The Strategist

Malaysia Airlines to Sell the Planes and Forget Europe

05/04/2015 - 16:18

Malaysia Airlines intends to sell or lease a part of its fleet, including six long-haul Airbus A380, and cancel flights to European cities. The airline, that is experiencing financial difficulties after two tragic cases with its planes last year, is carrying out the measures under the leadership of a new CEO, who took office on May 1st.

The news agency Leeham News and Comment, which specializes in news about the airlines, reported a few days ago the plans of Malaysia Airlines to sell or lease 16 aircraft. According to the agency, the Malaysian airline continues restructuring begun last summer after two tragic cases with the loss of 239 people on the Flight MH370 and the death of 298 people on Flight MH17. As part of the restructuring, according to Leeham News, all six existing airline’s passenger aircrafts Airbus A380, four Boeing 777-200, two Boeing 747-400 cargo trucks and four Airbus A330-200 will be sold or given on lease.

This will entail a number of changes in the airline. As all the company’s cargo aircrafts will be sold or given to lease, the division Malaysia Airlines Cargo engaged in transportation will be liquidated. And due to the fact that the company will not keep the long-haul airliners, it will cease to operate flights to London, Paris and Amsterdam.

According to the newspaper The Times, all these measures will be carried out under the leadership of new CEO Christoph Mueller, who took office on May 1st. This is the first foreigner at the head of Malaysia Airlines, which was privatized by the Malaysian sovereign fund Khazanah Nasional last year. Mr. Mueller came to Malaysia Airlines from the Irish airline Aer Lingus, where he managed to achieve high results. It is expected that the new director would be able to return Malaysia Airlines to profitability, which has already reduced the staff from 20 th. to 14 th. employees in the process of restructuring, and will be transformed into a new company by July 1 this year.

Malaysia Airlines, until recently known throughout the world for its exceptionally high quality board service (among the seven best world airlines in service quality in the past years, according to the British company Skytrax), gained notoriety after the disappearance of flight MH 370, flying from Kuala Lumpur to Beijing in March this year (239 people on board) and the Boeing 777’s crash near Donetsk, which killed 283 passengers and 15 crew members.
The main purpose of the ‘radical renewal’ Malaysia Airlines calls the achievement "a sustainable commercial viability" within four to five years. Financial problems of the airline, in fact, began long before the catastrophe shook the world. The company has not received profit for the past three years: the cumulative loss amounted to more than 4 billion Malaysian ringgit (about $ 1.3 billion) from 2011 to 2013. The last profitable year for Malaysia Airlines was 2010, when it earned about $ 75 million.

The dismal financial situation of Malaysia Airlines, which used to be called "five-star hotel with wings", occured due to the growing influence of the low-budget airline in the Asian market. Ten years ago, Asian low-cost carriers did not exist, but nowadays they account for about 50% of passenger traffic. The largest region low-cost airline AirAsia is based in the "home" for Malaysia Airlines Airport Kuala Lumpur. However, being a public company, Malaysia Airlines is forced to operate flights on unprofitable domestic routes.  

Experts have repeatedly accused the state in the economic giant’s "slowness". The same reason cause them to doubt the success of this "rebirth." The main financial problem is Malaysia Airlines - the debt gained since 2002, which was formed due to the non-profitable routes and a huge number of employees, and now stands at $ 4 billion, said aviation analyst Shukor Yusof of the Malaysian Endau Analytics.