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Malaysia steps in to save reeling airline

by JAD MOUAWAD New York Times News Service on August 10, 2014 1:00 AM

Malaysia Airlines was struggling with growing losses, debt and a troubled business model well before the loss of two of its airplanes this year.

Faced with competition from low-cost Asian carriers as well as pressure from the high-end airlines of the Persian Gulf, Malaysia Airlines had been losing money in the last three years.

Tense labor relations and a bureaucratic management culture had stymied earlier efforts to reform the airline despite more than $1 billion in government investment in the last decade.

On Friday, the Malaysian government, signaling that the embattled airline remained a strategic asset, announced that it would take full control of the company through a stock buyback and restructure its operations in an attempt to restore confidence in the flagging business.

While a restructuring was long overdue, the airline must now also contend with dual crash investigations, as well as resolve potential liability and insurance issues. The airline has had a sharp drop in bookings after the loss of its airplanes. Business from China has been particularly hard hit.

“There is a growing understanding, reached in unfortunate circumstances, that Malaysia Airlines needs to change,” said Will Horton, an analyst at the CAPA Center for Aviation, a consulting firm.

Malaysia’s prime minister, Najib Razak, said a “holistic restructuring plan” would be announced by the end of the month.

The airline’s managers were sharply criticized for their handling of the disappearance in March of Flight 370, a Boeing 777-200 that was flying from Kuala Lumpur, Malaysia, to Beijing with 239 people on board. The fate of that plane remains a mystery, and a search for clues continues.

Last month, Malaysia Airlines Flight 17 was shot down over Ukraine, killing all 298 people on board. The plane, a 777-200 flying from Amsterdam to Kuala Lumpur, was probably shot down by a missile fired by pro-Russian separatists, according to U.S. intelligence analysts.

Both disasters aggravated what was already poor financial performance. The airline faces competition on its home turf from AirAsia, a privately owned low-cost airline that has grown rapidly.

Khazanah Nasional Berhad, the investment arm of the Malaysian government, on Friday offered to take control of the company and to buy back shares at a price 12.5 percent higher than Thursday’s closing price, and it requested that the company be delisted from the Malaysian stock exchange. Khazanah was vague about its immediate plans for the airline.

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