Saturday 13 Apr 2024
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This article first appeared in The Edge Malaysia Weekly on October 16, 2023 - October 22, 2023

THE next 30 days will be crucial for MYAirline Sdn Bhd. Out of money, the budget carrier urgently needs a white knight to shore up its finances in order to keep flying.

Earlier last week, the airline revealed that it was in advanced stages of finalising strategic partnerships. Sources say the owners of MYAirline had approached several business leaders with interest in the aviation sector, including Sarawakian tycoons, to become new shareholders in the airline, as well as banks to ask for fresh funds. However, despite some initial interest, nothing has materialised.

“There is still value in MYAirline because its air operator’s certificate (AOC) has just been granted a two-year extension. And it has a fleet of jets ready to fly,” a source says.

The airline, which has been operating for less than a year, said last Thursday that it had failed to raise the cash it needs from shareholders and other potential investors, leaving it in “deep financial constraints”. Amid a cash crunch, it has suspended flight operations until further notice as its board of directors continues to explore “all avenues” to reactivate its operations.

MYAirline has until Nov 14 to get its financial affairs in order or risk losing its flying licence when its one-year air service licence (ASL) from the Malaysian Aviation Commission (Mavcom) is up for renewal. The airline has already taken flak from the aviation regulator after its sudden decision to suspend its operations left passengers, who had booked their flights with the airline, infuriated and stranded at the airports.

Transport Minister Anthony Loke Siew Fook was reported as saying that the suspension affects 125,000 MYAirline passengers who had already purchased RM20 million worth of tickets until March 2024.

MYAirline requires both the ASL and AOC to operate a scheduled passenger and cargo airline business. Many, however, have criticised the Civil Aviation Authority of Malaysia’s (CAAM) decision to extend MYAirline’s AOC for another two years, only to see the airline halt its operations three days later.

CAAM CEO Datuk Captain Norazman Mahmud maintains that as the technical regulator of the aviation industry, CAAM had looked into the technical aspects of MYAirline in the areas of commercial air transport, operations and airworthiness to ensure all universal safety and security standards were met.

“Among the key aspects that are looked into in the issuance of an AOC are the capabilities of the air operator to conduct safe operations in accordance with the provisions of the operations specification and as specified in Civil Aviation Regulations 2016 (CAR) and Civil Aviation Directives (CAD).

“The certification process requires CAAM to ascertain through a systematic process whether the air operator has both the required ability and resources to comply with the applicable legislative requirements and to fulfil the air operator’s actual and potential obligations for the operation of safe, secure, efficient and commercial air transport,” he says in a text message to questions from The Edge.

He notes that the issuance of an AOC by CAAM is dependent on the operator demonstrating adequate organisation, method of control and supervision of flight operations, training programme, as well as ground handling and maintenance arrangements consistent with the nature and extent of the operations.

Nevertheless, following the suspension of MYAirline’s operations, Norazman says CAAM will be reviewing the two-year extension. “That’s because an air operator must hold a valid ASL issued by Mavcom to obtain an AOC.”

A MYAirline spokesman says events were unfolding and declined to comment.

According to sources, the rapid expansion of MYAirline has left it with heavy debts and problems that have been compounded by competitive pricing to grab market share from incumbent carriers such as Malaysia Airlines, AirAsia and Batik Air. Prior to the suspension, it was serving nine domestic routes with destinations from Kuala Lumpur to Kota Kinabalu, Kuching, Kota Bharu, Langkawi, Penang, Sibu, Tawau and Miri, and from KK to Tawau, as well as one international route (KL-Bangkok).

Not helping matters is the fact that since the pandemic, airlines have struggled to borrow more to maintain their operations as banks have become cautious about lending to the aviation sector.

“Some lenders are reluctant to inject funds into MYAirline as they are apparently uncomfortable about the fact that one of its shareholders, businessman Datuk Allan Goh Hwan Hua, is linked to payment gateway company i-Serve Online Mall Sdn Bhd,” a source says. I-Serve Online Mall was one of seven companies that were fined a total of RM50 million by Bank Negara Malaysia last month for accepting deposits without a licence.

Companies Commission of Malaysia (SSM) data show that Goh owned a 31.75% stake in i-Serve Online Mall as at Sept 13, 2023. The other three shareholders were Datuk Seri Dr Mohd Khairi Aseh (31.75%), QA Advance Partnership PLT (20.63%) and Bong Soon Heng (15.87%).

But if that were the case, critics ask why MYAirline was granted an AOC and ASL by the regulators in October and November 2022 respectively. At the time, Perikatan Nasional was the governing coalition with Datuk Seri Dr Wee Ka Siong as the transport minister.

Meanwhile, SSM records as at Aug 30, 2023 show that MYAirline had three shareholders, namely Zillion Wealth Bhd (99.25%), Trillion Cove Holdings Bhd (0.625%) and former MYAirline CEO Rayner Teo Kheng Hock (0.125%). Both Zillion Wealth and Trillion Cove named Goh as their director.

As at Oct 10, 2023, Zillion Wealth was equally owned by Goh’s wife Datin Neow Ean Lee and their son Sean Goh Tze Han, who is a board member of MYAirline. Over at Trillion Cove, Goh owned a 99% stake, while Florence Anak Juan has an 1% stake, an SSM filing shows.

Sources believe a change in the shareholding of MYAirline could work to improve the airline’s credit profile. “A new major shareholder could provide proof that he is financially able to support the airline. That will help MYAirline raise additional funds,” a source says.

Shukor Yusof, founder and analyst at aviation advisory firm Endau Analytics has a different opinion. “I don’t think a change in shareholding will stem the bleeding. That’s because the business model is unsustainable as the Malaysian market already suffers from overcapacity (with five airlines — Malaysia Airlines, Firefly, AirAsia, AirAsia X and Batik Air for a population of 33 million). There is no space for start-ups.

“Also, aircraft leases and oil prices, which are in US dollars, have gone up. Demand has slowed down in the marketplace. MYAirline had been scaling back its flight frequencies to some destinations despite having more planes.”

The cash-on-hand situation at MYAirline is said to be dire, with sources saying the airline’s remaining employees and service providers have not been paid in the last few months. Mavcom has said that it is investigating the airline for alleged unpaid statutory payments to its employees, among others.

But the problem is that the cash burn continues. Sources say since it began flying in December 2022, MYAirline has burnt between RM370 million and RM380 million in cash on its day-to-day operations.

“If things continue at this pace, the airline is unlikely to survive beyond this year. It also has negative equity on its balance sheet. Its forward bookings were for about RM40 million, which has already been spent,” says the source.

MYAirline was planning to increase its flight capacity to 20 aircraft by year end, from nine Airbus A320-200s currently. Sources say the airline was looking to borrow more money to be placed as deposits for another five or six leased aircraft.

A bank-backed analyst estimates that the monthly lease rate now for a new A320 is about RM1 million a month. “For nine planes, that is about RM9 million a month. MYAirline would have to raise a lot of money. It is tough.”

According to SSM data, MYAirline posted a net loss of RM12.51 million for the financial year ended May 31, 2022 (FY2022). It had no revenue as it had only commenced its flight operations in December 2022.

The filing also showed that the airline had liabilities of RM28.68 million, more than its assets worth RM18.16 million. This had resulted in a negative shareholders’ equity of RM10.51 million.

Suspension will have limited impact

Still, analysts believe the potential collapse of MYAirline will have limited impact on the aviation sector as the airline operates primarily in the domestic market.

“Between the four Malaysia-based airlines — Malaysia Airlines, AirAsia, Batik Air and MYAirline, there are about 280 planes. If you remove MYAirline’s nine, there will be very little impact on the market,” the bank-backed analyst says. “I guess the next question is whether or not airlines like SKS Airways, which is also expanding its fleet and network, will succeed.”

“The aviation industry is tough, especially now with higher fuel prices and rising inflation and slow recovery in the region. Airlines are also affected by supply chain issues and aircraft delivery delays,” says Association of Asia Pacific Airlines (AAPA) director general Subhas Menon.

“From a safety point of view, we, of course, want only financially and operationally strong airlines to be operating in the region. Having said that, AAPA believes competition is good for the industry and consumers as long as the airlines are able to meet all the high standards set by the industry. It is always good to have an increase in flight operations, whether it is via new airlines or additional flights,” he says.

Given the razor-thin margins in the airline industry, Subhas says he is not surprised that some airlines continue to face challenges despite higher fares and stronger air travel demand. “This year, the International Air Transport Association predicts that the industry’s net profit margins will be just 1.2%, amid higher costs even though demand remains strong.”

Will MYAirline face the same fate as Rayani Air?

In April 2016, Rayani Air, Malaysia’s first shariah-compliant airline, was issued a provisional suspension of its AOC by CAAM (then known as the Department of Civil Aviation Malaysia) for three months over its unauthorised halting of operations after the airline’s pilots stopped working over unpaid salaries.

Following the move, Mavcom conducted an evaluation of Rayani Air’s commercial standing and capabilities to determine its ability to continue as an ASL holder. In June that year, the airline had both its AOC and ASL revoked. Mavcom said the airline had breached the conditions of its ASL and lacked the financial and management capacity to continue operating as a commercial airline.

Critics are now wondering whether MYAirline could suffer a similar fate.

According to MYAirline’s website, it currently employs almost 700 people. In an internal memo to staff last Thursday, MYAirline chief human resources officer Yeoh Sai Yew said until further updates, all MYAirline staff will be working from home.

“I can’t tell what’s going to happen next. There is no visibility at the moment. I don’t even know if I will get to keep my job,” says an employee. 

 

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