* Up to a quarter may be axed in government restructuring
* Raising morale seen crucial; some flight crew have quit
* New CEO needs charisma, communication skill - ex-staff
* Fear of 'same circus, different clowns' - ex-worker
By Al-Zaquan Amer Hamzah and Siva Govindasamy
KUALA LUMPUR, Aug 27 (Reuters) - As bodies from downed Flight MH17 were brought home last week, a group of Malaysia Airlines flight attendants, in black mourning headscarves contrasting with their pink and turquoise uniforms, sobbed and clung to each other in grief.
The 19,500 staff of Malaysia Airlines (MAS) now face a new ordeal - a quarter of them may lose their jobs at the unprofitable airline, hit by two jet disasters this year. Flight MH370 remains untraced since its disappearance en route from Kuala Lumpur to Beijing in March.
Deep job losses, route cuts and a change of leadership are expected to feature in a restructuring plan being prepared by Malaysia's government for announcement as early as Thursday, when MAS also reports second-quarter results. Likely the last before being de-listed, the numbers are expected to show plunging ticket sales and heavy losses even before July's shooting down of MH17 over Ukraine.
As state fund Khazanah Nasional, the majority owner, prepares to take the company private and inject efficiency into the airline, it must tackle crumbling staff morale and win over the powerful main labour union if turnaround efforts are to succeed.
"MAS is suffering from an image problem and a problem with the staff," said Nik Huslan, former chief pilot at MAS. "They have to find someone the staff can respect and rally behind."
Even before the lost aircraft tragedies, airline insiders said staff discontent had been growing for years due to strategy U-turns, leadership changes and poor career prospects.
One of the region's most prestigious and fastest-growing airlines in the 1990s, MAS has steadily fallen behind high-end rivals such as Singapore Airlines and been battered by the rise of Asia's budget carriers like AirAsia. The company hasn't made an annual profit since 2010.
This year's twin disasters have caused new stresses. A total of 186 MAS flight crew quit between January and July, many of them due to family pressure not to fly after the crashes, MAS says. Over 5,000 MAS staff work as cabin crew or pilots and the airline says the resignation rate has now returned to normal.
About a quarter of MAS staff are likely to lose their jobs under Khazanah's plan, a source with direct knowledge of the matter told Reuters. The pill is likely to be sweetened with costly redundancy packages and offers of jobs at other state enterprises.
Malaysia Airlines executives told Reuters that the tragedies had served as a wake-up call to staff, and even to recalcitrant union bosses, that drastic change could no longer be avoided if the 42-year-old company is to survive.
"There needs to be a change in the mindset, and people are coming around to that," said one senior executive. "People must realise that they may need to work differently - the crew may have to work longer shifts or they may have shorter layovers. The engineers may have to work a bit longer or clear aircraft faster."
But such demands would also have to be leavened with incentives to encourage staff, or at least a convincing message that they will eventually see benefits, the main union has warned.
"We want to see things in total, and what the long-term plan is," said Mohd Jabarullah Abdul Kadir, executive secretary of the Malaysia Airlines Employees Union (MASEU), which represents 13,000 of the carrier's staff. "If there are retrenchments, they cannot cut staff numbers without basis."
For Prime Minister Najib Razak, who chairs Khazanah, the plan will be seen as the latest gauge of his credentials as a reformer in Southeast Asia's third-largest economy.
State firms are used as one tool to reinforce affirmative action policies favouring majority ethnic Malays over other races and are heavily intertwined with Najib's long-ruling United Malays National Organisation (UMNO). The main union at MAS has close ties to UMNO - and has successfully resisted previous restructuring attempts.
Crew who have worked at the airline recently complained about a lack of opportunities to progress in their careers. Cabin crew are typically offered five-year contracts, they said, after which they start from scratch with a new five-year deal.
"There's always uncertainty for your career because of this arrangement," said one former crew member, who was with the airline for nearly three decades from the mid-1980s and recalls the "exciting" early days of the airline's rapid expansion.
Huslan, the former chief pilot, blamed "poor talent management" for high attrition rates among pilots and engineers. "They leave for better prospects because they don't see it in MAS. This has been on the rise," he said.
To reverse that, the most vital ingredient of the turnaround plan may be a new chief executive who can effectively communicate the new strategy, execute the plan, and win over doubters.
The sober demeanour of current chief executive Ahmad Jauhari Yahya, who relaxes by competing in triathlons, is a stark contrast to the brash showmanship of Malaysia's most famous airline boss, Tony Fernandes of budget carrier AirAsia.
"Airlines are about image," said Huslan. "If you cannot carry an image, well that's the end of the story for you. You cannot have a humble and shy CEO."
Others say previous changes in the carrier's management have failed to wipe out inefficiencies, while breeding scepticism among staff that new leadership can bring lasting improvements.
"Every time somebody new steps in there's a pretence of change," said the former MAS cabin crew member. "We have a famous saying among the staff: 'It's the same circus, with different clowns'." (Writing by Stuart Grudgings; Editing by Kenneth Maxwell)