Malaysia Airlines flight MH17 crash: Even before latest tragedy, the airline company was a business in crisis

The share price is expected to slump even further when the Malaysian stock market opens tonight

With high fixed labour costs protected by powerful unions, Malaysia Airlines - a largely state-owned airline - has been unable to cope with competition from low-cost rivals like AirAsia.

It’s been afflicted by poor management over the years but two years ago embarked on a major route rationalisation programme in an attempt to cut costs, with flights to such destinations as Cape Town, Buenos Aires and Rome scrapped.

But losses continued as management battled with strict union rules and rising fuel costs.

It’s already sizable financial problems - over the past three years, losses have topped $1.3 billion (£770 million) - have worsened since the unresolved mystery of Flight 370 in March.

After that disaster and the unveiling of worse-than-expected first quarter figures in May – with a loss posted for the three months of $138 million (£81 million) the airline’s share price fell to a year low. That left the company worth 75 per cent less than it had been valued as recently as last summer.

 

But the share price is expected to slump even further when the Malaysian stock market opens tonight, hitting the rumoured plans of Prime Minister Najib Razak to take the carrier private to tackle its financial problems.

The company’s chief executive Ahmad Jauhari Yahya said at the end of last month the airline was preparing to unveil a package of changes, although he failed to provide any details.

After the company’s annual general meeting on 25 June he said: “We simply cannot go on with incremental improvements ... our only option at this point of our business evolution is sweeping change."

it was thought the government had hoped by taking the ailing airline private it could be restructured and turned around. Analysts suggested that could be achieved by spinning off some of its profitable subsidiaries, such as its maintenance and repair operation.

But even that proposal led to some criticism that the airline’s bosses were trying to hide something as the investigation into Flight 370 continues.

With even greater international focus on the airline now, it’s very future looks in the balance even though in this latest incident it certainly looks to be a victim.

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