Khazanah throws MAS RM6b lifeline

Kuala Lumpur

KHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,000 by 30 per cent.

The goal is for the national carrier to start on a new slate by mid-2015. The state investment agency sees sustained profitability within three years or by the end of 2017, provided stakeholders of MAS take the prescribed "medicine or strict conditionality" that comes with the revamp, said Khazanah managing director Azman Mokhtar. He announced the 12-point plan at Khazanah's headquarters in the Petronas Twin Towers yesterday.

Khazanah anticipates a re-listing of MAS, which will retain its name and various operations, between end-2017 and 2019, at which point it expects to recover its RM6 billion investment, if not the RM17.4 billion ploughed in by the government since 2001. It would consider selling down its stake to "appropriate strategic buyers".

MAS CEO Ahmad Jauhari Yahya will stay on until July 1, 2015 when NewCo is slated to take over, assuming MAS is delisted by the end of the year. This is in line with Khazanah's proposal earlier this month to acquire all the remaining shares for RM1.4 billion cash or 27 sen apiece.

Khazanah owns 69 per cent of MAS and intends to delist it while it revamps the airline, which has racked up losses of RM8.4 billion since 2001, and then suffered great reputational damage from two tragedies involving its aircraft within five months this year.

Mr Azman said: "Ironically, sadly, recent events created the perfect storm for the restructuring to take place."

H added that the search for a new chief executive would go beyond Malaysia. He noted the need to slash staff and revamp operations at MAS, saying that "its revenue is consistently below its costs . . . and unfortunately, its cost structure is 40 per cent higher than its regional peers".

MAS will also have to move its headquarters and principal operations from Subang to KLIA.

Given MAS's various legacy issues, including a powerful union which had stymied previous efforts at a more thorough restructuring, Khazanah has pushed for the enactment of legislation including a standalone Act specific to MAS to facilitate the plan. The government has given a letter of commitment to that effect and Cabinet has approved Khazanah's plan.

Given what Mr Azman has described as "haphazard competition", the formation of an aviation commission to give "better clarity to players" is also on the cards.

In detailing the plan, he pointed out that Khazanah had to balance the desire of Malaysians to see MAS revived and the prudent use of public funds.

Still, long-term minority shareholders will be sore at having had to stump out for three cash calls over a decade, only to ultimately receive a pittance, while many taxpayers see the tens of billions of ringgit dissipated as ill-spent.

Of the RM6 billion funding, half would go towards OldCo - RM1.4 billion to delist it, and RM1.6 billion towards restructuring and retrenching costs. The balance is for working capital. MAS also needs to reduce net gearing from 290 per cent to 100-125 per cent. This will be done through various means including debt-to-equity swaps. In this regard, the Civil Servants Pension Fund or KWAP has agreed to swap up to RM750 million of existing perpetual Sukuk into ordinary equity.