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Wednesday, January 22, 2020

Report: Malaysia Airlines Needs RM21b To Continue Operations

(MMO) – National carrier Malaysia Airlines Berhad (MAB) is expected to run at a loss and will need up to RM21 billion of taxpayers’ money for it to stay afloat until 2025 unless it can make a turnaround or find a strategic partner.
Business paper Focus Malaysia reported that the RM21 billion financing is a “high-level estimate” based on a memo by owner Khazanah Nasional Berhad’s projections. This includes aircraft purchases if the airline continues to bleed money.
“The RM21 billion financing is a ‘high-level estimate’ based on Khazanah’s projections, which included aircraft purchases if MAB continued bleeding red.
“That would mean the fund would need to pump in roughly RM3.5 billion a year with RM1 billion to RM1.6 billion going to operations and the rest for aircraft. Based on MAB’s own estimates which Khazanah considered optimistic, RM10.3 billion would be needed,” said the article.
The memo, based on MAB’s proposed 2019-2025 business plan was also criticised by the Khazanah committee as “overly optimistic” since the company believed its revenue can see a 4 per cent increase between 2019 to 2025.
This would be based on its focus for “driving revenue” and “managing costs” while it maintains “premium customer experience” and MAB estimated that it would break even in 2022 and become stable in 2024.
Khazanah, on the other hand, does not see anything different between the proposed business model and the previous one.
“The fund said the 4 per cent a year revenue jump would be ‘unlikely’, given the average growth rate of MAB had been 1 per cent a year between the years 2016-2018.
“Khazanah added that even if MAB’s estimates were accepted, barring unforeseen circumstances, the fund still needed to pump in an additional RM10.3 billion to pay off the RM5.6 billion loan from special-purpose vehicle Turus Pesawat Sdn Bhd for six Airbus 380s and finance operations.
“As it is, MAB already risked defaulting on the Turus Pesawat loan,” said the article.
Khazanah has come to the conclusion that MAB’s business plan will not help it make the turnaround it needs based on the airline’s weak track record, execution capacity and an inability to address revenue decline.
The memo also observed that at its continued 1 per cent growth rate, MAB will never break even. In its financial year ended December 31, 2018 it had made RM8.73 billion revenue but a net loss of RM791.71 million.
It was reported previously that four companies — AirAsia Group Berhad, Japan Airlines Co Ltd, Air France-KLM SA and Malindo Airways Sdn Bhd — were interested in becoming MAB’s strategic partners
AirAsia was picked as the favourite alongside frontrunner Japan Airlines while Air France-KLM opted out.
Prime Minister Tun Dr Mahathir Mohamad in his role as Khazanah chairman had said there were five proposals with the fourth party remaining unknown for the time being.

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