AirAsia’s strategy so far has been a combination of lay-offs, diversification and scrambling for loans. The low-cost carrier last month confirmed it was retrenching about 2,400 employees and seeking up to 2.5 billion ringgit (US$606 million) in funding to tide it over, including 1.5 billion ringgit in bank loans.

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The airline’s long-haul arm, AirAsia X, has sought to ward off disaster through debt restructuring and cutting share capital, although its Japanese operations filed for bankruptcy last week.

Meanwhile, the airline’s founder and group CEO Tony Fernandes has listed his Scottish mansion for sale at £2.5 million (US$3.3 million), and his company is also pushing to diversify through food delivery.

The future for Malaysia Airlines, however, is less clear. The carrier has a fraught history, and is now grappling with 16 billion ringgit in liabilities, poor international perceptions following two aviation tragedies in 2014 – when MH370 mysteriously disappeared and MH17 was shot down over Ukraine – and multiple changes in top management.

The airline, which is currently negotiating with creditors, is also offering early retirement to its employees.

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Malaysian budget airline AirAsia aims to shrink fleet size by returning planes to lessors

Malaysian budget airline AirAsia aims to shrink fleet size by returning planes to lessors

“With a crisis of this magnitude, no one comes out of it the same,” said transport analyst Mohshin Aziz, who manages Pangolin Investment Management’s new aviation recovery fund.

“At AirAsia, you can already see news that its Japan operations are now bankrupt, and perhaps will cease altogether. Its joint venture in India is on rocky ground, and perhaps that will disband too. The weakest links will be restructured first, as there is no available cash or methods to manoeuvre any more.”

WHEELING AND DEALING

For Malaysia Airlines, Mohshin said, things were far less clear. “Information flow to the public has been very scarce since Captain Izham [Ismail] became CEO [in 2017], and it is hard to gauge what the management is doing. We can only guess that things are challenging given that they were suffering long before Covid-19.”

Finance minister Tengku Zafrul Abdul Aziz earlier this month said he would be leaving the future of Malaysia Airlines in the hands of sovereign wealth fund Khazanah, which is the airline’s sole shareholder and had in 2017 registered 7.3 billion ringgit (US$1.78 billion) in impairments – half of which was from keeping the national carrier afloat.

Khazanah has long promised a restructuring exercise for the besieged airline, and is also considering options such as mergers with other carriers. The fund’s CEO recently said partners and creditors would have to help Malaysia Airlines survive, or there would be “no choice” but to shut it down.

According to experts, common strategies for aviation companies to stay aloft during the current downturn include obtaining liquidity – either via raising debt, selling aircraft or other marketable assets – or raising new equity.

“This injection of equity is critical in order to get by. AirAsia seems to be doing its part, wheeling and dealing, but we have not heard of any transaction happening just yet. Similarly with Malaysia Airlines, the last we heard they were doing hard negotiations with its many lessors,” Mohshin said.

Responding to the aviation crisis and economic downturn after months of a national lockdown that also saw Malaysia’s borders closed, government financial guarantee insurer Danajamin has promised to stand in as guarantor for locally based airlines. However, critics say not much has been done so far, as they point to a recent mass retrenchment by Malindo Air.

Khazanah to stop funding Malaysia Airlines if rescue talks with lessor fail

“The problem with the Malaysian government [is that] they don’t have deep pockets like, for instance, Singapore,” said businessman Ishak Ismail, who runs cargo liner Raya Airways – a niche he said had been unaffected by the coronavirus, with its turnover in fact doubling. “Singapore has already put billions into Singapore Airlines, which similar to Malaysia Airlines is majority owned by the government’s [sovereign wealth fund] Temasek Holdings.”

An industry insider who declined to be named due to his proximity to the negotiations said AirAsia was still awaiting a response from Danajamin, after which it could do a cash call for funding. “Meanwhile, Khazanah has been mum on Malaysia Airlines, but with a vaccine in sight they may want or have to save the airline now rather than liquidate it.”

LEGACY ISSUES

Analyst Shukor Yusof of Endau Analytics believes the government has, to some extent, given Khazanah carte blanche to help Malaysia Airlines – but the national carrier’s issues run deep, rooted in legacy as well as challenges posed by macro and competitive forces.

“My view is that while Khazanah has the financial resources to ensure Malaysia Airlines doesn’t collapse, Khazanah and the carrier have no idea how to make a profit in the industry! So nothing will change from whatever ‘restructuring’ it brings,” he said. “AirAsia, as a privately owned carrier which has to survive on its own wits and has diversified its business model, has a better future than Malaysia Airlines post-Covid-19, although the survival of its long-haul arm AirAsia X remains in doubt.”

Mohsin from Pangolin Investment Management said lessors were in a tough position given that more than half the world’s fleet of aeroplanes were unable to fly.

“If an airline can’t pay, what will the lessor do? Take back the aircraft? The airline’s response will be ‘sure, go right ahead, assuming you can fly to the airport and get past the 14-day quarantine and [then] pick an aircraft that is quadruple parked’,” he said. “And assuming that the lessor gets back their aircraft, what are they going to do with it? Who in the world now wants more aircraft? The fact of the matter is, nobody wins in this current crisis and it is best for everyone to reach a compromise.”

Southeast Asia’s budget airline boom turns sour amid coronavirus pandemic

International air traffic is down to volumes only seen in the 1950s, estimates Hazariah Mohd Noh, vice-president of Women in Corporate Aviation Asia and deputy dean of student development and campus lifestyle at Unversiti Kuala Lumpur’s Malaysia Institute of Aviation Technology. Despite this, she said, students were still keen to enter the industry.

“Reports do indicate that we will only recover by 2024, as even when a vaccine is discovered there will be a period of time before it is widely taken up. Safety is paramount, and passenger mentality will be affected by lockdowns,” she said. “However, we must remember that air travel is not going to stop. A lot of our new students rationalise that by the time they graduate, the industry will be recovering.”

The aviation institute had about 600 enrolments this year, down from just under 700 last year.

“Right now the outlook is ugly, but the industry will bounce back,” Hazariah said. “Now is a good time to study, upskill, learn about new technology.”

Some from the industry got out early – former Malaysia Airlines cabin crew member Dayang Shazrina Mohd Noordin resigned in January, just two months before borders shut. Due to rising Covid-19 numbers and a newborn baby, she felt it was safer to seek new employment.

However, she and her husband – who works in the hotel industry – were hit by a double whammy as tourism numbers dropped. Now, the duo sell traditional Malaysian puddings, cakes and pastries for a living, a skill she learned from her own mother when her father – a pilot – fell sick during her childhood.

“My husband’s employment is also strained because the hotel he works for has delayed its opening due to the coronavirus, and there are no physical events. Obviously we don’t earn as much now, but at least we are surviving.”