Last ditch efforts to rescue Malaysia Airlines

To keep humbled Malaysia Airlines in the air, its government owners have hired a global bank to construct a survival strategy for the carrier, reports associate editor and chief correspondent, Tom Ballantyne.

September 1st 2019

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After several chief executives, including two from overseas, have failed to revive Malaysia Airlines (MAS) the carrier’s government owners have enlisted global investment bank, Morgan Stanley, to explore strategic options for the airline, including a partial sale to strategic investors. Read More »

The news was made public as the fate of the carrier continues to be uncertain following comments earlier this year by the country’s prime minister, Mahathir bin Mohamad, that closure might be an option.

“We have changed the management of the airline many times. Everyone promised they could turn round the company. In the end, they all failed,” he has said.

In late July, Malaysian deputy minister, Mohamed Farid Rafiq, confirmed the government’s sovereign wealth fund, Khazanah Nasional, had brought in Morgan Stanley and would like recommendations from the bank by year-end.

Whatever Morgan Stanley puts forward, MAS’s future is uncertain. In March, without disclosing specific financial details, the airline said 2018 had finished with “a marginally lower loss compared with a year ago”. The reported 12 months had been challenging because of crew shortages, intense competition “with supply outstripping demand”, volatile fuel prices and foreign exchange losses, it said.

Last year, six of Malaysia’s seven carriers were unprofitable and the seventh, AirAsia, generated its smallest operating profit in four years.

It is reported MAS is working on yet another turnaround plan after missing targets set in the five-year recovery strategy scheduled to conclude later this year.

In late August, one mooted savior of MAS ruled itself out of any buy-in. Qatar Airways Group CEO, Akbar Al Baker, said, while visiting the Malaysian island of Langkawi, that he would not invest in MAS.

Shutting MAS is not feasible politically, although the Malaysian market does not need three airline groups. It is hard to imagine a sale will succeed given the financial state of the Malaysia Airlines Group and the sluggish Malaysian economy.

Another phase of restructuring, which must proceed without political interference, is considered the most likely scenario for the airline group.

Operating in the Malaysian aviation market is not about to get easier for MAS. Competition between local carriers is fierce and successful intrusion from non-Malaysian carriers into the market, supported by sixth freedom traffic through Kuala Lumpur International airport, is eroding MAS’s market share.

Options outlined for MAS since Mahathir initiated a review of the carrier earlier this year are another restructure, an additional injection of funds, a strategic investment from outsiders, that might include Japan Airlines, or closure of the carrier.

The preferred option is signing up a strategic partner. The government is willing to relinquish majority control of MAS as long as the airline can maintain its identity as a national carrier. In July, Mahathir confirmed the above four options and said the government was studying them.

A central plank of the latest recovery plan is establishing joint ventures with foreign airline partners, with the goal of breaking even by 2022. MAS has signed Memoranda of Understanding with Japan Airlines (JAL) and Singapore Airlines (SIA). The joint ventures cover Kuala Lumpur-Tokyo Narita and Kuala Lumpur-Singapore routes, respectively.

Other potential areas of co-operation could be cargo and MRO services. MAS is awaiting regulatory antitrust approval for the two partnerships. It is understood the carrier hopes to be operating them in the final quarter of the year.