After much speculations on the fate of Malaysia Airlines whose fortunes have plummeted following the twin tragedies of MH370 and MH17, state sovereign fund Khazanah Nasional Bhd has unveiled a 12-point plan to return the airlline to profitability within three years.
30% of the MAS work force will be retrenched. Image credit/Malaysia Airlines
While the restructuring is not a “constructive destruction”, which some analysts had suggested as a possible solution to halt the airline’s decline, the RM16 billion (US$1.9 billion) revamp plan will see the axing of 6,000 jobs (30% of the 20,000 work force) and the creation of a new company.
Khazanah Nasional managing director, Tan Sri Azman Mokhtar, who revealed the plan on August 29 said the airline would undergo a comprehensive overhaul under the plan.
Titled, “Rebuilding A National Icon – The MAS Recovery Plan”, the plan has four categories – governance and financial framework, operating business model, leadership and human capital, and regulatory and enabling environment.
A new company, NewCo (new company), would be set up to house the “new MAS” when it completes its delisting exercise by the end of this year. It will take over the airline’s existing business and assets, as well as its reduced staff, effective July 1, 2015.
“The plan, worked on for over six months, is incumbent upon Khazanah, which now holds 69.3% of MAS, owning 100% of the airline following its move to buy the remaining equity from minority shareholders at 27 sen a share which is deemed as reasonable in the market,” said Azman.
The aim is to make MAS profitable within three years of its delisting, with a possible relisting of the carrier in three to five years from now.
Azman said the 6,000 staff would be laid off under a voluntary separation scheme (VSS), while about 3,500 would be offered employment in other companies under Khazanah Nasional’s umbrella.
Ahmad Jauhari Yahya stays on as CEO to help with the transition./ Image credit: Malaysia Airlines
MAS chief executive officer, Ahmad Jauhari Yahya, will stay on for the next 10 months until July 1, 2015, when the NewCo is operational, to help facilitate the airline’s transition from the old company to the new one.
Khazanah has started the search for a new CEO for the NewCo, and would announce the successful candidate probably before the end of 2014.
As part of the revamp MAS will slash unprofitable routes and concentrate on regional routes, as well as shift its headquarters from Subang to the KL International Airport.
“The combination of measures announced today will enable our national airline to be revived,” Azman said.
“Success is by no means guaranteed – while it is imperative that MAS as a critical enabler in national development is revived, public accountability for the use of the funds mean that it cannot be renewed at any cost,” he added.
According to Azman, the RM6 billion in public funds for MAS’ turnaround comprised delisting the airline (RM1.4 billion), restructuring and retrenchment costs (RM1.6 billion), and injecting RM3 billion in capital into the new company over three years from 2014 o 2016.
Despite the wide changes in the restructuring exercise, Khazanah recommends the Malaysia Airlines’ name be retained.
MAS current operations are unaffected by the reorganising. The airline said it would continue to fly, honour existing reservations, as well as plan for the future.
Meanwhile, Malaysia Prime Minister Datuk Seri Najib Tun Razak said the RM6 billion exercise was not a bailout for MAS but an investment for Khazanah, and that the state investment company would get back the money invested. He also expressed the government’s confidence that the 12-point plan would help bring MAS back on the profitable path again. .
Just a day before this much anticpated announcement, MAS posted a net loss of RM307.04 million in the second quarter ended June 30, 2014, compared with a net loss of RM175.9mil a year ago, impacted by the twin tragedies of MH370 and MH17. The airline was reported to be losing about RM3 million a day for the first half of the current financial year.
The search for MAS flight MH370, which went missing while flying from Kuala Lumpur to Beijing, will resume in the Indian Ocean next month. Investigation is ongoing for flight MH17, which crashed in eastern Ukraine enroute from Amsterdam to Kuala Lumpur.
