State Fund Khazanah To Take Over Malaysia Airlines

 - August 12, 2014, 9:20 AM
According to a Maybank analyst, Malaysia Airlines remains profitable on domestic routes, where it flies Boeing 737-800s. (Photo: Gabriele Stoia)

In a move to ensure the viability of Malaysia Airlines, the country’s sovereign wealth fund, Khazanah Nasional Berhad, has stepped in with $430 million rescue plan to delist the national carrier and take it private.

Khazanah, which holds a 69.37-percent stake in the airline’s parent, Malaysian Airline Systems (MAS), submitted a formal request to the company’s board of directors on August 8 to undertake a selective capital reduction and repayment (SCR) exercise. Upon completion, Khazanah will become the sole ordinary shareholder of MAS, which would lead to a de-listing from the Bursa Malaysia stock market. The proposed SCR is a prelude to a larger restructuring scheme that Khazanah said it has reached the final stages of completing.

“We reiterate that the proposed restructuring will critically require all parties to work closely together to undertake what will be a complete overhaul of the national carrier on all relevant aspects,” Khazanah said. “Nothing less will be required in order to revive our national airline to be profitable as a commercial entity and to serve its function as a critical national development entity.”

Khazanah said it will disclose additional details by the end of August and that a “complete overhaul” will take six to 12 months.

Malaysian Prime Minster and Khazanah chairman Najib Razak supports the buyout and said the restructuring “will involve painful steps and sacrifices from all parties.” On August 11, MAS executives met with employee union representatives as a “first step to inform and engage employees,” MAS said.

Mohshin Aziz, a Kuala Lumpur-based aviation analyst from Maybank Investment Bank Research, said the price offered to minority shareholders is fair. He believes that the airline’s future rests on scaling back routes.

“In my analysis, Malaysia Airlines only makes money on domestic routes; [on] international [routes], they have been losing too much money for the longest of times,” said Aziz. “I think that they should just downscale and become a domestic-only airline, [and] abandon international routes altogether. It’s a big surgical amputation so to speak.”

In May, the airline reported a first quarter net loss of $137 million, marking the fifth consecutive quarter in the red for the beleaguered carrier.