News Column

Beleaguered Malaysia Airlines announces radical restructuring plan

August 29, 2014

Vivian Ho

Malaysia Airlines System, which has been struggling in the wake of two recent disasters, on Friday announced a 6 billion ringgit ($1.91 billion) rescue plan that includes cutting some 6,000 staff and slashing of unprofitable long-haul routes.

Its main shareholder Khazanah Nasional, the sovereign investment fund that announced earlier this month that the airline will be taken private, told a press conference a new company will be formed to take over the Malaysia Airlines business.

"The combination of measures announced today will enable our national airlines to be revived. While funds have been made available, they come with strict conditions so as to ensure that MAS truly resets its business model and cost structures in order to be truly sustainable," Khazanah Managing Director Azman Mokhtar said.

The first step, announced Aug. 8, entails Khazanah mopping up the remaining 30.63 percent share it does not own in the airline at a cost of 1.4 billion ringgit or 0.27 ringgit per share. The delisting exercise is targeted for completion by the end of this year.

Another 1.6 billion ringgit would be spent on such things as retrenchment packages, reskilling and redeployment of staff, and renegotiating of lopsided contracts.

Azman said the new company will require a scaled-down workforce of about 14,000, meaning 6,000 or 30 percent of the current 20,000 staff members would have to go.

The airline is expected to cut more routes to be more "regionally-focused," he added without specifying which routes would be chopped, leaving it to the airline to announce.

Another 3.0 billion ringgit is set aside over three years, from 2014 to 2016, as capital for the new company, which would come into force on July 1, 2015.

Malaysia Airlines current chief executive Ahmad Jauhari Yahya will continue to lead the company during the transition period, with new leadership likely to be announced before the end of this year, Azman said.

Under a leaner new company, Malaysia Airlines is projected to achieve profitability by end of 2017, and the new company will be relisted between 2018 and 2020, he said, adding, "If such financial conditions are met, a sell-down or partial sell-down of Khazanah's stake to appropriate strategic buyers from the private sector will be considered."

This latest restructuring plan follows a series of turnaround plans that Khazanah had come up for Malaysia Airlines in the past 13 years, all of which failed to boost the airline bottom line.

The company on Thursday announced a net loss of 307 million ringgit in its second quarter ended June 30, its sixth consecutive quarterly loss.

For the January-June period, the national carrier recorded a total net loss of 750 million ringgit, 65 percent more than the previous corresponding period in 2013.

Between 2011 and 2013, the airline lost a total of 4.1 billion ringgit.

To add to the airline's woes, it was hit by the twin tragedies of flights MH370 and MH17. MH370 disappeared from radar March 8 while en route to Beijing with 239 on board and until now no wreckage has been found despite a massive international search.

Four months later, MH17 was shot down over conflict-ridden eastern Ukraine on July 17, killing all 298 people on board.

The two tragedies, Azman said created a "perfect storm" that hastened the move to restructure the airline.

Despite the failure of previous resuscitation efforts, Khazanah is confident the plan this time will work.

The difference, Azman said, is that under the new plan, Malaysia Airlines will be operating under a new company "with a completely new slate" involving "corrected cost and operational structure and workforce."

Shukor Yusof, an aviation analyst with Malaysia-based Endau Analytics, however is skeptical.

"It doesn't address the real problems affecting MAS which include financial mismanagement and implementing ill-conceived business model. Reducing 6,000 staff will do little to help the airline to profitability," he told Kyodo News.

Prime Minister Najib Abdul Razak has backed the plan though.

In his message published in Khazanah's booklet detailing the recovery plan for the airline, Najib said, "Only wholesale change will deliver a genuinely strong and sustainable Malaysia Airlines."

"More than an airline, MAS is a national icon; much loved and steeped in our history. The plan before you today will ensure it has a bright future," he added.

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Source: Japan Economic Newswire

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