Malaysian government to take full control of tragedy-hit Malaysia Airlines

Malaysia Airlines is being taken back under public ownership (Getty Images)

Reeling from the loss of two long-haul jets in the past five months, and shunned by many travellers, Malaysia Airlines is being taken back under public ownership.

In March, flight MH370 disappeared soon after departing from Kuala Lumpur for Beijing. Despite a multi-national search, no trace has been found of the Boeing 777; it is presumed that the 227 passengers and 12 crew have perished and that the jet is somewhere on the bed of the Indian Ocean.

Last month, another 777 from Amsterdam to Kuala Lumpur was shot down over eastern Ukraine. All 283 passengers and 15 crew died when flight MH17 was hit at 33,000 feet by what is widely believed to have been a Russian missile in the hands of separatist rebels.

Not since the terrorist attacks of 9/11 has a single airline lost two aircraft in a short space of time. Malaysia Airlines continues to operate normally, but after the second tragedy it made the unprecedented offer of full refunds to passengers booked to travel in 2014. Tens of thousands of travellers are believed to have cancelled and booked with other airlines.

Even before the aircraft losses, Malaysia Airlines faced ferocious competition from budget airlines on its South East Asian home turf. Long haul, formidable rivals include Singapore Airlines, Cathay Pacific and the Gulf-based carriers.

Khazanah, the Malaysian government’s sovereign-wealth fund, already owns almost 70 per cent of the airline. It has offered to buy out private shareholders for 12.5 per cent more than the share price at the close of trading on Thursday – and 42 per cent higher than the airline’s stock immediately after the second disaster. The buy-out is likely to cost around £250m.

The fund’s stated role is “To promote economic growth and make strategic investments on behalf of the government which would contribute towards nation-building.”

The airline issued a statement to reassure passengers about the effect of the ownership change: “All our flights, schedules and reservations will operate as planned.”

Rumours have circulated widely about Malaysia Airlines’ financial health over the past few weeks, with one insider describing the carrier as “haemorrhaging cash”. But Haydn Wrath, director of the long-haul specialist Travel Nation, said: “In the airline business, rumours of financial failure can be dangerously self-fulfilling. After the two recent tragedies, the Malaysian government has taken the steps necessary to keep this top-quality carrier flying.”

Out of respect for the families of the victims, the airline has been unable to launch a marketing push. It is instead having to cut fares well below the prevailing market levels in order to attract bookings. For a Heathrow-Sydney return ticket, departing next weekend for a week’s stay, Malaysia Airlines is charging barely £1,000 – which is around £300 less than Emirates’ fare, and almost £400 below Thai Airways.

Khazanah, the government investment fund, has promised a “complete overhaul” of the airline’s operation. It is widely expected that Malaysia Airlines will drastically cut its route network and staff numbers. The carrier may also change its identity, with Air Malaysia one possible new name.

James Hogan, chief executive of Etihad, speaking at a press conference to announce his airline’s rescue of Alitalia, specifically named Malaysia Airlines as a carrier in which he would not invest.