National carrier Malaysia Airlines Berhad (MAB) is expected to run at a loss and will need up to RM21 billion 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.
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
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. Proposals to invest in ailing Malaysia Airlines include one from Air France-KLM which wants as much as 49pc while Japan Airlines is looking at a 25pc stake, sources with knowledge of the matter said. Domestic carrier AirAsia Group Bhd and Malindo Air, the Malaysian arm of Indonesia’s Lion Air, have also submitted proposals, the sources said.
The Malaysian government has been seeking a strategic partner for its national airline, which has struggled to recover from two tragedies – the mysterious disappearance of flight MH370 and the shooting down of flight MH17 over eastern Ukraine. In 2014, it was taken private by sovereign wealth fund Khazanah Nasional Bhd, which paid RM1.4 billion for the 30pc of shares it did not already own.
Malaysian Prime Minister Tun Dr Mahathir Mohamad said yesterday five proposals had been received as part of a review that started last year but declined to name the suitors. Malaysia Airlines last year signed a joint venture agreement with JAL covering flights between Malaysia and Japan, which the Japanese airline said could be expanded in the future to cover US flights.
Malaysia Airlines and JAL are both members of the one world airline alliance, while Air France-KLM is part of the rival SkyTeam alliance.
Reuters
