MAS set for reboot?

MAS set for reboot?

At a recent townhall meeting, the senior management team at Malaysia Airlines (MAS) was told of a plan to reset the airline.

The plan was already being crafted to salvage the airline before the tragic incident of the missing flight MH370. The incident merely accentuated the process.

The airline has been unprofitable for four straight quarters prior to the tragic incident which has thrown MAS into a tailspin, making it necessary for a review of financial projections and business plan.

China is one of MAS' big markets accounting for 10 per cent of its revenue and after the incident, tickets sales have been slow. There has been numerous flight cancellations to China and elsewhere in Asia. MAS needs to address a bigger issue - which is the lack of confidence rather than just slowing ticket sales.

So at the townhall, MAS group chief executive officer Ahmad Jauhari Yahya and his senior team, often referred internally as the "elite club" put forth the plan to reset MAS. Only senior people were at the townhall session but that triggered talks within the airline and many employees now fear for their jobs, claims someone in the know.

One of the issues on the reset plan is to downsize the number of employees via separation schemes.

It also involves those remaining in the company to work under new terms. The downsizing is seen necessary as MAS, post MH370, has a smaller network and does not need as many workers as before. MAS has about 20,000 employees.

The process of giving new terms to the employees would eventually lead to union bashing. It is known that MAS has one of the most powerful unions that managed to push for the unwinding of the share swap agreement between MAS and AirAsia Bhd in 2011. However, downsizing is a taboo subject in MAS and it could get all the unions all worked up again.

Instead of opting for a one day shut down to restart, Ahamd Jauhari is looking at cost cuts by separating the non-airline operations with airline operations.

The announcement on the reset plan may be made by month-end, pending board and shareholders' approval, and implementation of a scheme is likely to be in July.

"One way out is to collapse the structure to re-negotiate new contracts for suppliers, employees and everything else. MAS has cash of RM3.9bil (S$1.5 billion) but it also has liabilities of RM10.4bil which warrant a restructuring" said a banker.

According to MAS latest results, it is in a net current liability position, meaning its current liabilities are more than assets to the tune of RM1.6bil.

Questions have also been raised as to whether Ahmad Jauhari, would be able to get the green light from shareholders considering MAS has yet to show profitability even prior to the MH370 incident.

MAS and its major shareholder Khazanah Nasional Bhd did not respond to questions from StarBizWeek.

The bleeding airline

Even before the jet vanished while on its way to Beijing from Kuala Lumpur on March 8, MAS had run up losses of US$1.3bil (RM4.25bil, S$1.6 billion) in the previous three years.

And prior to the incident, MAS has regularly assured the market that it would get back into the black this year.

However, at the last results briefing, the goal post was changed once again as Ahmad Jauhari had then said that: "I still can't assure you if we can be profitable by this year as the turnaround is still under way."

MAS had in the past adopted a strategy to sell seats at the expense of falling yields which has not proven to be successful in lifting yields although it has been the champion on loads versus its peers in the region.

For most of 2013, MAS enjoyed over 81 per cent load factor as opposed to 74.7 per cent a year ago. In December, its loads peaked at 93 per cent.

Ahmad Jauhari's strategy was to capture a major share of seats out of KLIA to be able to control pricing. MAS has some 32 per cent of the seats out of KLIA compared with only 28 per cent a few years ago.

However, by increasing capacity, the yield as measured by revenue per available seat kilometre (RASK) is declining more than the cost as measured by cost per available seat kilometre (CASK).

MAS' RASK for full-year 2013 was down by 6 per cent to 23.5 sen from 25 sen in 2012 while CASK was also down 4 per cent from 25.8 sen to 24.7 sen.

For the first-quarter of 2014, industry load factor was at 79.5 per cent, and MAS saw a slight dip of 0.2 percentage points year-on-year to 76.4 per cent, although it is still respectable given that the airline had to grapple with the MH370 incident, says Maybank Research senior analyst Mohshin Aziz.

MAS net loss was at RM1.17bil in the last financial year of 2013, but it was not as bad as the yearly-loss of RM2.5bil in 2011.

The reset plan promises that MAS will return to the black in 2016 and for first quarter of 2014, the early predictions is that MAS net loss could be as high as RM485mil.

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