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Air disasters, financial woes take toll on Malaysia Airlines

Aug. 8, 2014, Kuala Lumpur, Malaysia - Malaysia's state investment company said Friday it plans to make Malaysia Airlines fully government owned, removing it from the country's stock exchange before carrying out an overhaul of the carrier that is reeling from double disasters.


August 8, 2014
By The Associated Press

Khazanah Nasional, which owns 69 per cent of Malaysia Airlines, said
it has proposed to the carrier's board that it buy out minority
shareholders at 27 sen (8 cents) a share, which is 29 per cent higher
than the airline's average share price over the previous three months.
The takeover would cost 1.38 billion ringgit ($429 million).

 

Malaysia Airlines has been hit by two major disasters this year, which added to its longstanding financial woes.

 

In March, Flight 370 from Kuala Lumpur to
Beijing disappeared with 239 people on board after flying far of
course. The plane has still not been found, with a search in the
southern Indian Ocean underway. In July, 298 people were killed when
Flight 17 was shot down over Ukraine. It was heading to Kuala

Lumpur
from Amsterdam and was shot out of the sky over an area of eastern
Ukraine controlled by pro-Russian separatists.

 

Khazanah said the state
takeover will represent the first stage of a "complete overhaul" of the
loss-making airline, and that detailed plans will be announced by the
end of this month.

 

"The proposed restructuring will
critically require all parties to work closely together," it said in a
statement. "Nothing less will be required in order to revive our
national airline to be profitable as a commercial entity and to serve
its function as a critical national development entity."

 

Before the disasters, the carrier's
financial performance was among the worst in the industry, putting a
question mark over its future even before its brand was tied to two
almost unfathomable tragedies. It has lost money for the past three
years and been through several episodes of restructuring, instigated by
Khazanah, over the past decade.

 

As a state-owned flag carrier, Malaysia
Airlines is required to fly unprofitable domestic routes, and its strong
union has resisted operational changes. Nimbler discount rivals such as
Air Asia have expanded rapidly, while Malaysia Airlines has been like a
supertanker, slow to change direction.

 

Shukor Yusof, founder of
aviation research firm Endau Analytics, said another restructuring won't
yield positive results if fundamental problems aren't addressed.

 

"I'm skeptical of the success of it because I'm not sure it will address the root problems of the airline," he said.

 

Its biggest problems are $4 billion of debt accumulated since 2002, unprofitable routes and bloated staff numbers, Shukor said.

 

Some analysts say the airline wouldn't
survive a year without a substantial cash injection from the Malaysian
government. Crisis management experts have said Malaysia Airlines must
take dramatic steps, such as replacing its top executives and changing
its name, to win back customers.

 

Khazanah's offer to
minority shareholders gives them more than what their shares were worth
before each of the passenger jet disasters. Even so, the airline's share
price has been in a long-term decline due to its losses.

 

The day before Flight 370 vanished, the airline's share price was 25 sen. It was 23 sen the day before Flight 17 was downed.

 

Khazanah said its plan requires approvals from regulators and Malaysia's finance minister.