Khazanah Nasional announces Malaysia Airlines recovery plan

Malaysia's Khazanah Nasional announced (30-Aug-2014) a 12-point enabling plan intended to return Malaysia Airlines to sustained profitability by the end of 2017. The plan involves the creation of a new company to house the airline and the migration of a "right-sized workforce," work practices and contracts to the new company. The new company will have a "significantly corrected" workforce and cost and operational structure, benchmarked to competitive industry practices and norms. Strict conditionality applies to the restructuring and further investment by Khazanah Nasional in the new company, totalling up to MYR6 billion (USD1.9 billion) on a staggered and conditional basis over three years. Khazanah Nasional MD Tan Sri Azman Hj Mokhtar said, "Success is by no means guaranteed - while it is imperative that MAS as a critical enabler in national development is revived, public accountability for the use of the funds mean that it cannot be renewed at any cost. The plan also calls for all parties to close ranks and work together to enable the permanent reconstruction of our national icon." The airline stated there would be no disruption to its current operations, fares or oneworld membership. The 12 points of the plan are as follows:

1. Create a new company to house Malaysia Airlines, de-list the existing company by the end of 2014, migrate relevant operations, assets and liabilities to the new company by 01-Jul-2015, achieve profitability within three years of de-listing and re-list between the end of 2017 and the end of 2019. A sell-down of Khazanah Nasional's stake to strategic private buyers will be considered if financial conditions are met;
2. Funding of up to MYR6 billion to be disbursed on a staggered basis subject to de-listing at a cost of MYR1.4 billion (USD443 million), restructuring and retrenchment costs up to MYR1.6 billion (USD506 million) and progressive injection of MYR3 billion (USD948 million) in capital between 2014 and 2016. Reduce net gearing from 290% to between 100% and 125% through debt-to-equity swaps;
3. Reset operating business model to a regionally-focussed network with strong global connectivity through oneworld and codeshare partners. Achieve a lower cost structure and greater emphasis on revenue yield management. Lower costs are mainly expected through improved supply contracts and labour practices;
4. Consolidate HQ and operations from Kuala Lumpur Sultan Abdul Aziz Shah Airport to Kuala Lumpur International Airport. The move is expected to consolidate operations and improve working conditions;
5. Strengthen assurance, integrity and safety functions and improve key control and operational systems, including creation of a new governance and ethics board committee and undertake a voluntary enhanced IOSA;
6. Review and renegotiate supply contracts, where appropriate. The new company is expected to honour all existing "properly benchmarked" contracts but will seek opportunities for new contracts based on market norms and benchmarks;
7. Significant changes to leadership including appointment of a new CEO for the new company from 01-Jul-2015;
8. "Right-sizing" of the new company's workforce to an estimated 14,000 employees, a net reduction of 30% from the current 20,000 staff;
9. Strengthen industrial relations and internal alignment. Introduce new measures and practices including an employee consultative panel to better align staff, employees' unions and management;
10. Re-skilling, job creation and redeployment, including investment in a corporate re-skilling centre for appropriate staff who do not migrate to the new company;
11. Seek appropriate government support for enabling legislation, including an Act specific to Malaysia Airlines, to facilitate restructuring in a comprehensive and timely manner. Seek government support for the establishment of an Aviation Commission;
12. Continuous communications and stakeholder engagement, including periodic public accountability briefings. [more - original PR - Khazanah Nasional] [more - original PR - Malaysia Airlines] [more - original PR - Malaysia Airlines 2] [more - original PR - Malaysia Airlines 3]