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UPDATE 2-State to ready Malaysian Airlines restructuring within 6-12 months -investor
June 10, 2014 / 7:00 AM / 3 years ago

UPDATE 2-State to ready Malaysian Airlines restructuring within 6-12 months -investor

* Airline has enough cash to ensure operations for 12 months

* Sales slump since disappearance of Flight MH370 in March

* Carrier has reported losses for last three years (Adds comment from analyst and trade union leader)

By Yantoultra Ngui

KUALA LUMPUR, June 10 (Reuters) - Malaysia will unwrap plans to restructure loss-making Malaysian Airlines within six to 12 months, a state investor said, as a slump in business since the disappearance of Flight MH370 leaves the carrier set to exhaust its cash reserves by mid-2015.

Moves to rescue Malaysian Airline System Bhd (MAS) have been expected by investors since ticket sales slumped after the unexplained loss of MH370 on March 8. Already squeezed into three years of losses by intense local and longer-haul competition, MAS turned in its worst quarterly performance in two years in January-March.

Azman Mokhtar, managing director of state investor Khazanah , which owns 69 percent of the airline, said on Tuesday the government is committed to formulating a revival plan for the airline within a year because its operating cash reserves are on course to run out by then.

“Malaysian Airlines has a special shareholder, which is the government,” said Azman, speaking to reporters on Tuesday at an investment conference. “I think the final decision will be made by the special shareholder.”

Shares in MAS have fallen 28 percent since the aircraft went missing carrying 239 passengers and crew, with investor confidence undermined by the slide in the airline’s traffic and uncertainty over how Khazanah and the government plan to rescue the company. Its market value has tumbled 85 percent over the past five years - giving it a value of 3 billion Malaysian ringgit ($937 million) - while the broader Malaysian market has risen nearly 80 percent.

Shares of MAS, prone to big swings in recent weeks, rose 5.71 percent to 18.5 sen at 0840 GMT, outperforming the broader index’s 0.55 percent rise.

Observers took Azman’s comments as a sign that restructuring plans may be taking shape already. “I think Khazanah has been studying this for quite awhile and they may already have an idea of their restructuring plan,” said a Kuala Lumpur-based equity analyst who covers MAS who declined to be identified by name.

“I think Malaysian Airlines can still wait for another year to run out of cash. So if Khazanah were to be able to improve efficiency of the company within this time period, they can possibly buy more time to execute their restructuring scheme,” he said.


At the investment conference, Azman said any rescue plan would need to address the company’s productivity, the competition it faces internationally, and its leadership, without giving further details. He said Khazanah has injected more than 5 billion ringgit into MAS over the last 10 years.

The airline and its key stakeholders are in talks with banks for a strategic overhaul that could include the partial sale of its engineering unit and an upgrade of its ageing fleet, sources involved in the discussions have told Reuters. [ID:nL3N0NY0WN)

Resistance to previous restructuring efforts by a robust trade union has hampered the airline’s plan to cut costs and improve competitiveness in the face of fast-growing low-cost carriers such as AirAsia.

Khazanah tried to cut its stake in the airline in 2012 a share swap deal with AirAsia, but the main union - Malaysia Airline System Employees Union (MASEU) - successfully blocked a move that would have brought in a profitable airline with experience of competing aggressively.

On Tuesday MASEU executive secretary Jabarullah Abd Kadir warned the union will press for much quicker change than the six to 12 months outlined by Aznam. But while he urged Prime Minister Najib Razak to impose change in the company’s leadership, he stressed the union is against any break-up of the current MAS structure.

“We can’t bear the losses or falling staff morale. If the situation does not change, we will not be quiet,” said Jabarullah, stopping short of threatening strike action.

“We need the PM’s guarantee at least that the leadership will change, that’s why we appeal to him. We are not confident of Khazanah. MAS has been doing things by trial and error for years.” ($1 = 3.2005 Malaysian Ringgit) (Additional reporting by Al-Zaquan Amer Hamzah; Editing by Stuart Grudgings and Kenneth Maxwell)

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