MAHB sends legal letter to AAX in a move that may scuttle debt restructuring of a big customer

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KUALA LUMPUR (Oct 22): The Covid-19-induced turbulence that has hit the airline industry has not been able to steer Malaysia Airports Holdings Bhd (MAHB) into improving its acrimonious ties with its biggest customer — AirAsia Group.

In fact, it is likely to worsen. MAHB has initiated a move that could scuttle the RM63 billion debt restructuring scheme that AirAsia X Bhd (AAX) — the long-haul associate of low-fare giant AirAsia Group Bhd — had said was necessary for it to continue flying.

Sources said MAHB has sent a legal letter to AAX challenging the airline's classification of the airport operator as an unsecured creditor to be included in the proposed restructuring scheme.

The letter dated Oct 14, 2020 was sent by Skrine & Co, representing MAHB, to AAX's lawyers Foong & Partners — eight days after the airline announced its plan.

AAX has classified all its creditors — mainly airplane makers Airbus and lessors — as unsecured. It will require 75% of them to agree to the plan to restructure RM2 billion of current debts and another RM61 billion in future liabilities, which are mainly linked to purchases and leasing of planes.

MAHB wants AAX to exclude it from the scheme, failing which it will intervene when the debt restructuring is heard in court, according to the letter. It is understood that the court will hear AAX's application to undertake the restructuring, which calls for creditors to take a 99% haircut, at the end of the month.

Sources said AAX cannot agree to classify MAHB as a secured creditor as all creditors will then demand the same status, making it virtually impossible for the scheme to succeed.

Aside from demanding that it be removed from the debt restructuring, MAHB is also pressing AAX to pay RM78 million that is owed to it.

If AAX fails to do so, MAHB will proceed to seize, dispose of or destroy all AAX assets that are at its airports, according to the letter. As AAX does not own any of the planes now parked at KLIA, the only assets that can be seized are vans, tables and chairs, sources said.

The RM78 million owed to MAHB is aeronautical charges that include RM60 million in passenger service charges — which have been a long-running dispute between the two parties.

AAX and AirAsia Group had refused to collect the full sum of RM73 per passenger set by MAHB because it said it was too high. It instead collected and paid MAHB only RM50. MAHB had insisted it must collect the entire RM73. The matter went to court, which decided in favour of MAHB, which now wants AAX to pay the RM60 million (the RM23 portion) although AAX never collected the amount from its passengers.

In the letter, MAHB alleged that by including it in the debt restructuring, AAX has shown that it does not intend to settle the amount owed. It also alleged that the non-payment of the aeronautical charges tantamount to "civil and potentially criminal breach of trust" for which AAX's directors may be held personally liable.

AAX has said that it is running out of cash and that unless creditors take the haircut it is asking for, the airline will be forced to cease operations. The long-haul low-fare airline said if this happens, MAHB will be a big loser as well, as the airport operator earns around RM280 million a year from AAX.

AAX has also said Malaysia as a country will also lose hundreds of millions in tourist income a year if it closes shop as there will be no cheap flights to bring tourists from countries like Australia, China, Japan and Korea.

AirAsia Group is not the only airline needing creditors' help to restructure debts and cash injections by shareholders as all in the air travel industry have been devastated by the plunge in air travel because of lockdowns and fear of flying.

Cathay Pacific — long touted as one of the world's most profitable airlines — just announced that it was shutting down its subsidiary Cathay Dragon and laying off 5,900 staff.

Kathy Fong