SOVEREIGN wealth fund Khazanah Nasional said yesterday it will kick-start the immensely challenging task of turning around flag carrier Malaysia Airlines (MAS) with a RM1.6 billion (S$603 million) injection and cost savings through contract reviews.
MAS has been badly hurt financially after the disappearance of Flight MH370 on March 8 last year, and the shooting down of MH17 over Ukraine four months later.
Both disasters prompted some travellers to avoid MAS.
Its last reported quarter (July to September last year) showed planes were 11.3 per cent less full compared to the number a year ago.
This was despite repeated promotional campaigns as MAS faced major challenges with Chinese customers - a huge tourism market for Malaysia. MH370 had 153 Chinese nationals on board when it went missing.
One major source of optimism for the airline, which has lost RM5 billion since 2011, is the recent freefall in oil prices.
Analysts said this alone could bring MAS back into the black.
Khazanah - which delisted MAS in December with a RM1.4 billion buyout as part of a RM6 billion turnaround plan - will spend an additional RM1.6 billion over the next three months.
Khazanah also said a controversial supply contract with Brahim's Airline Catering has been priced down by 25 per cent pending a new deal.
The caterer holds a 25-year RM6.25 billion deal signed in 2003, when Tun Abdullah Badawi - whose brother controls Brahim's - took office as Malaysia's prime minister.
The carrier also has its first non-Malaysian chief executive.
Mr Christoph Mueller - who previously ran Irish carrier Aer Lingus - started work on Sunday and will have to deliver a new business plan, which includes staff and route cuts.
Although Khazanah did not say how far it would go towards the target of slashing 30 per cent of MAS' 20,000 employees within this three-month period, it said it would reduce more than 10 per cent of flight capacity this year.
"This short-term network consolidation is expected to enable a strengthening of the airline's financial position, putting it on the right path to subsequently grow its capacity by a compounded annual growth rate of more than5 per cent per annum over the 2015-2020 period," it said in yesterday's statement, adding that MAS would focus on growing its South-east Asia and Asia-Pacific presence while reviewing European and Middle Eastern routes.
Analysts have repeatedly said the European and Middle Eastern destinations are among a third of MAS' routes that have no business case to exist.
But the urgency to take politically unpopular cost-cutting measures has been eased as oil prices have tumbled by half since the recovery plan was announced.
Analysts say that even if MAS made no changes to operations, it could still earn between RM200 million and RM500 million this year if oil stays below US$70 per barrel, as jet fuel typically makes up about 40 per cent of an airline's cost structure.
Benchmark Brent crude has recently been trading at about US$60 per barrel, a long way from the US$115 levels of June last year.
"The situation today is much better than five months ago.
Now that oil prices have halved, MAS is not looking at imminent death," said Maybank's aviation analyst Mohshin Aziz.
This article was first published on Mar 3, 2015.
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