FRIDAY, JUNE 5, 2009
Six things MAS must do
TIME TO ACT AND REACT, 1MALAYSIA!
Two very serious accidents happened on 2nd June 2009 that really stunned me. One was the missing Air France A330 airliner enroute from Rio to Paris (may have caused a loss of more than 200 lives and an aircraft worth approximately RM400 million) and another was the collapse of the stadium’s roof in K.Trengganu (possibly another RM 200 million loss)
Many reasons and assumptions have been put forward but one thing was definite, it was due to ‘something’ that had seriously affected the QUALITY. This is the single factor that I have been dissecting, scrutinizing, analyzing, researching but sadly being human, we tend to forget easily and take things for granted most easily.
I will post my research on “Organisational Behaviour” for public consumption depending on the responses I received from my article below.
I have talked a lot about it, written a lot about it and now it is time to act on it.
I have waited more than 6 years to do this; my conscience is troubling me while my “fardhu kifayah” is urging me.
So, here goes something, wish me luck, Malaysia!
6 MAJOR THINGS THAT MAS SHOULD HAVE HEDGED INSTEAD.
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:
- Spinning off Engineering and Cargo Division (thus reducing the staff numbers by nearly 6000 but with ZERO cost)
- 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)
- 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.
Source: New Strait Times
Wednesday August 30, 2006
Is rewarding failure a new Malaysian way of life?
I am referring particularly to the exorbitant RM495.5mil recent payouts by MAS under its Mutual Separation Scheme.
A news report on Aug 24, said a MAS employee received a whopping RM699,000 “golden handshake.”
The other payouts include 39 employees receiving between RM500,000 and RM600,000; 79 employees between RM400,000 and RM500,000; 323 employees between RM300,000 and RM400,000; 635 employees between RM200,000 and RM300,000; 781 employees between RM100,000 and RM200,000 and 742 employees up to RM100,000.
MAS is in its present state mainly because of the failure on the part of its management and as such the management, especially the top management, should be held accountable and take a big cut in their salaries.
Instead of retrenching workers through a voluntary or mutually agreed separation scheme, it could cut salaries starting from the top and redeploy its workers.
As one would reward success with bonuses and promotions and other perks, it is only logical and prudent to institute some form of “punishment” for corporate failures.
The MAS “golden handshake” is unprecedented and it is ultimately taxpayers' money, as the Government is a major stakeholder.
Obviously it is not the MAS directors' own money that is being paid out but public funds.
We should not encourage a culture where we reward failure; decision makers must take the rap for their actions.
Otherwise we will have (if it is not being widely practised already) recalcitrant company bosses paying very high salaries to underserving employees through favouritism or other shady means and unscrupulously sacking or forcing good workers into resigning.
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:
a. Where does the huge capital injection of RM 3.67 billioncomes from?
b. 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?
c. 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.
Source: New Strait Times November 12, 2008
Complaints on MAS for cabinet meeting
"They (Malaysia Airlines) may be trying to raise profits, but they are a government-linked company. They must balance the issue of direct profitability with the effects on the country's tourism industry." Azalina said instead of cutting down on international flight frequencies and service levels, MAS should increase them. She said the move by MAS to reduce flight frequencies only benefited neighbouring countries' airlines.
"Singapore Airlines has increased the frequency of flights to London. MAS' fares are also quite high and the service is not very good.
Source: The Star 20 January 2009
Khazanah: Turnaround in operations of MAS and Proton not enough
“Khazanah managing director Tan Sri Azman Mokhtar said yesterday although MAS had been restructured with leadership and capital structure in place, these were not enough to turn it into a regional champion. “We’ve been quietly active in the last 18 months, scanning the world and talking to parties including Qantas,” he added after a media briefing yesterday.
On Khazanah’s participation in MAS’ rights issue last year, he said it was not a bailout as it was participation via the open market. “We don’t do that lightly. We made sure they had right leadership in place and right business turnaround plan in place,” Azman added.
Source: Malaysiakini 29 January 2009
Q&A: Fernandes pours out his frustrations
In terms of bailout, we've seen a lot of that. The entire banking industry in America (was bailed out) and America is virtually a socialist economy now. So it is all about if you have faith in a company and its ability to manage itself. I can't guarantee you that this is the case. But I'll just let our track record speak for itself. MAS has been bailed out three times.”
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.
Source: MAS to finalise aircraft purchase by 1Q
By Gan Yen Kuan Email us your feedback at fd@bizedge.com
01-02-2008
SEPANG: Malaysian Airline System Bhd (MAS), which unveiled its Business Transformation Plan (BTP2) yesterday, expects to finalise the details of its aircraft purchase plan by the end of first quarter this year.
However, the national carrier had not decided on the type of aircraft and whether they would be from Airbus or Boeing, said MAS managing director and chief executive officer Datuk Seri Idris Jala.
On the delayed delivery of the A380 aircraft, Tengku Azmil said MAS would conclude the negotiations with Airbus by end-March.
For 2008, MAS has three sets of internal earnings targets, namelyRM400 million to RM550 million, RM551 million to RM650 million, and RM651 million to RM1 billion or above, all assuming that jet fuel price stands at US$100 (RM324) per barrel.
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.
Further reference:
Saudi plane catches fire at ZIA
26 March 2008
Passengers of a Saudi Arabian airliner had a close shave yesterday afternoon when an engine of the Boeing 747-300 aircraft caught fire during landing at Zia International Airport (ZIA).
However, about 15-20 panic-stricken passengers suffered a few cuts and bruises during the half-hour-long ordeal of descending from the emergency exits, said a security official of ZIA while speaking with The Daily Star.
The Saudi Arabian Airlines aircraft (flight number SV 810), leased from Air Atlanta, arrived in Dhaka from Jeddah via Madina, a flight operations official at Biman Bangladesh Airlines said.
Sources at the ZIA said engine number 3 on the right side of the aircraft caught fire as it was landing at around 2:27pm.
A security official of ZIA said the accident could have been worse if the engine fire spread to the fuel reservoirs of the aircraft
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 lotstotaling 17,350,000 barrels.
The accounting policy adopted is to charge related expenses as fuel cost in the financial statements upon the expiry of fuel hedging contracts.
The fuel hedging programme is closely monitored and is subject to the vagaries of the market such as geopolitical events, the economic situation and weather conditions.
Source: http://biz.thestar.com.my/news/story.asp?file=/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.
MAS has hedged 64% of its fuel requirements for financial year (FY) ending Dec 31 at US$100 per barrel and 40% of FY10 at US$95 per barrel while crude oil is hovering around US$40 per barrel. The analyst estimates MAS using up to 16 million barrels of crude oil per year.
“It is paying higher for crude as it has locked positions at US$100 and US$95 a barrel whereas the current price is only around US$40 a barrel,’’ the analyst said.
Friday March 20, 2009
“Personally, airlines should not hedge their fuel price too far forward. They should look at their business model,” said a veteran trader, who declined to be named. “Most airlines sell their tickets about two to three months in advance, and I believe that airlines should then hedge two to three months forward,” said one veteran trader. “Never one to two years in advance — I’d call thatspeculative trading.” — Reuters
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.?
Source: http://biz.thestar.com.my/news/story.asp?file=/2009/4/16/business/3701260&sec=business
Thursday April 16, 2009
MAS with RM3.57bil surplus cash eyeing to buy another airline
BY TEE LIN SAY
PETALING JAYA: Malaysia Airlines (MAS) is looking to acquire another airline with its surplus cash. As at Dec 31, 2008, MAS had a cashpile of RM3.57bil.
Managing director Datuk Seri Idris Jala said tough economic times presented opportunities for consolidation. Companies with huge financial muscle will have the flexibility to act should opportunities come knocking.
“People always ask why we keep so much cash. We are positioning ourselves so that when the chance comes, we will be ready to grab it. In the next two to three years, if the economic downturn persists, we won’t even have to go looking. Opportunity will present itself to us,” he told StarBiz after the launch of MAS’ Stimulus Package yesterday.
Jala said as early as two years ago, MAS had been doing studies on some 30 airlines. The two key criteria that MAS looked at were strategic fit and synergy value. “When looking at the synergy value, 1+1 must be 3. If 1+1 is 2, then we won’t do it,” he said.
While 2008 had been especially tough for the airline industry with many companies having downsized, undergone restructuring and even gone bust, Jala said MAS was ready because it had been running this “marathon” over the last three years.
For 2009, MAS is aiming to save some RM700mil through continuous cost-cutting and efficiency measures. Over the last three years, MAS has reduced cost by a total of RM2.3bil. “I am quite convinced that MAS has the stamina and is built to ride through the current times. We are doing everything we possibly can to counter this economic downturn,” Jala said.
“We have completed the structural changes that were needed for MAS. If you notice, other airlines are now only embarking on their cost-cutting and manpower measures. With these issues out of the way, MAS can focus solely on innovating and achieving its target of being a five-star value carrier.”
“I’ve always been hearing people saying that they get cheaper first-class tickets for their international flights. I feel that our flights are just as competitive. So I challenge these people now. If you can show me the proof (through a ticket that has been purchased within the last three months), then we will match that price,” he said.
Meanwhile, MAS confirmed that there were no more discussions with Qantas with respect to the maintenance, repair and overhaul joint venture since the memorandum of understanding expired recently. MAS adopts a competitive hedge policy, where it hedges its fuel requirement based on what its competitors are also doing. About 64% of its fuel requirement has been hedged at US$100 per barrel.
The challenges and recommendations.
a. These 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 unthinkableand 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
Source: http://rockybru2.blogspot.com/2009/06/six-things-mas-must-do.html
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