KUALA LUMPUR, Malaysia – After a year of calamity, ***************** is shrinking to survive.

The disappearance of Flight 370 one year ago, combined with the ******* of ********* over a rebel held area of eastern ******* four months later, brought the already financially struggling flag carrier to its knees.

The government, which owned most of the *******, took 100 per cent ownership and removed it from the Malaysian stock exchange last year. The ******* is now aiming to return to profitability by 2017 with a drastic $1.7 billion overhaul that includes cutting nearly a third of its staff.

Key to the plan is a new CEO, Christoph Mueller, a turnaround specialist who led a successful revival of Ireland’s Aer Lingus. His new bosses hope he’ll be able to pull off a similar feat at ***************** though analysts say success is far from guaranteed because of the political ******* of being a state-owned company. At least four other major restructurings of ***************** since 2001 have failed.

“There’s no doubt that it’s got more challenges than many, because you’re dealing with a company that’s in a poor financial state, you’ve got the political interference, the backlash of the *********,” said John Strickland, director of JLS, an ******* industry consulting company.

The challenge of the restructuring is compounded by rapid changes in the aviation industry in Asia, where low cost carriers are proliferating to serve the growing ranks of middle class consumers.

The disasters that brought ***************** to the brink of financial collapse served to underline the weakness of it and other full-service carriers in the region. They face stiff competition from a wave of budget upstarts including Malaysia’s AirAsia, Indonesia’s ********, Tigerair and Scoot from Singapore, and Qantas offshoot Jetstar.

Even ***************** has its own low-cost offshoot, Firefly. Mueller may be keen to use it as a testing ground for new ideas, given his track record at Aer Lingus, where he responded to competition from no-frills ******* Ryanair by mimicking as many of its practices as possible.

The changes, which blurred the distinction between Lingus and Ryanair, include shortened airplane turnaround times at the gate and charging for seat selection, checked bags and food and drinks.

Aer Lingus’ net profit since its 2006 stock flotation has wobbled between modest profits and ****** as the company took financial hits for strikes, shutdowns, **** cancellations and pension gap payoffs in order to avoid more strikes.

The result is that he’s turned an ******* that was near ***** into an attractive takeover target for Ryanair and British Airways parent IAG simply by getting it through a period of massive upheaval.

A similar outcome might be in store at *****************. Khazanah Nasional, the Malaysia sovereign investment fund that owns the *******, said it may consider selling some or all of its stake to private investors after relisting shares within a planned three to five years.

Aer Lingus and Khazanah Nasional declined interview requests for Mueller, who started his new job on Sunday.

In a quarterly update released Monday, Khazanah said the overhaul of ***************** is on track. The ******* is preparing to cut 6,000 of its 20,000 employees. It’s also planning to expand seats on Asian routes by 5 per cent but is reviewing European and Mideast routes with a view to ending some.

The company said it also won a temporary 25 per cent reduction on its monthly catering bill as it renegotiates its supplier contract.

The cuts are vital to stem the ****** at the *******. In its last financial result as a listed company, the ******* reported that third quarter ****** widened 53 per cent from a year earlier to $170.3 million. That brought its loss in the first nine months of last year to $368 million.

Asian aviation experts have urged changes at the ******* but say there is a risk it could shrink too much as it battles to compete with the low-cost crowd.

They say there’s still room for legacy carriers in Asia, though they need to concentrate on routes and destinations where they can make money, mainly to capital cities and business and finance hubs.

“In Asia, you’ve still got a lot of low-income countries where price is a major factor,” said Andrew Herdman, director-general of the Association of Asia-Pacific Airlines. “It’s a challenge for full-service carriers in Asia to restructure and be more efficient to narrow that productivity and cost gap with budget carriers.”

Herdman said a “pure no-frills model is not the answer” for airlines trying to compete. The bulk of their revenue still comes from medium and long-haul fares and airlines need two to three classes tailored to the needs of different types of passengers.

An unexpected helping hand for the ******* has come from the collapse in the price of oil over the past year.

Mohshin Aziz, aviation analyst at Maybank Kim Eng Securities, said the *******’s *** fuel bill, which last year amounted to 6.3 billion ringgit ($1.7 billion), will be cut in half this year, which alone will help it return to profitability.

But he also worried it might reduce the pressure for change.

Mohshin said he sees a “zombie” future for the ******* which will be “alive but barely.”

“They will just be in this perpetual bureaucratic tug of *** between the employees, the government and the management.”