This article first appeared in The Edge Malaysia Weekly on November 23, 2020 - November 29, 2020

MALAYSIA Airlines Bhd (MAS) has requested financial support from its sole shareholder Khazanah Nasional Bhd as its debt-restructuring talks with creditors and lessors run beyond its original deadline of Oct 11.

The cash-strapped national airline tells The Edge it has made a request for funding from the sovereign wealth fund, but is not in a position to comment on the amount at this point in time.

Nevertheless, the talk in the market is that MAS is seeking as much as US$500 million in fresh capital from Khazanah.

If the airline gets the funds it seeks, it will be the first time Khazanah is injecting money into it since the RM6 billion disbursed under the five-year, 12-point Malaysia Airlines Recovery Plan, which was announced in 2014.

MAS’ parent, Malaysia Aviation Group Bhd (MAG), is in the midst of negotiations with about 40 creditors and lessors to accept a haircut on their outstanding debt as part of a RM16 billion debt restructuring plan. It needs approval from creditors holding at least 75% of the total value of the debt — the threshold required by law — to say yes.

MAG says discussions have entered the final stage, with a target to reach commercial agreement in the first week of December. “The company continues to make progress towards a consensual restructuring,” it says in an email response to questions from The Edge.

MAG is the holding company for MAS and other subsidiaries such as FlyFirefly Sdn Bhd, MASwings Sdn Bhd, MAB Engineering Sdn Bhd and MAB Kargo Sdn Bhd.

“The pace of negotiations is expected to increase over the coming days and weeks as we seek to reach commercial agreement,” it adds.

MAG also says that so far, no decision regarding the use of a legal process has been made. “MAG’s preference is to agree terms bilaterally with its stakeholders.”

When contacted by The Edge, a spokesman from Khazanah says as the shareholder, the sovereign wealth fund fully supports MAG’s restructuring effort. “Any funding for the airline will depend on the outcome of the ongoing discussions with creditors and lessors, which is crucial to the success of the restructuring,” adds the spokesman, but declines to comment on the amount sought.

MAG group CEO Captain Izham Ismail, who also serves as group CEO of MAS, told The Edge in an Oct 12 interview that once the airline has garnered enough support for its debt restructuring plan, it will file the plan with the UK court for court sanction. Following that, Khazanah will inject new capital into the airline to tide it over until the expected full recovery in the domestic and Asean air travel markets in 2022.

However, if the lessors and creditors decide against backing the restructuring plan, it will have no choice but to “execute Plan B”, which involves shutting the airline down and operating under sister airline Firefly’s Air Operator’s Certificate to ensure the business continuity of the national carrier.

On Nov 14, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz reiterated that the government would be leaving it to Khazanah to see through the debt restructuring of MAS. “Khazanah is now in the midst of restructuring MAS. The airline industry is key to not just Malaysia’s tourism, but the Malaysian economy as well. So, it has to be looked at in a serious manner. The good thing for MAS is that Khazanah is a strong shareholder. The government is comforted by that,” he said during an interview on TV3’s Money Matters programme.

Reuters reported on Oct 2 that the airline’s cash is expected to run out completely by November without a restructuring. It cited a letter to lessors that said MAS and all its sister companies under MAG were experiencing an average monthly operating cash burn of US$84 million but only had US$88 million in liquidity as at Aug 31, as well as an additional US$139 million available from Khazanah.

Last month, the airline said it had reached out to its lessors, creditors and key suppliers, such as aircraft maintenance service providers, under its restructuring plan to weather the Covid-19 crisis.

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