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Malaysia plans overhaul of national airline

August 8, 2014
Associated Press

KUALA LUMPUR, Malaysia (AP) — Malaysia's state investment company said Friday it plans to make Malaysia Airlines fully government owned, removing it from the country's stock exchange before carrying out a far-reaching overhaul of the carrier that is reeling from double disasters.

Khazanah Nasional, which owns 69 percent of Malaysia Airlines, said it has proposed to the carrier's board of directors that it buy out minority shareholders at 27 sen (8 cents) a share, which is 29 percent higher than the airline's average share price over the previous three months. The takeover would cost 1.38 billion ringgit ($429 million).

Khazanah said the state takeover will represent the first stage of a "complete overhaul" of the loss-making airline, and that detailed plans will be announced by the end of this month.

"The proposed restructuring will critically require all parties to work closely together to undertake what will be a complete overhaul of the national carrier," it said in a statement. "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."

Malaysia Airlines has been hit by two major disasters this year, which added to its longstanding financial woes.

In March, Flight 370 from Kuala Lumpur to Beijing disappeared with 239 people on board after flying far of course. The plane has still not been found, with a search in the southern Indian Ocean underway.

In July, 298 people were killed when Flight 17 was shot down over Ukraine. It was heading to Kuala Lumpur from Amsterdam and was shot out of the sky over an area of eastern Ukraine controlled by pro-Russian separatists.

Before the disasters, the carrier's financial performance was among the worst in the industry, putting a question mark over its future even before its brand was tied to two almost unfathomable tragedies.

Some analysts last month said the airline would not survive a year without a substantial cash injection from the Malaysian government.

Crisis and risk management experts have said Malaysia Airlines must take dramatic steps such as replacing its top executives and changing its name.

Khazanah's offer to minority shareholders gives them more than what their shares were worth before each of the passenger jet disasters. Even so, the airline's share price has been in a long-term decline due to several years of losses that partly stemmed from increased competition from discount carriers.

The day before Flight 370 vanished, the airline's share price was 25 sen. It was 23 sen the day before Flight 17 was downed.

As a state-owned flag carrier, Malaysia Airlines required to fly unprofitable domestic routes, and its strong union has resisted operational changes. Nimbler discount rivals such as Air Asia have expanded rapidly, while Malaysia Airlines has been like a supertanker, slow to change direction.

Khazanah said its plan requires approvals from regulators and Malaysia's finance minister.

 
 

 

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