Summary · why it matters
The Malaysian government has begun exploratory talks with Malaysia Airlines and Batik Air to gauge their readiness to take over domestic routes and passengers from AirAsia if AirAsia runs into financial trouble and can no longer operate normally. The discussions include representatives from Malaysia's Ministry of Finance and Malaysia Airports Holdings Berhad, or MAHB. One option under consideration is that the government could issue a policy support letter to boost confidence and make it easier for AirAsia to raise fresh capital. Both Malaysia Airlines and Batik Air have set conditions, saying that if the government wants them to absorb a large volume of AirAsia's passengers and routes, AirAsia must agree to let them take over its aircraft leases as well. They also made clear they want to expand their own fleets and flights rather than fully merge with or acquire all of AirAsia. The Malaysian government is deeply concerned because AirAsia holds about 40% of the country's total aviation market and as much as 60% of domestic flights alone. On its financial position as of June 30, AirAsia had current liabilities of 18.4 billion ringgit, or about 4.51 billion US dollars, and at least 500 million ringgit in overdue payments to MAHB for landing and parking fees, while holding only 954 million ringgit in cash and bank deposits. In the second quarter, AirAsia posted a net loss of 831 million ringgit, compounded by jet fuel costs and foreign exchange losses of another 331 million ringgit. Jet fuel costs surged 66% in the second quarter, reaching an average of 183 US dollars per barrel. AirAsia disclosed earlier this month that it is in talks with financial institutions to raise up to 1 billion US dollars through overseas bond issuance, alongside seeking 700 million ringgit in credit lines from domestic banks. But two insider sources estimate that AirAsia needs at least 3 billion US dollars in new funding to be enough to resolve the crisis. Meanwhile, Malaysia's Ministry of Finance has hired Alton Aviation Consultancy to assess AirAsia's capital needs in detail to inform its decision on whether to provide assistance.
Asia Aviation Public Company Limited