KUALA LUMPUR: Financially distressed Malaysian Airline System Bhd’s (MAS) current stages of restructuring plan involves getting a RM1.6 billion injection over the next three months and developing a separation scheme to downsize its 20,000-strong workforce in stages, said ultimate shareholder Khazanah Nasional Bhd.
In a statement yesterday, the government’s strategic investment fund said the staff cuts will be done in stages with the goal of ensuring MAS operations will continue smoothly during its transitional phase to the new company, Malaysia Airlines Bhd (MAB).
Last week, The Edge Financial Daily reported that MAS employees are set to receive termination letters soon, while those to be absorbed into MAB will receive another letter confirming their re-employment.
This pink slip dissemination exercise coincided with MAB chief executive officer-designate Christoph Mueller’s official start with the company on Sunday. Under a 12-point recovery plan outlined by Khazanah, 6,000 employees will be cut from MAS’ workforce.
Khazanah said in the statement that it is developing the separation scheme, guided by principles that include recognition of the cessation of business, fairness to all parties, compliance with legal requirements and financial constraints.
“It is expected that there will be an operational transition period and the reduction in workforce numbers will be in stages, in tandem with operational transformation initiatives and readiness,” Khazanah said.
Retrenched employees will be deployed to the Corporate Development Centre, which is set to begin operations by April 1, for outplacement and training services.
“The process of identifying the pool of staff that meets MAB’s requirements is in progress,” Khazanah said, as it completed MAS’ talent assessment exercise on Feb 2.
Approximately 20,000 MAS employees — including 500 of its “most senior executives” — were assessed based on past performances, experience, qualifications, behavioural traits, disciplinary records, functional competencies and aspiration to join MAB.
Within the next three months, Khazanah is to allocate up to RM1.6 billion to the airline, as part of the second phase of conditional investment funding. The disbursements will be done in stages after MAS achieves several milestones.
They include MAB’s new business plan to be approved by Khazanah and MAS board of directors, a corporate governance review, implementation of a talent selection process, talent management and development programmes, and financial and operations targets to be agreed upon, said Khazanah.
Khazanah has pledged to spend up to RM6 billion to battle MAS’ financial woes. A total of RM2 billion had been set aside for what Khazanah called “the first phase of conditional investment funding”, with most of it already being used to buy back MAS shares it did not own for the airline’s privatisation exercise.
“The remainder of this first phase of funding will be disbursed based on MAS cashflow requirements and conditions set by Khazanah,” said the fund, which became MAS’ 100% shareholder after the carrier was delisted from Bursa Malaysia on Dec 31.
Khazanah, which previously acknowledged MAS’ deteriorating performance was mainly due to a cost structure that was higher than market standards, said it had begun the process to novate MAS’ existing contracts to meet market-based requirements at the end of last month.
“More than 4,000 contracts have been identified under a comprehensive review of MAS’ contracts,” said Khazanah. Currently, Brahim’s Holdings Bhd’s catering contract with MAS is in the process of renegotiations, with Brahim’s Airline Catering Sdn Bhd already acquiescing for a 25% reduction in its monthly bills to MAS.
“The settlement agreement will remain in force subject to a new catering agreement (NCA) being signed on or before March 31, 2015. Should an NCA not be concluded within the time frame, MAS will look at alternative catering suppliers to service MAB,” Khazanah said.
Under the new business plan, MAB will also focus on more profitable domestic and regional routes.
Khazanah said it expects a 10% or more in aggregate capacity rationalisation in order to achieve an over 5% compound annual growth rate for the 2015 to 2020 period.
“Specifically, MAB plans to grow its domestic and Asean route capacity by 6% to 8% per year and Asia-Pacific by 5% to build its Kuala Lumpur hub connectivity, while reviewing its European and Middle Eastern routes to focus on network contribution and profitability,” it added.
MAB’s fleet will also be realigned for network requirements as Khazanah said the choice of aircraft deployed on the routes is imperative to the airline’s performance.
This article first appeared in The Edge Financial Daily, on March 3, 2015.