‘MALAYSIA AIRLINES TAPS BANKS TO FUND BOEING DEAL’
Deal to be carrier’s first jet financing with lenders since it was restructured more than 3 years ago
MALAYSIA Airlines Bhd is tapping banks to fund about nine Boeing 737 MAX planes in what will be the carrier ’s first jet financing with lenders since it was restructured more than three years ago, said sources.
The financing represents a key test for the airline, which was taken over by Khazanah Nasional in December 2014, months after MH370 disappeared and MH17 was shot down over Ukraine.
Industry sources said Malaysian, European and Chinese banks were expected to compete for financing of the planes, for which Malaysia Airlines sent out a request for proposal a few weeks ago.
The jets have a list price of around US$1 billion (RM4 billion), but airlines typically receive large discounts from manufacturers.
Malaysia Airlines said yesterday it was considering “various funding and leasing options” for its 737 MAX order, which is meant to replace older 737s coming off lease.
Though the aviation financing environment remains strong, sources said Malaysia Airlines’ poor operating performance and a forced haircut taken by banks and lessors on finance and operating leases during the airline’s restructuring could make some banks wary of a financing deal with the carrier.
They could also be discouraged by the airline’s struggle to show a meaningful recovery after job cuts, fleet changes and route adjustments undertaken as part of a five-year turnaround plan.
“The way they managed their restructuring and put pressure on banks, that’s something banks haven’t forgotten. There are also no concrete signs of a turnaround,” said one source.
Sources said the request for proposal was for planes that Malaysia Airlines would take delivery over the next few years under finance leases.
Airlines routinely tap banks to fund their aircraft in sale and leaseback arrangements.
The airline had taken out operating leases for wide-bodies since the restructuring but this was the first time it is seeking a financing arrangement with lenders, said sources.
Malaysia Airlines has 25 737 MAX jets on order with Boeing.
Sources said Japanese financial institutions, once strong backers of the airline, were not likely to participate due to curbs related to the carrier having been making losses for years.
Malaysia Airlines last month said it had underperformed against its budget for last year and was preparing for a “tough year ahead” due to competition, exchange rate volatility and rising fuel prices.
It expects an improved performance later in the year and is targeting sustained profitability next year.
The airline has also been struggling on the management front, with Peter Bellew quitting as chief executive officer (CEO) last year after a little more than a year in the job. His predecessor, Christoph Mueller, also quit before the end of his contract. Company executive Captain Izham Ismail is now the CEO.
“There’s lack of continuity at senior management positions.”
Overcapacity in its key markets and aggressive competition along with high oil prices had hampered Malaysia Airlines’ turnaround plans, said the sources.
“Things are clearly not working out the way they should,” said a second source.
But others said government backing and a liquid market for narrow-body jets would provide support to financiers.