Putrajaya needs to inject RM1b a year to keep MAS flying - Khazanah

Khazanah Nasional has estimated that Putrajaya will need to pump in RM1 billion yearly to keep Malaysia Airlines (MAS) afloat amidst an overcrowded domestic aviation industry.

Khazanah managing director Shahril Ridza Ridzuan said this in a testimony to the parliamentary Public Accounts Committee, which was released as part of a report on the sovereign wealth fund’s losses in 2018.

MAS, which Khazanah fully owns, accounted for RM3.1 billion of its parent company’s RM7.3 billion in impairment losses last year. 

Impairment is when the market value of an asset is below its book value.

After five years of fund injections and restructuring exercises, the airline has managed to pare down costs but failed to generate enough revenue.

It posted more than RM1 billion in losses last year. Shahril attributed this to the “massively oversupplied” and unprofitable domestic airline industry.

“The problem with MAS is actually a problem with our aviation industry as a whole. If you look at Malaysia today - we actually have four home carriers - MAS, AirAsia, AirAsia X and Malindo - in the market of 30 million people.

“(This is) a massive oversupply where effectively you have roughly about 1.7 seats for every actual customer,” he remarked.

Shahril calculated that the government would need to invest “RM1 billion-plus” annually into MAS just to sustain operations. It would need to pump in more money if it wanted to improve services.

Even with this, Shahril was pessimistic MAS would be able to raise its revenue.

“With the huge oversupply [...] I doubt you are actually going to get to increase revenue because people in Malaysia are not going to be willing to pay extra to cover basically the increased cost,” he said.

Sell, sustain or consolidate?

Shahril was summoned before the PAC to explain why Khazanah lost RM6.3 billion in 2018 after a previous year of profits.

He listed MAS as one of the three main factors.

In light of Putrajaya’s openness to selling the airline, he urged the government to consider whether it wanted to sustain MAS to generate spinoff benefits on sectors like tourism.

Alternatively, it could invest its money in other economic imperatives like 5G infrastructure and electric vehicles.

The most viable solution to the entire MAS debacle, according to Shahril, was a consolidation of the Malaysian airline industry.

“I don’t think the right solution is a cost efficiency solution anymore. The right solution now basically is industry consolidation, industry capacity solution and also a revenue solution for MAS,” he said.