WE MUST STOP THIS NONSENSE.

“The report also showed several group photographs of the people involved in managing MAS but none looked smart enough to run the company. One guy has a sneering smile on his face. The one seated and the person standing behind him looked smug, while the lady who was standing tried to look impressive and the man standing on her left tried to fake a smile”

Another MAS revamp plan? Don't be fooled, this GLC is taking us for a ride

Source: here

Early warning: here

Since Ahmad Jauhari was just appointed as the new CEO recently, he must have had a very tough responsibility to ensure MAS makes profit but he must also be aware of the its past performance, and reading through the MAS Annual Report for 2010 there are some salient points to consider.

The front page of the 2010 MAS Annual Report has a large print “GROWTH” followed by the next page stating its vision; "To be the Number One Airline in Asia by 2015" and its mission; "To be a Consistently Profitable Airline".

No, it is not a joke!

Of course, what actually happened was that despite recording a 5% higher revenue of RM3.565bil compared to RM3.40bil in the previous quarter, Malaysia Airlines made a net loss of RM478 million for the third quarter of 2011 ended 30 September 2011. Ahmad Jauhari and team attributed this to higher fuel costs and unrealized foreign exchange losses from outstanding USD borrowings. The cumulative year-to-date net loss for the Group stood at RM1,247 million.

Securing their own fees first

The MAS annual report then showed the airline's journey throughout 2010 with so many milestones being achieved involving signing new agreement for maintenance between the group and other airlines, its involvement in a reality show TV program, charity event, launching of new routes, launching of new products related to holidays, new business partnerships and all sorts of seemingly profitable business ventures. But few details were given as to whether these really made money, although by now, Malaysians know MAS has been losing money for quite a while.

Unfortunately the first important information MAS focused on is the board of directors, their re-appointment, appointment of new members and the approval of the directors’ fees. Yes, that is their first order of business.

Then, it moved on to more shares being allocated to the relevant directors and all the legal mandates needed to ensure that no matter whether MAS was making profit or going bankrupt - the positions and all the entitlements of the entire board could be secured first. No mention of ensuring that MAS made profit, or of eradication of wastages and corrupt practices and paying back the money MAS owes the government from all the bailouts through the years.

It was also listed that under the MAS umbrella, there are 22 subsidiaries and 6 investment associates. The impression one get when reading the report should be impressive but there was nothing written whether any of them are losing money or if all of them are making profit. Surely since MAS' mission is to consistently make profit, these business ventures should be profitable. But are they making profits?

Looks can be deceiving

The report also showed several group photographs of the people involved in managing MAS but none looked smart enough to run the company. One guy has a sneering smile on his face. The one seated and the person standing behind him looked smug, while the lady who was standing tried to look impressive and the man standing on her left tried to fake a smile.

Another group photo and this time with all the men standing and also trying to fake a smile left one with a most uncomfortable feeling. Maybe, they felt happy about the money each of them were going to get. Certainly, none looked worried about the financial status of the company. But why would they want to smile when MAS has not been making money for several years already?

Competent board of directors?

Then the report printed out in detail the curriculum vitae of the top management to impress the readers. But if they are all that good, why is MAS still losing money? Are they really good? Good at what? Losing money? Siphoning money?

The next section of the report proves the point that the whole management team is packed with incompetent souls when the dividend for year 2010 was declared to be only 7.2sen per share!

But MAS managed to fly 15.7 million passengers and the gross revenue for the group was RM13.6 billion. Still, because gross expenditure was RM13.5 billion before tax, no wonder MAS was able to pay only 7.2 sen dividend per share!

It is common sense that MAS must reduce the expenditure to get more profit but unfortunately there is no such effort to reduce the expenditure because the amount of money that needs to be siphoned out has been fixed. Cynical? Look at the carrier's loss record then.

Is the new MAS CEO as hopeless as the others?

So the effort and planning by the new MAS CEO Ahmad Jauhari to form another Premier Airline as announced recently is just another proposal for a money-making-scheme.

If Ahmad Jauhari is not careful, he will be accused of following in the footsteps of what Prime Minister Najib Razak is doing now, borrow more money and siphon it out, without even considering to reduce the carrier's expenditure, increase efficiency, trim the number of staff or reduce the number of the board of directors, reduce the remunerations, or even shutting down the losing subsidiaries or reviewing the present contracts and agreements between MAS and it vendors especially the catering company supplying food for MAS.

Malaysia is already RM445 billion in debt and MAS is contributing about RM1.2 billion of debt each year. Has the UMNO-BN government not learned any lessons yet? MAS should either buck up or just close shop.

Organisational Diagnosis: Another symptom?

In continuation of the previous post http://mastroubleshooters.blogspot.com/2011/11/preamble-5.html,

below is another gem by MAS employee reproduced from:

http://weechookeong.wordpress.com/2011/12/07/teks-ucapan-di-parlimen-terhadap-gang-of-two/#comment-61380

Anonymous on December 17, 2011 at 1:52 pm

After 30 years in MAS, and now into the 7th MD/CEO, I can say with conviction that any hope of any recovery can be safely dumped into the deepest dustbin.

Every business plan/transformation plan is rolled out as a quick-fix to the problems of the day, and ignores the rot and the weakest point in mas, which is the way people are hired, trained, developed (or not) and rewarded/punished.

Discipline, responsibiity and accountability are just words. Acts of misconduct or negligence are dealt with by double standards for years. A person known for dishonesty can be promoted to a position of high responsibilty because of “”connections”, in fact the joke is, the bigger you fumble, the higher you gonna be promoted, provided of course, you have ‘godfathers’.

Even when the company is bleeding and on its knees, recruitment and promotions (barely justifiable) continues. The performance mgmt system, run for 5 years, is just a form filling exercise. When vacancies esp at high levels occur, speculation and horsetrading and ‘negotiations’ determine who gets the post. The so-called talent mgmt dept claims to have a talent list no-one knows about, and in any case, when mas keeps bringing in people from outside, the list is as good as toilet paper.

The HR division is run by little napoleons whose motto is ‘do what we say, not what we do’. The new lady with 2 years khazanah training came in to ‘trnaform’HR but she just recycled the same old stale wine in new packaging, and ended up with trusted leiutenants, the Vps who have absolutely no credibilty or capabilty to speak of. One of the great jokes of the transformation is to organise kite-flying for staff!!

Now with the new CEO and deputy again parachuted from outside, we have 3 structures and 2 biz plans in 3 mths with changes to come, before stf can understand one, another comes out. This duo, for all their claimed qualifications have no clue how to manage. Plans are rolled out with scant understanding of the sentiment on the ground.

Sure, they dont have to bother abt the staff (after all arent we responsible for the mess?) but they forget, in order to drive their biz plans (even though the plan is full of holes) it is these same stf they have to buy-in to make it work. Now, stf have to depend on second hand news, rumours etc to find out whats going on, in “dialogues’with unions, only vague and contradictory answers are given, finally, the credibilty of these 2 as far as the stf are concerned is ZERO.

The whole issue of mas is the PEOPLE, many good and loyal ones who are simply outnumbered by the politiking goons. Put the untrustworthy nonexec union into the whole pot, then what we end up with is a great big mess which made us vulnerable to predators, as has now happened.

We simply brought it upon ourselves.MAS is doomed.

MAS: 10 years too late - Even the analysts were sleeping on the job.

Analysts wonder what long-term plan can the airline conjure

By LEONG HUNG YEE

hungyee@thestar.com.my

“Ten years on, it is back to square one. For the first nine months to Sept 30, 2011, MAS posted a net loss of RM1.24bil against a net profit of RM8.55mil a year ago. Its cash and cash equivalent have depleted to RM968.5mil as at Sept 30 compared with RM1.92bil a year ago.”

IT is undeniable that Malaysia Airlines (MAS) is facing a crisis and is in a dire state now. The carrier is having both cash and profit crisis for a while and may fail if it continues the way it is now. Realising this, the management introduced a new Business Plan 2012 on Wednesday hopefully to turn its fortune around. Many will be interested in the business plan and the details on how it will help steer MAS away from turbulence.

But surely many will ask ... doesn’t MAS have enough business plans already? Over the past decade, the flag carrier has undergone several business plans including the Widespread Asset Bundling (WAU), Business Turnaround Plan 1 (BTP1) and Business Transformation Plan 2. Some of these initiatives have produced some promising results but the momentum was not sustained, nor did it steer MAS from further turbulence.

Ten years on, it is back to square one. For the first nine months to Sept 30, 2011, MAS posted a net loss of RM1.24bil against a net profit of RM8.55mil a year ago. Its cash and cash equivalent have depleted to RM968.5mil as at Sept 30 compared with RM1.92bil a year ago.

Some analysts are saying the new business plan was basically a new plan with the same story they have been seeing over the years.

More details here:

http://biz.thestar.com.my/news/story.asp?file=/2011/12/10/business/10060480&sec=business and

http://biz.thestar.com.my/news/story.asp?file=/2011/12/10/business/10069906&sec=business

Compare here:

http://mastroubleshooters.blogspot.com/2011/11/6-major-things-that-mas-should-have.html

FINALLY, SOMEONE MAKING SENSE!

RHB disappointed by preview of ‘simplistic’ MAS turnaround plan

By Lee Wei Lian

November 22, 2011

KUALA LUMPUR, Nov 22 – Malaysia Airlines (MAS) lacks a plan for deep structural reforms said RHB Research Institute following a briefing by airline management ahead of the official unveiling of the national carrier’s turnaround strategy.

The research house said in a report today that the plan lacked cost cutting measures, revamps to the procurement systems or recapitalisation of its balance sheet.

RHB also said that it didn’t detect any evidence that the new collaboration with AirAsia has rejuvenated the airline.

“We did not find any significant ‘traces of entrepreneurial spirit’, if this is supposed to come with the entrance of Tune Air (controlled by AirAsia’s Tan Sri Tony Fernandes) as a 20.5 per cent shareholder of MAS,” said the report.

The report revealed that in the MAS briefing the management had said that they would cut unprofitable routes, improve fuel burn, negotiate better terms with aircraft manufacturers and redeploy capacity based on yield.

“We have to admit that we came out of MAS’ analysts’ tele-conference this morning feeling a little disappointed,” said RHB.

“Dubbed a preview to MAS’ grand turnaround plan scheduled to be officially unveiled next month, we did not find indications of any bold and dramatic moves that will turn things around, but just some logical things an airline will do in its normal course of business.”

RHB said that MAS’ key structural issues include a mature and saturated full-service segment and its main hub Kuala Lumpur not being a natural market for higher-yielding full-service business travelers unlike Singapore and Hong Kong.

It added that it hoped MAS would rope in a leading international airline as equity partner to help strengthening processes, revitalise work culture, broaden market reach and presence, and effect more constructive branding or co-branding exercises.

MAS reported a third quarter loss of RM477.6 million today, bringing total losses so far this year to RM962 million.

The airlines’ lacklustre financial performance in recent quarters had resulted in the share swap between MAS and AirAsia on August 9.

It saw state investment arm Khazanah taking a 10 per cent stake in Asia’s top budget carrier in exchange for a 20.5 per cent stake in the flag carrier.

This paved the way for AirAsia boss Tan Sri Tony Fernandes to sit on the MAS board, ostensibly to help turn the ailing airline around.

The share swap and accompanying collaboration framework agreement raised public concerns that it would give rise to an industry cartel.

Firefly’s budget jet operations were shuttered last month.

The Finance Ministry revealed on November 3, however, that the share swap between MAS and AirAsia is being probed by Bursa Malaysia and the Securities Commission (SC) for insider trading.

7 REASONS WHY KHAZANAH MUST NOT UNDERTAKE

THE SHARE SWAP BETWEEN MAS AND AIRASIA

PART 2 REVISITED

This article was first published on 9 October 2011 @

http://weechookeong.wordpress.com/2011/10/09/7-reasons-against-the-secret-mas-airasia-share-swap/

1.         MAS IS A NATIONAL ASSET JUST LIKE PETRONAS AND TNB

MAS’ primary purpose aside from performing its aviation role is to, as mentioned in my earlier piece, promote Malaysia as a tourism destination, to facilitate trade between countries under a G to G environment and also to facilitate outreach to new destination for strategic and commercial purposes.

Because of this it should NEVER be in the hands of an entrepreneur with a vested interest in a similar industry let alone any other entrepreneur. The problem started even with the appointment of an entrepreneur many years ago because the government failed to differentiate the nature of the asset. What transpired was that entrepreneur had to think of ways and means to offset his individual debts in taking ownership of the airline and therefore may have compromised the asset because of this.

A similar pattern is developing now with Air Asia where the entrepreneur will undertake actions to best serve his purpose.

If looking at SIA, where it’s successful is because it recognises this fact. Therefore the running of the company is left to professionals who have no vested interest and can be hired or fired based on the KPI’s given to them. This also allows for the airline to be run by the ‘best man for the job’. What you need is a CEO with an entrepreneurial mind, professional conduct and culture. With proper assessment, there are many who could step up to the plate.

MAS is a national asset and should be treated as one just like Petronas and TNB and other strategic assets that need to remain under government control and directions as it also performs its corporate social responsibility to the country and its citizens.

2.         THE COLLABORATION FOR COMMON BENEFIT CAN STILL CONTINUE WHEN THE SHARE SWAP IS REVERSED

Recent collaboration announcements made is welcomed and should continue after the share swap is reversed. This will test the sincerity of Air Asia VENDORS WHO ARE MALAYSIAN.

Under a normal business collaboration framework, whatever cost that can be cut, brings better economies of scale for competing entities,  creates healthy competition at the supplier level to drive cost down and eventually pass on to the consumers of both MAS and Air Asia should be encouraged.

For example, the utilisation of training assets could be shared and Long Term Service Agreements (LTSA) with Aircraft Engine Manufacturer and other critical components for common benefit should be explored. Hangar sharing and MRO activities at cost competitive pricing should also be looked at diligently. These can happen with or without a share swap but if Air Asia insist that these happen only with a share swap then MAS can still go it alone as they have already invested in the assets and have little capital expenditure more to be invested in these particular areas.

3.         KHAZANAH CAN ENSURE THAT THE MAS BOARD COMPOSITION CONSIST OF INDIVIDUALS WHO ARE PREPARED TO CONTRIBUTE TO THE WELL BEING OF THE COMPANY AND SHOULD NOT BE ‘CORPORATE PERSONALITIES’ PER SE

The members of the Board should put the Company first in terms of discharging their fiduciary duties and need to be compensated for their efforts.

A Board Member who is not dedicated in the best interest of the company must not be considered. If the notion of the Board being a compliant Board is taken, then there is no active energy or debate at the Board level to provide a check and balance to the management of the company. The Board should be innovative in thinking to challenge the management to come up with new initiatives that keep the company at the highest competitive level and not just rubber stamp approvals based on papers presented to the Board.

4.         THE ULTIMATE STAKEHOLDERS IN MAS AND AIR ASIA IS THE PUBLIC AND THEREFORE SHOULD NOT BE SUBJECT TO ANTI COMPETITION BETWEEN TWO COLLABORATING ENTITIES AND FORCED TO SUPPORT A ‘PREMIER AIRLINE’ WHEN THERE IS NO NEED FOR ONE

The public were already happy with the competition and choices that were present between MAS and Air Asia that drove both companies to vary their product and services in order to capture their market share and serve different segments of the markets.

It was already working and therefore there is no need to change the competitive nature of the industry for the paying public.

What needed to be intensified was, the level of ‘good service provided’ and not the requirement for MAS to provide ‘premium services’ as generally the market in Malaysia or for MAS is not sufficiently large to capture this premier segment. Malaysia is not a financial or business hub where there exist a large number of premier passengers unlike Hong Kong and Singapore.

Converting MAS to be a premier airline will entail capital spending and in turn will result in higher fares where PASSENGERS ARE NOT WILLING TO PAY.

A quick check on company policies around the world whether MNC, Private, GLC or any other corporation is that there is a move to limit the number of persons flying Business and First Class on company expense. Most companies are adopting a policy of lower entitlement for the general staff while keeping premier services to select few.

Therefore, entering a premier segment when the MARKET SIZE IS SHRINKING DOES NOT MAKE ANY SENSE AND IS IN FACT SUICIDAL FOR MAS.

5.         KHAZANAH AND THE GOVERNMENT SHOULD NOT UNDERESTIMATE THE MALAYSIAN PUBLIC WHO KNOWS WHEN THERE IS A GOOD DEAL OR A BAD ONE

The Malaysian public is now a very informed society and not blinkered as before. Because of ready available public information, the public can weigh in their opinions on what is good and what is bad. By trying to shove a deal like this down the public’s throat it actually exposes the incompetence of the executives and parties making this decision.  This does not bode well for the country as it exposes shortcomings in our decision making process and will affect investor’s perception of doing business in the country. 

You will know when the public is okay with Government corporate deals when there is no real outcry on the subject. For example, when Khazanah took over Parkway, the only gripe was whether Khazanah paid the right price but in terms of Khazanah’s rationale in creating a regional healthcare champion, there was not too much outcry as the public can appreciate the rationale in having a major investment in the healthcare industry although the private healthcare market may not be assessable to all segment of the public.

6.         KHAZANAH SHOULD HAVE DONE A GAP ANAYLSIS ON THE STATE OF MAS INSTEAD OF THE SHARE SWAP AND ASK THE RIGHT QUESTIONS

Khazanah should have done a GAP ANALYSIS when MAS reported losses in the recent quarters. The key towards turning around Operations, is to understand whether management was narrowing the gap on all their cost elements. For example, in my earlier piece, I mentioned that the previous MANAGEMENT WAS ALREADY ON THE RIGHT TRACK.

They were addressing the issues of cost associated to fuel, manpower and maintenance and the question to them should have been, “How much improvement have they achieved q-o-q and y-o-y? If there is a positive trend on all these elements, then even though the results are negative, it would be a matter of time for the right results to be achieved.

It is especially important to have the right people asking the right questions in order for any turnaround to be effective. This is where Board composition is important and having wisdom in knowing whether people are on the right track or not.

7.         KHAZANAH SHOULD UNDERSTAND THAT EVERY COUNTRY IN THE WORLD SUPPORTS OR SUBSIDES THEIR STRATEGIC ASSETS WHEN NECESSARY AND DOES NOT PUT PURELY COMMERCIAL TERMS ON PERFORMANCE

The aviation business model has changed dramatically over the decades and will continue to change significantly over the coming years. What is certain is air travel has become commoditized. Loyalty to any airline is only as long as the passenger is sitting in the aircraft. Beyond that, the passenger will choose best connectivity and best pricing for his travel requirement. 

What is required is for Khazanah to not only measure MAS from a financial performance standpoint but also from a public/national agenda point of view.

As mentioned in my earlier piece, the aviation space is a critical playing field for every nation, especially a country like Malaysia that is trying to pull in tourism income. Every country assists its aviation companies in one form or another, so we should not be fooled to think that it’s a level playing field out there.

Get a proper and dynamic BUSINESS Model for MAS to prosper further. Shares swap especially WHEN NO MONEY IS INJECTED is not the answer.

THANK YOU

For further reading, refer below:

http://weechookeong.wordpress.com/2011/09/25/tan-sri-nor-yacob-azman-mokhtar-wake-up-learn-from-tan-sri-abdul-aziz/#comments

How and why it started below:

http://rockybru2.blogspot.com/2009/06/six-things-mas-must-do.html

http://rockybru2.blogspot.com/2009/06/mas-responds-to-hbloggers-posting.html

7 REASONS WHY KHAZANAH SHOULD NOT UNDERTAKE

THE SHARE SWAP BETWEEN MAS AND AIRASIA

PART 1 REVISITED

Spartan 7 Series

This article was first published on Thursday, 22 September 2011 @ http://syedsoutsidethebox.blogspot.com/2011/09/mas-air-asia-share-swap.html

With the recent positive development taken by the Government, we feel it is important to revisit the reasons in order for us to chart the future.

1.            PREVIOUS MAS MANAGEMENT HAS INITIATED THE RIGHT STRATEGIES AND
IMPLEMENTATION TO TURNAROUND THE COMPANY AND THEREFORE DO NOT

NEED THE TIE UP WITH AIR ASIA

A quick analysis on the current state of MAS indicates that they are on the right track. The three key cost factors that need attention are fuel, maintenance and manpower cost. With regards to fuel cost, MAS has taken some steps to reduce the unpredictability of the movement of fuel price. With a bit of tweaking they will get it within control as you cannot totally eliminate uncertainties linked to fuel pricing. On maintenance cost, the fleet renewal program will start to alleviate the impact of maintenance on the operating profits while shifting the cost towards the interest expense while creating a healthier balance sheet. If at all the national carrier is guilty of, it is that the fleet renewal program should have been carried out earlier, say 2007 when MAS would have been able to hive off depleting assets at a higher value and not incurred high maintenance cost which would have increased y-o-y that has negative impact on the operating profits.

The reduction of manpower cost or the rightsizing of this cost can be properly planned through natural attrition and redefinition of job scopes that need key union and association buy in for success. This has always been done as a top down approach but in all fairness, engagement at the shop floor needs to be intensified as it is the personnel at this level that will impact the bottom line in terms of efficiency, productivity and effective implementation.

2.         BASED ON THE EFFORTS OF THE PAST MANAGEMENT, MAS SHOULD REAP
THE BENEFITS IN AROUND 2013, THE SHARE SWAP AND INPUT OF AIRASIA AT 

THIS  JUNCTURE ARE SEEN TO BE OPPORTUNISTIC WITH A LARGE DOSE OF 
VESTED INTEREST AT PLAY.

The timing of the share swap could not have happened at a worst time as it will largely benefit AIR ASIA shareholders even without their own effort and Khazanah has given away a large portion of their net worth in MAS for free. This is blatant mismanagement at Khazanah and a thorough investigation should be launched to see whether there is any personal/vested interest that has come into play on the decision making for a strategic national asset.

           

3.         MAS SHOULD FOREVER REMAIN IN THE CONTROL OF GOVERNMENT’S

HAND AND SHOULD BE PRIVATISED INSTEAD OF BEING FORCED TO CO EXIST

WITH PRIVATE ENTITIES

MAS is a source of pride for the nation. It started getting into trouble when vested interest came into picture and started to encroach on its balance sheet and profitable entities. While the aviation business model has changed dramatically over the decades and previous laurels of achievement may not be replicated due to the changing times, the aviation space is a critical playing field for the nation. Every country assists its aviation companies in one form or another, so we should not be fooled to think that it’s a level playing field out there.

What is required is a dynamic BUSINESS Model for MAS to prosper further. One initiative that could be explored is to privatize it and fix it rather than the share swap that will work on a model of canabilisation shrouded under the so called comprehensive collaboration.

4.         MAS AND AIRASIA RUN ON COMPLETELY DIFFERENT BUSINESS MODEL

MAS is a Malaysian company with global reach and serves not only a commercial agenda but a national agenda in terms of promoting Malaysia as a tourism destination, to facilitate trade between countries under a G to G environment and also to facilitate outreach to new destination for strategic and commercial purposes.

AIRASIA is a commercial entrepreneur driven Malaysian Multi National Company (MNC) having partnering arrangements in each of its chosen point to point country of destination and hub.

Both derive their source of income from different business approaches and with different objectives in mind. The objectives are not aligned and to align them would result into a different shift in strategy that could have a NEGATIVE impact on both companies performance, more so for MAS than AIR ASIA.

5.         COLLABORATION FOR COMMON BENEFIT IS POSSIBLE WITHOUT CROSS SHAREHOLDING IN THE TWO COMPANIES

Collaboration between the two companies is definitely a plus but need not be at the expense of each other and encroaching on each other’s brand identity. What is currently prevailing between the two entities is  a healthy competition and it keeps each entity on edge to ensure that they remain relevant aviation entities. But collaboration such as in the oil and gas space between PETRONAS and EXXON for example for the Tapis fields, SHELL and PETRONAS in the Gumusut-Kakap fields, MURPHY and PETRONAS in the Kikeh fields and a more dramatic win-win partnering arrangement between giants SHELL and EXXON in the Brent oil fields in the North Sea of Northern UK demonstrates the joint collaboration between two competing entities can be achieved without sacrificing each entity’s identity and business objectives. SHELL and EXXON compete in other acreages in other countries around the world. What is needed is sincere partnering for common benefit.

6.       KHAZANAH SHOULD LOOK AT ITS SHAREHOLDING IN MAS AS A STRATEGIC
NATIONAL INTEREST STAKE WHILE INVESTMENT IN AIR ASIA AS A PURELY 
RETURN ON INVESTMENT  STAKE

The move by Khazanah to invest in AIRASIA should be looked at purely as a commercial investment as it is investing in a company that is majority foreign owned if aggregated. Khazanah should look at AIRASIA for returns on investment and not as a strategic stake. AIRASIA is a company purely running on commercial adrenalin with an iconic entrepreneur. Khazanah has little say in AIRASIA and can easily be outvoted in the event parties invested in AIRASIA work in concert.

Its stake in MAS is crucial as it helps control its own skies while operating a free skies environment. Air travel has become commoditized and should the country be outplayed in the aviation space, we could see colonialisation of our airspace and others gaining more benefit flying over Malaysian airspace.

7.      RISK PROFILE TO THE AVIATION INDUSTRY HAS INCREASED EXPONENTIALLY AS KHAZANAH HAS BEEN DRAWN IN TO SUPPORT BOTH ENTITIES IN THE EVENT OF ECONOMIC AND AVIATION DOWNTURN

By having cross shareholding, should anything untoward happens  to the industry, Khazanah will have to help 2 entities as it would not make sense for AIRASIA  to insist on the share swap if it did not provide them financial ‘cloud cover’. If Khazanah had kept AIRASIA shareholding as a ROI stock, the investment could be unlocked on reaching a specific return. As the shareholding in AIRASIA is only 10%, Khazanah is neither here nor there in terms of being able to influence policy; therefore it makes no sense to undertake a share swap where the vendors of AIRASIA have significant say in MAS but not vice versa.

Former MAS Managing Director Tan Sri Abdul Aziz’s comments
" I am surprised that so many clever people cannot under stand simple arithmetic."

I have just read your article and would like to add my views. I am of the view that the air transport industry in the country has over the years been mired by wrong government decisions and periodical mismanagement by the operators.

The current state of affairs of MAS has been caused by:

(i)         Some 15 years ago MAS management was messed up and the very fabric of its operation was destroyed and until now it has not been fully revived despite efforts being made to revive it.

(ii)        The situation has been compounded by the wrong decisions of the government to allow Air Asia to operate on domestic and regional routes in the beginning and later on long haul  routes without any proper study on the impact.

(iii)       The authorities failed to appreciate the role and responsibilities of a National Carrier and wrongly placed MAS to compete against a private low cost carrier. It should be noted that it was wrong to convert Air-Asia’s license from international routes not operated by MAS into domestic routes without any study on the impact.

(iv)       Those concerned have failed to appreciate that Malaysia’s air transport premier travel market is very small and that the market is very ‘price sensitive.

There is no way that MAS can compete against Air Asia. Up to now I must say that ‘Nasi hampir jadi bubur’. If they carry out their proposed scheme I confirm that ‘ Nasi terus jadi bubur’. I am surprised that so many clever people cannot under stand simple arithmetic.

You may distribute my comments to the members of your network.

With kind regards,

Tan Sri Abdul Aziz Abdul Rahman.

Transport ministry strikes back at Fernandes

http://www.btimes.com.my/

Presenna Nambiar – 18 November 2011

"The Transport Ministry is incensed by Tony Fernandes’ tweets which criticised Malaysia Airports and the government for raising passenger service charges for international travellers from November 15."

Pangkor Island: The Transport Ministry has struck back at Tan Sri Tony Fernandes for his critical remarks on passenger service charge increase by the government and Malaysia Airports Holdings Bhd (MAHB).

“When you point the finger at one person, three fingers point back at yourself,” Transport Minister Datuk Seri Kong Cho Ha said, referring to Fernandes.

He was speaking after the reactivation of scheduled flight services into Pangkor Island by Berjaya Air yesterday.

Kong was incensed by Fernandes’ tweets recently which criticised MAHB and the government for increasing passenger service charges (PSC) for international travellers from November 15.

International PSC is now RM32 for low-cost terminals and RM65 for all other international airports.

According to Kong, the Treasury has been paying RM180 million a year to subsidise the PSC increase which had been approved in 2009.

This is in accordance with an agreement effected between MAHB and the government then, which states that the government compensate for any shortfall in charges that the government

did not want passed on to passengers.

“There were other increases that were done quietly by airlines ... I won’t mention which airline. Baggage charges, golf bags, buy ticket using Visa card or credit card, even when checking in by counter ... why nobody complain?” Kong asked.

The MOT also has no plans to change a directive which designates Sultan Abdul Aziz Shah Airport (Subang airport) as a turboprop and private jet area, restricting scheduled jet operations.

Fernandes recently revealed plans to start a super-premium airline out of Subang airport which had raised the question of whether the MOT would consider changing the status of the airport to allow it to operate from there.

The ministry confirmed that it has yet to receive any application for such an airline by Fernandes.

“We will make a stand when we receive the application. There is no application, so there is no stand,” Kong said.

 http://www.btimes.com.my/Current_News/BTIMES/articles/20111118000426/Article/index_html#ixzz1e4S4napx

6 MAJOR THINGS THAT MAS SHOULD HAVE HEDGED INSTEAD

On Friday, June 5, 2009, we wrote an article as summarized below:

1. MSS – MAS Mutual Separation Scheme

Rather than retrenching the staff that cost the PUBLIC a cool RM 500 million in 2006, MAS could have adopted the following strategy (still relevant now) to resolve MAS problems faced then by:

a.            Spinning off Engineering and Cargo Division (thus reducing the staff numbers by nearly 6000 but with ZERO cost)

b.            LIFO: Last in, First Out (NOT FIFO. First in, first out whereby many employees who were near retirement age were retrenched according to one standard formula instead of another alternative option)

c.            Engaging the much proven local expert to carry out third party audit / surveillance and propose recommendations (NOT the expensive and yet unproven Foreign Consultant)

Based on the FY2007 Financial report, MAS employees strength were reduced from 18,641 (2006) to 17,991 (2007) but staff costs escalated from RM 1.872 billions (2006) to RM 2.001 billions (2007). So where are the cost cutting measures?

After all the over hype BTP (Business Transformation Plan), sure enough they are now facing bigger problems because instead of looking on intrinsic quality and efficiency, they brought it more new personnel (again with zero aviation knowledge), so much so that MAS is now top heavy, sluggish and rather than being the leader, they tend to trail Air Asia business strategies (remember the advertisement colour scheme, ELF (Everyday Low Fares) etc, etc.

2. Capital injection of RM 3.67 billions in 2007.

With reference to MAS 5 year financial performance ended 2007, there was a huge increase in Cash & Bank balances in 2007 in excess of 3.67 billion as compared to 2006.

Questions:

♦          Where does the huge capital injection of RM 3.67 billion comes from?

♦          Why MAS need to borrow 859 millions when they have sold fixed assets for 594 million and increase the shareholders equity to 3.9 billions in 2007 from 1.8 billion in 2006?

♦          Why do MAS need to hold 5.25 billion in Cash & Bank balances whereas in the past 5 years, their average balances were only around 2 billions?

From the above performance, it clearly illustrated that in FY 2007, profit of RM 852 million was not gained from operations but ‘creatively’ generated by selling her fixed assets and borrowings of RM 859 millions.

3. Continued purchase of A380 and late decision on B737-800 orders in 2008.

Eventhough A380s were ordered circa 2005, MAS missed a golden opportunity to cancel the order in 2007 because of manufacturing defects faced by Airbus. MAS has been extremely lucky that the A380 were further delayed to 2012. Imagine what would happen if MAS had the aircrafts now especially with the severe global economic downturn, we could have been worst off compared to SIA, Qantas and Emirates.

A former MAS MD who has been keeping a very close eye on MAS had said in June 2006 that “their argument is that SIA, Emirates and Qantas have it, so we too must have it to be (in sync) with the market” demonstrates poor business sense and justification.

4. Safety Issues

Two very serious incidents caused by MAS in 2008 which involved Saudi Arabia's B747-300 (wet leased from Air Atlanta) that caught fire in Bangladesh (subsequently written off due damaged beyond repair) and another Saudi Arabia B777's extremely expensive damages on both engines.

Yet, not many personnel have been informed about the real cause of these expensive and potentially fatal incidents and the preventive measures to be taken to avoid similar incidence.

5. Fuel Hedging

As at 19 February 2009, the Group has entered into various fuel hedging transactions for periods up to 31 December 2011 in lots totaling 17,350,000 barrels.

Source:http://biz.thestar.com.my/news/story.aspfile=/2009/3/5/business/3405345&sec=business

Thursday March 5, 2009

PETALING JAYA: Malaysia Airlines (MAS) stands to chalk up close to RM3bil in hedging costs over the next two years while its competitor AirAsia Bhd enjoys the benefits of lower crude oil prices, analysts say.

An analyst estimated that MAS was currently sitting on a collective paper loss of around RM2.8bil for financial year 2009 and 2010 as a result of its hedging activities.

6. I rest my case!

As at Dec 31, 2007, MAS had RM 5.25 billion in cash and bank balance and as at Dec 31, 2008, MAS had a cashpile of RM3.57bil. Where has the RM 1.68 billion gone to????

Why buy an airline that normally gives a return of 2 – 5% p.a.? The cash will be better spent if MAS buys back GE Engine Services which can easily give a return of 20 – 30 % p.a.?

The challenges and recommendations.

a.      This incomprehension has to be contained, if not eradicated at all costs or it will lead to a vicious cycle of self-destruction.

b. We must welcome challenge and conflict as a source of creativity and learning opportunities.

c. We need above all else, world-class management and work practices. We need to routinely consider the unthinkable and the business we are in, even when things appear to be going well.

    d. Ultimately, we are responsible for what we do and for what we don’t do.

Full details below:

http://rockybru2.blogspot.com/2009/06/six-things-mas-must-do.html

http://rockybru2.blogspot.com/2009/06/mas-responds-to-hbloggers-posting.html

http://www.rockybru.com.my/2010/08/why-sia-is-worth-s187-b-and-mas-is.html


2 years  5 months later, they woke up to face the most serious and crucial realities of the present.