Malaysia Airlines parent company says group is running out of cash

SINGAPORE - Malaysia Aviation Group (MAG), the holding company for Malaysia Airlines, 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.

According to the letter, the aviation group was experiencing "an average monthly operating cash burn of US$84 million (S$28 million)", but only had US$88 million in liquidity as of Aug 31 and an additional US$139 million available from Khazanah, its sole shareholder.

"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 last month, but the exact date was not immediately clear.

Malaysia Aviation Group and Khazanah had no immediate comment in response to Reuters queries.

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 US$1.5 billion restructuring, but efforts to turnaround its business have been further upended by the coronavirus pandemic.

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Malaysia Airlines plans to negotiate the steep discounts with its lessors via a restructuring plan it is seeking to implement through a British court process, the sources said, declining to be identified due to the sensitivity of the matter.

In addition to Malaysia Airlines, the holding company group includes other local carriers and entities involved in aircraft leasing and ground handling services.

Meanwhile, MAG in a statement on Friday said it is embarking on an urgent restructuring of its business and capital structure as the Covid-19 pandemic is showing little sign of easing, The Star online news reported.

It said that while its long-term business plan (LTBP) launched in early 2019 had resulted in significant operational improvements, the Covid-19 pandemic has caused unprecedented lockdowns across the globe.

"The deep impact of the prolonged Covid-19 crisis has necessitated MAG to take drastic steps in revising its LTBP further to ensure the group’s relevance and survival.

"This includes reworking its network and fleet plans, to be able to cope with not only the uncertain and volatile aviation landscape, but also likely softer traffic demand for the foreseeable future," it said.