Malaysia Airlines is technically bankrupt, AF-KLM drops bid

As AirFrance-KLM quietly drop their bid for Malaysia airlines, the reason they have became clear yesterday.

The airline is facing a situation that if it wasn’t effectively state owned, would have made it technically bankrupt.

It needs at least US$5.1 billion over the next four years just to stay afloat, never mind some $126 million before the end of the current financial year.

It’s new business plan was described as being unable to deliver any more than 1% annual growth, but was at least “more realistic” rather than the unrealistic 4% of the previous plan.

The airline is due to repay loans on its A380’s – which it has almost defaulted on before, the total some US$2 billion. Malaysia’s sovereign wealth fund as owners and investors will almost certainly have to pay that down for the airline to stave off a crisis.

The problems for the airline as seen by Khazanah the Malaysian sovereign investment company, is that it’s simply incapable of bringing about structural change and doesn’t have the resources or skills to do the job.

Having brought in European CEO’s whom the government then spent two years driving away and preventing them from doing anything, along with systemic political interference at every level, the airline just hasn’t had room to move. Unless the government is prepared to give up control and leave it alone to move on and do what’s necessary- either in foreign ownership or partnership, and stop interfering, its days as a viable airline that doesn’t need state support will never materialise.

Meanwhile Qatar, JAL and Malindo along with China Southern are all expressing interest, but it’s uncertain any of them could make a difference without the government giving up all control.

China Southern is unlikely to be chosen either, as Malaysia is deeply worried about Chinese control over so many industries and projects in the country and the billions in “loans” that China controls.