Khazanah unveils RM6 bil rescue plan for MAS

By KINIBIZ

Khazanah Nasional announced a RM6 billion plan to rescue ailing Malaysia Airlines aimed at returning it to profit within three years or by 2017. The 12-point plan will involve the formation of a new company (newco) to take over the assets and business of the old company (oldco) and a 30% or 6,000 jobs cut.

If and when the airline becomes profitable, then the airline may be relisted, which would be within five years of delisting.

Azman Mokhtar

Announcing the plan today, Khazanah managing director Azman Mokhtar said that other key moves involve the passing of a MAS Act to facilitate staff transfer and to terminate or review contracts which are unfair to the airline.

The Act is to ensure that decisions cannot be taken to court and is analogous to legislative protection accorded to Japan Airlines and Chapter 11 protection given to US companies which are facing bankruptcy and liquidation.

It will also ensure that Malaysia Airlines will get to decide the staff that it wants to keep and let go of other staff through redundancy packages. There will also be new terms and conditions of service.

There are not likely to be haircuts as most of Malaysia Airlines debt is owed to the government while pension fund KWAP’s RM750 million sukuk facility will be converted to equity as part of the rescue plan.

Azman said that going by current trends the airline’s losses for the full year could come up to as high as RM2 billion of which about half can be attributed to the bad effects of the two tragedies involving MH370 in March  and MH17 last month.

Malaysia Airlines Rescue Package

If nothing is done, Malaysia Airlines’ cash is expected to reduce to a critical level of RM500 million by the end of the year.

Azman also said that an Aviation Commission is to be set up by the government as part of the overall plan. One of the roles of the commission would be to determine compensation for routes that are not commercially viable but which the government may desire Malaysia Airlines to operate.

Malaysia Airlines current CEO Ahmad Jauhari Yahya has agreed to continue as CEO of oldco during the transition period which is expected to be completed by July 1 next year. But in the meantime there will be global search to get a CEO for the newco, Azman said. While there have been discussions, nothing has been finalised, he added.

Ahmad Jauhari Yahya

The newco’s focus will be on regional operations (flights up to eight hours), reaching Australia/New Zealand, Japan and the Middle East which account for some 70% of the airline’s operations anyway. It will use its Oneworld Alliance to provide connectivity for its customers.

The plan is dependent on Khazanah getting full control of Malaysia Airlines via its recent takeover offer at 27 sen per MAS share which it does not already own.

 He said that Khazanah was instructed by the Cabinet to come up with an independent review of Malaysia Airlines in February this year. The plan arises from that and was approved by the Cabinet two days ago.

Not at any cost

Despite the huge sum of RM6 billion allocated for the rescue of MAS, Azman assured that the financial help comes with “strict conditions” so as to “ensure that MAS truly resets its business model and cost structures”

The end goal, he said, was for MAS to be “truly sustainable.”

Using a doctor-patient analogy to explain the new relationship between Khazanah and MAS, Azman insisted that the “medicine is linked to the money coming in so if you don’t take the medicine then there will be no money coming in”.

“The simple rational is we needed to have a fresh start,” he said. “The revenue has been consistently below cost.” Malaysia Airlines has been loss-making for the past three years. During the first six months of the year the carrier made RM750 million in net losses.

MAS problems