Malaysia Airlines restructuring gathers pace as new leadership moves in

SINGAPORE - Malaysia Airlines is re-negotiating contracts, reviewing its fleet and routes, and identifying almost a third of staff to lay off as part of a state-led restructuring programme, owner Khazanah Nasional Bhd said on Monday.

The sovereign wealth fund's update on Malaysian Airline System Bhd (MAS) is the first since it took the carrier private in December under a 6 billion ringgit (S$2.26 billion) government bailout, following years of losses and two air disasters.

MAS will emerge as a new company by July 1, putting behind it the hit to both brand and bottom-line from the disappearance of Flight MH370 in March and shooting down of Flight MH17 over war-torn Ukraine in July.

Khazanah said a 12-point recovery plan targeting profitability by end-2017 and re-listing by 2020 is "on track".

It has appointed Christoph Mueller, credited with turning around Irish carrier Aer Lingus Group PLC, as chief executive-designate of MAS's successor company. Mueller joined the airline's board on Jan. 1 and will work closely with other new members including Celcom Axiata CEO Mohammed Shazalli Ramly.

Mueller will inherit a company of 14,000 employees should talks that are already underway succeed with staff and unions, which have scuppered past plans to reduce staff.

MAS is also reviewing over 4,000 supplier contracts to meet the new company's "market-based requirements", Kazanah said.

In particular, an unusually long 25-year catering deal with Brahim's Holding Bhd, criticised by analysts as unfavourable to MAS, is being re-negotiated to meet"international standards". Another caterer will be found if a new contract is not signed by March 31, said Khazanah.

A spokesman at Brahim's was not available to comment.

The airline will also cut capacity by more than 10 per cent this year and aim to grow by five per cent annually over the next five years, focusing on Southeast Asia and the broader Asia-Pacific region, Kazanah said. It will review its European and Middle Eastern routes and "re-align" its fleet accordingly.

The fleet will comprise narrow-body jets such as Boeing Co's 737-800s, and mid-sized wide-body planes like Airbus Group NV's A330s or A350s, people at the airline previously told Reuters. MAS could sell or lease out its Airbus A380 jumbos, said the people, who were not authorised to speak with media on the matter and so declined to be identified.

Kazanah plans to disburse up to 1.6 billion ringgit over the next three months to the airline pending approval of a new business plan by both the airline's board and Kazanah, as well as a corporate governance review and an agreement on operational and financial targets.