Malaysia Airlines to be taken over by government

Malaysia's state investment company said Friday it plans to make Malaysia Airlines fully government owned, removing it from the country's stock exchange and then restructuring the carrier that is reeling from double disasters.

Khazanah Nasional, which owns 69 per cent of Malaysia Airlines, said it has proposed to the carrier's board that it buy out minority shareholders at 27 sen (9 cents Cdn) a share, which is 29 per cent higher than the airline's average share price over the previous three months. The takeover would cost 1.38 billion ringgit ($470 million Cdn).

Share trading in Malaysia Airlines, which has lost two passenger jets this year, was suspended Friday ahead of the announcement.

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The stock has been hard hit by two tragedies involving Malaysia Airlines planes – the disappearance of flight MH370 over the Pacific on March 8 and the downing of MH17 over Ukraine on July 17.

The tragedies have also discouraged passengers from flying on the airline. The Malaysia Airlines brand is tarnished in the eyes of the travelling public.

In the case of Flight 370, the airline was seen as negligent in not maintaining contact with its aircraft and faced widespread condemnation over its communication with families after the plane went missing.

Tarnished brand

The second disaster, in which the plane was shot down by Russian separatists, appears largely beyond the airline's control. It may, however, face questions about why it continued with flight paths over Eastern Ukraine, which is the heart of a violent rebellion against Kyiv, when some airlines were circumventing the country.

Khazanah Nasional already had been studying restructuring options for the airline, which has seen mounting losses over the last three years. 

The airline had been struggling to contain costs amid stiff competition from a new wave of budget carriers operating in Asia. It lost $360 million last year, and its losses in 2013 were three times as deep as in 2011.

Although the airline industry as a whole has become increasingly profitable, Malaysian Airlines was losing about $1 million a day, even before it lost two planes.

But the impact of two tragedies involving its airplanes in the space of six months has pushed it even further into the red and the Malaysian government must be paying to keep it afloat.

Aviation experts say the company may be facing an insurmountable battle to stay in business.

"I can't comprehend of anything they can do to save themselves," said Mohshin Aziz, an aviation analyst at Maybank in Kuala Lumpur.

Restructuring options

Last week, the union representing 20,000 Malaysia Airline employees demanded a role in any discussion of revamping the airline. 

One restructuring possibility is renaming the carrier and relaunching it on a few select routes which have potential to be profitable. It could also make a deal to merge with an existing carrier.

But many countries have abandoned their failing national carriers or told them to survive on their own without government support. That's certainly one of the options open to Malaysia — sell off the fleet of aircraft and arrange with other airlines to continue services to its major cities.