This article first appeared in The Edge Malaysia Weekly on July 20, 2020 - July 26, 2020

MALAYSIA Airlines Bhd (MAS) has secured US$300 million (RM1.28 billion) in new funding to help see it through the Covid-19 crisis, The Edge has learnt.

The funds come in the form of a grant and will give the national carrier breathing space to continue operations and keep employees on the job, say sources. This would be MAS’ first financing package since air travel demand plunged because of the pandemic.

Its sole owner, sovereign wealth fund Khazanah Nasional Bhd, neither confirmed nor denied that the airline is getting new funding.

“With the Covid-19 situation still developing, Malaysia Aviation Group Bhd’s (MAG) capital requirements are fluid,” a Khazanah spokesman tells The Edge.

“The immediate priority is to tackle the impact of the Covid-19 pandemic and we are currently working closely with relevant stakeholders and MAG to ensure that operations continue as best as we can and to find the most appropriate solution for the airline to achieve sustainable growth and profitability,” he says.

The source of the grant is likely the government.

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.

At press time, MAS had not replied to requests for comment.

The cash-strapped airline has cut capacity by 96% and grounded almost its entire fleet amid global travel restrictions. In March, MAS warned that it might go bust without government support, given the almost-nil revenue after the closure of the national airspace. The airline, which employs 13,000 employees, has refrained from downsizing its workforce so far.

Last month, MAS said it is realigning its long-term business plan (LTBP) — which was revealed last July — to the changing aviation landscape. The LTBP replaces the 12-point MAS Recovery Plan (MRP), which was announced in 2014 and ended last year. The new plan would have seen the national carrier achieve financial break-even by 2022 and generate enough income to cover the cost of capital for its operations two years after that. To keep its planes in the air, MAS was reportedly burning RM4 million cash a day before the Covid-19 pandemic took hold. This works out to RM1.5 billion a year.

Sources say MAS will place more emphasis on joint-venture (JV) partners and digital transformation as it realigns its business plan.

Shukor Yusof, founder and analyst at aviation advisory firm Endau Analytics, says the US$300 million of additional funds would help towards paying off its debt and aircraft lease obligations and are “not to be spent on promotional videos or marketing at this moment”.

“What is MAS transforming into now? How many more MAS transformation plans do Malaysians need to witness in their lifetime? This is an airline that has lost its way a long time ago,” he says when commenting on MAS’ new business plan.

Shukor believes JVs with other carriers serve little purpose other than to feed passengers into the stronger of the two JV partners. “In short, it won’t help MAS’ balance sheet. The airline industry is a zero sum game.”

Nevertheless, expectations are high that MAS’ new non-executive group chairman Tan Sri Wan Zulkiflee Wan Ariffin will help engineer its turnaround. The former Petroliam Nasional Bhd president and group CEO came on board this month.

“… we look forward to his leadership and, hopefully, he will bring MAS to different heights in terms of being able to handle this crisis,” Khazanah managing director Datuk Shahril Ridza Ridzwan told reporters on the sidelines of Invest Malaysia 2020 recently.

Companies Commission of Malaysia (SSM) data shows that MAS narrowed its net loss by 2.5% year on year to RM791.71 million in the financial year ended Dec 31, 2018 (FY2018) as revenue improved by a slight 0.8% y-o-y to RM8.74 billion. It had become technically insolvent in FY2018 after liabilities exceeded its assets by RM852.14 million. It has not yet filed its FY2019 financial statements with SSM.

Still, it is not just MAS that needs help. Malaysia-based AirAsia Group Bhd, AirAsia X Bhd and Malindo Airways Sdn Bhd have also sought government assistance although Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz has said the government would not provide direct aid to the aviation industry in general.

Sources say AirAsia will receive US$250 million in loans backed by Danajamin Nasional Bhd. This is in addition to its plans to raise capital of up to RM1.4 billion through equity financing. Last week, AirAsia group CEO Tan Sri Tony Fernandes was reported as saying that the carrier was looking to raise up to RM2 billion in the next six months.

Indonesia is also reportedly finalising a US$1.4 billion bailout plan for its flag carrier PT Garuda Indonesia to help it stave off a debt default. Media reports on July 14 said Virgin Atlantic Airways Ltd has secured a £1.2 billion (RM6.4 billion) rescue deal. Virgin Australia’s new owner, US private equity firm Bain Capital, meanwhile, will inject US$125 million into the airline to ensure its immediate survival.

The Malaysian carriers are banking on air travel returning somewhat to normal from the second half of this year. Last Wednesday, Malaysia Airports Holdings Bhd (MAHB) announced that air travel in Malaysia showed signs of recovery in the first nine days of July compared with late June as the relaxation of travel restrictions continued into the second month.

Data from the 39 airports it manages showed that passenger and aircraft movements in the first nine days of July doubled with a daily average of about 37,000 and 550 respectively compared with a daily average of about 18,650 and 290 in the last nine days of June. As Malaysia has not fully opened its borders for international travel, these numbers mainly represent domestic traffic movements, says MAHB.

In a report released last Friday, Moody’s Investors Service anticipates a recovery in passenger demand to nearly 2019 levels only by the end of 2023, once the concerns related to personal health and safety are relieved.

“Government support — whether via grants, loans and/or equity investments — will remain a key differentiator in airlines’ ability to avoid financial restructurings or liquidations. Lack of adequate government support — whether at all, with conditions or in a timely manner — has been a key contributor in recent airline insolvencies (or not) in different regions of the world.”

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