Malaysian carriers need to secure funds fast to avoid Covid-19 pandemic impact

KUALA LUMPUR: Malaysian carriers need to secure funds fast if they are to avoid succumbing to the Covid-19 pandemic and ultimately slipping into bankruptcy, analysts said.

They said the collapse of Virgin Australia and to a lesser extent, Norwegian Air Shuttle and British regional airline Flybe, after about two months of the Covid-19 pandemic signalled the need for airlines to get funds including from governments as quickly as possible.

Sydney-based aviation consultant CAPA Centre of Aviation today warned that most of the world’s airlines could be bankrupt by the end of May due to the pandemic.

Debt-laden Virgin Australia became Covid-19’s biggest airline scalp when it handed control to administrators on Tuesday. A near-halt in passenger revenue overwhelmed the Brisbane-based carrier in less than two months.

London School of Economics aviation expert Dr Alexander Grous said the issues facing Malaysian airlines were similar to most airlines globally.

“However, if they cannot secure funding from any source, they are likely to fall into administration or be wound up,” he told the New Straits Times (NST) yesterday.

Grous said “administration” for some airlines like Virgin Australia did not mean bankruptcy and closure but rather a “dead airline”. This means all avenues have been exhausted for funding and bankruptcy protection is filed for.

“Airlines that are government-owned, such as Malaysia Airlines, have a sole shareholder and potentially could fare better if they are deemed strategically significant and not permitted to fail,” he said.

Grous said airlines that are privately-owned or publicly-listed would all face the same funding issue.

“Failure to secure funding can result in administration or bankruptcy. We are only just beginning to see this occurring at present as many airlines are running out of reserves,” he warned.

In an April 2 interview on Bloomberg Television, AirAsia Group founder Tan Sri Tony Fernandes said it was working with the government to obtain a loan but has enough cash to last most of this year, if sales return.

The Malaysian Association of Tour and Travel Agents president Datuk Tan Kok Liang said countries worldwide were expected to bail out their national carriers.

He said the Singapore government had arranged up to S$19 billion (US$13 billion) of funding to support Singapore Airlines through the coronavirus crisis.

Hong Kong, meanwhile, provided a relief package of HK$2 billion (US$258 million) to ease the liquidity pressure of airlines and aviation support services operators.

“In addition, the US government has reached an agreement in principle with US major airlines over the terms of a $25 billion bailout, while the European Commission has approved about €455 million loan guarantee scheme to Sweden, to help the airline industry as it struggles to weather the economic fallout from the Covid-19,” Tan said recently.

Bloomberg Intelligence transport analyst James Teo said more airlines would go bankrupt without financial assistance if the pandemic drags on.

“Some airlines may last longer than others because besides cash, they may still have unencumbered aircraft assets that they can use as collateral to secure financing,” he told the NST.

Teo said existing shareholders or potential new investors could be tapped first to save an airline.

Citing an example, he said Singapore Airlines had proposed a rights issue to its shareholders.

“If minority shareholders are not keen to take up their rights, the Singaporean government, through Temasek Holdings, can step in to take up the slack,” he added.