Friday, 2 March 2012

MAS RM2.52 BILLION LOSS: SHORT TERM GAIN, LONG TERM LINGKUP



Mother ship is sinking!
“Old Man” wrote on March 2, 2012 at 12:19 am;
“As I see it, it is all convenient creative accounting.
Take a hit in 2011. Charge provisions for 2012 expenses and some mysterious expenses in the 2011 books and:
1. Justifies the illogical actions already taken.
2. Justifies the harsh actions planned.
3. When 2012 ends, a nice recovery (comparing to 2011) can easily be shown.
Oldest trick in the books.”

To further emphasize on how serious the issue below
we had earlier written an article on Friday, 5 June 2009 as summarized below:

6 MAJOR THINGS THAT MAS SHOULD HAVE HEDGED INSTEAD

1.   MSS – MAS Mutual Separation Schem
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 billion (2006) to RM 2.001 billion (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.
     
On the MSS, this is what the smart IJ and team could have done in 2006 instead;
Thursday, 03 November 2011 11:05
KUALA LUMPUR: Hong Leong Bank Bhd has embarked on a voluntary separation scheme (VSS) as part of its consolidation exercise towards growing its newly enlarged entity.
The VSS payment formula is based on a VSS multiplicand that ranges from 1.4 (for executives) to 1.6 (for non-executives) multiplied by the length of service (capped at a maximum of 22 years) multiplied by the basic salary or 50% of total monthly salary until retirement, whichever is lower.

2.   Capital injection of RM 3.67 billion 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 million when they have sold fixed assets for 594 million and increase the shareholders equity to 3.9 billion 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 billion?

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 million.

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

Thursday March 5, 2009 (Another IJ and team brilliant moves)
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 RM3.57billion. Where has the RM 1.68 billion gone to???? (Dec 2011 – less than RM 1 billion)
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.

2 years 9 months now, they woke up to face the most serious and crucial realities of the present. It is a NATIONAL TRAGEDY indeed!

Original here
MAS’s response here
More idiots here

1 comment:

  1. Whoaa , Wikileaks is right. Our country including our airlines are being run by incompetent leaders a.k.a. IDIOTS.
    But the biggest idiots are the Malaysian public (oops that also include me, he, he,he,)

    Run, idiots, run.

    MAS IDIOTS.

    ReplyDelete