Malaysia Airlines (MAS) warns it will go bankrupt in April if it does not immediately restructure its business and raise cash.
MAS says in its newly unveiled business turnaround plan that “on its current business assumptions, course and speed, MAS will likely fail, running out of cash in April 2006”.
But it says as part of the first phase of its business turnaround plan it already has “taken steps to avert the cash crisis”. This year it plans to raise four billion ringgit ($1.1 billion) in cash through internal and external sources.
“There is no question that MAS is in crisis within the increasingly challenging Asian airline industry. Today we have a cash and profit crisis. On current business assumptions, course and speed, we will surely fail unless we radically change the way we run our business,” says new managing director Idris Jala.
MAS incurred a 1.3 billion ringgit loss for the nine months ending 31 December 2005 and projects a loss of 1.7 billion ringgit for the year ending 31 March 2006. But as part of the three-year turnaround plan, it expects to narrow its losses to 620 million ringgit in fiscal 2006-07, to return to profitability in fiscal 2007-08 and turn a record 400 million ringgit profit in fiscal 2008-09.
“In the course of 2006, the groundwork for launching aggressive cost reduction and network review will be conducted and the impact on the P&L (profit and loss statement) will be realised in 2007 and beyond,” MAS says. MAS’ management team began working on the turnaround plan after Idris took over as managing director on 1 December last year.
“The turnaround plan will not only reverse the loss and return MAS to profitability, but also transform the company into a strong and vibrant institution – one that is capable of withstanding external shocks and aggressively tackling new opportunities,” the carrier says.
But MAS warns it still faces several challenges, include planned capacity increases by other Asian and Middle Eastern carriers which could result in yield declines of up to 7% in core markets. It also faces increased competition from carriers outside the region, in particular from the US, European and Australasia, and new low-cost entrants.
It warns its labour costs are increasing due to higher living costs in Malaysia and its maintenance costs are also rising due to ageing fleets. Overall costs increased by 20% last year and MAS says there are no signs of flattening. MAS says it also suffers from weak pricing and revenue management and low productivity.
“Despite the hard work that has been done to date, it is clear that MAS is not equipped to weather the coming storm. MAS is currently in a much weaker position than our regional peers,” the carrier says.
It declines to disclose precisely how it will implement its turnaround plan. “The key to success is indeed in the execution of this plan and that is our secret,” Idris says.
BRENDAN SOBIE / SINGAPORE
External link:
Read Malaysia Airlines' full turnaround plan
Source: Flight International
