Analysis: How to ensure Khazanah's plan for MAS works

Achieving a significantly lower cost structure is a crucial antidote to ensure the success of Khazanah Nasional Bhd's RM6 billion recovery plan for Malaysia Airlines (MAS) unveiled yesterday.

This entails MAS gravitating to a regional focus on destinations within the radius of eight hours of flying time.

Beyond that, the airline can penetrate longer destinations with partner airlines through the OneWorld Alliance via code-sharing agreements. That means route rationalisation must aggressively penetrate South-East Asia, the Middle East, China, India, Japan, Australia and New Zealand as well as domestic airlines.

For cost-cutting to happen, it is also incumbent on the workers to pull up their socks and be both productive and cost-effective for there is no denying that MAS, with 20,000 employees, has undoubtedly a bloated workforce.

That is why the 30 percent cut in employees, or some 6,000 people, is a step in the right direction in creating quality personnel and making the airline focused on revenue yield management.

Besides this, improved supply contracts are vital to cut costs and boost savings, which means the hundreds of existing supply contracts with MAS need to be reviewed so that it is a win-win situation for both sides.

After six quarters of losses, the national carrier's financial state of health is critical and MAS cannot continue to bleed without other stakeholders doing their part to help MAS get on a firmer financial footing.

The announcement yesterday was timely as the two tragedies -- the disappearance of the Boeing-777 MH370 on March 8 and the shooting down of another jet, MH17 on July 17 over eastern Ukraine -- led to a loss of RM2 billion.

Coupled with the continuing losses over six consecutive quarters, it would have led to dire straits as by December this year, its cash balance would have been depleted to only RM500 million and practically be in the red.

From July 1, 2015, MAS will become a new company (NewCo), where it would sign contracts with suppliers on terms that are fair and takes into account its financial difficulties.

At the same tine, the enactment of a MAS Act would give power to effect certain changes, especially where agreements are lop-sided and which would have to be reviewed or renegotiated under NewCo.

If contractors don't play ball, then the MAS Act can be invoked.

Undeniably, there is political will since the government has given the blessings to its investment arm, Khazanah, to work out the recovery plan, but there must be no political interference.

Those implementing the recovery plan must be left to do their jobs so that it is executed expeditiously, with the company's bottomline foremost among its objectives.

Khazanah has undoubtedly taken the middle road in working out the plan. There must be fundamental changes to how business contracts are signed and future agreements must not be lop-sided and neither should they contain elements of corruption, cronyism or leakages.

Before critics cast aspersions or accuse it of a bail-out, it must be remembered that the plan is conditional upon Khazanah completing the acquisition of the remaining 30.4 percent equity in MAS it does not already own.

Hopefully, MAS would become Khazanah's wholly-owned subsidiary possibly by November so that the airline can be delisted.

Then, the government's investment arm would have a free hand in executing the recovery plan, where clear targets have been laid down, including returning to profitability by end-2017 and thereafter relisting by 2018 or 2019.

Khazanah would be able to recoup its investment from the re-listing.

Against such a backdrop, Khazanah's RM6 billion recovery plan is not a blank cheque for MAS because the plan includes cost restructuring, retrenchments as well as a voluntary separation scheme.

Also, 3,500 employees would be taught new skills at a corporate re-skilling centre and redeployed in companies under Khazanah's stable while MAS would have to move its headquarters from Subang to Kuala Lumpur International Airport to achieve operational efficiency.

The process of instituting the recovery plan would take about 10 months and culminate in MAS coming under the Newco on July 1, 2015. - By Mikhail Raj Abdullah