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Crisis hit Malaysia Airlines faces ‘complete overhaul’

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Malaysia Airlines planes parked on the tarmac at Kuala Lumpur International Airport/AFP

KUALA LUMPUR, August 8- Malaysia Airlines will be de-listed after being taken over by the country’s state investment fund as part of plans announced Friday for a “complete overhaul” of the company to rescue it from oblivion after two crippling air disasters.

Khazanah Nasional, which owns 70 percent of the airline, said it intends to purchase all minority shareholdings — later pulling the stock from the Kuala Lumpur exchange — and will finalise a restructuring plan by the end of the month.

The 68 year old flag carrier has haemorrhaged cash for years as it struggled to cope with intensifying industry competition, and the double tragedies of MH370 and MH17 have further pummelled bookings.

Flight MH370 disappeared mysteriously in March with 239 people aboard, en route from Kuala Lumpur to Beijing. No trace has been found and the airline was widely criticised for its handling of the crisis.

On July 17, MH17 was shot down over Ukraine, with another 298 people killed.

MAS is burning through an estimated $2 million a day as a result of its crumbling business and disaster-related costs, and speculation had been mounting that Khazanah would step in.

Khazanah said all stakeholders would need to work together to rescue the company via a “complete overhaul” extending across “the airline’s operations, business model, finances, human capital and regulatory environment”.

“Nothing less will be required in order to revive our national airline to be profitable as a commercial entity and to serve its function as a critical national development entity,” a Khazanah statement said.

The widely expected move requires approval from MAS’s board. The airline said its operations would be unaffected in the interim.

– Future in doubt –

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Analysts said Khazanah would need to undertake a management purge, painful layoffs, and scrap major routes in order to restore the company’s bottom line and global reputation.

“It needs a new heart, a new brain. As it exists now, the airline is doomed,” said Shukor Yusof, an analyst with Malaysia-based aviation consultancy Endau Analytics.

“Each passing day is destroying its reputation and bottom line.”

Earlier Friday, Malaysia Airlines suspended its shares on the Kuala Lumpur stock exchange ahead of the Khazanah statement.

Analysts have long blamed poor management, government interference and powerful, reform-resistant employee unions for preventing the airline taking the steps needed to stay competitive.

Malaysia Airlines previously had a solid safety reputation.

But it lost 4.1 billion ringgit ($1.3 billion) from 2011-13, and a further 443 million ringgit in the first quarter of this year, blaming MH370’s “dramatic impact” on bookings.

Local media reported that Khazanah would need to spend nearly 1.4 billion ringgit to acquire the outstanding shares.

– ‘Sick airline’ –

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Taking the company private allows Khazanah to make changes without shareholder interference.

But Shukor noted that previous Khazanah-sanctioned turnaround plans have failed.

“I don’t take comfort in Khazanah overhauling the sick airline. I am very skeptical about it,” he said.

Airline experts said Khazanah should sack MAS management and bring in top-level, possibly foreign, professional managers to restore trust in the company, as Korean Airlines and Garuda Indonesia did in response to past safety-related crises.

“It needs to take steps to restructure itself internally for safety considerations and procedures, and transparently communicate this to consumers. Probably new management is needed to carry all this out,” said Scott Hamilton, managing director of US aerospace consultancy Leeham Co.

Costs must be slashed, possibly through staff downsizing and accelerating a pull back from unprofitable long haul routes that the airline has clung to for prestige, analysts add.

MAS has struggled against intensifying competition from nimble, upstart budget carriers, particularly Malaysia’s AirAsia.

But larger carriers such as Singapore Airlines and Australia’s Qantas also have squeezed MAS on long-haul routes while routes to the Middle East — once a MAS strong suit — face growing pressure from Gulf based carriers.

“They may as well shut down international routes which are not making money, cut staff and sell planes. Just concentrate on the profitable domestic and key regional routes,” said Mohshin Aziz, aviation analyst with Maybank.

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Union resistance is expected.

Ismail Nasaruddin, president of the National Union of Flight Attendants, said indications are that “a few thousand” people could be laid off. The airline employs 19,500.

“There must be an amicable solution. There must be open discussions with us on matters involving job cuts,” he said.

Some have suggested a complete name change and re-branding to expunge the stigma of tragedy, but industry experts said that would accomplish little.

“Rebranding and renaming are efforts that come at significant cost, create little real value, and smooth over no part of a carrier’s history,” said Robert Mann, head of US based consultancy R.W. Mann and Co.

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