KUALA LUMPUR -- Malaysia Airlines' winding road back from twin tragedies eight years ago has taken another turn, as higher fuel costs in the wake of Russia's war on Ukraine scuttle a quicker-than-expected return to profitability, the carrier's top executive told Nikkei Asia.
But Executive Director and CEO Izham Ismail, in a recent interview, touted major financial improvements that have put the airline in its strongest position in years, changes that promise to end the cash drain on Malaysia's public purse.
In 2014, Malaysia Airlines suffered two disasters: the disappearance in March of Beijing-bound flight MH370 -- perhaps the greatest mystery in aviation history -- followed by the downing of flight MH17 by a surface-to-air missile just a few months later in July.
Izham said the recovery from the disasters was slowed by the collapse in travel demand caused by the coronavirus pandemic, which almost shut the airline down permanently. Then came this year's hostilities in Ukraine, the very country where the ill-fated MH17 was shot down.
The carrier has been "cash-positive" since October 2021, Izham said, with sales sufficient to sustain operations. Malaysia Aviation Group (MAG) reported a positive EBITDA, or earnings before interest, taxes, depreciation, and amortization, of 433 million ringgit ($98.6 million) for 2021, compared with a 1.76 billion ringgit loss the previous year.
"We could [have broken] even as soon as this year. But the Ukraine-Russia war, which has resulted in skyrocketing fuel costs, derailed the ambition to next year," he said, which was the time frame the airline had originally estimated. Fuel prices currently make up 45% of the airline's operational costs.
"Our budget for fuel is only about $80 plus, but look at the current level," he said, referring to crude oil prices of about $150 a barrel. "One U.S. dollar movement in fuel will impact Malaysia Airlines [by] 32 million ringgit, while a 10 cent movement in the foreign exchange [rate] would impact close to 100 million ringgit in profit and loss," he added.
Izham said Malaysia Airlines' net promoter score -- an industry benchmark used to measure customer experience and predict business growth -- is currently at plus 42, compared with a reading of minus 22 in 2014
"So that's a reflection of the brand, and we have recovered since then," he said in a corporate meeting room that doubles as his private office. As a cost-cutting measure, the airline no longer has a headquarters building, and Izham makes due without a deluxe working space, unlike many of his industry peers.
Izham, who started his career as a Malaysia Airlines pilot in 1979 and served as the company's chief operating officer and head of the crisis team in 2014, said the tragedies taught the airline myriad lessons, including effective crisis communication.
"We have moved on, but we will always remember the loved ones of the colleagues and passengers that were on board the airplane[s]," Izham said.
He also reminisced about Capt. Zaharie Ahmad Shah, the MH370 pilot. Zaharie has been the subject of various conspiracy theories, such as possible suicide and hijacking, though none has been proven.
"Zaharie was a super pilot," said Izham. "Did he commit suicide? I don't know, because we tried to create various scenarios via simulation but we just couldn't reproduce it."
A massive joint search effort by authorities from Malaysia, Australia and China for the missing aircraft, which was carrying 239 passengers, was called off in January 2017 without discovering any trace of the plane in more than 710,000 sq. kilometers of the Indian Ocean. A separate search by a private U.S. company also ended fruitlessly in May 2018.
Malaysian courts have dismissed claims filed by relatives of those aboard the MH370 and MH17 flights as they were made against the defunct company, while MAG does not recognize any legal obligations of its predecessor.
Malaysia Airlines was taken private by its sole shareholder, sovereign wealth fund Khazanah Nasional, in 2014 after the loss of the planes. The previously listed company, Malaysian Airline System, ceased operations. A smaller airline in terms of payroll, assets and liabilities, was transferred to MAG, the current operating company, of which Izham also serves as chief executive.
Khazanah, which is owned by the government and chaired by Prime Minister Ismail Sabri Yaakob, has committed 9.6 billion ringgit since 2014 to bail out the airline. The government still owns a golden share and must be consulted on every major decision the carrier makes.
The pandemic, which has paralyzed international travel and tourism over the past two years, has posed a tremendous threat to aviation companies, including Malaysia Airlines. Izham said its capacity shrank 96% in 2020, with the remainder confined to repatriation flights and transporting humanitarian assistance.
But despite the setbacks, he wanted to take advantage of the downtime an opportunity assess the company's chances of survival. All options were on the table, including shutting down the 75-year-old airline, Izham said.
With liabilities totaling 25.7 billion ringgit pre-pandemic, Izham said the board used the time to restructure operations and straighten out financials. "I told my team that in any adversity, there would be an opportunity. ... So we looked at the main issue that has been laden on Malaysia Airlines way before my time and for the last 30 years, which is the balance sheet," he said.
The airline in October 2020 announced a restructuring approved by UK courts covering more than 16 billion ringgit of debt to 75 creditors, including aircraft lessors, component makers and suppliers. A failure of the negotiations would have meant winding up the airline, Izham said.
As a result, it reduced its liabilities by more than 15 billion ringgit and eliminated 10 billion ringgit in debt that had accumulated from decades long balance sheet issues. The effort was recently named "Restructuring Deal of the Year" by Airline Economics, a trade publication.
Savings from lower liabilities and equity restructuring were secured by renegotiating key aircraft leasing and maintenance contracts, significant liquidity support from creditors through payment deferrals and moratoriums, as well as variable fixed-cost structures on aircraft operating leases and maintenance contracts.
To improve its financial stability, Izham said the airline is also looking to monetize its cargo unit and six Airbus A380 jumbo jets. "We have retired the six A380s that we were us[ing] for London and Jiddah routes before, and they are up for sale," he said.
But share sale in Malaysia Airlines might not be feasible in the current circumstances, Izham said, although he does not rule out such a move in the future. Pre-pandemic, speculation was rife that Middle East-based airlines were looking buying a stake in the carrier.
Despite the undeniable improvements he has overseen, Izham declined to commit when asked if the worst was over. "If you say the worst is over in terms of COVID, probably yes. But by design, I am an operations guy and what does an operations guy do? They are always pessimistic," he said. "It's never a dull moment in aviation."
