Turnaround for Malaysia Airlines to be proposed

Before the MH17 disaster Khazanah, Malaysia’s sovereign wealth fund which owns 69.4 per cent of the carrier, was estimating that the unprofitable airline only had enough funds to last it about a year. Mohd Rasfan / AFPShow less

Malaysia Airlines, the carrier whose jet was shot down over Ukraine last week, will present a turnaround plan this week to the government fund that controls it, people familiar with the matter said.

The proposals presented to the majority owner, Khazanah Nasional, will include taking the company private or allowing it to go bankrupt and then renegotiating union contracts, said one of the people, who asked not to be named as the information is private. Khazanah, Malaysia’s sovereign wealth fund, owns 69.4 per cent of the carrier.

The unprecedented loss of 537 lives and two planes in a span of four months has put the airline’s future in doubt. Even a month before the latest disaster, Khazanah was estimating that the unprofitable airline only had enough funds to last it about a year.

“They don’t have the luxury of time any more,” said Mohshin Aziz, an analyst at Malayan Banking in Kuala Lumpur. “Malaysia Air doesn’t have a huge balance sheet – it’s still struggling from perception issues. We will probably see drastic measures.”

Flight 17 was en route to Kuala Lumpur from Amsterdam carrying 298 passengers and crew on July 17 when it was shot down over eastern Ukraine. The disaster occurred four months after Malaysia Air Flight 370 disappeared with 239 people aboard, leading to the longest search for a missing plane in aviation history.

Asuki Abas, a spokesman for Khazanah, could not be reached for comment. The Wall Street Journal reported on Sunday that Khazanah was increasingly leaning towards taking the carrier private, citing unidentified people.

“Our focus during this very challenging time is to work with the emergency responders and authorities and mobilise full support to provide all possible care to the family members of those onboard MH17,” the company said in response to queries about the revival plan. “This is not the right time to address this question.”

Shares of Malaysia Airlines, rated hold or sell by 15 analysts following the company, have fallen 35 per cent in Kuala Lumpur trading this year. The stock was unchanged at 20 sen after falling 11 per cent the preceding trading day.

Khazanah said last month it had time to come up with a restructuring plan, as the carrier has money to last about a year. The fund is expected to make a decision on how to revamp Malaysia Airlines as soon as next month, said the people. Taking the company private remains the preferred option, rather than a bankruptcy, they said.

Even before Flight 370’s disappearance, Malaysia Airlines had racked up 4.13 billion ringgit (Dh4.78bn) in losses over the previous three years. The incident put the carrier under global scrutiny, jeopardising its reputation and prompting boycotts in China, whose citizens accounted for most of the passengers in the March flight that vanished.

Losses at the Subang-based airline widened to 443.4 million ringgit in the January-to-March period, the most in nine quarters, as travel agents in China stopped selling the carrier’s tickets after the disappearance of MH370 and as competition intensified.

Analysts are projecting losses to persist until at least 2016. The carrier last reported an annual profit in 2010. It missed its target to be profitable last year as rising prices for fuel, maintenance and financing wiped out the impact of revenue gains.

Malaysia Airlines had cash and cash equivalent of 3.25bn ringgit at the end of March, down 13 per cent from three months earlier. The company may need to raise funds by selling new shares to stay in business, said Daniel Wong, an analyst at Hong Leong Investment Bank in Kuala Lumpur.

The airline carried 3.1 per cent fewer passengers in June from a year earlier and filled 77 per cent of its seats, down from 84 per cent a year earlier, Malaysia Airlines reported yesterday.

The airline might also modify plans for future plane orders after the disappearance of Flight 370 tarnished its reputation.

The airline had anticipated ordering as many as 100 jets and was considering a range of models from both Airbus and Boeing, a person familiar with the purchase strategy said in February. The carrier needs fuel-efficient jets to cut costs amid rising competition from discount airlines such as AirAsia.

The chief executive, Ahmad Jauhari Yahya, said the carrier’s fleet plan was under review.

“In the history of commercial airlines, there’s never ever been an airline that had to go through two monumental tragedies in the space of four months,” Mr Mohshin said. “Even the strongest airlines would be falling on their knees on these two incidents.”

Meanwhile, the carrier said that it would allow customers who want to cancel bookings, made until the end of this year, and refund the amount in full until Thursday.

“In light of the MH17 incident, Malaysia Airlines will be waiving any change fees for passengers who wish to make changes to their itinerary to any MH destinations,” it said in a statement.

“Passengers who wish to postpone or cancel their travel plans can obtain a refund, including for non refundable tickets.”

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