Crisis brought about by disappearance of flight MH370 seen to have accelerated airline’s mass restructuring
KUALA LUMPUR - A vanished flight, a series of technical mishaps and red-ink bleeding financial papers - right now, a successful Malaysia Airlines (MAS) business turnaround appears implausible.
However, the Anadolu Agency has been told that MAS hopes to return to better times with a mass restructuring, which will see it dispose of profitable subsidiaries allowing it to concentrate on its core business.
"It is better to bleed badly once and recover, rather than bleed all the time,” a source - who did not wish to be named given the sensitivity of the information - told AA.
Malaysia Airlines' restructuring has been on the books for a while, in the hope that it could once again become financially and operationally sustainable. But a crisis brought about by the disappearance of one of its planes in March is seen to have accelerated the airline’s reboot.
As search operations began, an MAS flight to Busan suffered engine failure which forced it to land in Hong Kong; a flight from Kuala Lumpur hit a flock of ducks while landing in Nepal; and Bangalore-bound flight MH192 turned back after a tire on its main landing gear burst during takeoff.
To add to its worries, the airline announced its biggest quarterly loss in over two years on Thursday following a sharp drop in passenger traffic following the loss of flight MH370.
Malaysia's national carrier was last annually profitable in 2010.
The industry source claims the disposal plan is part of a larger new business plan to be unveiled by the airline, which also includes the listing of its three profit making operations: MAS Engineering, Airport Terminal Services and regional turboprop-operator Firefly.
With the entities separated, the source said the national carrier will be delisted and taken private, which would trigger the reboot of MAS. The proceeds from the listing of these separate entities would be used to finance the restructuring, he added.
“Khazanah Nasional Bhd [Malaysia's investment vehicle] has given clear directive to MAS that it is no longer prepared to bear and mitigate the losses incurred by the airline, unless they (MAS) find a way out.
“It is prepared to hand over a large sum to Malaysia Airlines in the form of credit or loan to undertake the exercise."
The source said Malaysia Airlines will sell off its 30 percent stake in Brahim’s Holdings Bhd and its 15 percent holding in Petronas Dagangan Bhd’s KL Aviation Fuel Services, allowing it to focus on its core business of Malaysia Airlines, MASkargo and Firefly.
MAS has been bleeding red ink in 10 out of its last 12 financial quarters. On Thursday, the company reported that its net loss expanded to RM443.4 million (US$137.3 million) in the first-quarter of the current year, from a net loss of RM278.8 million in the same period a year ago.
It’s the carrier’s worst quarterly loss since October-December 2011. Revenue for the three months, however, was marginally higher at RM3.6 billion (US$1.1 billion) from RM3.54 billion.
For the financial year ending 2013, MAS saw a net loss of RM1.17 billion compared to a loss of RM432.58 million in the previous year, due to higher depreciation and finance charges, coupled with unrealized foreign exchange loss and high jet fuel cost.
MAS Engineering registered a net profit of RM127 million for 2013, on the back of RM1.15 billion in revenue while Airport Terminal Services netted RM38 million in profit with RM257 million in turnover.
Firefly, meanwhile, recorded RM108 million in profit last year, on the back of RM959 million in revenue.
Parent airline Malaysia Airlines and MASkargo reported yearly losses of RM1.35 billion and RM29 million respectively.
Khazanah controls 69 percent of the 41-year-old airline, while the Malaysian government owns a golden share in the ailing carrier group.
The privatization would cost Khazanah RM1.18 billion and assuming that the profitable businesses are spun-off and separately listed with Khazanah ceding a 30 percent stake, it would get back RM1.25 billion cash, assuming a 10 percent premium on the current share price.
Maybank Investment Bank Bhd analyst Mohshin Aziz told AA that MAS could rake in RM4.15 billion just by listing its profitable divisions and selling stakes in two aviation businesses.
He said the engineering business could raise RM2 billion via a public offering — with its airport terminal services unit raising an estimated RM587 million while Firefly could bring in RM1.24 billion.
“We assume Firefly, MAS Engineering and Airport Terminal Services will be listed individually, and MAS’ stockholdings in Brahim’s and KL Aviation Fuel Services will be sold,” he said.
The alleged plan, however, would not come without losses - the airline is expected to lay off many of its 20,000 staff, no doubt against the will of its eight unions.
“Part of the plan is also for MAS to re-negotiate all of its contracts and deals, which includes cessation of some existing commercial and employment contracts. This might involve huge compensation pay-outs,” the source said.
In its announcement to the Malaysian stock exchange yesterday, MAS said the loss of its flight MH370 had impacted the first quarter's performance. It said there was high numbers of cancellations and a decline in long-haul travel after MH370 went missing.
Sales in China slumped 60 percent in March, the airline said. The majority of the passengers traveling on flight MH370 were Chinese.
Australia has committed up to US$84 million towards the search for the missing aircraft over two years, but Malaysia has said the amount is purely a "ceiling price."
“The reality of our situation following the MH370 incident and the challenging business environment has made it even more imperative and urgent that the group re-look its business model and plans going forward to ensure sustainability of the business," the carrier added.
“A thorough review of operational processes and plans is ongoing to ensure a stronger Malaysia Airlines emerges following the MH370 crisis, to deal with the harsh business environment that we operate in.”
* Anadolu Agency tried to contact Malaysia Airlines for a response to this story, but calls and messages to MAS officials went unanswered.
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