Diverse views on aid for airlines

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapha Mohamed in an interview with Bernama said that “companies like Malaysia Airlines, AirAsia and Malindo Air are big employers. Certainly (it) requires a different action.’’

PETALING JAYA: Opinion is divided on whether the government should help all airlines or be selective even though support is critical during the Covid-19 pandemic.

One major factor in determining which carriers should receive a bailout will be the likelihood of a strong rebound post the crisis and whether airlines should merge or fend for themselves.

“It should be an industry solution and not limited to Malaysia Airlines although Khazanah Nasional Bhd at the moment only owns Malaysia Airlines, ’’ said Singapore based-Sobie Aviation founder Brendan Sobie told StarBiz.

He said there should be access to capital for all to ensure liquidity and it could be in loans, guarantees besides reduced charges, taxes and fees as all this will provide some relief for all the airlines.

“But that is not enough as the fixed costs continue to be accrued with virtually no revenue coming in, ’’ Sobie added.

A local analyst echoes that by saying “all airlines should be aided, in the interest of fairness and in recognition of each airline’s past contribution to the Malaysian economy.’’

However, Endau Analytics founder Shukor Yusof said “my view is that the government needs to be selective on which airlines it should help (if at all). At the end of the day it is the taxpayers’ money and the government has to be accountable on how it’s spent. I’m not convinced – even during this very critical crisis – that all airlines ought to get help. Any help some airlines receive will not guarantee they won’t go bust after this episode.

“So it is best to let them fend for themselves. If they want money then they must give something in return, like equity, or independent directors on the board. At the end of the day, what is the upside for the taxpayers?’’ Shukor asked.

Another industry expert said “see what the rest of the world is doing and apply the best there. If the government wants to save all jobs in airlines, it would be unprecedented anywhere in the world. Which might raise the question - what’s so special about the airlines in Malaysia that is even more special than in any other country?’’

The CAPA Centre for Aviation in a note wrote that governments across the Asia Pacific region were taking steps to support the airline industry during the Covid-19 crisis but in most cases the steps taken to date were timid and, so far, inadequate.

“Some governments moved early to introduce packages based on waivers of fees and charges, and state-backed loans for airlines have also been offered. A handful are following up on these efforts with more direct forms of financial aid for carriers, with more likely to follow.

“Such steps can risk distorting the market, and generally it is not ideal for governments to be picking winners and losers in such a globally connected industry, ’’ CAPA said.

Many airlines globally, be it private or government owned, seek aid from the government. In the US, the government offers aid in exchange for an equity stake in the airlines.

Local airlines have grounded the bulk of their aircraft and are finding ways to further trim cost. Their fixed cost is high. All the CEOs of the local airlines have presented their case to the Finance Minister but during the second stimulus package announced on Friday, there was nothing to uplift the airlines. The airline sector is among the worst hit as demand for air travel during the pandemic dries up.

However, the Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapha Mohamed in an interview with Bernama said that “companies like Malaysia Airlines, AirAsia and Malindo Air are big employers. Certainly (it) requires a different action.’’

Whether Khazanah Nasional Bhd is preparing something to help the airlines and in turn take an equity stake in them is unclear. Khazanah is major shareholder of Malaysia Airlines.

However, last week a report said AirAsia group was looking at options to get a financial investor to shore up AirAsia X’s finances. It was also studying alternatives of including getting support from Khazanah and shuttering AirAsia X.

Malaysia Airlines has over 13,000 employees, Malindo Air 4,900 and both AirAsia and AirAsia X Malaysia 8,300.

Separately, Kenanga Research has cut its financial year 2020 assumptions for both AirAsia and Malaysia Airports Holdings Bhd as it expects wider losses due to drying up of air travel.

“We forecast a wider net loss of RM527mil instead of RM258mil for AirAsia. We cut our load factor assumption from 79% to 77% (vs 1H2020 management guidance is 78%) and lowered our yield by 3%ppts to 14% due to lower demand as a result of the coronavirus, ’’ Kenanga said.

As for MAHB, the house has downgraded its FY20/FY21 estimate net profit by 43%/19%. It has cut the passenger growth assumption in FY20 from to 4% to -12%. The FY21E passenger movement forecast now is +10%.

Moody’s Investor Service has also revised its outlook on MAHB ratings to “negative” from “stable”. It said the change in outlook to “negative” reflects its expectation of a sharp decline in passenger and aircraft traffic volumes at MAHB’s airports in the coming months as a result of the worsening Covid-19 outbreak and a consequent decline in MAHB’s credit metrics over the next 12 months to 18 months.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3

Next In Business News

BioNTech to establish regional HQ, mRNA manufacturing facility in Singapore
BIMB Research sees 1Q GDP shrinking at slower pace of 0.6%
MoF confirms 1MDB, SRC filed 22 suits to recover RM96.6b
Dollar back to where it began the year as rally burns out
Bank Negara issues guidance for financial sector on climate resilience
Serba Dinamik becomes premier partner for Malaysian pavilion at Expo 2020 Dubai
Bursa says half-day trading session on Wednesday
UMW Group records higher April sales of 9,280 units
FBM KLCI unchanged at midday amid GDP jitters
AmMetLife offers post-Covid-19 vaccination coverage

Stories You'll Enjoy