Malaysia Airlines will cut 6,000 jobs, or about 30 percent of its work force, and receive a bailout from the Malaysian government amounting to nearly $2 billion, according to a restructuring plan announced Friday.
Several years of losses at the airline deepened this year after two aircraft disasters — the still unresolved disappearance of Flight 370 over the southern Indian Ocean in March and the downing of Flight 17 over eastern Ukraine in July.
Azman Mokhtar, the managing director of Khazanah Nasional, the investment arm of the Malaysian government that has a majority stake in the airline, said future state aid of up to 6 billion ringgit ($1.9 billion) in the airline would come with “strict conditions.’’
“Success is by no means guaranteed,’’ he said in statement released by the company.
The cash injection is the latest in a long series of bailouts for Malaysia’s state-controlled enterprises.
Khazanah said that there would be “significant changes to leadership’’ at Malaysia Airlines and that it would consider “global aviation industry executives’’ in its search for new talent. The current chief executive, Ahmad Jauhari Yahya, will remain as chief executive until July.
The government said it would carry out the restructuring by creating a new company with a “right-sized work force and work practices and contracts.’’ Malaysia Airlines has been burdened in recent years by contracts with politically connected suppliers.
The burden — and the risk — of the restructuring plan appears to fall heavily on the airline’s creditors. They will be offered a swap of the airline’s debt for shares of the new company, according to the plan. Among the airline’s largest bondholders is the government employee pension fund known as Kumpulan Wang Persaraan, which, according to Friday’s announcement, agreed to swap 750 million ringgit ($240 million) for ordinary shares. The move is likely to be controversial because investors have long assumed that the debts of the state-controlled airline were guaranteed by the government.
The plan calls for the airline to move its headquarters to the Kuala Lumpur International Airport, about an hour outside the city, from Subang, a suburb closer to Kuala Lumpur.
On Thursday, Malaysia Airlines reported in an earnings statement that it had lost $97.6 million in the quarter ended in June — the first financial period to show the effects of the Flight 370 disappearance. The carrier said it expected further losses in the second half of this year, reflecting the additional impact of the Flight 17 incident, after which passenger bookings fell 33 percent. Malaysia Airlines has not posted a yearly profit since 2010.
Malaysia Airlines had been on government life support long before being hit with the loss of two planes this year.
Saddled with more than $4 billion in debt and cumulative financial losses of about $1.7 billion since 2011, the airline has been increasingly squeezed in recent years by competition from nimbler, low-cost rivals in the region, including AirAsia, founded by the Malaysian billionaire Tony Fernandes. Budget carriers now represent almost 60 percent of the air travel market in Southeast Asia, according to the Center for Asia Pacific Aviation in Sydney.
The flood of new entrants into the Southeast Asian air travel market during the past decade has spurred heavy investment in new routes and new aircraft, a trend with which Malaysia Airlines had sought to keep pace. Until the loss of Flight 370, the airline was on course to continue a rapid expansion of capacity in both its domestic and regional networks this year, after a record 29 percent annual increase in passenger traffic in 2013.
Although the sharp rise in travel options has been a boon for passengers, analysts say the pace of the industry’s expansion has started to overtake passenger demand. At even the most efficient budget carriers, the number of empty seats has been rising, which has put downward pressure on airfares.
On long-distance routes, Malaysia Airlines has also failed to remain competitive, particularly on flights to Europe and the Middle East, where it faces the steady encroachment of full-service carriers from the Gulf. While the airline has already abandoned several money-losing long-distance flights, including some services to North and South America, analysts predict that Malaysia Airlines will need to pare back many of its 80 international destinations.
In the past decade, Malaysia Airlines has received more than $1 billion from its controlling shareholder, Khazanah, and undergone at least four previous restructurings.
But analysts say those efforts have fallen short of true reform, papering over thorny problems that include a large and aging jet fleet, an overextended route network, an ossified management culture and a bloated, heavily unionized work force of nearly 20,000 employees.
“Malaysia Airlines has had big structural problems’’ for years, said Shakeel Adam, the managing partner of Aviado Partners, a Frankfurt-based consulting firm that specializes in airline restructurings and start-ups.
In the past, he said, resistance to job cuts by Malaysia’s unions has been one of the main barriers to improving productivity and lowering operating costs. But this year’s disasters have created a new sense of recognition among Malaysia Airlines staff that this stab at reform could be its last chance.
“Now there may be a renewed opportunity to work together, not to save every last job but to ensure that the airline survives,’’ Mr. Adam said.
He dismissed suggestions that the recent disasters had forever tainted the Malaysia Airlines brand in the eyes of the flying public.
“When I hear people talking about a rebranding already, it means they don’t yet understand the nature of restructuring,’’ he said. “It’s not about changing colors and painting over the wounds.’’