Massive Restructuring For Malaysia Airlines
Aviation Week & Space Technology
November 6, 2000
Subject Terms: Airlines
Classification Codes: 8350:
Transportation & travel
9179: Asia & the Pacific
Geographic Names: Malaysia
Company Name: Malaysia Airlines
Enormous debt, low yields and escalating fuel costs factored into cash-strapped Malaysia Airlines' recent decision to scale down its fleet by 20 aircraft by Jan. 1 and significantly reduce services. Malaysia Airlines (MAS), which has suffered losses since 1995, is in debt to the tune of M$9 billion ($2.4 billion) - 30% of which is attributed to the depreciation of Malaysian currency at the
height of the Asian economic crisis in 1997. Copyright 2000 The McGraw-Hill Companies, Inc.
Enormous debt, low yields and escalating fuel costs factored into
cash-strapped Malaysia Airlines' recent decision to scale down its fleet by 20
aircraft by Jan. 1 and significantly reduce services. Malaysia Airlines (MAS),
which has suffered losses since
1995, is in debt to the tune of M$9 billion ($2.4 billion)--30% of which is attributed to the depreciation of Malaysian currency at the height of the Asian economic crisis in 1997.
MAS intends to sweep through its entire fleet mix: Hardest-hit will be the 16-aircraft Boeing 747 fleet, which is to be halved. The carrier's 777s will be reduced to eight from 11 and its 737-400/500s by one to 36. MAS' Airbus A330-300s will be cut to eight from 11; the aging Fokker F50s reduced to four from 10.
THE EIGHT 747s to be eliminated from the fleet would be leased out, while the 737, which was sold and leased back, would be returned to the lessor.
In the past two years, nine 777s were sold and leased back for 96-144-month periods. The deals involved Singapore Aircraft Leasing (SALE) with three aircraft, GECAS with four, Yebisu, one and Muzon, one. MAS now faces the possibility of being slapped with a penalty for premature return of leased aircraft, but the alternative is to sublease with the consent of the lessor.
In addition, the airline has six 777s on order with two to be delivered in March and April. The two aircraft were sold to SALE early this year, with MAS agreeing to lease the aircraft for 144 months.
The six F50s are to be sold.
The question arises as to whether depletion of the carrier's financial
resources and route network would justify continued leasing. MAS has five
747-400s on order, which were part of the 25 aircraft ordered in December 1995
at a cost of $665 million. Ten are -400s, 15 are 777s. The engineering
department is working out the cost to recall all -400 and 777 aircraft spares
to be affected from the suspension of services. Malaysia Airlines is cutting international routes, and the European network, with the exception of London, is under review.
Routes to be altered or suspended are Frankfurt, Rome, Paris, Vienna, Manchester, Zurich and Munich. Madrid and Zagreb were dropped last year.
MAS code-shares with Virgin Atlantic on the Kuala Lumpur-London route twice daily, using -400s.
The daily Kuala Lumpur-Los Angeles service, once seen as a "gold
mine" route, would terminate in Tokyo three times a week and in Taipei four
times weekly, with ongoing service operated on a code-share basis with Northwest
Airlines, which operates Kuala Lumpur-Kansai services three times weekly with
connections to more than 200 cities in the U.S. Domestic services would be
dropped or reduced and likely offered to second-tier carrier Air Asia, which
operates with two leased 737-300s. Air Asia competes with MAS on services to
Kuching, Kota Kinabalu, Labuan and Miri, offering 40% discounts on fares quoted
by Malaysia Airlines. MAS' F50 domestic routes in the eastern states of Sabah
and Sarawak would be hardest hit. Domestic flights in
west Malaysia utilize 737-400s and A330s.
ALTHOUGH FREQUENCIES on Asian routes also are to be cut, they were not identified. MAS and ministry officials remained tight-lipped because plans may also include massive layoffs, perhaps as many as 5,000 of the airline's 21,000 employees, including pilots, engineers and flight attendants.
One A330 has been grounded since Mar. 15 due to heavy corrosion of the cargo hold and the outer skin of the fuselage by hydroxy quinolene, a highly toxic chemical which spilled during a flight. The fate of this aircraft remains unresolved.
According to observers, MAS is planning to operate code-share services with a new partner on Jan. 1 on certain European routes using the partner's aircraft.
MAS and KLM officials have declined comment on reports that KLM has acquired
Naluri Holdings' 29% stake in MAS for an
undisclosed sum with the approval of the Malaysian government.
Naluri, in debt for $400 million, is owned by MAS Chairman Tajudin Ramli who acquired the stake from the government for $728 million in August 1994.
On Oct. 29, Malaysia Airlines began code-share flights with KLM on routes
from Amsterdam to Stockholm, Gothenburg and
Malmo, Sweden; Oslo and Sanderfjord, Norway; Copenhagen and Helsinki. On routes between Kuala Lumpur and Brisbane,
Sydney, Melbourne, Cairns, Perth and Auckland, KLM initiated similar services with MAS on the same day. The European carrier added three Amsterdam-Kuala Lumpur flights, thus making it a daily service.
Sudden launch of these services strongly indicate that KLM is the strategic partner for MAS.
Qantas, which earlier was strongly tipped to acquire Naluri's stake, pulled out recently after the Malaysian government objected to the Australian carrier acquiring the stake.
MAS' reduction in services could see competitor Air Asia picking up the
pieces to aid in its expansion. Its twice-aborted launch, in 1994 and 1995, was
due to management's objections to impending competition. In 1997, the government
gave the green light for Air Asia to start operations. The carrier has landing
rights to several regional destinations, including Taipei, Jakarta, Kaoshiung
in Taiwan, Hong Kong and Pattaya in Thailand. Captioned as: Photograph: Only eight of Malaysia Airlines' 16 Boeing 747s would remain in service following the carrier's planned fleet reduction.
Captioned as: ERIK SIMONSEN
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