Restructuring gathers pace at Malaysia Airlines

SINGAPORE: Malaysia Airlines is re-negotiating contracts, reviewing its fleet and routes, and identifying almost a third of staff to lay off as part of a state-led restructuring programme, according to its owner Khazanah Nasional Bhd.

The sovereign wealth fund’s update on Malaysian Airline System Bhd (MAS) is the first since it took the carrier private in December under a six billion ringgit ($1.8 billion) government bailout, following years of losses and two air disasters.

MAS will emerge as a new company by July 1, putting behind it the hit to both brand and bottom-line from the disappearance of Flight MH370 in March and shooting down of Flight MH17 over wartorn Ukraine in July.

Khazanah said a 12-point recovery plan targeting profitability by end-2017 and relisting by 2020 was “on track”.

It has appointed Christoph Mueller, credited with turning around Irish carrier Aer Lingus, as chief executive-designate of MAS’s successor company.

Mueller joined the airline’s board on Jan 1 and will work closely with other new members including Celcom Axiata CEO Mohammed Shazalli Ramly.

He will inherit a company of 14,000 employees should talks that are already underway succeed with staff and unions, which have scuppered past plans to reduce staff.

“MAS is also reviewing over 4,000 supplier contracts to meet the new company’s market-based requirements,” Kazanah said.

In particular, an unusually long 25-year catering deal with Brahim’s Holding Bhd, criticised by analysts as unfavourable to MAS, is being re-negotiated to meet “international standards”. “Another caterer will be found if a new contract is not signed by March 31,’’ said Khazanah.

A spokesman at Brahim’s was not available to comment.

“The airline will also cut capacity by more than 10% this year and aim to grow by 5% annually over the next five years, focusing on Southeast Asia and the broader Asia-Pacific region,’’ Kazanah said.

“MAS will review its European and Middle Eastern routes and re-align its fleet accordingly.’’

Kazanah plans to disburse up to 1.6 billion ringgit over the next three months to the airline pending approval of a new business plan, as well as a corporate governance review and an agreement on operational and financial targets.