Putrajaya sounds out airlines on taking over AirAsia routes

PUTRAJAYA, Malaysia (Reuters) - The Malaysian government is exploring whether Malaysia Airlines and Batik Air could absorb AirAsia's domestic routes and passengers as a way to monitor the low-cost carrier's financial health, according to sources familiar with the matter. The Finance Ministry and Malaysia Airports Holdings Bhd (MAHB) have been involved in contingency planning discussions.

AirAsia currently commands about 40% of Malaysia's overall aviation market and 60% of domestic flying, but the airline is grappling with mounting pressure from rising jet fuel costs. Fuel prices surged by 66% in the second quarter, averaging $183 a barrel. In the three months ending June 30, AirAsia reported a net loss of RM831 million, including RM331 million in foreign-exchange losses.

Its current liabilities stood at RM18.4 billion, with the airline owing at least RM500 million to MAHB for services like landing and parking fees.

AirAsia is actively seeking additional funding, having recently engaged in talks with financial institutions to raise up to $1 billion from international debt markets and RM700 million through local credit facilities, primarily to restructure its debt. The airline estimates it requires at least $3 billion in fresh capital.

AirAsia's Deputy Group CEO Farouk Kamal cautioned against speculation, stating that the airline was focused on business continuity and stable operations. The Finance Ministry, Malaysia Airlines, Batik Air, and MAHB declined to comment on the situation. Some are considering a potential government endorsement to assist AirAsia's efforts to raise fresh capital, though the specifics remain unclear.

In the meantime, AirAsia has been implementing cost-cutting measures, such as dropping underperforming routes, returning older aircraft, and renegotiating vendor contracts.