Malaysia Aviation Market in Restructuring Era... "National Carrier May Change"

Malaysia Sovereign Wealth Fund Considers Halting Financial Support for Malaysia Airlines
LCC Begins Large-Scale Layoffs

[Asia Economy Kuala Lumpur Hong Seong-ah, Guest Reporter] The Malaysian aviation market is being reshaped due to the impact of the novel coronavirus infection (COVID-19). The national carrier Malaysia Airlines is facing the risk of losing its status, while low-cost carriers (LCCs) are conducting large-scale layoffs at a crossroads between life and death.

According to the Malaysian aviation industry on the 27th, there are prospects that Khazanah Nasional, Malaysia's sovereign wealth fund, will stop financial support for Malaysia Airlines. Khazanah Nasional is a sovereign wealth fund established by the Malaysian government in 1993 and owns 100% of the shares of the Malaysia Airlines Group.

Khazanah Nasional is considering stopping financial support because the financial restructuring of Malaysia Airlines is sluggish. The airline suffered losses amounting to 2.35 billion ringgit (approximately 637.8 billion KRW) from 2015 to 2017 due to management difficulties. Khazanah Nasional injected 500 million ringgit in March last year and 300 million ringgit in August. However, as performance deteriorated due to the COVID-19 crisis, no improvement effect appeared, and it was criticized as pouring water into a bottomless pit. Because of this, Khazanah Nasional is considering expanding investment in Firefly Airlines, a subsidiary of Malaysia Airlines. The aviation industry also evaluates that if Malaysia Airlines’ debt restructuring fails, Firefly, which is suitable for domestic flights and short-haul routes, is likely to become the next-generation national carrier.

LCCs are also facing financial crises. AirAsia X, a long-haul dedicated LCC, has entered debt restructuring and layoffs. The company stated that it needs emergency funds of 500 million ringgit to secure liquidity and is requesting debt restructuring amounting to 63.49 billion ringgit. The Malaysian government also announced that it would inject 1 billion ringgit of public funds into the AirAsia Group. The AirAsia Group, pushed to the edge, has begun restructuring, notifying layoffs for 10% of its 24,000 employees. It also plans to reduce its fleet from 245 aircraft to 180 by the end of next year. Malindo Air also laid off 2,200 employees. Although it had already laid off 2,000 employees earlier this year, with the announcement of additional cuts, the number of employees is expected to decrease to around 1,000.

The problem is that it is difficult to predict when air travel demand will recover. The number of travelers using Malaysian airports in the third quarter of this year was 4.5 million, a decrease of 83.4% compared to the previous year. According to the International Air Transport Association (IATA), "The aviation industry's cash burn in the second quarter of this year is $77 billion (approximately 86.8945 trillion KRW), and recovery is expected only in 2022."

This content was produced with the assistance of AI translation services.