Malaysia Airlines warns lessors about critical restructuring

As news emerged that Malaysia Aviation Group had told lessors it was unlikely to make payments after November unless it received more government funding, Malaysia Airlines (MH, Kuala Lumpur Int’l) issued a statement on October 2 saying it had reached out to lessors, creditors, and suppliers to tell them it had launched an urgent restructuring drive. The plan, which requires a comprehensive reorganisation of the company’s business and capital structure, is critical for Malaysia Airlines to exit the current crisis and re-emerge stronger in terms of capital and finances, the statement said. “The restructuring process is targetted for completion in the next few months. However, if the results cannot be achieved, the group will have no choice but to implement more drastic measures,” it added. It has already taken “difficult steps” since March to cut costs and protect cash, it said, including salary cuts for the management team and pilots, unpaid leave, and renegotiating contracts in an effort to maintain continuity and protect as many jobs as possible. Now, because of the “profound impact” of covid-19, Malaysia Airlines must “take drastic measures to further review the Long-Term Business Plan (LTBP) to ensure the survival and relevance of the group,” including “restructuring the network and fleet plan.” Also on October 2, Reuters reported that Malaysia Aviation Group had told lessors in a letter that it was unlikely to be able to meet payments owed beyond November unless its parent, the sovereign wealth fund Khazanah Nasional, gave it more funding. The group is experiencing “an average monthly operating cash burn of USD84 million” yet it possessed just USD88 million in liquidity as of August 31 plus a further USD139 million available from Khazanah, the letter seen by the news agency explained. If restructuring is not successful by the end of 2020, Khazanah Nasional “intends to divert all efforts and funds to an alternative company with an existing air operator’s permit to ensure connectivity for Malaysia,” it added.