Billions in public funds will be needed to settle debts and other obligations of the Malaysia Airlines group should the struggling flag carrier wind up and be liquidated, according to documents sighted by The Vibes.
The government is expected to pay up to RM3.5 billion for an “immediate or phased liquidation” and “redundant employee” compensation if Malaysia Airlines Bhd (MAB) shuts down, said a December 2019 board paper by the carrier’s sole shareholder, Khazanah Nasional Bhd.
Other obligations to be settled are a loan of up to RM6.7 billion from the Finance Ministry-owned Turus Pesawat Sdn Bhd for six Airbus A380 and two A330 jets, and a RM1.5 billion perpetual sukuk, whose only subscriber, civil servants’ pension fund Retirement Fund Inc, will be required to take a haircut.
These findings made up Khazanah’s remarks when the sovereign wealth fund was seeking a suitor last year to help turn around MAB. Back then, Japan Airlines Co Ltd and AirAsia Group Bhd were shortlisted as strategic partners.
In the documents, Khazanah also panned MAB holding company Malaysia Aviation Group Bhd’s 2019-2023 business plan, calling it “overly optimistic” as there is a high risk of additional capital requirements.
The fund said any financial restructuring of MAB will be hampered due to “unresolved” structural problems.
“Until & unless, leadership strength + execution competency + consequence management + performance-based culture are revived, the BP (business plan) will remain as ‘just another plan’.”
While Khazanah did not specify the said problems, MAB has been beset with high operational costs, a bloated workforce and politically charged unions.
The carrier posted RM791.7 million in after-tax losses for the financial year ended December 31, 2018. Shareholders’ equity was -RM842.1 million after total liabilities (RM5.97 billion) exceeded total assets (RM5.12 billion).
MAB is seeking a lifeline from creditors and Khazanah because of tough business conditions brought about by the coronavirus pandemic.
Group CEO Captain Izham Ismail told business weekly The Edge on October 10 that the airline is prepared to wind up if ongoing restructuring talks with leasing companies fail.
A “sizeable” number of creditors support MAB’s plan, some are against it and others are still undecided, he said.
The company needs “to get the 50:50 (undecided) ones with those who have agreed”.
If it fails to restructure, MAB will try to execute “Plan B”, which may involve shifting its air operator’s certificate (AOC) to a new carrier under a different name, or leveraging the AOCs of sister airlines Firefly and MASwings.
“If you ask me, is Plan B credible? Of course it is. We have all the skill sets in place,” Izham was quoted as saying.
MAB never found its footing after Khazanah took it private in 2014 following the disappearance of flight MH370 en route from Kuala Lumpur to Beijing and the shoot-down of flight MH17 over eastern Ukraine, spending RM1.4 billion for 30% of the company that the fund did not own then.
Talks on securing a strategic partner have ground to a halt, and turnaround effects further upended by the pandemic.
The government has said it will not bail out MAB, instead leaving the airline’s fate to Khazanah. – THE VIBES