Malaysia Airlines is now “technically bankrupt”, the newly appointed chief executive of the flag-carrier, Christoph Mueller, told reporters in his first news conference on Monday, June 1, 2015, adding the air carrier’s decline “started long before the tragic events of 2014,” as he announced a restructuring program and plans to cut about 6,000 jobs.
“Analysts have long blamed the airline’s failure to compete on poor management, unwise business decisions, government meddling, and unfavorable service and supplier contracts stemming from Malaysia’s crony capitalism,” according to ABC News.
Mueller did not say whether any rebranding of the flag-carrier would involve a change in name, logo or other alterations, or whether costly long-haul flights to Europe (excluding the air carrier’s flagship London flights) would be either eliminated or reduced in frequency of departures or “size of aircraft on those routes.”
The flag-carrier’s restructuring program and plans for building cash flows and increasing profitability will invoke various tools of alternative contracting, such as joint ventures, strategic alliances, and partnerships.
“The blueprint called for the renegotiating or resetting of major contracts, and a major revitalization of technology, training, and business operations,” ABC News reports.
“Mr Mueller warned last month a major overhaul was necessary as the airline was weighed down by “uncompetitive cost levels” that he said were 20 per cent higher than its rivals,” according to ABC News.
The Malaysian national air carrier said in a statement its immediate priority was to “stop the bleeding” in 2015, then to stabilize next year and start growing again by 2017.
Malaysia Airlines is tapping off a year-long US$1.8 billion restructuring, including new company name change, flight route cuts, senior management reorganization, and fleet assets liquidation, by slashing “6,000 out of 20,000 staff, though reports are now suggesting the figure could be closer to 8,000,” CNN Money and Time confirms.
The workforce transition of the Southeast Asia flag-carrier will be managed by a newly-appointed senior administrator. According to an official statement released on Monday, May 25, 2015, “the appointment by Khazanah, Malaysia’s sovereign fund and the sole shareholder of Malaysian Airline System Berhad (MAS), is backed by the Malaysian Airline System Berhad (Administration) Act 2015 (MAS Act) enacted by the Government of Malaysia. Under the MAS Act, the Administrator plays a critical role to facilitating the transfer of selected assets and liabilities to Malaysia Airlines Berhad (MAB), which will replace MAS as Malaysia’s new national carrier (by September 1, 2015).”
“MAS continues to operate throughout the period up to and including August 31, 2015, after which MAB will operate the business of the airline from September 1, 2015 onwards,” the national air carrier’s official statements confirm.
“All employees will get the termination letters and either a letter to join the new company, or to register … [for] outplacement,” said a company spokesperson.
Despite the changes, the airline’s “operations are very much business as usual … all Malaysia Airlines flights, schedules, and reservations continue to operate as normal. We remain committed to serving you with our world-class Malaysian Hospitality, and look forward to welcoming you on board Malaysia Airlines … You can continue to make reservations in full confidence that our flights and schedules are operating as normal, that tickets sold will be honored,” newly appointed Malaysian national air carrier chief Christoph Mueller said in a statement.
Mueller, Chief Executive Officer of Malaysian Airline System Berhad (MAS), is CEO-designate of the new airline, Malaysia Airlines Berhad (MAB), expected to commence on September 1, 2015.
“It’s not a continuation of the old company in a new disguise, everything is new,” Mueller adds.
The new firm’s reorganization statements add: “The transition from MAS to MAB is a key component of the 12-point MAS Recovery Plan, which was announced on August 29, 2014, to restructure the national carrier and set it on a path towards sustainable profitability. The (MAS Recovery Plan) MRP also includes conditional investment funding by Khazanah of up to RM6 billion, disbursed on a staggered basis and subject to the fulfillment of strict conditions.”
Execution of a New Competitive Business Plan
By way of background, Malaysia Airlines on Thursday, August 28, 2014, released a new business plan, asking for nearly 6,000 staff cuts, curtailed long-haul routes, and a US$1.66 billion dollar restructuring strategy, as it reported a 75 percent wider loss in April-June 2014 second-quarter earnings, as operations further stalled from passenger bookings continuing to slide in response to the air carrier’s dual-crisis from the loss of 537 souls on board MH370 aviation tragedy and MH17 aviation disaster in the past nearly 15 months.
The April-June 2014 second-quarter earnings reflected the impact of the MH370 aviation tragedy on the Malaysia air carrier’s income and cash financials. Malaysia Airlines further forecasted poor second-half earnings, signaling the air carrier’s “average weekly bookings had declined 33 percent, with numerous flight cancellations immediately after the shooting down of Flight MH17 over Ukraine in July (2014),” reports Reuters and the New York Times.
On Friday, August 29, 2014, Malaysian officials and Malaysia’s sovereign wealth investment company, Khazanah Nasional, announced that top-level management for the Malaysian flag carrier would then remain in place, whereupon later a significant shakeup of the senior management now has been put in place.
The Malaysian cabinet, chaired by Prime Minister Najib Razak, on Wednesday, August 27, 2014 approved the air carrier’s business restructuring plan, which also called for focusing the airline’s core southeast Asia regional routes, while retaining a number of its historically profitable international flights to China and Australia to help feed traffic to its routes pulling in and out of its hub at Kuala Lumpur, a person familiar with the plan said on Thursday, August 28, 2014 to the Financial Times.
The flag-carrier’s workforce transition follows as Malaysia Airlines at the end of April 2015, supposedly in reconsiderations of its business assets, has offered for sale or lease all six of its Airbus A380s, its two Boeing 747-400Fs, four Airbus A330-200Fs, and four Boeing 777-200ERs (leaving just only nine such Boeing airliners assets – excluding the loss of the MH370 and MH17 Boeing 777-200ERs – among the Malaysian national air carrier’s fleet), reports respected aviation industry site Leeham News, as the flag-carrier seeks to restructure its daily operational losses that reach as high as US$1.6 million in the first half of 2014. Leeham News’ Scott Hamilton says liquidating the freight airliner fleet – encompassing two Boeing 747-400Fs and four Airbus A330-200Fs – essentially “wipes out MASCargo (Malaysia Airlines Cargo).”
Prompted by inquiries from Australian Business Traveller, Malaysia Airlines issued a statement saying the airline “is currently still working to finalize the Business Plan. Exploring fleet options to enhance viability of long-haul sectors is one area being looked into.”
However, the airline “refused to confirm or deny that it plans to sell or lease any Airbus A380s” (shown below).
Incoming Malaysia Airlines Berhad CEO Christoph Mueller has added “recent speculations on the airline offering some of its fleet for sale or lease is too premature, when nothing concrete has been achieved.”
“Malaysia Airlines needs to operate and utilize its fleet at an optimum level besides maximizing revenue on the route it flies. The market needs to give Malaysia Airlines room to explore various options in determining the most viable strategy,” Mueller counsels.
Why, because managing airlines and airplanes is big global business.
MAS, emerging into the new company MAB, is swimming through deep sea waters of crisis management recovery in partnership as a government, a sovereign wealth fund, and a global business enterprise. Mueller and the MAB senior leadership is expecting escalating hyper-competitive strategic engagement among airlines operating in the Southeast Asia region.
And, the MAB team is preparing for heightened market and operational risks, and even some innovation risks, particularly in the areas of flight routes management, workforce transition and redevelopment, pilot training and certification, aviation safety and security regulatory oversight, crash investigation and crisis management expertise, fleet assets utilization, and customer experience and brand loyalty outreach and engagement, rapidly emerging in the coming 5-10 years among the airline industry players in the southeast Asia commercial passenger air travel marketplace.
The Malaysian air carrier said the MH17 aviation disaster halted “all the hard work and effort” to regain market confidence the top-level crisis management team had put in place upon the onset of the missing MH370 aviation tragedy still ongoing. The dual-crisis has been devastating to the flag carrier’s business, as passenger loads in the first half of 2014 dropped from over 80 percent to 74 percent, while the air carrier’s operating expenses rose 2 percent on higher fuel costs, maintenance costs, and labor costs.
However, the flag-carrier’s restructuring steps have been slowed, most likely from favorably lower oil prices in the last half of 2014, which have provided some relief of the air carrier’s daily cash burn and direct operating expenses.
Maybank aviation analyst Mohshin Aziz recently expressed concerns to CNN Money about this relief in the face of advancing through the last half of 2014 the overall restructuring of Malaysia Airlines. Aziz believes “there are few signs yet that Kazanah is following through on the hard decisions. And there may be one simple reason for that: the plunging price of oil.”
“Oil prices have just about halved and right now just about every route is making money. The momentum on the need to reform in a great hurry is definitely not there anymore,” said Aziz.
What is generally known by experts about the airline business – it’s a five days of working cash business.
The air carrier lost US$360 million last year in 2013, amounting to three times its losses in 2011, and the flag-carrier lost $260 million, burning nearly US$2.16 million in cash a day in the first half of 2014, while at the same time losing US$1.6 million a day in its operations.
“The company hadn’t turned a profit since 2008, and in the three years to 2013, cumulative losses totaled US$1.3 billion,” CNN Money confirms.
Malaysia Airlines has been losing nearly one million dollars a day well before the MH370 and MH17 aviation crises hit the ailing firm. The Malaysian government has been significantly subsidizing the air carrier to keep it afloat.
Historically, the Malaysian air carrier has been one of Southeast Asia’s safest and most secured airlines. However, escalated competitive rival forces in the region have put a squeeze play on financials and 2-5-year market declines of Malaysian Airline Systems BHD securities.
The company has not made an annual profit since 2010. Unfortunately, the firm became trapped in the 1990s between high-end premium Singapore Airlines, and low-cost entrepreneurial Asian air carriers. like AirAsia, and its long-haul business, AirAsia X, both having hubs operating from inside Malaysia.
Shares in Malaysian Airlines Systems BHD fell sharply right after the first moments of the MH17 aviation disaster, down 11% on July 17 by the mid-day break in volume trading in Kuala Lumpur, as already negative investor sentiment deepened, acknowledged CBCNews.
In all, unadjusted stock price has dropped by 35 percent during 2014. In fact, Malaysia Airline’s unadjusted stock price has fallen more than 36 percent, since August 2013.
Since the disappearance of MH370, the stock price has continued to slide sharply.
Moments after the MH17 aviation disaster occur on July 17, 2014 Malaysia Airlines stock fell a dramatic 13 percent in just moments of trading on the Malaysian stock market.
A Dramatic Business Turnaround Expert at the Helm
Christoph Mueller, Chief Executive Officer of Malaysian Airline System Berhad (MAS) and CEO-designate of the new airline, Malaysia Airlines Berhad (MAB), and formerly CEO (and previous to that Chief Operating Officer) of Aer Lingus, steered the Irish air carrier with a sound business strategy through market surges from competition, emerging with consistent profits.
Industry experts believe Mueller, who has a history of dramatic turnarounds as an airlines chief, can do the same sort of profitable restructuring for Malaysia Airlines in the aftermath of the MH370 aviation tragedy and the MH17 aviation disaster.
Mueller, who has held executive management posts also at Belgium’s Sabena and Germany’s Lufthansa airlines, is known for slashing jobs to cut costs, reduce cash burn, and eliminate losses inside these Belgium and German air carriers, garnering the nickname “The Terminator”, BBC News reports.
The overall reorganization of the Malaysian flag-carrier is in steadied deliberate response to the loss of 537 passengers and crew in 2014 aboard flight MH370 aviation tragedy, still missing since disappearing from radar early morning March 8, 2014 en route from Kuala Lumpur to Beijing, and aboard flight MH17 aviation disaster, shot down over eastern Ukraine on the morning of July 17, 2014 en route from Amsterdam to Kuala Lumpur, alongside AirAsia flight 8501, a subsidiary of the Malaysian flag-carrier, that crashed into the Java Sea early morning on December 28, 2014, en route from Indonesian city of Surabaya to Singapore, killing all 162 passengers and AirAsia crew on board.
Malaysia’s state-run investment company, Khazanah Nasional removed the fatigue and financially-hinged Malaysia Airlines from the Malaysian stock exchange on August 28, 2014, making it fully state-owned, as Khazanah Nasional embarked upon a long-range restructuring of its business in 2014.
Khazanah said a “complete overhaul” of the airline would be carried out.
Khazanah, which in August 2014 owned 69.37 percent of the carrier, conducted a comprehensive review and restructuring of the airline. Malaysia Airlines has also concurred in a statement after announcing the suspension of its shares, upon the air carrier’s poor financial condition, recent persistently poor stock performance, and net losses over the past three years prior to the bombardment of the dual crisis of the MH370 aviation tragedy and the MH17 aviation disaster.
“It is easier to restructure if it’s a private company,” Ang Kok Heng, the Kuala Lumpur-based chief investment officer of Phillip Capital Management, said before the announcement of the Malaysian state-run investment fund’s takeover. “They don’t need to worry about making announcements and the timing of it.”
A statement from Malaysian Prime Minister Najib Razak said: “This is the first step needed to return our national carrier to profitability.
“It is a step I wholeheartedly support.”
According to official statements of the new reorganization of the Southeast Asia air carrier: “Khazanah Nasional Berhad (Khazanah) is the strategic investment fund of the Government of Malaysia entrusted to hold and manage the commercial assets of the Government and to undertake strategic investments. Khazanah is involved in various sectors such as power, telecommunications, financial institutions, healthcare, aviation, infrastructure, leisure & tourism, property, creative & media, education, and innovation & technology. Some of the key listed companies in Khazanah’s investment portfolio include Telekom Malaysia Bhd, Tenaga Nasional Bhd, CIMB Group, Axiata Group Bhd, IHH Healthcare Bhd, Malaysia Airports Holdings Bhd and UEM Sunrise Bhd.”
Hope is the Search for MH370 Continues Approaching 15 months!
Meanwhile, “a report published on the first anniversary of the disappearance of Malaysia Airlines flight MH370 has been condemned by relatives of the missing passengers after failing to shed any light on what happened,” according to The Guardian (U.K.).
As the U.K. newspaper reports: “Sarah Bajc, whose partner Philip Wood was on board the flight, criticized the fact that investigators had only interviewed 120 people. “That’s less than our tiny underfunded private investigation has done,” she told the BBC, referring to a private inquiry launched by a group of relatives.”
“Another relative, who declined to be named, told the BBC that the report was “useless”.”
The report, published on Sunday, March 8, 2015, revealed “the battery in an underwater locator beacon had expired more than a year before the flight carrying 239 people from Kuala Lumpur to Beijing vanished without trace. But the significance of the finding has been called into question, as the locator beacon may not have been detectable anyway at the great depths to which the aircraft is thought to have descended in the Indian Ocean,” says The Guardian (U.K.).
“The 584-page report by an independent investigation group went into minute details of the crew’s lives, their medical and financial records and their training, before detailing the aircraft’s service record and maintenance schedule, along with weather, communications systems and other aspects, but found nothing unusual other than the battery’s expiry date.”
Focus on flight MH370’s captain, Zaharie Ahmad Shah, and his co-pilot, Fariq Abdul Hamid was also dispelled inside the report: “There were no behavioral signs of social isolation, change in habits or interest, self-neglect, drug or alcohol abuse of the captain, first officer and the cabin crew.”
Malaysia’s government has formally declared the disappearance of the MH370 Boeing 777-200ER airliner as an accident and said all lives on board are lost.
Australian Prime Minister, Tony Abbott, said that while the search, which has already taken in a huge area, was not without limit there was another 60,000 square kilometers of ocean that it would search. Abbott said this was necessary for both the families of the dead, … and the traveling public.
“It is one of the great mysteries of the 21st century and I know that there will be a nagging doubt in the minds of billions of people until such time as we can find that plane,” he told reporters in Sydney.
“It can’t go on forever but, as long as there are reasonable leads, the search will go on.”
Australian government awarded a A$52 million (£26 million) contract to the Dutch deep sea search vessel company, Fugro, in August 2014 upon allocating A$90 million for the search costs in June 2014.
The search for Malaysia Airlines MH370’s Boeing 777-200ER, Registration Number 9M-MRO, in the 60,000 square kilometers priority search area in the remote mountainous southern Indian Ocean floor, off the western coast of Australia at Perth, is expected to continue through the summer. So far, not a trace has been discovered from the Boeing 777-200ER airliner, missing for nearly 15 months now, since mysteriously disappearing from radar and air traffic control early morning March 8, 2014 en route from Kuala Lumpur to Beijing with 234 passengers and Malaysia Airline crew on board.
Meanwhile, ministers from Australian, Malaysian and Chinese meet to discuss progress of the search for MH370’s Boeing 777-200ER airliner in April 2015. The ministers learned that investigators looking for missing airliner have said “the search area could be doubled in size if the present exploration fails to locate the plane,” Breaking Travel News reports.
If no wreckage or debris from the aircraft is found, the current 60,000 square kilometer priority search area (sixty percent of which has already been searched using sophisticated sonar equipment and Fugro deep sea search vessels) will be extended by another 60,000 square kilometers to “cover the entire highest probability area identified by expert analysis.”
“A statement added the additional search area could take up to a year to complete given adverse weather conditions in the upcoming winter months,” according to Breaking Travel News.
Malaysian prime minister, Najib Razak, said: “The lack of answers and definitive proof – such as aircraft wreckage – has made this more difficult to bear.”
“Together with our international partners, we have followed the little evidence that exists. Malaysia remains committed to the search, and hopeful that MH370 will be found.”
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