Malaysia Airlines restructuring plan receives final lessor creditor's nod — report

Photo by Suhaimi Yusuf/The Edge

Photo by Suhaimi Yusuf/The Edge

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KUALA LUMPUR (March 1): Malaysia Airlines Bhd has received consent for its scheme of arrangement and restructuring from the final lessor creditor, which earlier faced challenges getting approval from its financiers, FlightGlobal reported today, quoting Richard Snowdon, who is a judge at the High Court of England and Wales.

FlightGlobal reported today that Snowdon said in a judgement on Tuesday (Feb 23, 2021) that he received evidence that one creditor which did not vote at the Feb 10, 2021 meeting, had now "been able to resolve the communication difficulties with its financiers that prevented it from participating in the scheme process and has consented to the scheme".

"Accordingly, there was overwhelming support for the scheme," said Snowdon.

"At the sanction hearing [on Feb 22] I was also told that the final scheme creditor which did not vote in favour of the scheme at the scheme meeting has since signed the lock-up agreement," Snowdon said.

FlightGlobal's report, however, did not specify the name of the final lessor creditor.

It was reported that creditor turnout at the Feb 10, 2021 meeting was approximately 95.9% by value, with only one creditor out of 44 failing to vote.

It was reported that the meeting was convened so that operating lessors could vote on Malaysia Airlines' restructuring plan.

"That scheme of arrangement relates to its liabilities to lessors under operating lease agreements for 52 aircraft all of which are governed by English law," the court judgement showed. These are 44 737-800s, three A330-200s and five A330-300s.

"Ahead of the Feb 10 meeting, Malaysia Airlines invited creditors in the scheme of arrangement to sign a lock-up agreement to support the scheme and the restructuring. All but one of the 44 creditors signed this before the meeting. However, the same outlying creditor has now also signed the lock-up agreement," FlightGlobal reported.

It was reported that within three business days of the scheme becoming effective, creditors under the scheme were required to choose among four options, which included a termination option that allows a creditor to terminate its operating lease agreement and another option, under which, creditors will be paid rent on a by-the-hour basis during 2021.

It was reported that the termination option allows a creditor to terminate its operating lease agreement, recover its aircraft and receive a one-off payment.

According to the report, the payment would be 115% of the amount the creditor would be entitled to claim from the airline in the event of liquidation, multiplied by "the upper end of the range of percentage of recovery in a liquidation of the company".

If a creditor does not want to terminate its lease, then a "different regime" will apply and under this regime, all creditors will be paid rent on a by-the-hour basis during 2021, the report said.

Snowdon was quoted as saying: "This means that the rent during 2021 will be calculated by reference to the amount of time that each aircraft is used, subject to a floor and a cap. Following the market position, the rates and the floors and caps differ depending on the category of aircraft."

It was reported that the by-the-hour structure will end on Jan 1, 2022, from which, the rent payable under the operating lease agreements will be reset to market rent.

Snowdon added in relation to the remaining options: "There are then variants of this basic deal available under which an enhanced rent, with a lease extension mechanism, is available in return for the company having an option in certain circumstances to defer rent and pay an enhanced rent available depending on the company's performance."

It was reported that Malaysia Airlines was approved to strike arrangements between Malaysia Aviation Group Bhd's (MAG) leasing entity MAB Leasing and most of its lessors at the Feb 22, 2021 sanction hearing at the High Court of England and Wales.

Khazanah Nasional Bhd, the sovereign wealth fund of Malaysia, via MAG owns 100% of Malaysia Airlines.

It was reported that the approval of the High Court of England and Wales paved the way for Malaysia Airlines to embark on a wider restructuring plan that is expected to complete in early March.

According to the report, aspects of Malaysia Airlines' wider restructuring included arrangements to defer principal payments and reduce interest payments under the group's finance leases, as well as Malaysian law credit facilities and hedging agreements it has entered into.

It was reported that the restructuring also concerned amendments to aircraft lease agreements that Malaysia Airlines will implement bilaterally with lessors, as well as measures to amend engine lease agreements and maintenance and service contracts to "align with market rates, the group's cash flow requirements and its revised long-term business plan".

"Furthermore, this involves arrangements with Malaysian government entities and an equity injection from Khazanah Nasional. Back in October when the airline first proposed a restructuring, things got off to a rocky start when most lessors objected to what the carrier proposed," FlightGlobal reported.

Read also:
Khazanah Nasional to inject RM3.6b in Malaysia Airlines after UK Court approves the airline's RM16b restructuring plan

Chong Jin Hun