Into The Unknown

The downing of a similar aircraft, MH17 with 298 aboard, in July by a ground-to-air missile over Ukraine’s battlefields as it headed to Asia from Amsterdam turned company crisis into potential corporate ruin.

The horrific nature of these inflight disasters aside, as the search for answers to the specific reasons for both incidents and who was responsible goes on, Malaysia Airlines management is reeling, searching for ways to stem the flow of adverse publicity and the red ink that continues to flood its books.

Over the past three years it has lost $1.

2 billion.

Currently losing some $2 million a day, analysts forecast its deficit for the current financial year could now hit $2 billion.

And it already has some $12 billion in debt.

Even without MH370 and MH17 it was a situation that had many questioning the carrier’s future and its government owners searching for ways to turn around the airline’s performance.

Last month, MAS abruptly halted trading in its shares and announced the carrier will be delisted, going private through major shareholder Khazanah Nasional taking full control.

It already holds 69.

37 per cent of the airline and will purchase the remainder for $435 million (this represents a 29.

2% premium on three month average market price of its shares) before conducting a comprehensive review and restructure of the carrier.

But this could be the privatisation youhave when you are not having a privatisation.

Khazanah is, in reality a government-owned fund so the question arises: will it be enough?An extensive review of the company was already underway before disaster struck with sources suggesting the new plan would be radical, involving cutting the carrier’s 19,800-strong workforce by up to 30 per cent as well as trimming salaries by a third.

That in itself raises the prospect of more trouble, this time from the Malaysia Airlines System Employees Union (MASEU) – it is already lobbying to have top management removed – which is unlikely to sit back and take it on the chin.

In the midst of all of this Malaysia is awash with other rumours – that in the wake of the accidents the airline’s name and livery could be changed or that the carrier should be merged with local low-cost rival AirAsia.

Strangely, a former MAS managing director, Abdul Aziz Abdul Rahman, has suggested the ailing carrier actually acquire profit-making AirAsia as a strategy to resolve its financial woes and return to profitability in the long term.

“There is no need for a merger with AirAsia.

MAS is the one that should buy over AirAsia and make it its subsidiary.

MAS as the national carrier should lead, rather than the other way round,” he declared.

His argument: the acquisition would enable the combined group to focus on the low-cost fare market which comprises 80 per cent in South-East Asia, as well as the competitive premium market, which is a far better proposition than competing against each other.

Kuala Lumpur-based long-time industry analyst Shukor Yusof, head of Endau Analytics, describes all of those suggestions as “the height of stupidity” and suggests the company “will self-destruct in no time at all” if the government doesn’t come up with an immediate

Otherwise they are going to find themselves ending up like Pan Am.

plan to resuscitate it.

“We all know that MAS has had long-standing, deep-rooted structural problems so changing the name and changing the logo is not going to make any difference whatsoever.

I think what needs to be changed now are the fundamentals, the management and the structure of the company.

They need to bring in people with business acumen, people with industry knowledge to run the carrier.

Shukor goes even further: “I think the best way out and I have been advocating this for the last six months or more is to close down the company and rebuild it.

It’s called creative destruction.

It’s been done before.

Otherwise they are going to find themselves ending up like Pan Am.

They will be in the annals of history.

The aviation industry doesn’t owe MAS a living.

If it were to go bankrupt tomorrow or disappear it’s not going to change anything.

The business goes on.

It doesn’t change anything in the scheme of things globally.

” As for merging or buying AirAsia, he said this would create a monopoly and that was not a good thing for any airline market.

Yusof said what has happened to MAS is beyond something anyone could have imagined could happen to any airline.

“Quite frankly, I don’t think anyone would be able to withstand the shock of having a second plane down like this.

Of course the accident has nothing to do with them but the name (Malaysia Airlines) is now synonymous with all the negativity you would link to an accident.

It will have a very huge impact on the company for sure.

” Another aviation analyst, Mohshin Aziz from Maybank in Kuala Lumpur, has a similar view.

“I can’t comprehend anything they can do to save themselves.

Perception-wise it really hits home.

It’s very difficult to fight against negative perception,” he said.

As for Malaysia Airlines itself, chief executive Ahmad Jauhari has kept a low public profile since MH17, although he immediately flew to Amsterdam where he signed a book of condolences.

He is not a long-time airline executive, having been with MAS only since late 2011 after decades in the energy industry.

It was reported he considered leaving the airline in 2012 but was persuaded to stay by Prime Minister Najib Razak and most observers believe his days are numbered.

The airline’s stance on its future was laid out in an article written by MAS commercial director Hugh Dunleavy and published in several newspapers around the world after MH17.

British-born Dunleavy, who held senior roles with Star Alliance, Air Canada, Lufthansa and Westjet before joining MAS in 2012, said that as a company, Malaysia Airlines has twice been in a period of mourning this year but would eventually overcome the tragedy and emerge stronger.

“Our majority shareholder, the Malaysian government, has already started a process of assessing the future shape of our business and that process will now be speeded up as a result of MH17.

There are several options on the table but all involve creating an airline fit for purpose in what is a new era for us, and other airlines.

Each day, we continue to fly over 50,000 passengers on 360 flights to 60 destinations.

We remain one of only seven five-star rated airlines in the world.

With the unwavering support we have received from the Malaysian government, we are confident of our recovery, whatever the shape of the airline in future.

” Analyst Yusof is not confident current management can achieve that recovery.

“What they really need to do for it to stand a chance of survival, to be rejuvenated, is to be temporarily shut down because then you would push away all the creditors and put

I like the company and I think it is salvageable.

the loans and everything out of the way.

Then you start to restructure the company and the debt.

This is a company with nearly $12 billion of debt.

You have to change the fundamentals.

You have to cut staff.

You have to do so many things at the same time so it requires a major surgery.

“I like the company and I think it is salvageable.

There are many well qualified Malaysians working around the world who could be persuaded to come back with their airline industry knowledge.

There is absolutely no shortage of Malaysians with the financial acumen and airline experience.

And you can get foreigners from the UK, Australia and elsewhere for the next two or three years to rebuild this company but at the same time you need to nurture people within MAS who will be able to run the company in the long term.

” In the meantime, the airline is living from day to day.

It does have between $900 million and $1 billion in cash reserves but aseveryone in the airline industry knows that sort of money can disappear extremely quickly.

After MH370, a Beijing-bound flight with a large number of Chinese aboard, the company’s Chinese business, accounting for some 10 per cent of total revenue, virtually evaporated.

It is not known what impact MH17 is now having, although in the aftermath MAS immediately offered full refunds to passengers holding tickets for all its flights through this year if they wanted to make other arrangements.

The airline said later it had not experienced a surge in ticket cancellations or requests for refunds.

Nevertheless, statistics from Kuala Lumpur’s airport show MAS has been cancelling flights since the tragedy, suggesting a lack of passengers.

Whatever the situation, it is clear the flying public is beginning to think MAS may be the unluckiest airline in the world.

Brand damage such as that could take years to repair, assuming MAS manages to survive.