Posted in: Asia

Malaysia Airlines To Be Taken Over By Government

Malaysia Airlines Government Guyout

Malaysia Airlines will soon be state-owned after the airline admitted to being mired in debt and still reeling from two aircraft disasters this year. Khazanah Nasional, the investment arm of the Malaysian government, formally requested the delisting of the airline in a letter to the country’s stock exchange Friday.

The investment arm also offered to buy back shares of the airline at a price 12.5 percent higher than Thursday’s closing price, reports the New York Times.

Malaysia Airlines was already losing money for several years before Flight 370’s mysterious disappearance on its way to China. No trace of the aircraft or its 239 passengers has been found. Then, just over three weeks ago, another Malaysian plane, Flight 17, exploded over Ukraine, killing 289 people.

Khazanah didn’t explain what its plans for the airline are. It stated that it intends “to undertake a comprehensive review and restructuring” and that the airline has “substantial funding requirements.”

Reuters notes that the move to de-list Malaysia Airlines System and take it private was expected since ticket sales slumped in the wake of the airline accidents. A full-scale rebranding of the airline is possible to end the company’s three-year loss streak. Khazanah reported that it will need cooperation “from all parties” to undertake the restructuring.

In a statement, the Malaysian government’s investment arm noted, “Nothing less will be required in order to revive our national airline to be profitable as a commercial entity, and to service its function as a critical national development entity.”

The share buyback of Malaysia Airlines would cost Khazanah about 1.4 billion ringgit, or $437 million. It still needs to be approved by private shareholders, who own about 30 percent of the company. The offer price of 27 sen, 0.27 ringgit, per share appears favorable to stockholders, who last saw that price in February, before the two air tragedies.

The disappearance of Malaysia Airlines Flight 370 remains a mystery, and a search in the southern Indian Ocean is still ongoing. That disaster, along with the explosion of Flight 17 last month, aggravated the company’s already poor financial performance.

But the Malaysian government sees the carrier as a national strategic asset, despite its woes, and hopes to save it. In a statement Friday, Kazanah explained that the goal of the airline’s restructuring will be to make the airline profitable and also for it to “serve its function as a critical national development entity.”

Attempts to restructure the airline in the past have been hampered by opposition to job losses from its influential labor union. It is likely that the privatization of Malaysia Airlines will result in job cuts for some of its 20,000 staff.

[Image: The Drum]

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