Malaysia Airlines Set for Buyout, ‘Wholesale Change’
(Wall Street Journal) – Malaysia’s embattled flag carrier may soon face layoffs and board changes as part of plans to rebuild an airline that is struggling to fill seats after the losses of two planes and the deaths of 537 people.
The nation’s state investment firm, which controls nearly 70% of Malaysian Airline System Bhd., on Friday disclosed a $430 million plan to take the airline private, a first step in a restructuring effort that aims to return it to financial strength.
Malaysia Airlines hasn’t been profitable for the past three years. The government injected more than 5 billion ringgit ($1.56 billion) over the last decade just to keep the airline flying, and the disappearance of Flight 370 in March and the July downing of Flight 17 over Ukraine were devastating blows.
The airline in recent years has sought to fill its planes by significantly discounting prices, often below those of the region’s booming budget carriers. That strategy has come at the expense of profits.
But filling seats became even more challenging in the aftermath of Flight 370. The carrier’s passenger load factor—or the proportion of seats filled on its flights—fell nearly seven percentage points in the second quarter from a year earlier.
Khazanah Nasional Bhd., the state investment firm, said it is in the final stages of completing its restructuring proposal for the airline, with further details to be announced by the end of August.
Malaysian Prime Minister Najib Razak said Friday that the airline’s overhaul “will involve painful steps and sacrifices from all parties,” with the process to be “carried out professionally, with proper principles of fairness, transparency and compassion.”
“We believe our national carrier must be renewed. This means wholesale change, to deliver a wholly different outcome,” Mr. Najib said. “Only through a complete overhaul of the company can we deliver a genuinely strong and sustainable national carrier. Piecemeal changes will not work.”
Plans to turn the carrier around may include relisting the airline later, as well as layoffs and restructuring its board of directors, according to a person with knowledge of the plans. The proposals being considered don’t rule out introducing a strategic partner, the person said.
“The idea to delist will give us the latitude to look at all these things,” said the person, who declined to be named.
Analysts have said the airline needs to significantly cut its 20,000-strong workforce and stop flying unprofitable routes.
In 2013, each Malaysia Airlines employee generated about $243,000 in revenue. That compares with around $514,000 per employee at rival premium carrier Singapore Airlines C6L.SG -0.10% for the year ended March 31st, and around $410,000 each at Hong Kong-based Cathay Pacific Airways. 0293.HK +0.96%
Any turnaround plan would need backing from the airline’s influential employee unions, which had earlier scuttled a share-swap deal with budget carrier AirAsia 5099.KU -1.65%Bhd. amid concerns over job cuts.
