rajab), tycoon Tan Sri Syed Azman Syed Ibrahim of The Weststar Group, Jentayu Danaraksa Sdn Bhd and a group comprising former employees of the now-defunct Malaysian Airline System Bhd and several private individuals.
The Edge Financial Daily understands that Najah Air is one of the suitors that have signed non-disclosure agreements with Khazanah, preventing them from commenting on their proposals for Malaysia Airlines.