Malaysia Airlines funding to stop if talks with lessors fail

Malaysia Airlines (MH, Kuala Lumpur Int’l) parent company Malaysia Aviation Group (MAG) has warned lessors that its own parent, state-run sovereign wealth fund Khazanah Nasional, has threatened to cut off funding and liquidate the group if it fails to restructure leasing payments, Reuters reported on October 8. A letter to lessors from the group, seen by the news agency, refers to a critical and comprehensive reorganisation of its business and capital structure, known as Plan A, the failure of which would see funds and assets diverted to affiliated low-cost carrier Firefly (FY, Penang), referred to as Plan B. “In the event Plan A fails, the shareholder (Khazanah) will cease funding for MAG and will trigger a winding down/liquidation process for MAG,” said the letter, the existence of which was confirmed by six separate sources, according to Reuters. Coming just days after the group sent a letter to lessors asking for substantial discounts as part of its emergency restructuring plan, the new letter said that Khazanah Nasional would, under Plan B, “inject funds into Firefly directly to start new jet operations at Kuala Lumpur on a much smaller scale, focusing first on domestic services.” Firefly, a wholly-owned subsidiary of MAG that currently operates a fleet of twelve ATR72-500s, would then be equipped with narrowbody and later widebody aircraft. Firefly currently links eight cities in Malaysia as well as Kuala Lumpur Subang to Singapore Seletar and Penang to both Banda Aceh and Phuket, the ch-aviation capacities module shows. Also on October 8, Malaysia’s finance minister, Tengku Zafrul Aziz, said in an interview with the BFM 89.9 radio station that the government would not provide financial relief or debt guarantees to the flag carrier. But, he added, the option of shutting down the airline “is up to Khazanah as the shareholder of Malaysia Airlines. I have never ever said to close down Malaysia Airlines.” Malaysia Aviation Group told Reuters in an email that it would take a final position on the issue “upon achieving resolution with the parties it is negotiating with” and that its restructuring plan is crucial for it to emerge as a “sustainable and profitable organisation in future.”