Saturday, August 23, 2014

Malaysia Airlines' downward spiral

Malaysia plans to nationalize its troubled flag carrier.

© Reuters

SINGAPORE/BANGKOK/JAKARTA -- Struggling to fill seats after
two shocking aviation disasters, Malaysia Airlines will go fully under
the wing of the state, which had few options for keeping the flag
carrier solvent.

     Khazanah Nasional, the Malaysian sovereign
wealth fund that owns nearly 70% of the carrier, said Aug. 8 that it
will seek to buy out minority shareholders and delist the company. The
fund also said it was finalizing a restructuring plan for the airline.

Khazanah will pay 0.27 ringgit (8 cents) a share for the portion it
does not already own, according to the statement. Most of the minority
shareholders are funds with close ties to the government and will likely
agree to the buyout, which is expected to cost around 1.38 billion
ringgit. The airline's stock closed Aug. 7 at 0.24 ringgit.

"This is the first step needed to return our national carrier to
profitability," Malaysian Prime Minister Najib Razak said Aug. 8.

Customer flight

Airlines suffered net losses in each of the last three fiscal years
through December 2013. But its anemic earnings date back to the 1997
Asian financial crisis, from which it never really recovered. The
carrier had hoped to end this year in the black. Then one of its planes
vanished in March en route from Kuala Lumpur to Beijing. Last month,
another was shot down in eastern Ukraine.

     The carrier's
passenger demand has gone from bad to worse. Load factor, a measure of
seats filled, was already down 7.5 percentage points in June compared
with a year earlier. And travelers are shunning Malaysia Airlines in
even greater numbers since the downing of MH17, according to a travel
agent in Singapore.

     Khazanah had said in June that it would have a restructuring plan ready in six to 12 months.

Khazanah's plan for turning the company around will likely entail new
management and fresh capital. But more important will be delving into
the main cause of the chronic losses: bloated labor costs.

Nikkei staff writers Wataru Yoshida, Mayuko Tani, Tomomi Kikuchi, Tamaki Kyozuka and Wataru Suzuki contributed to this story

- Nikkei Asian Review

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