Malaysia Airlines said tapping banks for first jet financing since restructuring

KUALA LUMPUR/SINGAPORE: 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, sources familiar with the situation said.

The financing represents a key test for the airline, which was taken over by Malaysian sovereign wealth fund Khazanah Nasional Bhd in December 2014, months after MH370 disappeared and MH17 was shot down over Ukraine.

Finance industry sources, speaking on condition of anonymity, said Malaysian, European and Chinese banks are 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, but declined to provide more specific details.

Khazanah had no immediate response to a request for comment.

Though the aviation financing environment remains strong, the 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.

But others said government backing combined with a liquid market for narrowbody jets would provide support to financiers.

Sources said the request for proposal is for planes that Malaysia Airlines will 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 has taken out operating leases for widebodies since the restructuring but this is the first time it is seeking a financing arrangement with lenders, sources said.

Malaysia Airlines has 25 737 MAX jets on order with Boeing. – Reuters