WHAT AILS MAS?»
Previous restructuring efforts failed to fix sensitive legacy issues
MALAYSIA Airlines Bhd (MAS) is expected to roll out the second phase of a longterm turnaround plan to handle turbulence this year.
“We are in discussions with our stakeholders and board of directors on Malaysia Airlines Group for the second phase of a long-term turnaround plan,” a spokesman told the New Straits Times.
The national carrier said it would update the market once its turnaround plan to strengthen its financial position and operations was ready.
MAS accounts for half of Khazanah’s RM7.3 billion impairments last year.
The sovereign wealth fund recorded a pre-tax loss of RM6.3 billion last year, bogged down by higher impairments, lower dividend income and fewer divestments.
MAS was privatised by Khazanah as part of a five-year turnaround programme that began in 2014.
Aviation experts said while there might have been intense competition from regional peers and Gulf carriers last year, previous restructuring efforts had failed to fix sensitive longstanding legacy issues.
CAPA Centre for Aviation chief analyst and Southeast Asia chief representative Brendan Sobie said while MAS has made significant headway, the restructuring had not fixed all legacy issues.
“The airline and its shareholder, Khazanah Nasional Bhd, should take a fresh look at the airline and not be afraid to tackle sensitive issues that remain despite multiple restructuring attempts.”
He said the original targets in MAS’ turnaround plan were also “clearly overambitious”.
“It was always going to be difficult to achieve a complete turnaround and it became even more challenging as market conditions worsened over the initial four years and competition intensified.”
Sobie concurred that the plan should be extended beyond five years and adjusted with more realistic financial goals.
He said Kuala Lumpur had never had business traffic and had never been a financial hub like Singapore or Hong Kong.
“Hence, MAS doesn’t have the same kind of network and or strategy of Singapore Airlines and Cathay Pacific,” he said, adding that this was the case before the restructuring and was even more so now.
Florida-based commercial aviation consultant Shea Oakley said it might be advisable for MAS to consider switching to smaller twinjet wide-body aircraft with extended range.
“This could allow for more point-to-point services to secondary markets that have not had direct services from Kuala Lumpur.”
MAS has had to overcome losing two aircraft in 2014 while having to deal with internal management troubles and the lack of a hub with the kind of throughput as Singapore and Hong Kong.
With the cancellation of the European mega-jumbo programme, he said the A380 could become a liability for smaller national carriers that would have trouble filling them.
However, MAS last month launched Amal, a pilgrim-centric service dedicated for haj and umrah for the regional market.
The carrier said Amal would likely pave the way for its turnaround plan, which could be a significant revenue contributor to the group.
MAS group chief executive officer Captain Izham Ismail said last year had been extremely challenging as the airline was hampered by intense competition with supply outstripping demand, volatility in fuel prices and foreign exchange.
He said the airline’s key focus would be to drive its revenue growth, with the expectation to halve its 2017 loss of RM812 million last year.
MAS had announced that the airline recorded a marginally lower loss last year, despite a challenging year impacted by several factors, including crew shortages.
Its 81 aircraft can service its network of 58 destinations.
Its network service is supported by its strategic partners via the oneworld alliance with more than 1,000 destinations.
The airline has the right size of wide-body planes, comprising the A380 (six units), A350 (six units) and A330 (21 units) as well as the B737 narrow-body plane (48 units).
MAS strategies have always been focused on premium profitable Asia Pacific, while delivering Malaysian hospitality.
Hence, it is important for the airline to deploy its aircraft to the right routes to generate income.
Khazanah has allocated RM6 billion to support the implementation of the Malaysia Airlines Recovery Plan, including the airline’s five-year turnaround plan.
Of the total, the then Malaysian Airline System Bhd had used RM1.6 billion for delisting in 2014 and another RM1.6 billion on restructuring and retrenchment costs.