Jakarta Globe – AFP, Aug 08, 2014
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| A Malaysian Airline System (MAS) flag flies at half-mast in front of the control tower at Kuala Lumpur International Airport (KLIA) in Sepang, Malaysia, on July 19, 2014, following the downing of fight MH17 over the Ukraine. (Bloomberg Photo/Brent Lewin) |
Kuala
Lumpur. Malaysia Airlines will be de-listed after being taken over by the
country’s state investment fund as part of plans announced on 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 finalize a restructuring plan by the end of the month.
The
68-year-old flag carrier has hemorrhaged cash for years as it struggled to cope
with intensifying industry competition, and the double tragedies of MH370 and
MH17 have further pummeled 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
criticized 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
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’
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 Company.
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.
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 Company.
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