Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on June 3, 2019

SEOUL: The board of directors of Khazanah Nasional Bhd is expected to make a decision later this month or in July on whether its wholly-owned subsidiary Malaysia Airlines Bhd should go ahead with its next turnaround plan, the national carrier’s chief executive officer (CEO) Captain Izham Ismail said.

This will be Malaysia Airlines’ final hurdle after receiving the nod from the board of the airline’s parent, Malaysia Aviation Group, on its “long-term business plan” in February, he said.

“We have been working on this business plan since November last year. Khazanah board, which is chaired by Prime Minister Tun Dr Mahathir Mohamad, is expected to debate over this in end-June or July. Until such time, I will not be able to elaborate on details,” he told Malaysian journalists on the sidelines of the International Air Transport Association’s 75th annual general meeting here yesterday.

Malaysia Airlines has been left in a limbo after Dr Mahathir said in March that the government was considering whether to shut down, sell or refinance the loss-making national airline after four failed attempts at restructuring it.

Izham is of the view that Malaysia Airlines should not be shut down.

“I personally believe that would be a wrong move,” he said, adding that it would not only incur high costs and impact its 13,500 staff, but also those in the supply chain such as suppliers, vendors and aircraft lessors.

However, he is open to equity investments from investors.

“Selling [part of] Malaysia Airlines is equivalent to having investors into the airline. I welcome these synergies because they will bring in new culture. However, selling a 100% stake in Malaysia Airlines is equivalent to shutting it down,” he added.

He indicated that the long-term business plan will see Malaysia Airlines remaining steadfast as a premium or full-service airline.

“Moving forward, it is critical for Malaysia Airlines to embrace what is the current marketplace and how the market will evolve over the next five to seven years. Yes, Malaysia Airlines has a lot to catch up, but I am confident and I have the conviction that the new business plan would be able to make some inroads into the future of the airline.

“The new business plan would be able to reshape Malaysia Airlines and be more competitive by bridging the low-cost and premium markets,” he said.

Izham is of the view that the five-year 12-point Malaysia Airlines Recovery Plan (MRP), which was conceived in 2014 to turn around the loss-making entity, has “met its purpose”.

“It (MRP) has helped reduce RM1 billion of costs, renegotiate contracts with our vendors to competitive rates and reduce the number of vendors from 20,000 to 2,000.

“However, the MRP will not be valid for the future. The new business plan will include the fact that more capacity will be coming into the market due to the injection of some 20,000 new planes into Asia-Pacific [in the next 20 years],” he said.

Izham also conceded that Malaysia Airlines can no longer just focus on passenger revenue, but that it will have to grow its other business segments such as maintenance, repair and overhaul, and ground handling.

“The new business plan will encompass that to a certain extent. Malaysia Airlines needs to review and restructure its domestic and Asean business proposition, look to deeper partnership collaboration with other airlines such as the recent memorandum of understanding for a joint venture with Japan Airlines. There are many more airlines that we are in conversation with [right now], not only on passenger movement [collaborations], but also ground handling, cargo movement, catering and knowledge transfer.”

On his outlook for 2019, Izham said it will continue to be challenging for Malaysia Airlines.

“My view is that Malaysia will continue to experience overcapacity, directly impacting our yield. The supply [of aircraft] in the domestic market is currently 1.8 times more than demand. The main challenge for us in 2019 is fuel and foreign exchange (forex). The current trade issues will drive fuel and forex to be erratic,” he added.

On whether it would go ahead with its US$2.75 billion (RM11.52 billion) order to buy 25 of Boeing Co’s 737 MAX jets, Izham said the airline is currently in a “detailed conversation” with the aircraft maker.

“We have not made any concrete decision thus far. We have time in our pocket as our delivery starts in July 2020. At this current stage, we are not talking about evaluating another airplane,” he said.

In 2016, Malaysia Airlines agreed to buy 25 737 MAX 8 jets from Boeing. But the aircraft was grounded globally in March after two crashes led to concerns over its new anti-stall MCAS sotfware.

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