Malaysian Airline to undergo "complete overhaul" in privatisation offer

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 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.

Khazanah, which owns 69.37 percent of MAS, 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.

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.

The carrier warned in May of a "dramatic impact" on passenger traffic from the loss of Flight MH370, which disappeared on March 8 with 239 passengers and crew.

Its troubles deepened dramatically on July 17, when another jet, Flight MH17, was shot down over Ukraine, killing all 298 people on board. The incident sped up efforts for the government to restructure the airline, sources said.

"This is the sensible way forward given that massive surgery is required," said Christopher Wong, a senior investment manager at Aberdeen Asset Management Asia.

MAS, which has reported losses for the past three years, has been squeezed by nimbler rivals such as AirAsia Bhd on short-haul routes, and Gulf carriers and AirAsia X in the medium and long-haul market. Hampered by strong trade union resistance to any restructuring, MAS has struggled to cut costs and improve productivity.

(1 US dollar = 3.2130 Malaysian ringgit)

(Reporting by Al-Zaquan Amer Hamzah, Trinna Leong, Yantoultra Ngui; Additional reporting by Saeed Azhar; Writing by Stuart Grudgings; Editing by Matt Driskill)