The Malaysian government has summoned Malaysia Airlines and Batik Air for talks on strategies to accommodate the domestic market share should AirAsia face a financial crisis, following soaring fuel costs and accumulated debt. AirAsia emphasized its continued commitment to maintaining business stability and normal operations.
The Malaysian government has initiated discussions with Malaysia Airlines and Batik Air to assess their readiness to take over AirAsia’s domestic market share, the largest low-cost carrier in Southeast Asia, as part of contingency planning amid concerns about AirAsia’s financial stability.
These talks involve Malaysia’s Ministry of Finance and Malaysia Airports Holdings Berhad (MAHB), the government-linked airport operator. One option is preparing rival airlines to cover AirAsia’s routes and passengers if the airline’s financial situation deteriorates.
AirAsia stated that it holds about 40% of Malaysia’s overall aviation market and approximately 60% of domestic flights, making its financial status a critical issue for the government due to its impact on air connectivity and domestic travel.
Sources said Malaysia Airlines and Batik Air are ready to expand flights and absorb AirAsia’s routes and passengers as a business expansion rather than a full acquisition of AirAsia. However, if they are to take over extensive operations, both airlines would require taking on AirAsia’s aircraft leases, as managing large routes and passenger volumes without additional planes would be difficult.
Pressure on AirAsia has increased amid rising jet fuel prices, which averaged $183 per barrel in Q2, up 66% from the previous quarter, affected by the conflict involving the US, Israel, and Iran.
AirAsia reported a net loss of 831 million ringgit (about 6.7 billion baht) for the quarter ending June 30, impacted by higher fuel costs and a foreign exchange loss of 331 million ringgit. As of June 30, the company had current liabilities of 18.4 billion ringgit (approximately $4.51 billion) and cash and bank deposits of 954 million ringgit.
Sources also stated AirAsia owes MAHB at least 500 million ringgit from landing fees, parking charges, and other services. MAHB has extended payment deadlines. However, neither MAHB nor AirAsia has confirmed details about this debt.
Meanwhile, AirAsia is advancing fundraising efforts, aiming to borrow up to $1 billion from the international bond market and an additional 700 million ringgit in domestic credit lines to support restructuring and debt refinancing.
Two sources estimate AirAsia may need at least $3 billion in new capital to manage its financial position, but AirAsia maintains that its announced fundraising targets are sufficient for the company’s needs.
Additionally, AirAsia continues restructuring by canceling unprofitable routes, returning 25 older aircraft to lessors, and negotiating contract adjustments with suppliers to reduce costs.
Farouk Kamal, AirAsia Group’s deputy CEO, said the company does not comment on forecasts regarding operations or financial status, nor on undisclosed business agreements. He reiterated AirAsia’s focus on maintaining business continuity and operational stability across all markets, noting strong travel demand across its network.
MAHB stated that discussions with airlines are part of routine network and route development, including exploring capacity expansions and opening routes in underserved or unmet demand markets. It declined to comment on AirAsia’s financial outlook.
Chandran Rama Muthy, CEO of Batik Air Malaysia, said the airline is capable of quickly deploying aircraft to support or increase its share of domestic flight markets if necessary.
Previously, Malaysia’s Ministry of Finance hired Alton Aviation Consultancy to assess AirAsia’s funding needs while the government considers options to support the airline, a major employer and key provider of low-cost flights in the region.
Following these reports, shares of AirAsia and its parent company Capital A fell 5.5% in morning trading on Thursday, 17 September, while the Malaysian financial market was closed on Wednesday for a public holiday.
. Reuters