MAG to be nimble or fail turnaround again

It wants to make profit from its flying businesses, travel solutions and aviation services

by RAHIMI YUNUS / Pic by TMR FILE PIX

MALAYSIA Aviation Group (MAG) would need to be more agile than ever in executing its latest turnaround plan post-restructuring exercise amid the Covid-19 pandemic or risk remaining stuck in the doldrums.

Sobie Aviation Pte Ltd analyst and consultant Brendan Sobie said the success of MAG’s longterm business plan (LTBP) 2.0, particularly for Malaysia Airlines Bhd (MAB), hinges on market conditions and how well demand recovers in the post-pandemic period.

“There are so many unknown variables and MAB will need to remain nimble and adjust its business plan depending on what the overall recovery curve and how competition reacts,” Sobie told The Malaysian Reserve (TMR).

Sobie said MAB is in a better position now following prior restructuring attempts mainly due to substantial cost reductions from the early retirement of its Airbus A380 fleet.

He said the double-decker fleet has been MAB’s Achilles heel. MAG group CEO Captain Izham Ismail said management intends to retire its six superjumbo units and explore options to dispose them.

He, however, admitted it would be a challenge to put the world’s largest passenger plane on the market as production has stopped by the manufacturer.

MAG recently unveiled plans to become a travel and aviation group with a diversified portfolio beyond its airline businesses post-Covid-19 and meet breakeven by 2023.

The loss-making carrier’s LTBP 2.0, which spans five years until 2025, will see the group no longer in the pure-play aviation business it is today.

MAG wants to make profit from its flying businesses, travel solutions and aviation services.

It targets non-flying businesses revenue to grow from RM2.5 billion a year to RM4 billion by 2025.

Financially, Izham said MAG is looking at achieving breakeven and becoming cashflow positive by 2023, based on a downside scenario with an extended L-shaped recovery in the aviation industry.

The CEO said MAG is building up its cash balance with a minimum of RM700 million over the next five years under the restructuring and cost-savings efforts.

Sobie said other airlines are also diversifying, including cash strapped AirAsia Group Bhd, but MAG strategy comes with many challenges.

“It will not be an easy transformation to successfully complete,” he said.

Former aviation regulator executive chairman Dr Nungsari Ahmad Radhi said constant changes to the industry landscape is the name of the game.

He said airlines business models will be different in the coming years and had started before the advent of Covid-19.

For instance, he said, there were “national” airlines merging, major groups investing in multiple airlines and low-cost carriers, which are not really airlines in the traditional sense, becoming platforms and branding for other businesses.

“It will change and is changing even faster as everyone adjusts to the post-Covid-19 realities. Whatever airlines do, it has to be in consonance with these global industry changes, which are also changing! Tough,” Nungsari (picture) told TMR.

Overall, he said MAG’s rescue plan depends on how quickly air traffic would normalise and cashflow management.

“All airlines are bleeding by the minute, burning cash. For all airlines, the question now is of how long your cash can last and how soon traffic recovers,” he said.

Sobie said possible policy and regulatory changes at the government level would be a critical factor that determines a make-or-break situation for MAG.

Low yields and an overcapacity in the market has dragged down MAB’s bottom line.

Airfares have been depressed in the domestic market with fierce competition from discount carriers. Izham said policymakers and regulators need to look into the overcapacity issue in the domestic market and address it as the country’s agenda.

“If we do it to the extreme spectrum, consumers will be affected, and prices will go up so high and so forth. If we go to the other end, the industry will be affected,” he added.

MAG’s sole shareholder Khazanah Nasional Bhd is committed to pumping in RM3.6 billion in capital to fund the business throughout the restructuring period until 2025.

Izham said the group would invest a chunk of the capital in new aircraft and digitalisation, one of the components that could make the difference this time around compared to MAG’s previous turnaround programmes.

MAG comprises MAB, FlyFirefly Sdn Bhd, rural service provider MASwings Sdn Bhd, MAB Kargo Sdn Bhd, ground handler AeroDarat Services Sdn Bhd, pilgrimage arm Amal, MAB Engineering Services Sdn Bhd, MAB Academy Sdn Bhd and MAB Leasing.

MAB last posted a full-year profit of RM237 million in 2010.

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