In memo to staff, new Malaysia Airlines CEO says finances worse, airline to shrink to survive

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KUALA LUMPUR, Malaysia — The new CEO of Malaysia Airlines said its financial situation is more challenging than anticipated and it will shrink in size as it tries to overcome a tarnished image with the travel industry and the public.

Malaysia Airlines was battered last year by double jet disasters. Its government owner has brought in a new CEO, former Aer Lingus chief Christoph Mueller, to oversee a 6 billion ringgit ($1.7 billion) turnaround.

In a memo dated Tuesday, Mueller thanked Malaysia Airlines staff for a warm welcome since he started work at the airline on May 1 but also noted parts of the organization seemed "depressed" and customers say service is deteriorating.

Malaysia Airlines, Mueller said, is "suffering badly from a heavily damaged brand reputation" in key markets with many people avoiding the carrier because "they are frightened."

The carrier is moving ahead with a previously announced overhaul that will involve cutting its staff by 6,000 or about 30 percent.

"Since the new airline will be smaller in size, we simply have not enough work for all of you," Mueller said.

The airline had a good safety and service record before last year's disasters but the tragedies, and the airline's handling of the first one in particular, hurt its brand. A Malaysia Airlines jet with 239 people on board went missing March 8 last year while en route to Beijing and no trace of it has been found. In July, a Malaysia Airlines jet was shot down over Ukraine, killing all 298 people on board.

Mueller said the airline will soon mail out termination letters and new job offer letters to those who will remain in the airline. That approach is being taken because staff requested privacy in the handling of employment matters, he said.

The CEO's memo was shown to reporters on Friday by the National Union of Flight Attendants Malaysia, which protested the termination exercise by mail as "obnoxious and arrogant."

It said its 3,500 members were now stressed and worried. The union has written to Prime Minister Najib Razak, asking him to intervene and urging the airline to offer short and medium-term layoffs as well as salary cuts before a final termination exercise is carried out.

Mueller comes to the Malaysian job from a stint reviving Ireland's Aer Lingus. He'll be the first foreigner to head the Malaysian state-owned company. Analysts say he's an industry veteran "battle-hardened" from his work carrying out corporate restructurings at other state-owned airlines, including failed Belgian carrier Sabena.

He was dubbed "The Terminator" in Ireland because his German accent made for easy comparisons to Arnold Schwarzenegger in assassin robot mode as he outlined his plans to remorselessly fix Aer Lingus.

Mueller said in the memo that the airline's new business plan will focus on cutting overall costs, which are up to 20 percent higher than its competitors, and withdrawing from markets where it cannot be competitive.

"Sometimes you have to retreat and regroup before growing again. And that is the ultimate target. We want to grow again in the last phase of restructuring," he said.

Mueller said he envisioned a new airline that is "safe, on-time and friendly" that will be the new pride of Malaysia. He said endurance and faith are needed for the turnaround program that will take three to five years.

"It is my duty to tell you today that the medicine is bitter and that the fitness program which is required to bring us back into shape will cause a lot of sweat and sometimes tears. But it will be rewarding in the end."

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