By Al-Zaquan Amer Hamzah KUALA LUMPUR (Reuters) - Malaysia's state investment fund will pay 1.4 billion ringgit($435.73 million) to take troubled Malaysian Airline System (MAS) private, the airline said on Friday, paving the way for a "complete overhaul" of its loss-making operations following two devastating jetliner disasters this year.
Khazanah Nasional [KHAZA.UL] will offer 27 sen for each share in the company it does not own, amounting to 1.38 billion ringgit, a 12.5 percent premium to the closing share price on Thursday, MAS said in a statement after suspending its shares.
The move had been expected after the national carrier lost two airplanes this year, sparking a slump in bookings that has hurt its already struggling operations amid intense competition from budget Asian airlines.
Hit by slumping ticket sales in the wake of the baffling disappearance of MH370 on March 8, the company turned in its worst quarterly performance in two years in the January-March period and is burning through its operating cash.
Its troubles deepened dramatically on July 17, when another jet, Flight MH17, was shot down over Ukraine, killing all 298 people on board.
Khazanah said it will need cooperation from all parties to undertake the restructuring, covering the airline's operations, business model, finances, staff and the regulatory environment.
"Nothing less will be required in order to revive our national airline to be profitable as a commercial entity, and to service its function as a critical national development entity," it said in a statement.
Khazanah, which owns 69.37 percent of MAS and is chaired by Prime Minister Najib Razak, said it expected to give more details of the planned restructuring by the end of August after it has secured approval from shareholders.
The airline and its key stakeholders are in talks with banks for a strategic overhaul that could include the partial sale of its engineering unit and an upgrade of its ageing fleet, sources involved in the discussions have told Reuters.
"MASSIVE SURGERY" REQUIRED
Sources had told Reuters in July that Khazanah, which has injected more than 5 billion ringgit ($1.6 billion) into MAS over the last 10 years, planned to take the airline private as the first step in a major restructuring. The state investor is working with CIMB Investment Bank on the restructuring, the sources added.
"This is the sensible way forward given that massive surgery is required," said Christopher Wong, a senior investment manager at Aberdeen Asset Management Asia.
Mohshin Aziz, an analyst from Maybank Investment Bank Research, said the price offered by Khazanah was a fair deal for minority investors.
"If you do a fair-value analysis, we derive a fair value of 25 sen. Seeing that Khazanah is offering 27 sen, that's a decent premium."
Attempts to restructure the airline over the years have been politically fraught due to heavy opposition to job losses from its powerful labor union, which has hampered previous revival plans.
Analysts say options include a full-scale rebranding of the airline or a tie-up with another international carrier as well as cutting back on less-profitable routes, trimming its bloated payroll and installing a new management team.
The head of Malaysia Airlines' main labor union said it would support the plan only if the current top management team, led by chief executive Ahmad Jauhari, was replaced.
"Ahmad Jauhari has had three years to turn things around. We've made it very clear, we will support a new team that has the aviation knowledge and integrity for the job," Mohd Jabarullah Abdul Kadir told Reuters.
The carrier warned in May of a "dramatic impact" on passenger traffic from the loss of Flight MH370, which disappeared with 239 passengers and crew. The July 17 disaster, in which MH17 was believed to have been shot down by Russian-backed rebels in Ukraine, sped up government efforts to restructure the airline, sources said.
MAS, which has reported losses for the past three years, has been squeezed by nimbler rivals like AirAsia Bhd on short-haul routes, and by Gulf carriers and AirAsia X in the medium and long-haul market.
(1 US dollar = 3.2130 Malaysian ringgit)
(Additional reporting by Trinna Leong, Yantoultra Ngui in Kuala Lumpur and Saeed Azhar in Singapore; Writing by Stuart Grudgings; Editing by Matt Driskill)