Another MCO will kill aviation industry, expert warns

Aviation specialist Roger Teoh says a new lockdown would probably have a bigger impact on AirAsia than on other domestic airlines.

PETALING JAYA: A transport expert has warned that a second movement control order (MCO) would sound the death knell for the local aviation industry.

Goh Bok Yen, a veteran of 30 years in transport consultancy, said the industry was “already in the ICU (intensive care unit)”, having been knocked down by months of restrictions imposed to contain the Covid-19 pandemic.

“As it is,” he told FMT, “the airlines are trying to keep their noses above water.”

Another MCO would be akin to inducing “a second stroke“ on the industry, he added. “It will more or less kill it.”

Prime Minister Muhyiddin Yassin, in a live telecast from Parliament on Monday, hinted at the possibility of a new lockdown if the number of new Covid-19 infections continued to rise.

On Tuesday, Transport Minister Wee Ka Siong said the airline companies could lose around RM10.9 billion this year and airport operators were projected to suffer losses of around RM2.1 billion.

Goh warned of a ripple effect on the Malaysian economy if any local airline went bust because it would hurt the tourism industry.

He said the government must step in to help the industry survive if it felt an urgent need for a new lockdown. This could be done through subsidies, such as a reduction in the airport tax, he added.

Goh said the government must not forget the role airlines played when the tourism industry was booming, citing AirAsia’s decision to fly many new routes.

“The government owes them much,” he said. “The government is the only quarter that can help them and is in the position to do so.”

Aviation specialist Roger Teoh said a new MCO would likely deal a more devastating impact on AirAsia than on other domestic airlines, largely due to the management’s past decisions, including the one manifested in its policy of selling planes and leasing them from the buyers.

The budget carrier would still need to meet its monthly lease payments even when aircraft were grounded, he added.

“And the airline would also be more dependent on the kindness of strangers to raise debt because of the lack of unencumbered assets,” he said.

Teoh also said the outlook for the industry was so bleak that most airlines were already needing bailouts.

Giving AirAsia as an example, he said it had a daily cash burn rate of about RM10 million in the first quarter of 2020.

This burn rate, he noted, was significantly higher after the MCO came into force.

“To make a conservative assumption,” he said, “if AirAsia has a cash balance of RM800 million today, a RM10 million daily cash burn would mean it could sustain operations only for the next 80 days.

“Fresh capital infusions would buy airlines time, but would still be insufficient to change their fate unless external conditions start improving sustainably by the first half of 2021.”