Strategic Human

Resource Management

TOPIC: Change Management –

Downsizing Activities

(Malaysia Airlines Berhad)

INTRODUCTION

Downsizing is when an organization engaged in the process of eliminating

people from organization, which regularly affects the society and organizations.
Downsizing is one of the costs reduction method that has been used for many years
in organizations other than termination, restructuring, layoffs, resource alignment and
rightsizing (Wincek, Sousa, Myers & Ozog, 2015; Gandolfi, 2013). Downsizing is
also defined as deliberate organizational resolution to the reduction of the employees
who are intended to further get better organizational performance (Shaw & Barrett-
Power, 1997). As stated by Schiro and Baker (2013), many organizations form a
connection between layoffs with improved revenues and productivity.

The internal factors that are liable to the issue of the event are the high
operational costing of the company whereas the external factors are unstable
financial market and the currency (Russell & McGinnity, 2014). According to Doran &
Fodor (2009), resources need to be sacrificed for the sake of profit, and whoever
examines the utilization of resources will try to reduce costs by any means possible.
Costs occur in operating and not at the point of investment. The assets to make
profit and cost have to be assigned to the operation team.

Malaysia Airlines Berhad (MAB), previously known as Malaysian Airline

System (MAS), branded as Malaysia Airlines, is an airline operational flight from
Kuala Lumpur International Airport (KLIA) and from secondary hubs to destinations
throughout Asia, Oceania and Europe. In 2013, the airline initiated a turnaround plan
after large losses beginning in 2011 and cut routes to prominent, but unprofitable,
long-haul destinations. MAS Airlines also started to reshuffle and proposed to sell
units such as engineering and pilot training.

Notwithstanding the different rebuilding actions, every one of which had

different structural or market-forced imperatives, losses for the most recent two years
keep on being disturbing. It is against the setting of on-going MAS rebuilding work
that the Government and Khazanah embraced the improvement of this healing plan,
which started decisively in February 2014. The terms of reference for the MAS
Recovery Plan, as commanded by the Cabinet in February 2014, were to embrace a
thorough and unconstrained audit of all choices so as to comprehend and beat all
past auxiliary obstacles. The unfortunate occasions of MH370 and MH17 in March
and July 2014 have, tragically, escalated and quickened this case for change.

Specifically, in this case study research, the main focus is on downsizing that
occurs in MAS Airlines. This will includes the actions taken in handling the
downsizing process, the reason of the downsizing and other related issues. The
methodology that has been used for this case study research is through gathering of
secondary data through research journal.

1. FINANCIAL STRUGGLES

A financial struggle is a situation where money worries are causing you

stresses. Should people or an organization are facing hard financial periods and the
impact on mental health can be significant. These issues can seem impossible to
overcome, but people can always get assistance and take footsteps to recover from
the situation.

1.1 Financial crisis: 1997 - 2005

Preceding the 1997 crisis, the aircraft endured misfortunes of as much as RM

260 mil in the wake of procuring a record-breaking RM333 mil benefit in the
budgetary year 1996 till 1997. For the financial year 1999 till 2000, the aircraft cut its
losses from RM700 mil in the year 1998 till 1999 to RM259 mil. The aircraft dove into
further misfortunes in the next year, nonetheless, adding up to RM417 mil for the
monetary year 2000 till 2001 and RM836 mil for budgetary year 2001 till 2002. With
these troubles, the carrier cut numerous unfruitful courses, for example, Brussels
and Darwin. The carrier recuperated from its losses the next year, accomplishing its
then-most noteworthy benefit, a total amount of RM461 mil.

In 2005, MAS endured one more time of unrewarding quality, announcing lost
RM1.3 billion. Income for the monetary period was up by 10.3% or RM826.9 mil,
contrasted with a similar period for 2004, driven by a 10.2% development in traveler
traffic. Worldwide traveler income expanded by RM457.6 mil or 8.4%, to RM5.9 bil,
while load income diminished by RM64.1 mil or 4.2%, to RM1.5 bil. Costs expanded
by 28.8% or RM2.3 bil, adding up to an aggregate of RM 10.3 billion, essentially due
to rising fuel costs. Other cost increments included staff costs, dealing with and
landing expenses, airplane upkeep and upgrade charges, Widespread Assets
Unbundling (WAU) charges and rents.

1.2 Recovery from unprofitability: 2006 - 2010

Under the authority of Idris Jala, MAS Airlines propelled its Business
Turnaround Plan in 2006, created utilizing the Government Linked Company (GLC)
Transformation Manual as a guide. Under the different activities, propelled together
with the Business Turnaround Plan, Malaysia Airlines changed from misfortunes to
benefit somewhere in the range of 2006 and 2007. At the point when the Business
Turnaround Plan reached a conclusion, the aircraft posted a record benefit of RM853
million out of 2007, finishing a progression of misfortunes since 2005.

2. AIRCRAFT LOSSES AND UNPROFITABILITY

2.1 Third unprofitability: 2011 - 2014

MAS Airlines recorded a total deficit of RM2.52 billion of years 2011, which
was the biggest in its organization history, because of rising fuel costs and
mismanagement. A significant rebuilding saw the arrangement of another CEO,
Ahmad Jauhari Yahya, in September 2011.

In 2014, MAS has been battling with a drop in business since the unexplained
vanishing of Flight MH370 in March tipped the carrier into its most exceedingly awful
quarterly execution in two years in January till March. Its issues extended on July 17
when its Flight MH17 was shot down over Ukraine, executing each of the 298
individuals ready. The aircraft is presently set to post perhaps the most fragile
presentation in the April-June quarter, hit by because of dropped appointments, frail
traveler yields and high overheads, as per examiners.
 The aircraft battled to reduce expenses so as to contend with a flood of,
amazing failure cost bearers in the area. The aircraft lost RM443.4 million in the
principal quarter of 2014. The subsequent quarter and the first in the outcome of
Flight 370's vanishing saw lost RM307.04 million, which spoke to a 75% expansion
over misfortunes from the second quarter of 2013. Accordingly, MAS has not made a
benefit since 2010. In the past three years, the carrier had booked misfortunes of
RM1.17 billion in 2013, RM433 millions in 2012, and RM2.5 billion in 2011. Industry
investigators anticipate that MAS should lose further piece of the pie and face a
moving domain to stand apart from contenders while tending to their monetary
situation.

In any case, MAS would more likely than not still have been profoundly
unbeneficial in the second quarter of 2014. MAS Airlines was by then starting with its
pile factor design down in the underlying two months of 2014 despite continued with
yield rots, an indication of the troublesome monetary circumstances. As needs are, it
shows up MAS Airlines ability to finish off seats was by then slipping before MH370.
While the July 2014 figure is well underneath July 2013 levels it is close to the July
stacked factor of MAS in 2009, 2010, 2011 and 2012. It is moreover only
insignificantly underneath the carrier's stack factor from January 2014 and February
2014. As the MH17 scene occurred on 17 July 2014, it influenced the latest two
weeks of July as arrangements were immediately influenced.

3. DOWNSIZING

Employment downsizing is frequently actualized during monetary downturns

as a reactive, tactical action. The most successful organizations, however, use
downsizing more deliberately as a component of a general workforce system.
Layoffs become just one instrument in an arrangement of choices to improve firm
execution. The management may see this as a chance to improve the association's
medium-and long haul dexterity through all around arranged and focused on training,
change and career-management interventions.
 Annual ASKs (millions) per employee: MAS Airlines vs Cathay Pacific and Singapore Airlines

In its recuperation plan, Khazanah brought up MAS Airlines workforce

profitability essentially slacks full-administration airline of the Singapore Airlines and
Cathay. By referring to the above chart, Khazanah expressed that MAS Airlines
midpoints just 3.6 mil as per representative for each year whereas Cathay and SIA
midpoints is higher. But this result can be deluding as where one carrier has a
purposely littler normal stage length.

Workers per aircraft: MAS Airlines vs select airlines

 In principle, SIA and Cathay ought to have upper numbers than MAS Airlines
because of a greater segment wide body airplane. MAS Airlines got more than 50
narrow body aircraft while the Singapore Airlines and Cathay groups each have
around 25 narrow bodies.

MAS Airlines is actually bankrupt, nonetheless, could win back the first
venture by 2018 ensuing to cutting staff, selling surplus plane and flying less on
specific courses. The new reconstructing means to be realized by Khazanah is
depended upon to fuse occupation cuts, purportedly addressing up to 25% of the
around 20000 in number workforces. The movement cuts should, on a fundamental
level, grants MAS Airlines as far as possible without influencing gainfulness.

On 29 August, Khazanah released a report, Rebuilding a National Icon: The

MAS Recovery Plan, which outlines their plan for the restructuring of MAS and the
process of completing the takeover. About 6,000 jobs which are about 30% of MAS's
workforce will be eliminated and the carrier's route network will be shrunk to focus on
regional destinations rather than unprofitable long-haul routes. Khazanah plans to
de-list the airline from Malaysia's stock exchange by the end of 2014 and plans to
return it to profitability by late 2017, re-listing the airline by 2018 or 2019. On the
business/legal side, Khazanah intends to transfer the relevant operations, assets,
and liabilities of Malaysian Airline System Berhad into a new company by July 2015.

3.1 Downsizing Strategies

MAS Airlines laid off 6,000 of its labourers as a major aspect of a rebuilding
program. The 3,500 of those rejected were its endorsers. The National Union of
Flight Attendants Malaysia said the most concerning issue was the cutting out of
6,000 MAS Airlines labourers in 2015, which it asserted was not done by law. Other
than illicit cutbacks, the association was worried over the occupations of the
conserved specialists, a large portion of who stayed jobless and did not get help
from the service. This effect can be minimize if MAS Airlines could assess the
reaction the employee for various type of announcement and preserve trust and
credibility by telling employees before the media.
 As per the present collective agreement (CA) marked with the MAS top
management, the individuals who have served 10 years and beneath ought to get at
least one-month pay for each time of administration, while those serving 10 years or
more ought to be paid a one-and-a-half-month pay for each time of administration.

Workforce right-sizing has commenced after a robust, systematic and detailed

talent selection process. This process start with an over 14000 MAS Airlines staffs
offered employ at Malaysia Airlines Berhad (MAB). The vast larger part was offered
all day job while the rest were offered part-time work of different spans. Employees
exiting MAS by 31 August 2015 will receive a closure package that includes payment
based on a formula similar to that under existing Collective Agreements at MAS, and
free training and placement services at the Corporate Development Centre (CDC),
which has identified over 12,000 job opportunities available for exiting MAS staff.
Payments and benefits provided to both employees joining the new company and
leaving MAS will total up to RM1.5 billion.

3.2 Proven methodology for dealing with the downsizing

Successfully dealing with the procedure of cut down of staff is just as significant
as describing suitable measures for layoff resolutions.

All company ought to be straightforward about the present conditions that the
association faces and the potential effect on the workforce. It is critical to come clean
with the worker which they need to tune in from the top administration. Continue
imagining things are fine will just upset the believability of the pioneers. By being
straightforward and if a worker realizes that their boss attempted to utilize different
alternatives to protect livelihoods however needed to utilize cutting back as a last
choice, this may facilitate the agony.

Offer destined to-be-fired workers a great deal of warning early and, if

legitimate, uncover to the representative on the affiliation will make a strong letter out
of reference for their advantage. Be sure that quick chief conveys the updates on the
cutback to influenced representatives and that they do thusly in secretive. Approach
laid-off representatives with deference and affectability. Human Resource agent may
introduce nearby with the prompt chief during this procedure.
 Procedural justices will guarantee that procedures used to settle on choices are
viewed as just and reasonable are basically significant during downsizing.
Employees will in general record less statements of unlawful cessation. A
reasonable behavior has exhibited to bring about in reducing pressure and improved
in term of working, work fulfillment, obligation for organization and expectation.

4. RESTRUCTURING AND REBRANDING

Basically the 2012 rebuilding could be reattempted with a higher likelihood of

progress. Be that as it may, a few different difficulties, incorporating brand issues in
the outcome of the two occurrences, additionally should be survived. A few courses
will probably be cut as a feature of the up and coming rebuilding however the limit
cuts will in all probability be predominately accomplished by lessening frequencies in
existing markets. From a network perspective all the low hanging fruit was already
pursued in the last restructuring. The long-haul routes that were cut in early 2012
had long been unprofitable but had been maintained for national reasons.

The only obvious route cut that was not pursued in 2012 was Los Angeles,
which the Malaysian government was initially reluctant to let go. But Los Angeles,
which had been served via Tokyo, was finally cut at the end of April 2014, following a
decision made in January 2014 which is two months before MH370 incident. The
suspension of Los Angeles leaves MAS with only seven routes outside Asia-Pacific
which are Amsterdam, Dubai, Frankfurt, Istanbul, Jeddah, London and Paris. Dubai
and one European route (most likely Istanbul) possibly could get the axe as well as
some smaller regional routes within Asia-Pacific, including routes that have been
launched over the last two years.

MAS' greater part investor, government-connected venture company

Khazanah, relied upon towards declare of rebuilding strategy for MAS Airlines by 29
August 2014. In May 2015, it was declared that the carrier will be moved to a
recently established Malaysia Airlines Berhad (MAB) by 1 September 2015, with a
rebranding of the aircraft. The new organization will see a vigorously diminished
workforce and balanced course connect with Malaysia Airlines. Christoph Mueller
additionally declared that Malaysia Airlines put a portion of its Airbus A380s up for
sale. Four months after the fact, MAB reported that they will include four new Airbus
A350-900 aeroplane to their armada before the finish of 2017 till the mid of 2018.
The aeroplane will be rented from Air Lease Corporation. The carrier additionally
hopes to include two more A350-900s just as two Airbus A330-900neo aeroplane in
the forthcoming future.

MAB then reported that it is set to experience a brand upgrade including

another name, logo and uniform for its aeroplane, with the progressions to be
uncovered out on the town obscure. The profound rebuilding which MAS Airlines has
required for a considerable length of time however always was unable to actualize
because of political and association resistance appears to at last be in sight. Limit
and downsizing are required to be executed over the last a long time of 2014,
placing MAS in a more grounded yet at the same time testing position for 2015 and
past.

Modifying the brand and conquering serious challenge in the Malaysian and
more extensive Asian commercial centres, where different aircraft will be anxious to
fill any voids left by MAS, will be enormously troublesome. There is no assurance a
littler and nimbler MAS will succeed. Be that as it may, proceeding with the earlier
technique of yearning development alongside forceful evaluating is obviously
impossible.

The looming rebuilding is relied upon to incorporate limit and employment cuts
just as potential changes in accordance with the transporter's armada. While
overwhelming misfortunes are normal for 2014 MAS Airlines might begin to get a
better-quality exhibition by 2015, however, the benefit might hard to accomplish and
even though by long term, it may give the banner transporter's present feeble spot
and an exceptional challenge in the Southeast Asian market.

From the time when 2013, the flag has been utilizing the motto “Journeys Are
Made by Individuals You Travel With”. Be that as it may, with the beginning of Flight
370 and Flight 17, the aircraft has utilized various trademarks including "#keepflying"
and "#flyinghigh". Another motto, “Malaysian Hospitality Begins With Us”, was
revealed as the fresh marking returns to the airlines foundations.
CONCLUSION AND LIMITATION

MAS Airlines have had potential key suitors as of late. Absence of security in
MAS Airline matters, and what was seen as wild development in certain business
sectors, put the airline off. Progressively discerning MAS Airlines may end up making
companions, out of chance yet, in addition, a need. There are carriers that might be
anxious to seal any hole from MAS Airlines and to be sure some like AirAsia is
prepared to change rapidly. MAS must be agreeable to let contenders have what it
cannot make benefits.

Khazanah infers that a 30% decrease in representatives would put MAS near
the worldwide normal as far as workers per airplane. This would accept no
adjustments in the size of the armada. Khazanah revealed plans to decrease around
30% of the MAS Airlines staff or 6,000 employments and has proposed there will be
limit cuts, especially to the long stretch system. In any case, it has not demonstrated
if the armada will likewise be cut.

The new organization is relied upon to start tasks in July 2015 with around
14000 workers equalled to the current 20,000 staff with the current organization. The
movement to the new organization, with its solid financing contingency forced, is
anticipated to bring about a lower cost course of action dependent on industry
benchmarks and work rehearses, with reserve funds mainly originating from
improved stock agreements and work rehearses.

In the process of downsizing, there are costs associated and it is either direct
cost or indirect cost. Direct cost includes severance pay in lieu of notice,
outplacement, administrative processing cost, and cost of rehiring former employee,
supplemental unemployment benefits and accrued vacation and sick pay. Whereas
for indirect cost, it involve the increase of the unemployment tax rate, decrease
productivity among survivors, employee shortage during economy recovers,
establishment cost which includes for recruiting, training and staffing, potential
lawsuits from aggrieved employees and loss of institutional memory and trust in
management.
 REFERENCE

[1] Wincek, J., Sousa, L. S., Myers, M. R., & Ozog, H. (2015). Organizational change
management for process safety, Process Safety Progress, Vol.34 (1), pp.89- 93.

[2] Shaw, J. B., & Barrett-Power, E. (1997). A conceptual framework for assessing
organization, work group, and individual effectiveness during and after downsizing ,
Human relations, Vol.50 (2), pp.109-127.

[3] J. B. Schiro, R. L. Baker (2013). Downsizing and Organizational Change

Survivors and Victims: Mental Health Issues, The International Journal of Applied
Management and Technology, Vol.4 (7), pp.7-19.

[4] Malaysia Airlines reports end of year losses. (2008, 23 March). Retrieved from
https://centreforaviation.com/analysis/reports/malaysia-airlines-reports-end-of-year-
losses-business-turnaround-plan-announced-824

[5] Malaysia Airlines Financial Losses Grow. (2014, 29 August). New York Times.
Reuters. Retrieved from https://www.nytimes.com/2014/08/29/business/malaysia-
airlines-financial-losses-grow.html

[6] Malaysia Airlines shares dip on 2011 loss, BBC. (2014, 1 March). Retrieved from
https://www.bbc.com/news/business-17216510