Malaysia Airlines Faces Complete Overhaul

Quo Vadis Malaysia Airlines? The future of the badly hit and loss-making national Malaysian carrier remains in limbo after plans to delist the airline and put it under total state control, were made public. All what’s known is that no stone will be left unturned. The inevitable strategic realignment will also greatly affect the role cargo might play within the transformed new MAS.

The cargo biz in a main revenue contributor. Pictured here is a A330F operated by MAS /  source: MAS
The cargo biz in a main revenue contributor. Pictured here is a A330F operated by MAS / source: MAS

Local carrier, regional airline, global actor or rather ending up in a merger with budget carrier Air Asia? Those – and presumably more – are the scenarios swirling around these days concerning the fate of MAS. Speculations started right after majority stakeholder Malaysian state fund Khazanah Nasional Berhad (69%) announced they would swallow the remaining MAS equities. This takeover bid, states the investor in a mouth watering peace offer to the remaining stakeholders, represents a premium on the current share price of 12.5 percent to the closing price on 7 August and an almost 30 percent premium to the three month volume weighted average market price. In total, Khazanah has to pay the equivalent of €320mn for securing the remaining 31% capital shares.


But much more pressing than these financial acrobatics is the question what’s going to happen next once the transaction is completed. A restructuring scheme “will be announced within a period of six to twelve months,” indicates Khazanah. However, no specifics were delivered in which direction the MAS journey is heading, what really doesn’t calm the situation. All Khazanah’s management says is that MAS will undergo “a complete overhaul on all relevant aspects”, including operations, its biz model, finances and human capital. Analysts believe that this could include selling parts of the airline’s current business and the demise of its top management.


Strangely enough, cargo is not mentioned by the investor, for whatever reasons, despite the fact that transporting containers, pallets and boxes is a major contributor to the carrier’s turnover. For the first six months of this year MAS reports a throughput of 343,500 tons at its major hub Kuala Lumpur. Last year the KUL tonnage totaled 550,733 tons. Together with goods processed at Penang, Kuching, Sandakan and some other Malaysian airports served by MAS it was 808,650 tons. The carrier operates a six all-cargo aircraft fleet – four A330-200Fs and two Boeing 747-400Fs. In addition MAS Kargo markets the lower deck capacity of the airline’s fleet of 92 passenger aircraft.
Until a short time ago it was 94 jetliners, but in March one of their Triple Sevens with 239 people on board disappeared from the radar and crashed presumably into the Indian Ocean, without leaving any trace until today. Then on July 17, the next catastrophe hit the airline when allegedly Ukranian separatists – by mistake or on purpose – downed MH017 in the eastern Ukraine, killing all 298 passengers and crew members.


Apart from the human suffering both tragedies cost MAS a fortune, since the carrier is obliged to pay indemnities to the surviving dependents. This even so, if the death of passengers and crew members was caused by an act of terror or as a consequence of warfare. This is an additional financial burden Malaysia’s loss-making carrier will have to shoulder. It comes on top of the operational losses of one million euros each day, which MAS admits to.


That’s why market experts indicated way before both catastrophes happened with two planes downed and 537 people losing their lives that the airline was already at the brink of bankruptcy. Mismanagement, overstaffing and the increasing competition by low cost carriers led to the deep financial misery MAS maneuvered itself into. In light of this situation it will be interesting to see, which strategy the Khazanah experts will present to get the carrier afloat again and what solution they come up with for the cargo biz. Please stay tuned.

 

It is a crying shame that this once proud and technically sound airline has to face such an uncertain future.
Back in the 60’s and 70’s they were called MSA - Malaysia-Singapore Airlines, and operated as a joint Malaysian-Singapore carrier with a fleet of Boeing 707 aircraft.
Then, both countries decided on their own airline identities.
Both SQ and MH turned out to be top carriers with superb service and modern fleets.
It’s Malaysian who is now on the brink and one wonders whether a further solution might not be a tie-up again with SQ.
Maybe at least on the cargo side, where both should be able to have a profitable return on such a joint venture.

Heiner Siegmund  /  John Mc Donagh

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