Nursing Malaysia Airlines to health may cost $2 billion

Nursing Malaysia Airlines to health may cost $2 billion

PETALING JAYA - The cost of reviving Malaysia Airlines (MAS) could come up to RM5bil (S$2 billion)  over the next three years, according to sources familiar with the restructuring.

They said the figure was a rough estimate and that the final bill to put the national carrier back on track was still being hammered out by consultants engaged by Khazanah Nasional Bhd.

"The amount includes compensation for workers, penalties for breaking existing contracts and additional funds to steer MAS off its current rough patch. It's the cost to put the airline on a new template," a source said. "Until MAS is able to earn more than it spends, it would need funding."

Khazanah, which had proposed to take MAS private on Aug 8, is expected to make a major announcement on the way forward for MAS on Friday.

Khazanah, which holds 69.37 per cent of MAS, had proposed to mop up the rest of the shares at 27 sen each. The proposal has yet to be approved by shareholders.

It has undertaken the measure to restructure MAS that has been loss making for a few years now and the situation was made worse by incidents involving two of its planes within four months. The first was MH370 that went missing en route to Beijing on March 8 and the second was MH17 which was shot down on July 17 while flying over Ukraine.

Sources said that MAS had to pay compensation for contracts that were renegotiated or terminated.

Given that MAS has a lot of contracts, some said to be above market rates, the contracts will have to be renegotiated.

Besides suppliers, sources said that Khazanah had to renegotiate contracts with aircraft lessors, should the privatisation deal be approved.

As for the employees, some form of separation scheme is in the works to let go of about 4,500 to 5,500 people. According to executives close to the airline, this will see the total workforce reduced from 19,577 as at the end of last year to about 14,000 to 15,000, which is said to be the ideal number for the new MAS.

The separation scheme, most likely to be voluntary, will cut across the whole organisation, not sparing those high-paying executives, where the compensation will be higher than the low-paying jobs. They also added that the collective agreements would need to be honoured.

"It will be unthinkable if the Government's investment agency does not honour collective agreements with the employees. They will have to honour them and let go of those they do not need in a better way than giving them three months' notice, which was one of the suggestions from within,'' said an executive.

Another added that "every job is under review, even the senior team at MAS.''

Before it could embark on job cuts, Khazanah will decide on how big a route network it wants to maintain, as well as the fleet size.

Part of the new plan includes re-configuration of its route network and suspending loss-making routes, especially the European routes, but MAS will maintain the lucrative KL-London-KL sector. Apart from London, MAS also flies to Paris, Amsterdam and Frankfurt.

The new MAS would rely more on its OneWorld Alliance for its reach to save costs, they said.

The new template will likely see the existing airline retaining only the flight operations. Support operations such as MRO (maintenance, engineering and operations), ground handling, MASkargo, Firefly and MAS Holidays will be parked under a holding company so that each will have its own cost centres. This will free MAS to just sell seats and fly passengers.

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