Explainer: Malaysia Airlines' survival in doubt as political support dims

By Anshuman Daga and Liz Lee
SINGAPORE / KUALA LUMPUR (Reuters) - Malaysia Airlines is struggling to make payments to creditors and lessors as the coronavirus pandemic has forced the company to cease operations.
The national airline, which has restructured itself after two fatal crashes in 2014, has a new plan that includes huge discounts from creditors, but unlike last time, the financially troubled government is unwilling to bail it out.

How long has it been in trouble and why?
The airline has been making losses for about a decade. The losses were compounded by two tragedies in 2014 - the mysterious disappearance of flight MH370 and the shooting down of flight MH17 over eastern Ukraine.
In the price-sensitive domestic market, competition from low-cost competitors AirAsia Group Bhd and Malindo Air, an offshoot of Indonesia's Lion Air, had increased.
In the international market, the cashed Gulf airlines Emirates, Etihad Airways and Qatar Airways used the weight of their global networks to intervene on lucrative long-haul routes. Budget rival AirAsia X Bhd, now in financial trouble itself, offered discounted fares on routes within Asia.

The state-run fund Khazanah Nasional became the sole shareholder of its parent company and delisted it in 2014 as part of a $ 1.5 billion restructuring that reduced its workforce by 6,000, or about 30%. It aimed for a return to profit in three years but was not yet profitable.
Analysts and lessors say the airline has suffered high costs, a chaotic strategy and a bloated workforce even after the restructuring.
"We are at this stage because the airline is running out of money and ideas and the government is apparently running out of patience," said Shukor Yusof, an analyst at Endau Analytics.
Before the pandemic, the government was looking for a strategic partner to invest in the airline. However, those plans failed as interested parties such as Air France-KLM and Japan Airlines were hit by a decline in sales in their home markets.

How does the government feel about funding?
Finance Minister Tengku Zafrul Abdul Aziz said last week the government would not provide financial relief or debt guarantees and raise questions about the airline's fate.
Ismail Nasaruddin, President of the National Union of Flight Attendants Malaysia (Nufam), described the finance minister's statement as "irresponsible".
"As a government, you should be able to show responsibility," Ismail told Reuters on Tuesday. "It hurts morale (and trust). People don't trust you now."
All support measures for the airline must be addressed by Khazanah, Zafrul said last week.
Zafrul is director of the board of directors of Khazanah, chaired by Prime Minister Muhyiddin Yassin, who is struggling to stay in power.
Reuters reported last week that Khazanah warned leasing companies to stop funding the airline group and force them into a workout process if restructuring talks with lessors remain unsuccessful.

A group of leasing companies that claim to represent 70% of the planes and engines leased to Malaysia Airlines have rejected their plan, calling it "inappropriate and fatally flawed". The airline group said it was happy with the support from the lessors but warned that if they don't support the plan, it would have to close.
The airline, with a fleet of 88 aircraft, leases aircraft from around a dozen leasing companies, including Avolon, Aercap, BBAM, Air Lease and Standard Chartered. All declined to comment, while another lessor, SMBC Aviation, did not respond to a Reuters query.

What if there is no offer?
Under a "Plan B" scenario, funding would be provided by Khazanah Firefly, an operator of 12 turboprops that is a wholly owned subsidiary of Malaysia Airlines' parent company.
According to a document released by Reuters, Firefly would source narrowbody aircraft and then widebody aircraft from the market. The leasing rates have fallen sharply due to the lack of demand from the airlines.
Before the outbreak of the pandemic, Malaysia Airlines had pushed back its order for Boeing Co 737 MAX jets, and industry insiders said they were considering smaller aircraft like the Airbus SE A220 or Embraer SA E190.
"It's pretty clear that Malaysia Airlines' future has to be a very smaller airline if it has any chance of survival," said a leasing manager.

(Reporting by Anshuman Daga and Liz Lee; Editing by Jamie Freed and Muralikumar Anantharaman)

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