Malaysia explores debt measures, M&A to bail out airlines

Malaysia Airlines, which continues to wallow in the red since announcing its turnaround plan in 2015, has asked for support from the Malaysian government.
Malaysia Airlines, which continues to wallow in the red since announcing its turnaround plan in 2015, has asked for support from the Malaysian government.PHOTO: EPA-EFE

KUALA LUMPUR (BLOOMBERG) - Malaysia is exploring the possibility of bailing out domestic airlines that have been hit hard by the coronavirus outbreak, according to people with knowledge of the matter.

Officials have been studying ideas including setting up a vehicle to take over the debt of companies like Malaysia Airlines Bhd and AirAsia Group Bhd, the people said.

The government is also considering encouraging mergers between some of the carriers, said the people, who asked not to be identified because the information is private.

They have been discussing whether to provide financial support to other parts of the economy affected by the pandemic such as the tourism, real estate and oil and gas industries, the people said.

Deliberations are at an early stage and the government hasn't decided on a course of action, said the people.

Malaysia Airlines has separately been in talks with lenders about modifying its borrowings, the people said.

The country's flagship carrier, which continues to wallow in the red since announcing its turnaround plan in 2015, has asked for support from the government, one of the people said.

Khazanah Nasional Bhd, Malaysia's sovereign wealth fund, is the sole shareholder of Malaysia Airlines after taking it private in 2014 following two tragic incidents: one of its planes vanished over the Indian Ocean and another was shot down over Ukraine.

Malaysia Airlines confirmed in an e-mailed statement late on Wednesday (March 25) that it has been in talks with the government on emergency measures to help airlines sustain through the crisis.

The carrier isn't in discussions with the government on mergers with other airline groups, it said.

"Solutions to address the industry over-supply situation and long-term sustainability need to be addressed holistically," Malaysia Airlines Chief Executive Officer Izham Ismail said in the statement.

 
 
 

"Whilst mergers between airlines is one option, addressing the issues via regulations and policies should also not be ignored as it could just be as effective."

Any merger proposal would need to take into account anti-trust regulations and address numerous integration challenges, including personnel issues and both carriers' liabilities, he said.

Representatives for the prime minister's office and Khazanah declined to comment, while a representative for AirAsia didn't immediately respond to requests for comment.

Airlines worldwide could lose US$252 billion (S$365.46 billion) in revenue this year from the coronavirus pandemic, threatening the survival of the industry, according to the International Air Transport Association.

The anticipated hit is more than double the size of the decline mooted by IATA earlier this month, reflecting the steep downward spiral of many carriers as they grapple with a crisis more severe than anything the sector has ever faced.

IATA, which represents about 290 airlines globally, said only around 30 airlines have reasonably healthy debt and earnings.

If the government of Malaysia were to create a special vehicle, it would not be the first time.

In 1998, during the Asian financial crisis, Malaysia set up Pengurusan Danaharta Nasional Bhd, a state-owned asset manager, to help shield local banks from spiralling non-performing loans.

Danaharta closed in 2005 and the Ministry of Finance set up Prokhas Sdn Bhd to manage its residual assets.

Bank Negara Malaysia this week rolled out additional measures to help individuals and smaller businesses facing financial constraints because of the pandemic.

In a televised address Wednesday, Prime Minister Muhyiddin Yassin said the government would announce a more comprehensive set of measures on Friday.