Four bidders, including three airlines, are reported to have lodged bids for the purchase of a strategic stake in struggling flag carrier Malaysia Airlines Bhd (MAB). Malaysia Aviation Group is parent to MAB along with regional carrier Firefly and domestic operator MASwings, as well as MAB Kargo.
The three carriers shortlisted by Khazanah Nasional are Qatar Airways, Japan Airlines and China Southern Airlines. Identity of the fourth bidder is unknown. The government had solicited expressions of interest from about 20 entities.
Despite reporting a marginally lower year-on-year loss for 2018, MAB has not released annual financial statements to the Companies Commission of Malaysia (CCM), opting only to cite cutthroat competition, overcapacity and volatility in fuel price and foreign exchange. Current market chatter has MAB losing about MYR100 million ($24 million) per month since January. In 2017 MAB registered a loss of $194 million. The company posted losses of $105 million and $270 million in 2015 and 2016 respectively.
Following sale of an equity stake, the size of which has not been determined, sovereign wealth fund Khazanah Nasional, which owns MAB, is expected to retain a significant holding in the carrier, which may be a majority stake.
In addition to cargo carried in the belly space of passenger aircraft, MAB Kargo operates three A330-200 pure-freighter aircraft. MAB Kargo claims the capacity to handle up to one million tons of cargo annually. MAS Kargo offers belly space capacity to over 100 destinations across six continents.
The government has been considering a sale, refinancing or closing of the airline for several months. Khazanah Nasional is expected to name a preferred bidder by the end of 2019 or in early 2020 as the carrier has only enough cash to remain aloft until April 2020. The fund’s financial performance took a significant hit in 2018, with the financially ailing airline being responsible for about half of its $1.7 billion financial impairment. So far this year, Khazanah Nasional has sunk an additional $191 million into the carrier: $119 million in March and $72 million million in August.
The $191 million capital injection into Malaysia Aviation Group is only part of the initial $1.4 billion approved funding for the airline under a recovery plan that was announced five years ago. Struggling MAB was delisted from the local stock exchange on 31 December 2014 after Khazanah Nasional offered to buy out minority shareholders in a restructuring plan. Khazanah Nasional paid about $429 million to acquire the 30.6% it did not own, with plans to seek a public listing on the Bursa Malaysia in March 2019. As part of the Khakanah Nasional buyout, Malaysia Airlines (MAS) was transformed into a new company referred to as MAB.
The five-year recovery plan for Malaysia Airlines was unveiled in 2014, with the aim of turning around the loss-making entity into a profitable company by 2018. The target was not achieved, however, amid stiff competition, rising fuel prices and unfavorable foreign exchange rates.
Khazanah Nasional in August 2014 unveiled a radical 12-point restructuring plan with an investment of $1.4 billion to revive the national carrier. The injected funds were meant to be disbursed on a staggered and conditional basis over a three-year period, starting in 2014. Of the $1.4 billion investment, $270 million was earmarked for the delisting of MAS and $38 million for restructuring and retrenchment costs.The remainder was targeted for capital injection into the newly formed MAB, on a milestone basis up to 2016.