As the country’s national carrier Malaysia Airlines Bhd (MAS) reels under losses, its investor Khazanah rallied for identifying new ways to strengthen the country’s airline industry.
“The airline industry provided a huge amount of actual economic benefits, generating spillover income to various sectors of the Malaysian economy such as tourism. If you look across the supply chain, plenty of other (industries) make money.
“We just have to find new ways, essentially, for the airlines themselves to reach a much more efficient state and that may require us to re-look at the industry, potentially restructuring the industry itself. I think it (restructuring) is quite conceivable looking at the industry, where demand is not growing as fast as capacity growth,” Khazanah Nasional Bhd managing director Shahril Ridza Ridzuan said during a panel discussion at the Invest Malaysia 2019 conference on Tuesday.
Shahril added that it is important for the government to understand and compare the costs of maintaining the loss-making MAS to a much bigger potential loss to the economy if it were to stop operating.
He said that Khazanah’s investment in MAS remains relevant despite the airline missing its target to breakeven last year and causing the sovereign wealth fund an RM 7.3 billion ($1.78 billion) impairment loss in 2018.
Last week, Malaysia’s Prime Minister Mahathir Mohamad said he’s studying options for MAS, including whether to invest more funds, sell it off or even shut the company down.
Given Khazanah’s new mandate, a new special purpose vehicle may be needed to invest in MAS if another attempt is to be made to revive the airline, according to economist and Sunway University’s economic faculty director Yeah Kim Leng.
“Given its financial constraints, the government will likely be eyeing more private capital. MAS will have to cut cost, raise load factor and revenue as well as its overall efficiency, productivity and cost competitiveness, all without sacrificing safety, comforty, service quality and convenience for its passengers,” he added.
Yeah said political interference was one of the key factors behind MAS’ failure to turnaround its business.
“This is undoubtedly one of the key factors underlying some of the high-cost contracts the airline has entered into previously… High staffing and cost structure, management issues, erosion in competitive ability in addition to bad luck, having to cope with back-to-back tragic incidents (MH370 and MH17) are the key reasons for the continuing dismal performance,” he told DEALSTREETASIA.
MAS has been grappling with poor international perception after facing two aviation tragedies — the disappearance of MH370 and the shooting down of MH17 — in 2014. In the same year, it kicked off a 12-point recovery plan after it was taken private, asking for RM 6 billion ($1.47 billion) to delist and restructure.
The national carrier also lost two of its former CEOs, including current Ryanair COO Peter Bellew who left MAS after a year, and current Emirate Group chief digital and innovation officer Christoph Mueller, who left MAS in 2016.
“It has to be run more like a commercial airline rather than a government-owned national carrier. In the case of the latter, the prevailing mindset is that the government will not let it fail irrespective of losses thereby creating a moral hazard situation.
“Other priorities take precedence to financial sustainability such as keeping staff, morale and high cost suppliers and vendors instead of becoming ‘leaner’ and ‘hungrier’ in the entrepreneurial sense as competition intensity ratchets up,” said Yeah.