MAB could incur heavy losses over the sale of A380s

KUALA LUMPUR: Malaysia Airlines Bhd (MAB) may incur significant losses if it sells its entire fleet of its Airbus A380s, as the current value is already low due to tepid demand and abundant supply for used super jumbo aircraft in the midst of the ongoing economic and health crises.

Market observers warned that the national carrier would not be able to receive an attractive valuation on the sale of the A380 due to the weakening demand for air travel, thanks to the global lockdown imposed by countries to curb Covid-19 infection.

An industry source said the higher cost to operate the A380 with a bigger capacity would not be sustainable for airlines to achieve economies of scale even before the pandemic.

“The cost to operate the A380 will not be sufficient for airlines to even achieve a breakeven per flight without operating full capacity, exacerbated by the pandemic.

“In fact, some airlines consider fully or partly retire its A380 fleet even before the pandemic strikes as it is not profitable to operate,” he told the New Straits Times (NST).

Sobie Aviation consultant and independent analyst Brendan Sobie said the A380 was unprofitable for MAB before the pandemic.

He said MAB would need to phase out the A380 and move on without A380’s burden, even if it means accepting the six aircraft’s current ‘scrap’ value.

“The sooner this is resolved, the better. The A380 has been the airline’s ‘Achilles heel’ for years, and it’s time to put this saga to an end finally,” he told NST.

Sobie said MAB should have phased out the superjumbo a few years ago in the last restructuring.

Instead, the aircraft was refinanced/extended, making the long term situation even more challenging.

He added that phasing out the A380 would be a critical component of MAB’s restructuring even though the airline is not included in the UK Court Scheme.

The A380s was financed locally rather than being leased from western lessors under the English law.

“The A380 is not part of the UK Court proceedings and would have to be dealt with separately,” he added.

In late February this year, Khazanah Nasional Bhd said it would inject RM3.6 billion of new capital into MAB’s parent company, Malaysia Aviation Group (MAG).

The RM3.6 billion was to fund the group throughout its restructuring until 2025.

The capital commitment came after MAG’s leasing unit, MAB Leasing Ltd (MABL), obtained the UK Court sanction of a scheme of arrangement with its aircraft operating lessors.

MAB has confirmed it had issued a tender notice for interested parties to acquire its A380 aircraft, including its components, on July 12, 2021.

“This follows the group’s decision to exit its A380 fleet, post its restructuring exercise completed in March 2021. The airline will follow the due process in evaluating submissions by prospective bidders and expects to complete the exercise in the fourth quarter of 2021,” MAG told NST.

Sobie said there is little demand for used A380s due to ample supply as several airlines had decided to pursue early phase-outs for their entire or parts of their A380 fleets.

“The market price for the used A380 reflects the fact there is hardly any demand albeit ample supply on the market.

“If you can only get scrap value, then that’s what you have to accept. We will see if there are any offers above scrap value, but I wouldn’t assume there will be,” he said.

However, he was sceptical about an operator who would want to operate a second-hand A380 as the idea was unlikely given the current market situation.

He said some airlines began to consider partly retiring their A380s in their fleet, namely Etihad, Qatar Airways, Lufthansa, British Airways, and Emirates.

The emergence of fuel-efficient wide-body aircraft has adversely impacted the A380’s relevancy as the aircraft had proved to be too large for many markets, including Malaysia.

“There was a limited number of routes that could be viable, fewer than initially projected. Lack of cargo space is another issue.

“It’s the double-deck design, means that lower cargo to passenger space ratio. It makes it difficult to justify during the pandemic as most of the aircraft are grounded.

“Although, it does have cargo space but not that much given passenger space and overall cost of operation. It’s not efficient, period, especially for cargo,” he added. – NST ONLINE

by Ayisy Yusof

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