Malaysia Airlines’ economic outlook grim

Malaysia Airlines is embarking on its fifth recovery plan in a decade, but it’s facing an uphill battle.

Twin tragedies have made Malaysia Airlines’ already precarious financial position even worse [GALLO/GETTY]

Kuala Lumpur, Malaysia – Malaysian entrepreneur Jackie Fong has been flying Malaysia Airlines from her home in Kuching since she was a child, and has no intention of turning her back on the carrier as it struggles to recover following two disasters in four months.

“It’s a good airline and has done nothing wrong,” she said. “MH needs my help.”

Malaysians have long held a soft spot for their national carrier, but as Malaysia Airlines embarks on its fifth recovery plan in a decade, it will need more than goodwill to survive. Not only will it have to properly execute the revamp, it also will have to rebuild a reputation for safety that’s been virtually destroyed with the disappearance of MH370 in March and the downing of MH17 in July.

“MAS is very important for us; it’s part of our identity,” Mohshin Aziz, an aviation analyst at Maybank Investment Bank in Kuala Lumpur, told Al Jazeera. “We grew up with it, we understand what it represents and what it’s capable of, but we can support it only so far. I don’t imagine a lot of French, Dutch, and Germans are wanting to come to this part of the world using MAS any more.”

 Malaysia Airlines announced losses of $96.5m in the three months ending June [Reuters]

Dutch investigators released their preliminary report into what happened to MH17 on Tuesday, six weeks after the Boeing-777 was shot down over eastern Ukraine, killing all 298 people on board. The report said a large number of high-speed objects hit the cockpit area of MH17, leaving multiple holes and leading to the plane’s destruction. 

But six months since MH370 disappeared on a night flight from Kuala Lumpur to Beijing, families are still waiting anxiously for answers. Search teams are scouring the seabed – some of it up to 6,000 metres in depth – in the remote southern reaches of the Indian Ocean in a hunt that is expected to take a year.

Financial position worsens

Meanwhile, the twin tragedies have made Malaysia Airlines’ already precarious financial position even worse.

“We operate in a harsh business environment,” Chief Executive Ahmad Jauhari Yahya said in a statement as the company announced losses of $96.5m in the three months ending June, as revenue fell. “Coupled with the impact of the two tragedies which have damaged our brand, the need to restructure our company was accelerated. The full financial impact is expected to hit Malaysia Airlines in the second half of the year.”

Major shareholder Khazanah Nasional, the state investment fund, plans to remove the company from the stock exchange by the end of this year in order to move ahead with its 12-point “MAS Recovery Plan”.

They have to start giving good service, good food, and highlighting safety.

by - Mohshin Aziz, Maybank Investment Bank

“The government of Malaysia first took over Malaysia Airlines in 2001 in the wake of the Asian financial crisis,” said Khazanah managing director Azman Mokhtar after he unveiled the proposals. “There were several restructuring attempts; some were successful but they could not be sustained. Where it is different this time is that it is attempting to start with a clean slate.”

Khazanah aims to create a completely new company and the search has begun for a new chief executive to replace incumbent Ahmad Jauhari, who will remain in the job until June 2015.

The new operation will have fewer staff – about 6,000 people are expected to lose their jobs – and a pared down flight network, focusing on the Asian region.

It’s also expected to benefit from a review of existing supplier contracts and stands to receive as much as $1bn from the state investment fund providing it meets various unspecified conditions. It’s expected to turn a profit as early as the end of 2017.

“This time, it’s a bit different because Khazanah is tackling the problem that the market has long highlighted, directing their attention at the cost structure,” said Jerry Lee, an aviation analyst at RHB Research in Kuala Lumpur.

“Of course, all these are just plans. On paper, it looks great – cut capacity, slash the workforce, improve productivity – but whether it can be implemented effectively, that’s still a question mark.”

Union support crucial

Getting the support of the carrier’s eight fractious unions and staff associations will be crucial. The biggest and most powerful – the Malaysia Airlines System Employees Union – successfully lobbied against a previous revamp, which involved a share swap with low cost rival AirAsia.

Meanwhile, the National Union of Flight Attendants Malaysia, which represents about 1,500 cabin crew, has found itself in a court battle with management over recognition, even though a government-backed secret ballot found sufficient support for the union. Its president, Ismail Nasaruddin, was fired from his job as chief steward towards the end of last year. 

Ismail said the tragedies of MH17 and MH370 had affected morale among those still flying. Many have turned out to pay their respects as the remains of their colleagues and friends – insiders often talk of Malaysia Airlines as a “family” – have arrived back in Malaysia. “It’s the crews who’ve been most affected by all of this,” he said. “We’re still on the front line.”

For some, it’s been too much. Malaysia Airlines has admitted that in the first seven months of the year nearly 200 cabin crew left the company. Two recent recruitment exercises have been cancelled at the last minute.

The company is attempting to boost flagging morale with regular briefings and discussions with staff. Khazanah insists it is “committed to ensuring that the process of transfer, migration and separation is conducted with the utmost care, fairness and due process”. Those leaving the company will get financial compensation, and two outsourcing companies have agreed to provide training and employment for as many as 3,500 former Malaysia Airlines staff.

It’s also attempting to win back passenger confidence with aggressive marketing campaigns, service enhancements and cheap fares. A social media campaign with the hashtag #flyinghigh and a video featuring US-based Malaysian singer and MAS social media ambassador Yuna has had nearly 400,000 hits on YouTube. A voluntary safety audit with the International Air Travel Association is also planned.

“The key word over the long term is consistency,” said Maybank’s Mohshin. “They have to start giving good service, good food, and highlighting safety. I have no idea if it’ll take one year, two years or even four or five but over time confidence will return. It’s just not going to be soon.”

Malaysia Airlines’ heyday

It was all so different back in the airline’s heyday in the 1970s and ’80s. Formed after Malaysia-Singapore Airlines was divided into two – Malaysia Airlines gained a reputation for service excellence and developed a friendly rivalry with Singapore Airlines, much like the two countries themselves.

“Those times we were the only airline that Singapore Airlines was looking at,” former managing director Abdul Aziz Abdul Rahman told Al Jazeera over tea at his home in Kuala Lumpur. “They were looking at us very closely.”

But as Malaysia Airlines has struggled in an increasingly competitive industry, Singapore Airlines has managed to maintain its edge and the gap between the two carriers has widened.

Abdul Aziz, who spent 20 years with MAS including a decade as managing director, worries about the lack of detail in the latest plan. He wonders what will happen to the 88-plane fleet, which includes six A380s, how its turbo-prop regional operation Firefly will be affected, and whether enough attention is being paid to plugging financial leakages and, even, corruption.

The 81-year-old worries too that the streamlined carrier will struggle with the increased competition that’s likely to come with the Association of Southeast Asian Nations “Open Skies” policy that takes effect in 2015.

Malaysia Airlines: Can it survive?

More immediately, Malaysia Airlines will need to secure the backing of all its existing shareholders, many of them former employees, in order for the recovery plan to go into effect. While most are likely to back the scheme, others, who bought their shares well above the price that’s now being offered, are more sceptical.

Gurucharan S Sidhu, once a pilot with the airline, notes the same people were involved in the previous revamps, and the 2006 version involved a reduction of between 3,000 and 5,000 staff.   

“It’s just more of the same,” Gurucharan said. “It’s just taxpayers’ money being rolled again, and again, and again. I don’t see any future the way they are doing things.”

In the past 10 years, the government has spent nearly $5.4bn on Malaysia Airlines; money that could have helped improve education or provide water and power to remote villages, Khazanah noted.

“MAS has brought us to the world and the world to us,” Khazanah’s Azman wrote in his preamble to the report.

“The heartbreaking twin tragedies have only served to remind us of our deep affection for our national carrier. I strongly believe that MAS needs to be turned around and set on a path to recovery. But we also know we cannot do so at any cost. Its future must be anchored in operational excellence, financial competitiveness and the prudent and proper use of public funds.”

Source: Al Jazeera