MALAYSIA AIRLINES deserves sympathy. This year Flight MH370 disappeared over the Indian Ocean and MH17 was shot down over eastern Ukraine. But these tragedies merely hastened the struggling airline on its route back into full government ownership. On August 8th the country’s sovereign-wealth fund offered to buy the 30% of shares in private hands in order to restructure the airline. The root cause of Malaysia’s troubles should elicit far less pity. Like many national carriers, it was losing money as a matter of course.
Malaysia’s is not the only government that persists in keeping rickety airlines in flight. Italy raided the state’s coffers again last year to keep Alitalia going. Then, on the day of the Malaysia bail-out, Etihad, the flag carrier of the United Arab Emirates, agreed to inject a further €560m ($750m) into Alitalia in return for a 49% stake. A restructuring plan agreed at the end of July will keep Poland’s LOT in business—in return for $200m of taxpayers’ cash.
The drain on public funds has a long tradition. Airlines used to be regarded as a vital part of transport infrastructure, like roads or bridges. So, until the mid-1980s, governments owned most of the airlines, set fares and routes, and protected flag-carriers by restricting new entrants. But privatisation made air travel more competitive and liberalisation brought competition from low-cost carriers. Most airlines in state control have failed to adapt.
The exceptions are few. The thriving airlines of Singapore and Ethiopia, and the Gulf carriers, Etihad, Emirates and Qatar Airways, all benefited from government money but have been allowed to operate as commercial enterprises with minimal interference. Such entrepreneurial thrust is rare. Elsewhere, inexperienced cronies often dominate management. State employees frequently travel free. Many carriers are obliged to maintain loss-making domestic routes to please politicians. Olympic Airlines was forced to deliver newspapers for a pittance to keep the country’s press barons happy. The Greek national carrier went to the wall in 2009.
Poor management, overstaffing and strong unions have left airlines struggling in a changing business and with little hope of cost-cutting or streamlining. Small state-owned carriers have little clout when buying planes and are far down the pecking order in global airline alliances. So why do governments keep their flag carriers?
Partly because there are few options beyond an endless cycle of failed restructurings. Privatisation plans are plentiful but rarely succeed because heavy losses, debts and legacy costs frighten investors away. It is cheaper to start an airline from scratch. Saviours such as Etihad are as rare as an on-time departure from Beijing airport.
The political cost of turfing out thousands of state employees makes liquidation unpalatable. So do fears that vital connections to the world will be lost forever. These, in fact, are largely unfounded. Switzerland and Belgium have done without a flag carrier for years. Indeed, opening up to competition is likely to result in more flights and lower fares. But even in death, protectionist urges are strong. Zambian Airways was liquidated in 2009 but the government refuses to let foreign airlines use Lusaka as a hub, in the unlikely event that the airline will one day fly again.