As the ongoing Iran war continues to drive up jet fuel prices, which are putting pressure on the global aviation industry, Malaysia’s government has asked Malaysia Airlines and Batik Air if they could absorb AirAsia’s domestic market share as part of what reports describe as scenario planning, while authorities monitor the financial health of Southeast Asia’s largest low-cost airline.
As per Reuters, discussions between the government and Malaysia Airlines and Batik Air have increased recently, with AirAsia’s growing financial pressures emerging as the key topic.
The airline has been hit by soaring jet fuel costs, with the latter surging 66% in the second quarter from the prior quarter to an average of USD 183 a barrel.
The talks, which involve the Southeast Asian country’s finance ministry and state-linked airport operator Malaysia Airports Holdings Berhad (MAHB), are part of broader scenario planning around AirAsia’s financial strains.
The stakeholders are also mulling options like the government providing some form of endorsement to bolster the airline’s plan to raise fresh capital from external investors.
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Malaysia Airlines and Batik Air reportedly told the Anwar Ibrahim government they would only take over AirAsia’s operations on a large scale if they could also assume its aircraft leases, as absorbing Southeast Asia’s largest low-cost airline’s routes and passenger volumes without the aircraft would be far more difficult.
“Malaysia Airlines and Batik Air have both expressed to the government their willingness to expand organically to absorb AirAsia’s routes and passengers rather than acquire its whole business,” sources, cited by the Reuters, said.
AirAsia currently commands about 40% of Malaysia’s overall aviation market and 60% of domestic flying, making its financial challenges a significant concern for the government, going by the “too big to fail logic.”
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MAHB said it regularly engages with all airline partners as part of normal network and route development, including on “potential capacity and route opportunities where there are gaps in the market or unmet demand.”
Batik Air Malaysia CEO Chandran Rama Muthy said in a statement that his airline was “able to bring in aircraft quickly to absorb or help with domestic market share if required.”
AirAsia, which, as of June 30, had current liabilities of 18.4 billion ringgit (USD 4.51 billion), owes MAHB at least 500 million ringgit for services including landing and parking fees.
The airport operator has already granted the carrier repayment extensions, sources said.
AirAsia said in September that it was advancing discussions with financial institutions, targeting up to USD 1 billion from international debt markets plus 700 million ringgit in local credit facilities, primarily to restructure its debt.
As per the reports, the airline requires at least USD 3 billion of fresh capital to address its financial position.
AirAsia cited its cash and bank balances of 954 million ringgit as of June 30, stating that its financing targets were sufficient to meet its requirements.
AirAsia reported a net loss of 831 million ringgit for the second quarter ending June 30, hit by rising jet fuel costs and heavy foreign-exchange losses of 331 million ringgit.
The carrier has been restructuring aggressively, cutting underperforming routes, returning 25 older aircraft to lessors, and renegotiating contracts with vendors to reduce costs.
Malaysia’s finance ministry has appointed Alton Aviation Consultancy to assess AirAsia’s funding needs as it weighs whether to provide support given the airline’s role as a major employer and provider of affordable air connectivity across Southeast Asia.