Sunday, 10 August 2014

Malaysian Government to Nationalise Troubled Malaysia Airlines

The Malaysian government announced this week that it was going to take over or nationalise the troubled Malaysia Airlines. The airline was ailing long before the loss of two aircraft this year. It had been struggling with increasing losses, vast debts, a flawed business and increasing competition on its key routes. 

On Friday, came an announcement that many in the airline industry had been expecting for quite some time, that the Malaysian government, would take full control of the company through a stock buyback and restructure its operations in an attempt to restore confidence in the troubled business. 

Competition from low-cost Asian carriers, combining with pressure from the high quality gulf carries like Emirates and Etihad have both impacted Malaysian's bottom line and the airline had been losing money for at least the last three years. There has also been pressure from strained in-house relations between the workforce and the management

The Malaysian Government has already, in recent times, invested over $1 Million with the airline, and a restructuring has long been required. However since the 'loss' of MH370 and the shooting down of another aircraft over Ukraine, Malaysia airlines has experienced a sudden and vicious drop in bookings. Business from China has been particularly hard hit and consumer confidence in the carrier is reported to be at an all time low. Now the airline is being forced to deal with two crash investigations and the resulting liability and insurance issues. 

Malaysia’s prime minister, Najib Razak, said a “holistic restructuring plan” would be announced in the next few weeks, “This process of renewal will involve painful steps and sacrifices from all parties,” he said in a statement. 

Malaysia has already axed many of its loss making long-haul routes, including some to South America. However industry insiders believe that much more drastic action will have to be taken if the airline is to survive, even as a government owned operation. “Malaysia Airlines was already sleepwalking and ignoring the competitive threat from the low-cost market when AirAsia set up shop,” said Saj Ahmad, an analyst with StrategicAero Research in London. “Given that Malaysia Airlines is government-owned, as is the sovereign wealth fund that is now looking to take on 100 percent ownership, the problem is that rebranding does nothing to stop customers from staying away from a tainted entity,” he said.

International interest in investing in the carrier was non-existent when officials from the government raised the possibility recently and because the carrier is still seen as a strategic asset to the country, bankrupcy was ruled out. Therefore there was little choice for the government but to step in and take the helm of what was a rapidly sinking ship. 

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