Malaysia Airlines group low on cash, steep discounts from lessors sought

Malaysia Airlines has struggled to recover from two tragedies. (Reuters)
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Updated 03 October 2020

Malaysia Airlines group low on cash, steep discounts from lessors sought

  • Sources said Malaysia Airlines plans to negotiate the steep discounts with its lessors via a restructuring plan it is seeking to implement through a UK court process

SINGAPORE: Malaysia Aviation Group, the holding company for Malaysia Airlines Bhd, said in a letter to lessors the group is unlikely to be able to make payments owed after November unless it receives more funding from state fund Khazanah.
The letter, reviewed by Reuters, follows a request by the troubled carrier for steep discounts on aircraft rentals from its lessors as part of a broad restructuring plan, three sources with knowledge of the matter said.
The letter added that in the absence of an implemented restructuring by the end of the year, Khazanah, its sole shareholder, “intends to divert all efforts and funds to an alternative company with an existing air operator’s permit to ensure connectivity for Malaysia (i.e. Plan B).”
The alternative company was not named. Malaysia has two major airlines, the other being AirAsia Group Bhd, as well as other smaller carriers.
Malaysia Airlines confirmed on Friday that it contacted lessors, creditors and key suppliers recently as it embarks on an urgent restructuring.
According to the letter seen by Reuters, the aviation group is experiencing “an average monthly operating cash burn of $84 million” but only had $88 million in liquidity as of Aug. 31 and an additional $139 million available from Khazanah.
“Based on the current run-rate, absent further funding from shareholders, the group will likely be unable to meet its obligations, including payments to lessors, post November 2020,” it said.
The letter was sent to lessors last month but the exact date was not immediately clear.
Khazanah, the country’s sovereign wealth fund, said it was supportive of the airline’s restructuring efforts but if they prove unsuccessful it will need to evaluate options on how to maintain connectivity for Malaysia.
It did not make it entirely clear whether it would provide additional funding beyond November.
Malaysia’s national airline has struggled to recover from two tragedies in 2014 — the mysterious disappearance of flight MH370 and the shooting down of flight MH17 over eastern Ukraine.
Khazanah took it private that year as part of a $1.5 billion restructuring but efforts to turn around its business have been further upended by the coronavirus pandemic.
Malaysia Airlines, which has been beset by high costs, a bloated workforce and a messy strategy, said in its statement that its current plan was “highly dependent on the individual contributions of all relevant stakeholders in supporting the group.”
“It is intended that this restructuring exercise be completed over the next few months. However, if such an outcome is not possible, the group will have no choice but to take more drastic measures,” it said.
Sources said Malaysia Airlines plans to negotiate the steep discounts with its lessors via a restructuring plan it is seeking to implement through a UK court process.
Lessors, who have been given an Oct.7 deadline to respond to the letter, and other stakeholders have been taken aback by the hardline stance shown by the airline, said the sources, who declined to be identified due to the sensitivity of the matter.
“The lessors are already under pressure in this market and what Malaysia Airlines is asking is just not doable,” said a banking source, adding that the carrier was seeking discounts of as much as around 75 percent.
In addition to Malaysia Airlines, the holding company group includes other local carriers and entities involved in aircraft leasing and ground handling services.
The letter also said the group was in the process of restructuring about $2 billion in “debt/similar liabilities” with the support of its shareholder.


Japan’s capital sees prices fall most in over 8 years as COVID-19 pain persists

Updated 27 November 2020

Japan’s capital sees prices fall most in over 8 years as COVID-19 pain persists

  • Tokyo core CPI marks biggest annual drop since May 2012
  • Data suggests nationwide consumer prices to stay weak

TOKYO: Core consumer prices in Tokyo suffered their biggest annual drop in more than eight years, data showed on Friday, an indication the hit to consumption from the coronavirus crisis continued to heap deflationary pressure on the economy.
The data, which is considered a leading indicator of nationwide price trends, reinforces market expectations that inflation will remain distant from the Bank of Japan’s 2% target for the foreseeable future.
“Consumer prices will continue to hover on a weak note as any economic recovery will be moderate,” said Dai-ichi Life Research Institute, which expects nationwide core consumer prices to fall 0.5% in the fiscal year ending March 2021.
The core consumer price index (CPI) for Japan’s capital, which includes oil products but excludes fresh food prices, fell 0.7% in November from a year earlier, government data showed, matching a median market forecast.
It followed a 0.5% drop in October and marked the biggest annual drop since May 2012, underscoring the challenge policymakers face in battling headwinds to growth from COVID-19.
The slump in fuel costs and the impact of a government campaign offering discounts to domestic travel weighed on Tokyo consumer prices, the data showed.
Japan’s economy expanded in July-September from a record post-war slump in the second quarter, when lockdown measures to prevent the spread of the virus cooled consumption and paralyzed business activity.
Analysts, however, expect any recovery to be modest with a resurgence in global and domestic infections clouding the outlook, keeping pressure on policymakers to maintain or even ramp up stimulus.