Local airlines join global peers in grounding fleet

International Air Transport Association (IATA) director-general Alexandre de Juniac(pic) is urging the Malaysian government to take urgent action to provide support in the form of direct financial support, loans, loan guarantees and support for the corporate bond market and tax relief for the airlines.

PETALING JAYA: The coronavirus (Covid-19) pandemic has put the three major local airlines into cash crunch as they are unable to generate enough money with ticket sales drying up.

They have resorted to grounding aircraft, meaning they are unable to earn any ancillary income.

While some have stronger balance sheets than others, they are in need of some form of help from the government to ride the turbulent times. On their own they are cutting costs, telling their employees to take unpaid leave, cancelling flights and grounding aircraft.

But all that is not enough to stay afloat over a period of time since there is no sign of the pandemic ending soon.

The chiefs of the three airlines met the new Finance Minister recently. Among other things, the chiefs are asking for tax deferment, defer in payment of bank loans for the airline and its employees, waive in airport charges and passenger service charges, and defer in EPF contributions to stay afloat, an airline executive said.

Moody’s Investor Service in its report said there is “potential for some airlines to collapse within a short period of time without additional support from shareholders and/or central governments.’’

It said the extent of government intervention is critical.

Moody’s added that many of the stronger companies have sufficient capital structures to withstand a one-to-two month grounding but few can withstand five to six months or more. An extended grounding increases the possibility of more severe credit deterioration. However, over recent days, multiple governments have indicated that such a scenario would likely be accompanied by government support.

International Air Transport Association (IATA) director-general Alexandre de Juniac is urging the Malaysian government to take urgent action to provide support in the form of direct financial support, loans, loan guarantees and support for the corporate bond market and tax relief for the airlines.

He said in an e-mail to StarBiz that as airlines’ ticket sales disappeared, so did the daily cash intake from those sales as even the most well-capitalised airlines needed to pay their bills.

Malaysia Airlines spokesperson said that “we are now operating at 20% capacity and we foresee further reductions in the coming weeks following more stringent travel restrictions by governments worldwide.’’

The airline has grounded 65% of its 81 fleet but still operates domestic flights as well as flights to repatriate Malaysians and transport foreigners home.

Malindo Air CEO Captain Mushafiz Mustafa Bakri, when contacted, said the airline was operating at 15% capacity for now. It has grounded 26 of its 36 aircraft.

AirAsia Group is said to have grounded 75% of its Malaysian fleet of about 100 aircraft. It is only running at 10% capacity locally and is monitoring the demand and capacity patterns daily. The contribution towards group revenue from its Malaysian operations is about 50%.

AirAsia is still operating its cargo and some domestic passenger flights.

Globally, many airlines have grounded planes as demand for travel dries up. Emirates, one of the biggest airlines in the world, suspended passenger flights from 153 destinations to 13 and grounded the bulk of its aircraft on Sunday.

Yesterday, Singapore Airlines said it has cut capacity by 96% and grounded 138 aircraft. Last week, Australia’s Qantas grounded 150 aircraft while US-Delta Air Lines has grounded half of its 600 fleet.

Almost 100 countries have closed their borders and restricted foreign travel.

Governments across the globe are coming to assist their airlines with financial packages and loans to avoid airline collapses.

IATA predicts that US$200bil is needed globally to keep airlines afloat.

IATA also wants Malaysia to immediately implement a full waiver of the air passenger departure levy, full waiver or up to 50% discount of aeronautical (airport, navigation) charges imposed on airlines from the date the first travel restriction and defer, if any, planned increases in aeronautical charges and taxes till year end.

It has also urged for full waiver or discount of above 50% of the Civil Aviation Authority of Malaysia charges and fees on airlines. It also calls for the full exemption of sales and service tax for domestic air tickets and passenger fuel surcharge for the rest of the year.

“The coronavirus outbreak is having a severe impact on the Malaysian aviation sector. As at the middle of this month, we estimated a 23% reduction in passenger volume and US$1.8bil fall in passenger revenue.

“The drop in air travel demand would put at risk 95,000 jobs and US$2.1bil in contribution to the Malaysian GDP, ’’ de Juniac said.

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