STATE investment agency Khazanah Nasional said yesterday that it would pay 27 sen for each Malaysian Airline System (MAS) share to privatise the company ahead of a "complete overhaul" of the loss-making national carrier.
This means Khazanah, which already owns 69.37 per cent of Malaysia Airlines, will have to pay RM1.4 billion (S$545 million) for the 30-odd per cent of shares it does not already own.
MAS said in a statement that it would consider the offer, but with it having suspended its shares at 24 sen apiece yesterday morning, there seemed little doubt that the transaction would proceed.
With the wisdom of hindsight, one can say that the privatisation of MAS will one day serve as a modern-day business tale: about how one of the region's best airlines was laid so low by a combination of political interference, truculent unions and plain bad luck.
Why it has taken so long would probably be the only surprise confronting analysts now, for the bleed has been going on for a while. MAS lost more than RM4 billion between 2011 and last year. In the first quarter of this year, it lost a further RM443 million; its second-quarter numbers are expected to be worse.
Bad luck has worsened the haemorrhage. First, Flight MH370, bound for Beijing in early March, vanished without a trace and remains missing. Then last month, MH17 was shot down over civil war-plagued Ukraine en route from Amsterdam. These two incidents conspired to brand MAS as tragedy-prone and people began cancelling their bookings.
With morale ebbing, a privatisation at this stage would be an act of mercy, shielding the carrier from financial scrutiny amid what could be a brutal restructuring by Khazanah. The state agency said yesterday that its overhaul of the airline would take 6-12 months after shareholders give their approval.
With privatisation as a first step, Khazanah said it would unveil its "full proposal" for the airline by the end of August.
In a hint that it would not be all tea and sympathy, it said it would "need cooperation from all parties to undertake the restructuring, covering the airline's operations, business model, finances, staffing and the regulatory environment", and that "nothing less" would be required.
Most analysts suspect a declaration of bankruptcy is in the offing. The airline needs to cut its 22,000 staff who, shielded by powerful unions, have proved less than sympathetic to reason. In contrast, Air- Asia, which is bigger by value and by fleet, has around 12,000 staff.
MAS is also hampered by lopsided procurement contracts, which it inherited and which favour contractors who are politically connected. In its current form, the airline would find it legally difficult to break these contracts; after bankruptcy and a different corporate entity - MAS2, say - these matters would not arise.
There is also the matter of the airline's debt burden, which now stands at around RM12 billion. With the new entity, this too could be renegotiated.
Industry sources think Khazanah could change the airline's top management and bring in new people with the requisite experience from other airlines. This will probably become clearer by the end of the month.
Whether Prime Minister Najib Razak will have the political will to empower Khazanah to make changes remains to be seen, but the language of the agency seems to suggest that major changes are intended - which could only mean that the premier has thrown his weight behind the agency. There seems little doubt that MAS shareholders will agree, however bitterly. Maybank analyst Mohsin Aziz urged them to "go for it" in a note yesterday, adding that a sum-of-parts valuation by his bank had placed the carrier's value at 25 sen a share.
In the end, it will boil down to meaningful and permanent cost cuts. Indar Dhaliwal, CLSA's aviation analyst, said: "If it can cut costs and maintain its present load, it should turn around with no problems and become profitable."