Malaysia Airlines to be bought out by government

BY Xander Landen  August 9, 2014 at 6:02 PM EDT

The Malaysian government announced its plans to take financial control over Malaysia Airlines on Friday, in an effort to reinvigorate a company that had been struggling even before it faced two major crises–the crash of flight MH17 in Ukraine and disappearance of flight MH370–this year.

The government currently controls about 70 percent of the company and hopes to buy out private shareholders, who own the rest of it, with $430 million.

Malaysia Airlines hasn’t profited for the past three years and in the past decade, the government has had to pour over $1.5 billion into the company to keep it flying.

Competition with other low-cost airlines including AirAsia has made it harder for the airline to fill seats on what are often airbus flights that can fit up to 500 passengers.

Even before the crises the airline faced this year, it was losing about 5 million ringgit ($1.5 million) per day according Mohshin Aziz, an analyst with Maybank Investment Bank told The Wall Street Journal.

“At the rate at which they’re burning cash, they can’t survive beyond the second quarter of next year,” he said.

The crash that killed 298 after Malaysia Airlines Flight 17 was shot down over Ukraine last month and the mysterious disappearance of Flight 370 in March have only worsened the company’s economic woes.

But the Malaysian government views the airline as a national asset, and their plans to restructure the company may include laying off some of their workforce of 20,000 people, and restructuring its leadership to minimize losses.

“Only through a complete overhaul of the company can we deliver a genuinely strong and sustainable national carrier,” Malaysian Prime Minister Najib Razak said on Friday. “Piecemeal changes will not work.”

Unions representing Malaysia Airlines have agreed that the company’s management should be replaced, but are also concerned about job cuts.

“We have no objection to taking the airline private, but we want to see a good business plan before we support it,” Mohd Jabbarullah Abd Kadir, executive secretary at Malaysian Airline System Employees Union told the Wall Street Journal.

Others are skeptical that restructuring the company will be successful whatsoever.

“The problem is that rebranding does nothing to stop customers from staying away from a tainted entity,” Saj Ahmad, an analyst with StrategicAero Research, told The New York Times.

Even if the government’s reconstruction plans move forward, the airline still faces investigations and insurance complications from its recent accidents.