The final lessor creditor under Malaysia Airlines’ scheme of arrangement has given consent to that scheme as well as the carrier’s wider restructuring after previously facing challenges getting approval from its financiers.

Justice Richard Snowdon, a judge at the High Court of England and Wales, said in a judgement dated 23 February that he received evidence that one creditor which did not vote at a 10 February meeting has now “been able to resolve the communication difficulties with its financiers that prevented it from participating in the scheme process and has consented to the scheme”.

Malaysia Airlines parked fleet

Creditor turnout at that 10 February meeting was approximately 95.9% by value, with only one creditor (out of 44) failing to vote. That meeting was convened so that operating lessors could vote on the carrier’s restructuring plan. Finance lessors are in a separate creditor class – there are seven creditor classes overall – and did not participate in the 10 February vote.

“Accordingly, there was overwhelming support for the scheme,” Snowdon said.

That scheme of arrangement relates to its liabilities to lessors under operating lease agreements for 52 aircraft all of which are governed by English law, the court judgement shows. These are 44 737-800s, three A330-200s and five A330-300s.

Ahead of the 10 February meeting, Malaysia Airlines invited creditors in the scheme of arrangement to sign a lock-up agreement to support the scheme and the restructuring. All but one of the 44 creditors signed this before the meeting. However, the same outlying creditor has now also signed the lock-up agreement.

“At the sanction hearing [on 22 February] I was also told that the final scheme creditor which did not vote in favour of the scheme at the scheme meeting has since signed the lock-up agreement,” Snowdon said.

Within three business days of the scheme becoming effective, the creditors under that scheme were required to choose between four options.

One is a termination option that allows a creditor to terminate its operating lease agreement, recover its aircraft and receive a one-off payment. The payment will be 115% of the amount the creditor would be entitled to claim from the airline in the event of liquidation, multiplied by “the upper end of the range of percentage of recovery in a liquidation of the company”.

If a creditor does not want to terminate its lease, then a “different regime” will apply. Under this regime, all creditors will be paid rent on a by-the-hour basis during 2021.

“This means that the rent during 2021 will be calculated by reference to the amount of time that each aircraft is used, subject to a floor and a cap. Following the market position, the rates and the floors and caps differ depending on the category of aircraft,” Snowdon said.

“The PBH [power-by-the-hour] structure is designed to reflect the fact that, during 2021, passenger demand will likely remain very depressed, the usage of the fleet of aircraft may be very limited indeed and it would be unaffordable for the company to pay the contractual rates of rent for aircraft which are not being used.”

That by-the-hour structure will end on 1 January 2022, from which date the rent payable under the operating lease agreements will be reset to market rent.

Snowdon adds in relation to the remaining options: “There are then variants of this basic deal available under which an enhanced rent, with a lease extension mechanism, is available in return for the company having an option in certain circumstances to defer rent and pay an enhanced rent available depending on the company’s performance.”

Malaysia Airlines was approved to strike arrangements between its leasing entity MAB Leasing and most of its lessors at a 22 February sanction hearing. This paves the way for the company to embark on a wider restructuring plan that is expected to complete in early March.

Aspects of the wider restructuring include arrangements to defer principal payments and reduce interest payments under the group’s finance leases, as well as Malaysian law credit facilities and hedging agreements it has entered into.

It also concerns amendments to aircraft lease agreements that it will implement bilaterally with lessors, as well as measures to amend engine lease agreements and maintenance and service contracts to “align with market rates, the group’s cashflow requirements and its revised long-term business plan”.

Furthermore, this involves arrangements with Malaysian government entities and an equity injection from Khazanah Nasional.

Back in October when the airline first proposed a restructuring, things got off to a rocky start when most lessors objected to what the carrier proposed. However, after months of what the airline’s parent Malaysia Aviation Group says were “intense” negotiations, the airline and its advisors were able to mollify lessors and convince nearly all of them to agree in principle to a restructuring.