Malaysia Airlines, can government let go of its hold?

High profile disappearance of MH 370 in March, 2014 and shooting down of MH 17 over Ukraine in July, 2014 were twin disasters that shook Malaysian Airlines at its core. Since then the airline is bumping from one crisis to another. Can Malaysian government being the solo owner let go of the airline to another party? Here are my thoughts… 

The total operational loss amounting to MYR 15 Billion (about US$ 3.7 billion) is an albatross the carrier, tagged with IATA code name MH, carries forever. For more than one occasion MH was given life support. Yet it did not recover from habitual loss making. Instead of allowing the Malaysian Airlines Berhad (MAB) who owns the airline to go bankrupt creditors were forthcoming in the last ditch effort to rehabilitate so much so, in January 2021 they got approval from the courts to proceed with. 

The restructuring plan envisages a turnaround of short term profitability with long term sustainability. The solo shareholder of the MAB, Malaysian Sovereign Wealth Fund, Khazanah Nasional Berhad (Khazanah) immediately announced the injection of MYR 3. 6 Billion (US$ 800 million) as emergency funding in addition to creditors forgiving part of the debt. But can this solve the chronic problems faced by MH for quite some time now? 

Troubles were spotted by 2000 in the airline. Corruption, mismanagement, favouritism in grating employment on political grounds were rampant. Overcapacity was another ill as purchasing planes was not aligned with the demand factor. Covid–19 also had its toll. Last quarter of 2020 was a case in point which made the break-even load factor climbing steadily towards almost 100% making the entire operation of the airline untenable.

The government is placed on an unenviable position. It has twin responsibilities. One is to continue the national carrier as pride of Malaysia.  Secondly, ushering in connectivity of both domestic and international travel with the people in order to ensure supply line dynamics is paramount.

In the final analysis it is the geoeconomics compulsions that force Khazanah to hold on as sole shareholder despite the fact there is investor appetite to buy into this national venture. Recent offer by Air France – KLM duo to buy 49% stake is a case in point indicating that MH stands probable chance of getting  on to its feet. No government can be seen as weak in the geoeconomics chess board. Two factors support the position why Khazanah business strategy compels it to hang on with MH. 

1. In case MH folds up Khazanah appears to give entire air travel on the plate to Air Asia, the budget airline that is already making inroads towards MH market share in domestic travel.  Given full control over both domestic & international air travel market to Air Asia is counterproductive towards the goals & objectives of the government in terms of safeguarding national interest & sovereignty of Malaysia as nation. 

2. Primary duty of the government is to foster national development and to ensure continuous growth of both private business & national enterprise. Cannibalising one for the benefit of other would upset the equilibrium. Moreover, it would impede the progress Malaysia had so far in balancing risk & opportunity and supply & demand dynamics over geoeconomics parameters!

 

Cheers! 

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist