Malaysia talks to Batik Air, Malaysia Airlines to absorb AirAsia domestic routes

KUALA LUMPUR, Sept 16 — The Malaysian government has approached Malaysia Airlines and Batik Air to assess whether they could absorb AirAsia's domestic market share amid the carrier's financial struggles, according to two sources familiar with the situation. The discussions, which have intensified in recent weeks, are part of scenario planning involving the Finance Ministry and state-linked airport operator Malaysia Airports Holdings Bhd (MAHB).

The government's concern stems from AirAsia's significant role in the country's aviation market, accounting for 40% of overall aviation and 60% of domestic flying, making its financial health a critical issue for authorities.

While Malaysia Airlines and Batik Air have indicated their willingness to expand organically to take on AirAsia's routes and passengers rather than acquire the entire business, they stipulate that the deal must include AirAsia's aircraft leases. Absorbing the routes and passenger volumes without the aircraft would prove to be significantly more challenging, according to one of the sources. The government is evaluating this proposal as a potential solution to mitigate the financial pressures faced by AirAsia.

AirAsia has been grappling with soaring jet fuel costs due to the US-Israeli conflict with Iran, which has caused fuel prices to rise by 66% in the second quarter to an average of US$183 per barrel. The airline reported a net loss of RM831 million for the quarter ending June 30, including RM331 million in foreign-exchange losses.

As of June 30, AirAsia's current liabilities amounted to RM18.4 billion, with the carrier owing MAHB at least RM500 million for services such as landing and parking fees. MAHB has extended repayment periods to AirAsia, and the airline has secured several local credit facilities and is exploring international debt market options to raise up to US$1 billion.