MAS To Slash 6,000 Jobs And Cut Back Its Global Route Network In Turnaround Effort

Malaysia Airlines will cut 6,000 workers, as part of an overhaul to revive its damaged brand after being hit by double passenger jet disasters. The reduction represents about 30 percent of its workforce of 20,000.

The announcement comes from state investment company, Khazanah Nasional. It says a new company will be established to take over the airline’s existing business and reduced staff. The airline will be taken completely under the wing of the government. The overhaul and new investment in the carrier will cost about 1.9 billion US dollars. The state investment fund said it aims to restore the airlines to profitability by the end of 2017.

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The 6,000 job cuts were higher than expected by the industry and mark a painful new blow for staff after a traumatic year for the national flag-carrier and the Southeast Asian country. Khazanah, which owns a majority stake in Malaysia Airlines, said it would invest in “reskilling” those who lose jobs and pledged to set up a panel to improve often rocky relations between unions and management.

“Recent tragic events and ongoing difficulties at MAS have created a perfect storm that is allowing this restructuring to take place,” Khazanah managing director Azman Mokhtar told reporters in Kuala Lumpur. “We believe that the 6 billion is not a bailout, we believe it will be recovered with re-listing,” he said.

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Under the restructuring plan, which was approved by Malaysia’s cabinet this week, MAS’s assets and liabilities will be transferred to a new company with Khazanah injecting up to 6 billion ringgit. To facilitate the migration of the existing business to Newco, the Government will table a new law in Parliament called the MAS Act.

Khazanah managing director Tan Sri Azman Mokhtar said that the new legislation would have a finite life and was needed to facilitate the migration of the existing business to Newco. In a move to ensure that Newco has a leaner workforce and cleaner balance sheet to compete effectively in a tough operating environment, Khazanah wants to see job cuts of 30% from the existing MAS workforce of 20,000 employees.

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It is one of the many conditions Khazanah has imposed on the management of MAS if it were to inject more funds into the ailing airline. “In our opinion, we think that Newco with its business model will require a workforce of about 14,000. A net reduction of 30% is an across-the-board number,” said Azman at a media briefing yesterday.

An international search for a new chief executive was underway, Khazanah said, and the current CEO Ahmad Jauhari Yahya would stay on until July next year. Khazanah, which has injected more than 5 billion ringgit into MAS over the last 10 years, said its new fund injections would be strictly tied to the new company meeting performance targets. “Success is by no means guaranteed,” Khazanah said.

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Its chairman Datuk Nur Jazlan Mohamed (pic) said that the Government recovery plans for the airlines, which has been facing a financial crisis, could possible affect other airlines. "We want the government to look at it holistically and not just focus on strengthening MAS status," he told reporters during a press conference here on Saturday.

Nur Jazlan added that the recovery plans unveiled by Khazanah Nasional Bhd, mostly focused on restructuring the airlines' financial status but did not look into the operations aspect of it. "We want to know what exactly is MAS management's plans to overcome the open sky policy, that has indeed affected their business. It would be a big task to turn MAS around because of the current market situation and competition the airline faces from other local airlines," he said.

“The plan that has just been announced is comprehensive, credible and adequate even if painful for MAS staff and other stakeholders,” said Bertrand Grabowski, DVB Bank’s managing director in charge of aviation. DVB is a banker to Malaysia Airlines.

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“It is comprehensive because it touches all the key weaknesses that the airline has not being addressing for years - an overstretched network and fleet in an ever more competitive environment, short haul and long haul.”

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The company hasn't made an annual profit since 2010 and on Thursday revealed deepening losses and warned of more to come as nervous travellers steered clear of it after the disasters.

The restructuring is a bold move by the long-ruling government, which has used state firms such as the national airline as social tools to create jobs and reinforce policies favouring majority ethnic Malays over other races.

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The main union at the airline has close ties to the ruling UMNO party and has successfully resisted previous restructuring attempts. “If we seek a different outcome from past experiences, we must have the courage to choose a different method,” Malaysian Prime Minister Najib Razak said in a statement. “Piecemeal change will not work.”

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The executive secretary of the main MAS workers union, Jabbarullah Kadir, declined to comment on the restructuring plan, saying the union had not yet agreed a position on it.

It said it had already secured a commitment from Malaysia's civil servants' pension fund to swap 750 million ringgit of Islamic bonds for equity.

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The state fund did not give details on plans to reduce the carrier's flight network, but said several of its European destinations would be reviewed. Malaysia Airlines will retain global flight connectivity through the Oneworld alliance and code-sharing, Khazanah said.