2001/2003 MAS FLIGHT PLAN
SHARE SWAP BETWEEN MAS AND AIR-ASIA AND ITS IMPLICATIONS
By former MAS Managing Director
5 April 2012
Recently MAS and Air-Asia entered into an arrangement to swap shares. In consequence Air-Asia has two representatives on the Board of MAS. Many quarters questioned the move to swap shares in view of the fact that the arrangement would cause adverse implications to MAS.
Some of the implications are as follows:-
(i) The most critical problem facing MAS is the shortage of funds to finance the purchase of Airbus 380 and B737-800 aircraft. It is alleged that the total amount required is RM12 billions.
The Government as the major shareholder has to play a leading role in the process of fund raising. The current management is proposing to raise funds through the sales of movable assets in engineering, cargo, training and ground handling. These departments will be under separate joint-venture companies and MAS will not be in complete control of those companies. It means that MAS will have to outsource those services. The quality of the total MAS services will be adversely affected. Employees’ reactions to the move will affect the operations adversely and it will take a long time to come back to normal. The image of the airline, will also be adversely affected in the process.
(ii) MAS has over the years developed its Engineering capabilities to a very high level. The facilities and equipment are comparable to any of the best outfits in the world. The expertise is also comparable to any other similar organization in the world.
The current management’s move to sell some of the engineering assets and to change the management structure is a negative step and should not be proceeded with. MAS should be allowed to continue with its objective of making its engineering capabilities to be of world class and recognized by the aviation industry world-wide and in the process engineering will become a major income earner from third party customers contributing to the profitability of the airline.
(iii) The share swap between AirAsia and MAS does not give any advantage to MAS. The modes of operations of both airlines are different as they are on different business models. In fact the arrangement is suicidal to MAS as it has to compete against Air-Asia on the same routes with a disadvantaged business model. Under the arrangement, AirAsia operates low fare while MAS operates premier services. This arrangement is suicidal for MAS in view of the fact that the markets they are competing in, are low fare price sensitive markets.
The solution is for MAS to provide both premier and low fare services. This can be done so that MAS can compete against AirAsia fairly. It is a matter of making some adjustments to the terms and conditions of carriage and making some changes to the operating procedure. MAS should be able to prevail in the competition.
iv) The share swap between Air-Asia and MAS resulting in the appointments of representatives of Air-Asia on the Board of MAS was a serious mistake and should be revoked. Air-Asia and MAS are still in competition on almost all the MAS routes and it is highly irregular to have the airline’s opponents making strategic decisions for the company’s own operations. Air-Asia has under the arrangement agreed to maintain their aircraft at MAS facilities in consequence of the share swap. This arrangement is in fact for mutual benefit as Air-Asia is given favourable rates. Even if there was no share swap, it would be in the interest of Air-Asia to maintain their aircraft with MAS as otherwise AirAsia will have to maintain their aircraft with SIA whose rates are no better than MAS. Without the share swap the two airlines can still cooperate for mutual benefit.
(v) The current management has taken steps to move staff from Area A at Subang Airport to KLIA. The staff concerned (a fairly large number) are very unhappy as it means that they have to overhaul everything, moving house to Sepang and this will cause severe hardship to them.
It is proposed that such a move should be stopped. Instead since the land in Area A is to be used for some purposes, the staff there should instead be moved to Area B and not to KLIA.
1. In consequence of the move to swap shares between MAS and Air-Asia, the airlines have to face changes which are affecting MAS adversely in many aspects. It is recommended that the arrangement be revoked.
2. Currently the staff morale is very low and action should be taken to improve the situation quickly. The membership of the Board and the senior management must be examined and reconstituted. People with high integrity, the right knowledge, experience and with the national interest at heart, should provide the leadership of the organization as soon as possible.
3. There are many critical issues that need to be solved on an urgent basis. The most pressing issue is the financial aspect. The Chairman of the company said that the company was very sick and needed urgent treatment, while the Managing Director also said that unless the financial situation was fixed fast, the company would be bankrupt soon. It is therefore a serious situation and the government must now be involved in resolving the problem.
4. The traffic rights available to the national carrier should be examined. It appears that some carriers especially those from the Middle East are enjoying traffic rights at our expense. They are practising the illegal carriage of 6th Freedom traffic at our expense. This is a very serious intrusion into the company’s business opportunity. This issue should be examined fast with the assistance of the government. In the context of the current competitive environment, action must be taken fast to conclude effective strategic alliances with other carriers where relevant.
5. It should be noted that the current management is now actively engaged in negotiating the sale of assets in engineering, training etc. It is important that the activities be suspended immediately otherwise it will be too late to take remedial measures. The proposed formation of joint-venture companies relating to engineering, training etc. should also be suspended before it is too late.