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

KUALA LUMPUR: The Malaysian government is considering allowing competitor airlines Malaysia Airlines and Batik Air to take over AirAsia's domestic routes and passenger traffic, as the airline faces mounting financial challenges in Southeast Asia's largest low-cost carrier market. The government's scenario planning comes amid concerns over AirAsia's soaring jet fuel costs, which surged 66% in the second quarter to an average of US$183 a barrel due to the US-Israeli conflict with Iran.

The finance ministry and state-owned airport operator, Malaysia Airports Holdings Berhad (MAHB), have engaged in talks with the airlines, which would require them to assume AirAsia's aircraft leases as well, a participant in the discussions told Reuters. AirAsia controls around 40% of Malaysia's aviation market and 60% of domestic flying, making its financial woes a significant worry for the government.

The airline, which owes MAHB at least 500 million ringgit (US$4.51 billion) for services, is seeking to raise up to US$3 billion in fresh capital through external investors and local credit facilities. Despite the pressure, AirAsia has reported a strong underlying demand for its services and is working closely with stakeholders to manage its financial and operational requirements.