Malaysian Airlines to get $384m compensation

Malaysian Airline System, the nation's biggest carrier, will receive as much as 850 million ringgit ($384 million) in compensation from the Government for giving up the bulk of its domestic routes, the airline said.

The airline, 80 per cent-controlled by the Government, will use 650 million ringgit of the funds to pay for job cuts as it hands over many of its routes to rival AirAsia, managing director Idris Jala said.

"What we're really trying to do now is to cut a lot of the costs," Jala said. About 4200 of the airline's 22,835 employees have taken voluntary redundancy packages.

Subang-based Malaysian Airline is cutting jobs and routes under a three-year revival plan aimed at helping it return to profit by 2007. The airline expects to save 200 million ringgit a year from job cuts and about 300 million ringgit from reconfiguring its routes, Jala said.

"The cost-cutting exercises seem to be kicking in," said Christopher Eng, an analyst at OSK Research in Kuala Lumpur which has a "neutral" rating on the stock. The amount is "probably a little bit higher than people were expecting", said Eng, who expected compensation of as much as 750 million ringgit.

The number of workers who accepted redundancy packages is equivalent to about 18 per cent of the total workers on the airline's payroll at the end of last year. The company expects to complete the job cuts by July 31, Jala said.

The airline posted a 1.26 billion ringgit loss in the nine months through December, partly as a result of rising fuel costs.

Record fuel prices and competition from discount carriers including AirAsia, the biggest low-fare airline in Southeast Asia, led to Malaysian Airline's losses in the last four quarters. Malaysian Airline aims to narrow its losses to 620 million ringgit this year, post a net income of 50 million ringgit by 2007 and a record 500 million ringgit profit in 2008. The company will meet its 2006 goal, Jala said, helped by about 1 billion ringgit of proceeds from asset sales, cost-cuts and increased sales.

Still, cost-cutting measures alone at Malaysian Airline haven't been enough for some investors, who have sent the airline's shares down 4.9 per cent this year.

- BLOOMBERG