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AirAsia wins Malaysia state backing for $242m COVID lifeline

Budget carrier expected to reveal more job cuts and wants to reduce size of fleet

AirAsia aircraft at Kuala Lumpur International Airport. The carrier has sought government backing for loans to nurse it through the coronavirus pandemic.   © Reuters

KUALA LUMPUR -- Malaysia's government is backing a 1 billion ringgit ($242 million) loan as a lifeline to budget carrier AirAsia Group as it struggles to contain the fallout from the coronavirus pandemic, Nikkei Asia has learned.

The loan will be made by a group of local banks under a government scheme to help companies deal with the pandemic. It will be 80% guaranteed by Malaysia's finance ministry, according to sources at the ministry and the airline who are aware of the plan.

"The 1 billion ringgit is deemed very crucial for AirAsia, to be utilized for repayment of short-term loans and fund working capital," one source close to the ministry said. Disbursement is expected next month.

AirAsia is also to embark on another round of job cuts next month, a source within the carrier told Nikkei Asia.

Like airlines across the world, AirAsia has been dealt a huge blow by the coronavirus pandemic, which has severely curtailed demand for travel. The group, controlled by CEO Tony Fernandes, has already cut more than 10% of its workforce and plans to downsize its fleet of aircraft to try to contain costs.

In an interview with Nikkei in July, Fernandes revealed that the airline needed to raise 2 billion ringgit in the next six months to be in a "very comfortable" position. "At 1 billion ringgit, we are comfortable. But if we can raise 2 billion ringgit, we would be in a very comfortable position," he said then.

Sources said the government had originally offered a 500 million ringgit loan but ceded to the request for 1 billion ringgit.

Fernandes did not respond to queries from Nikkei Asia seeking comment. AirAsia said it had nothing to announce at this time and declined to comment. 

In a statement on Tuesday Malaysia's finance ministry said "has not approved any government financing or guarantee to any airline".

Air Asia shares rose sharply in morning trading and by mid-afternoon on Tuesday were more than 3% higher.

The loan to AirAsia would be disbursed by local financial institutions under the 50 billion Danajamin Prihatin Guarantee Scheme, operated by Danajamin Nasional -- a state-owned financial guarantor.

The scheme was introduced by Prime Minister Muhyiddin Yassin to provide financial assistance to companies affected by the coronavirus pandemic. The government guarantee is for the first five years of the financing period.

Local media reports quoted Fernandes on Friday as saying that the airline has made more than 2,400 employees redundant since Malaysia's borders were closed in March. Before the pandemic, the airline's total workforce stood at over 20,000.

The source said the next round could involve over 400 employees, similar to the last round of retrenchment which ended last week.

"The last round was cabin crew and pilots. This time it will include all divisions," said one of the sources.

On Thursday, Reuters quoted Fernandes as wanting to return some of AirAsia's fleet of aircraft to its lessors. The airline is also in discussion with Airbus to reduce pending orders of narrow-body A320 and A321 aircraft as well wide-body A330.

Fernandes wants to cut the AirAsia fleet to 180 planes by the end of 2021 compared with 245 now, according to Reuters.

For the first six months of the year, AirAsia reported a net loss of 1.8 billion ringgit against a net profit of 111.78 million ringgit for the same period in 2019. Revenue also fell more than half to 2.43 billion ringgit from 5.65 billion ringgit previously.

Last Monday, the airline also announced the cessation of AirAsia Japan, after three years of operations.

Meanwhile, Malaysia's finance ministry has distanced itself from giving further aid to national flag carrier Malaysia Airlines. The airline, which has been suffering financially since twin air disasters in 2014, received a $1.5 billion injection that year for a five-year turnaround plan but has so far been denied any further direct financial help from the government.

Media reports quoted Finance Minister Tengku Zafrul Aziz as saying the government would not interfere in the handling of the company and that state wealth fund Khazanah Nasional, which owns the airline, would have to decide on any measures from its own resources.

According to Reuters, Malaysia Airlines has begun negotiations with lessors of its aircraft, and might wind up operations if the restructuring talks fail.

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