Malaysia explores debt measures, M&A to bail out airlines

AirAsia Airbus A320-200 planes on the tarmac of Kuala Lumpur International Airport 2 in Sepang, Malaysia, February 4, 2020. (PHOTO: REUTERS/Lim Huey Teng)

By Elffie Chew, Manuel Baigorri and Yantoultra Ngui

(Bloomberg) -- Malaysia is exploring the possibility of bailing out domestic airlines that have been hit hard by the coronavirus outbreak, according to people with knowledge of the matter.

Officials have been studying ideas including setting up a vehicle to take over the debt of companies like Malaysia Airlines Bhd. and AirAsia Group Bhd., the people said. The government is also considering encouraging mergers between some of the carriers, said the people, who asked not to be identified because the information is private.

They have been discussing whether to provide financial support to other parts of the economy affected by the pandemic such as the tourism, real estate and oil and gas industries, the people said.

Deliberations are at an early stage and the government hasn’t decided on a course of action, said the people.

Malaysia Airlines has separately been in talks with lenders about modifying its borrowings, the people said. The country’s flagship carrier, which continues to wallow in the red since announcing its turnaround plan in 2015, has asked for support from the government, one of the people said.

Khazanah Nasional Bhd., Malaysia’s sovereign wealth fund, is the sole shareholder of Malaysia Airlines after taking it private in 2014 following two tragic incidents: one of its planes vanished over the Indian Ocean and another was shot down over Ukraine.

Representatives for the prime minister’s office and Khazanah declined to comment, while representatives for AirAsia and Malaysia Airlines didn’t immediately respond to requests for comment.

Airlines worldwide could lose US$252 billion in revenue this year from the coronavirus pandemic, threatening the survival of the industry, according to the International Air Transport Association. The anticipated hit is more than double the size of the decline mooted by IATA earlier this month, reflecting the steep downward spiral of many carriers as they grapple with a crisis more severe than anything the sector has ever faced. IATA, which represents about 290 airlines globally, said only around 30 airlines have reasonably healthy debt and earnings.

If the government of Malaysia were to create a special vehicle, it would not be the first time. In 1998, during the Asian financial crisis, Malaysia set up Pengurusan Danaharta Nasional Bhd., a state-owned asset manager, to help shield local banks from spiraling non-performing loans. Danaharta closed in 2005 and the Ministry of Finance set up Prokhas Sdn Bhd. to manage its residual assets.

Bank Negara Malaysia this week rolled out additional measures to help individuals and smaller businesses facing financial constraints because of the pandemic. In a televised address Wednesday, Prime Minister Muhyiddin Yassin said the government would announce a more comprehensive set of measures on Friday.

© 2020 Bloomberg L.P.