MAS touching down for a delisting

WHAT'S NEXT? A Malaysia Airlines plane prepares to land at the Kuala Lumpur International Airport. After two disasters in a matter of months, the preferred course of action has narrowed to just one - to take the airline private.


    Aug 01, 2014

    MAS touching down for a delisting

    UNDER intense pressure and an unforgiving timeline to whip up a revival plan for tragedy-struck Malaysia Airlines (MAS), Khazanah Nasional, majority owner of the national carrier, is expected to submit a broad plan to take the airline private to Malaysian Prime Minister Najib Razak next week.

    The plan, pieced together with adviser CIMB Group after the airline was hit by a second disaster in quick succession with the downing of Flight MH17 over Ukraine, also involves an overhaul of the airline's top management, The Business Times understands.

    That MAS would file for bankruptcy, as widely speculated, can be ruled out. A rebranding exercise which could involve a renaming is being contemplated, but that may come later as the architects of the airline's revamp are intent - for now, at least - on a more substantive overhaul.

    "It will be a total end-to-end (restructuring) where every aspect of the business will be looked at: route streamlining, fleet resizing and people streamlining. MAS can't do bits and pieces of restructuring any more, like in the past. This will be a classic, traditional restructuring," said a source close to the plan.

    "Given the depth and scale of the proposed restructuring, keeping MAS listed is going to be a distraction and quite harrowing...and costly," the source added.

    Based on MAS' volume weighted average share price over nine months of some 23 sen - it finished unchanged at 22 sen on Wednesday - Khazanah, which already owns nearly 70 per cent of the airline, would need to cough up some RM1.2 billion (S$469 million) to buy out the remaining shareholders. It would cost more if a premium is attached to the price tag, which sources say is highly likely.

    "These are very different circumstances. The idea is to make an offer that is reasonably fair," said the source.

    The public-to-private route for MAS has long been bandied about, given the airline's spotty financial track record - it spent half of financial years 2003 to last year in the red, with short-lived intervals of profit - but the idea gained traction following the shocking disappearance of an MAS jetliner, yet to be found, on March 8.

    It was, however, not favoured then as MAS shares were hammered - in mid-May, they skidded to a record low of 15.5 sen - and a privatisation based on common pricing benchmarks would have been unpalatable for minority shareholders, although it would have cost Khazanah less.

    Such an exit for minority shareholders of a state-controlled entity - one that has long embodied national pride, no less - did not sit well with the Malaysian government.

    But with the recent MH17 tragedy, the airline, already battling massive losses, brutal competition from low-cost carriers and overcapacity that have crimped yields, found itself running out of plausible options. The preferred course of action narrowed to just one - to take it private.

    "The worry is that in the absence of any plan, there is going to be excessive speculation. A preliminary plan will be submitted next week, followed by a more detailed one by end-August," said the source.

    BT also understands that once the carrier is sliced and diced with profitable subsidiaries spun off and listed, the leaner entity is likely to make a comeback on the Malaysian stock exchange by 2018, in time for the country's 14th general election.

    "We are between two disasters and two elections. Malaysia just completed one (election) last year and the idea is to bring MAS back to the market, recover some of Khazanah's investments and allow others to participate in this asset before the next polls. MAS has this broad window to work in," said the source.

    Roping in a strategic equity partner to lend its expertise and access to global networks to bolster MAS' standing in the bitterly competitive industry is part of the agenda. To this end, talks are ongoing with a couple of top Middle Eastern airlines, namely Qatar Airways and Abu Dhabi's state-owned Etihad Airways.

    "A lot of people are demanding a rescue plan immediately. We are talking about a company with 50 years of legacy and 77 years of flying. It's going to be hard," the source added.