Can Putrajaya stomach MAS revival plans?

Thousands of jobs are expected to be cut as part of the plan to turn loss-making Malaysia Airlines around. – The Malaysian Insider file pic, August 24, 2014.

The resolve of the Najib administration to match its tough talk about doing everything possible to revive loss-making Malaysia Airlines (MAS) will be tested tomorrow when state asset manager Khazanah Nasional Bhd presents its much-awaited plan to the Cabinet.

The centrepiece of the plan will include shaving off thousands of jobs, as well as putting in place opportunities for re-training and placing out staff members, and drawing up retrenchment packages in the loss-making flag carrier.

The Malaysian Insider understands that Khazanah Nasional officials hope that the restructuring will be transparent, humane and compassionate but ultimately, they hope that Prime Minister Datuk Seri Najib Razak and his Cabinet understand that the future of the national icon can only be secured if tough and necessary steps are taken.

Ultimately, this could mean the loss of several thousand jobs, perhaps even up to 30% of the workforce, slightly more than the figures quoted by the Reuters news agency yesterday.

In the last few weeks, Khazanah and MAS officials have been meeting various unions and other stakeholders to obtain their buy-in to the plan that needs Cabinet approval before being unveiled as early as this Friday.

Sources said the plan includes roping in top foreign executives to help turnaround Malaysia Airlines as part of the massive revamp exercise – the latest plan since the Wide Asset Unbundling (WAU) exercise of 2002, a year after Putrajaya bought back MAS from tycoon Tan Sri Tajuddin Ramli.

Apart from staff cuts, the latest plan will see the flag carrier dropping unprofitable routes and scaling down flight frequencies as well as reviewing current lopsided contracts signed with various stakeholders.

While the identities of the foreign talents remain tightly under wraps, The Malaysian Insider understands that they are well-known in the international aviation industry and are expected to work with a new chief executive officer, tipped to be telco head Datuk Seri Shazzalli Ramly.

Sources familiar with the latest plan said Shazzali, currently the chief executive of Celcom, had met with Najib last Friday. Najib is chairman of state asset manager Khazanah, the ultimate shareholder for both MAS and Celcom.

He is expected to take over from current CEO Ahmad Jauhari Yahya whose term ends on September 19 and will focus on day-to-day running of the airline, including liaising with the government, while the foreign executives will focus solely on reviving the loss-making carrier.

Some of the routes that are expected to be cut or pared down include flights to popular French capital Paris, the Chinese city of Kunming and Jeddah in Saudi Arabia as the airline can leverage on its OneWorld alliance.

Also coming under review is in-flight catering company Brahim's Airline Catering (BAC) Sdn Bhd's RM6.25 billion 25-year contract which is expected to be made on par with the market conditions, following claims that BAC's parent company Brahim's Holdings had signed a lopsided deal with MAS.

"Piecemeal changes will not work. Khazanah is serious to put MAS back to profitability," a source familiar with the deal told The Malaysian Insider.

"However, it would not hesitate to pull the plug if the plan is not wholly adhered to."

Khazanah is expected to convene a board meeting today chaired by Najib to discuss the restructuring plan, ahead of the airline's second quarter results on Thursday which is expected to plunge further into the red.

Last May, the flag carrier reported its biggest quarterly loss in over two years, hit by a sharp drop in passenger traffic after what it called the "dramatic impact" of the unexplained disappearance of Flight MH370 last March.

Its nett loss expanded to RM443.4 million in the first quarter, from a nett loss of RM278.8 million in the same period last year – the carrier's worst quarterly loss since October-December 2011.

MAS has lost money for the last three years, beset by high costs and stiff competition.

Aviation analyst Mohsin Aziz said it's Q2 results is going to be "a disaster", as it is expected to chalk losses on the upwards of RM600 million.

"The turnaround plan is very important, it cannot be delayed and has to be expedited. It is in the best interest of everyone to proceed with it as swiftly and as seamlessly as possible," said the Maybank IB analyst.

The sources said Khazanah is determined to make this turnaround plan succeed because MAS was a powerful symbol and ambassador for the country.

"This is the last 'kopek' for MAS," said another source, using the colloquial Malay word for "chance".

The flag carrier had undergone three restructuring exercises since 2007 which had failed to yield any results due to a bloated workforce, changing market demand, stiff competition and high overhead costs.

MAS is set to be taken private by Khazanah which owns over 69% of the carrier.

Earlier in August, it had announced its plan to buy out shares it does not own at 27 sen for each share, amounting to nearly RM1.4 billion, to take the troubled airline private.

This comes as MAS struggled in the wake of two major aviation disasters this year.

Flight MH370 from Kuala Lumpur to Beijing is still missing with 239 people on board, while on July 17, Flight MH17 from Amsterdam was shot down over the Ukrainian air space, killing all 298 people on board.

- TMI