Malaysia Airlines, Batik Air On Standby As Government Quietly Draws Up Contingency Plans Amid AirAsia Financial Strain

AirAsia controls 60 percent of Malaysia’s domestic skies and owes the airport operator at least RM500 million and Putrajaya, without saying so publicly, has already begun asking who could fill that space if needed.

Firdaus Latif / Malay Mail

In Brief

The Malaysian government is in talks with Malaysia Airlines and Batik Air about absorbing AirAsia's domestic routes amid financial concerns.
Both airlines said they would expand organically to take on AirAsia's routes, but only if aircraft leases were included.
AirAsia faces serious financial pressure, owing MAHB at least RM500 million, with current liabilities reaching RM18.4 billion.

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The Malaysian government has asked Malaysia Airlines and Batik Air whether they could absorb AirAsia’s domestic market share, according to a Reuters report citing two people familiar with the matter.

The discussions are described as scenario planning involving the Finance Ministry and Malaysia Airports Holdings Bhd (MAHB), as authorities monitor AirAsia’s financial health.

Talks between the government and the two airlines have increased in recent weeks, the report said, amid growing concerns over AirAsia’s financial pressures.

AirAsia commands about 40 percent of Malaysia’s overall aviation market and 60 percent of domestic flying.

That concentration is why the government is treating AirAsia’s financial strain as a serious concern, the sources said.

Proposal Possible With Conditions Attached

Malaysia Airlines and Batik Air have both told the government they would be willing to expand organically to take on AirAsia’s routes and passengers, rather than acquire its entire business.

However, the two carriers said they would only consider absorbing AirAsia’s operations on a large scale if they could also take over its aircraft leases.

Absorbing AirAsia’s routes and passenger volumes without the aircraft would be far more difficult, one source said.

AirAsia has been hit by soaring jet fuel costs. Prices surged 66 percent in the second quarter compared to the previous quarter, averaging US$183 a barrel, driven by the US-Israeli war on Iran.

AirAsia owes MAHB at least RM500 million for landing and parking fees, according to the sources. The airline’s current liabilities stood at RM18.4 billion as of June 30.

MAHB has already granted AirAsia extensions on its repayments.

Capital A Shares Plunged In Response To News

AirAsia Group deputy group CEO Farouk Kamal said the airline does not comment on operational or financial speculation or unannounced corporate arrangements.

He said material updates on AirAsia’s business and fleet strategy are disclosed through official exchange filings and corporate announcements.

MAHB, the Finance Ministry, Batik Air, and Malaysia Airlines all declined to comment.

Shares of Capital A Bhd and AirAsia Group Bhd fell following the report. Capital A dropped as much as 14.55 percent at the midday break.

The sentiment on the ground, however, remains firmly in AirAsia’s corner. A viral post by a Sarawakian traveller this week captured the mood plainly: a return ticket from Kuching to Seoul for RM1,168, base fare just RM40, with the caption, “Even a flight to Miri can cost more.” Set to Gloria Gaynor’s I Will Survive, the post drew nearly 400 likes and a simple plea to the airline: “Please hang in there.”

Earlier this month, Reuters reported that another option under discussion was for Putrajaya to provide some form of “endorsement” to support AirAsia’s plan to raise fresh capital from external investors.