Malaysia talks to rival airlines as it monitors AirAsia’s financial health

Kuala Lumpur: Malaysia's government has engaged in discussions with Malaysia Airlines and Batik Air to potentially take over a portion of AirAsia's domestic market share, as authorities keep a watchful eye on the financial well-being of the country's largest low-cost airline. These talks have gained momentum in recent weeks due to mounting worries about AirAsia's financial strain, primarily driven by a sharp increase in jet fuel costs.

Jet fuel prices surged by 66% in the second quarter, reaching an average of $183 per barrel. The government, finance ministry, and MAHB are exploring various scenarios to mitigate AirAsia's financial distress, ranging from endorsement for raising fresh capital from external investors to potential financial support. However, both Malaysia Airlines and Batik Air have stated they would only assume AirAsia's operations if they could also secure its aircraft leases, making route and passenger absorption more feasible.

AirAsia holds a dominant position in Malaysia's aviation market, commanding 40% of the overall aviation market and 60% of domestic flying, making its financial situation a matter of significant concern for the government. AirAsia's deputy chairman, Farouk Kamal, emphasized that the company does not engage in unannounced corporate arrangements or financial speculation.

The finance ministry has enlisted Alton Aviation Consultancy to evaluate AirAsia's funding requirements, as it weighs the decision to provide support. AirAsia seeks at least USD3 billion in fresh capital, primarily through international debt markets and local credit facilities, to address its financial position. The company reported a net loss of RM831 million in the second quarter, primarily attributable to soaring jet fuel costs and substantial foreign-exchange losses.