English only July 2007 PRIVATIZATION AND RE-NATIONALIZATION OF MALAYSIA AIRLINES (Submitted by the ICAO Secretariat) 1. BACKGROUND Malaysia Airlines (MAS) was incorporated as Malaysia’s flag carrier in 1971 following the breakdown of Malaysia-Singapore Airlines partnership. Since then, MAS has continued to expand its network and fleet. By mid-1980s, MAS had a total of about 60 domestic and international destinations in its network and a fleet of over 35 aircraft. However, MAS’s balance sheet suffered especially from the loss-making domestic services where the Government rarely allowed increases in fares because of a policy of promoting trade and tourism in rural East Malaysia. 1. 1. 2. LIBERALIZATION OF REGULATORY FRAMEWORK 2. 1. Under the Government’s privatisation plan, MAS became the first governmental agency to go partly private in 1985. The Government sold 40 per cent to the public, including Brunei Investment Agency, while keeping total 60 per cent in the hands of Malaysian Central Bank Negala and local Governments. The privatization raised additional funds for MAS’s capital expenditure on aircraft fleet expansion. The Government had also considered the idea of separating the airline’s domestic and international operations into two divisions to improve the profitability of the international airline, but the plan was subsequently abandoned. In 1994, as one of the attempts to reverse the weak financial position vulnerable to rising labour costs, higher interest rates and reluctant lenders, the Central Bank sold its 32 per cent controlling stake to Malaysia Helicopter Services (changed name to Naluri in 1998) led by Tajudin Ramli1. The move eliminated the Government as the largest shareholder, although the Government continued to hold a “golden share” giving it a veto on board decisions, and State-owned entities acquired a minority stake in the airline. 3. EFFECTS AND DEVELOPMENTS 3. 1. For consecutive three years after privatization in 1994, MAS posted profits.
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