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Malaysia Airlines shareholders' approve share capital increase

31-Jul-2006

Subang (MALAYSIA AIRLINES') - Malaysia Airlines’ shareholders today approved three proposals at the company’s Extraordinary General Meeting held at the Malaysia Airlines Academy, Kelana Jaya.

The shareholders approved the following:
  1. Early termination of the Agreement for Domestic Business Unbundling (ADBU) between Malaysia Airlines and Penerbangan Malaysia Berhad (PMB).
  2. Increase of the company’s authorized share capital from RM 10,000,000,001 to RM 10,000,100,001 by the creation of 1,000,000 Redeemable Preference Shares (RPS) of RM 0.10 each to be issued by the company
  3. Amendments to the Company’s memorandum and articles of association to implement proposal (b) above.
One of the original terms of the arrangement between PMB and Malaysia Airlines, was for PMB to give 12 months advance notice in writing to Malaysia Airlines to terminate the ABDU.

However, on 27 March 2006, the Malaysian government announced the domestic airline services rationalization that takes effect on 1 August 2006 and consequently both parties agreed to terminate the ADBU within a shorter notice period.

PMB will pay Malaysia Airlines a negotiated compensation of RM 650 million. This amount will be used by the national carrier to pay for expenses arising from the ADBU termination.

Subsequent to the government’s decision, Malaysia Airlines will operate 22 trunk routes within Malaysia offering premium services, and will take ownership of the Profit & Loss (P & L) of this operations effective that date. In addition, the government has allowed the national carrier flexibility to determine the airfare, capacity, flight frequency and type of aircraft for its domestic operations.

The approval to increase the national carrier’s share capital was to facilitate future issuance of RPS which will form an integral part of credit facility (ies) to be taken by the company. It will provide an option to service the credit facility (ies) at a lower cash cost compared to a conventional debt facility.

The company will then have the option to service the funding costs through payment of non-cumulative dividend on the RPS or through payment of interest, subject to prevailing laws and regulations.

With this approval, Malaysia Airlines will be able to focus on cash-generation and ensure substantial cash infusion to be able to successfully execute its Business Turnaround Plan announced on 27 February 2006.

Malaysia Airlines is a CAPA Member. For more information on the Centre for Asia Pacific Aviation's membership service, please click the icon below.
 

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