The devil's in the details, MAS revamp plan

KUALA LUMPUR: Market observers are awaiting Malaysian Airline System Bhd's (MAS) detailed operating business plan following the unveiling of the 12-point recovery plan to structurally rebuild MAS last Friday to determine the success of this round of restructuring, even though they unanimously agree that a focus on bringing costs down will put it on the right track.
An analyst who declined to be named said it's a right move by Khazanah Nasional Bhd, the biggest shareholder of MAS with a 69% stake, to implement a "thorough" restructuring plan for MAS in a bid to turnaround the ailing national carrier.
"As all of us aware, cost remains the biggest issue to MAS apart from the external factors," he noted.
He added that compared to other airlines in the region, MAS still has the room to improve its efficiency through job retrenchment. The recovery plan will see some 6,000 jobs slashed.
"It's possible for MAS to start making profit in three years' time should it address the cost issue properly," he said.
Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told SunBiz that restructuring "must work" for MAS this time around and there is "no option for another failure".
He said the value that MAS has is just beyond profit, and couldn't be measured in terms of monetary value alone.
Pong stressed that its restructuring exercise must be "free from constraints", without pre-set agenda behind the implementation of the plan.
Khazanah Nasional Bhd's latest recovery plan for troubled national carrier, Malaysian Airline Systems Bhd (MAS) will see another RM6 billion of public money pumped in over a period of three years, and about a third of its workforce slashed.
The much-awaited "radical" restructuring of MAS via a 12-point recovery plan to return MAS to profitability within three years of its de-listing, expected by the end of this year.
At the core of the plan is the creation of a new company to house the "new MAS", a new CEO to head the team, and the much-called for renegotiation of supply contracts. It will also see the airline move its headquarters from Subang to Kuala Lumpur International Airport (KLIA).
Current MAS CEO Ahmad Jauhari Yahya is expected to stay on at MAS until the new company is ready to take off in July 2015.
Azman said Khazanah is already combing through both local and foreign candidates and is expected to nominate a new CEO for the new company, by the end of the year.
The RM6 billion restructuring and investment bill to consist of RM1.4 billion for the de-listing of MAS via the recently announced selective capital reduction exercise, RM1.6 billion set aside for restructuring and retrenchment cost and a progressive injection of RM3 billion into MAS.
"Success is by no means guaranteed – while it is imperative that MAS as a critical enabler in national development is revived, public accountability for the use of the funds means that it cannot be renewed at any cost. The plan also calls for all parties to close ranks and work together to enable the permanent reconstruction of our national icon," he added. Azman said that the plan does not include a break-up of MAS, which also has a maintenance, overhaul and repair arm as well as well a cargo subsidiary.
Khazanah also intends to reduce MAS net gearing (net debt over shareholders' funds) from 290% currently to a target range of 100% to 125% through, inter alia, debt-to-equity swaps.
"In this regard we are pleased to announce that Kumpulan Wang Persaraan (Diperbadankan) (KWAP) has today agreed to swap a total of up to RM750 million of their existing Perpetual sukuk into ordinary equity, subject to a definitive agreement between the relevant parties," Azman said.
He said once profitable, Khanah plans to relist MAS within three to five years, that is, between the end of 2017 and the end of 2019.
"If such financial conditions are met, Khazanah will consider a sell-down or partial sell-down of its stake to appropriate strategic buyers from the private sector,"Azman told a packed room of journalists from all over the globe at its office on Friday.
A pertinent part of the plan is also for the government to enact a MAS Act to facilitate the restructuring in a comprehensive, timely and holistic manner.
Azman also mentioned of the establishment of an "Aviation Commission" with regulatory capabilities to develop the aviation industry, which, in Khazanah's view, would benefit consumers and industry players.
"An "Aviation Commission", if established, would bring Malaysia in line with international best practice, including with countries such as Australia, Ireland, the UK and the U.S," he said.
Azman said Khazanah was leaving the details of the, what he called the " resetting of MAS' operating model", through a more regionally-focused network, lower cost structure and greater emphasis on revenue yield management up to MAS management and board to iron out, not wanting to "micro manage".