=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/n/a/2006/03/27/financial/= f072053S21.DTL --------------------------------------------------------------------- Monday, March 27, 2006 (AP) Malaysia Airlines Loses Subsidies, Routes By VIJAY JOSHI, Associated Press Writer (03-27) 07:20 PST KUALA LUMPUR, Malaysia (AP) -- The government will end subsidies to flag carrier Malaysia Airlines and let it operate only 19 domestic routes — in competition with budget carrier AirAsia — under a major restructuring announced Monday that will shed thousands of jobs. The new rules will become effective Aug. 1, and leave the state-owned airline with only a handful of its original 118 domestic routes, said a statement on the Web site of the prime minister's office. Malaysian Airline System Bhd., the company that operates the airline, sa= id in a separate statement that it will have to fire 6,500 employees from its current staff of 23,000 because of the reduced operations. The restructuring is part of a major effort by the airline's management and the government to turn around the ailing company, stricken by losses and complaints of mismanagement. Idris Jala, the MAS managing director, called the future collaboration with AirAsia "the beginning of a new era for the airline industry in Malaysia." The prime minister's statement said MAS will have to share the 19 routes with AirAsia, which in addition will have the exclusive right to operate 96 domestic routes. It was not clear what would happen to the remaining three routes. Malaysia Airlines will operate as a full-service airline, while AirAsia operates as a low-cost, no-frills carrier. As a result of the restructuring, "the profit and loss account for MAS' domestic routes will be borne by Malaysia Airlines, not by the government," the statement said. In addition, the government "won't give any subsidy to Malaysia Airlines or AirAsia to operate the domestic air sector," the statement said. AirAsia is Southeast Asia's biggest low-cost carrier in fleet size terms. Idris said the government has agreed to give MAS "a free hand in managing the network, and this will mean that we will have full control on determining capacity, frequency and pricing." He said the number of aircraft deployed on domestic routes will be reduced from 40 to 21. The government currently bears an annual loss of about 300 million ringg= it ($81.3 million) for domestic routes that Malaysia Airlines operates. Under a complex business plan crafted in late 2002, MAS has been operati= ng the domestic routes for the government, earning a fee in return. The government will offer an unspecified amount of compensation to MAS for ending the agreement. The restructuring comes as the government is trying to reduce expenditures, and Malaysia Airlines is trying to become profitable. In the nine months ended Dec. 31, the airline suffered a 1.26 billion ringgit ($340.5 million) loss due to surging fuel and other costs. The airline, which is 69 percent owned by the government, said in Februa= ry that just four of is 118 domestic routes were profitable. -----------------= ----------------------------------------------------- Copyright 2006 AP