Turbulence ahead

Turbulence ahead

Amid shareholder anger and taxpayer disenchantment, MAS is pushed closer to drastic action to reverse losses.

A day after a stormy annual general meeting at which minority shareholders demanded the resignation of the board and management team of Malaysia Airlines (MAS) and denied directors their fees initially, the airline’s biggest union took the opportunity to protest outside the headquarters of the beleaguered national carrier.

Airport ground staff walk past Malaysia Airlines planes parked on the tarmac at Kuala Lumpur International Airport in Sepang.

The MAS Employees Union (Maseu) was demanding – not for the first time – that the top three executives in MAS resign, signalling a growing lack of confidence from within the organisation and outside.

Maseu has some clout and played a role in unwinding the infamous share swap agreement between MAS and AirAsia in 2011. At the time its members feared that AirAsia would push for efficiency-based improvements that would threaten union members’ jobs. Critics say MAS needs pruning if it wants to be profitable again.

MAS has lost money for four consecutive quarters, and the fallout from the still-unsolved disappearance of Flight MH370 on March 8 has further exacerbated its problems. Worse, it does not even have a business plan in place.

The frustration of the carrier’s minority shareholders is understandable. For five out of the past 10 years the books of MAS have been stained with red ink. For the first quarter of 2014, it posted a net loss of 443 million ringgit.

The situation will not improve over the next two to three quarters since the airline is seeing a decline in demand. It has had to cancel nearly 1,000 flights in the post-MH370 period. MAS has been reduced to a penny stock for, currently hovering between 19.50 and 20 sen.

Deputy Finance Minister Ahmad Maslan said in Parliament last week that MAS has projected a drop in ticket sales of between 400 million and 500 million ringgit this year. “The drop is worrying, but MAS has taken initiatives to sell tickets at discounted prices. Projected ticket sales for MAS this year will total RM15 billion,” he said.

“Naturally, the minority shareholders are disappointed; they have not seen any appreciation in stock price nor have they seen dividends. To them a change will perhaps bring fresh ideas to turn the airline around. Hence, they also did not want to grant the directors their fees,” said an industry executive who asked not to be named.

At the AGM, they asked many questions but answers were few, increasing their frustration. That helps explain the poor show of hands when the resolution came up to approve payments of 396,000 ringgit to directors.

However, when the board polled the meeting, the fees were approved, since the state investor Khazanah Nasional Bhd holds 69%. Still, it was such an embarrassment that the non-executive directors decided to decline their fees.

Shareholders at the meeting were told that the airline needs to make “radical or sweeping changes” to revive the company, but details were lacking. Khazanah has said it needs six to 12 months to come up with a plan, but if radical changes are needed, should it take a year? In any case, numerous plans have come and gone in the past 15 years and the airline’s condition has never been worse.

“It is easy to make such statements with no details. MAS should stop making such statements if they do not have details,” said another executive. “You cannot lead investors on, they should know that. Investors need to know now, not in 12 months’ time.”

Of great concern at the moment is China, which used to be one of Malaysia Airlines’ biggest markets. But the outrage felt by the friends and relatives of the 153 Chinese nationals on MH370 has reverberated throughout China and business is off dramatically.

It could take MAS a long time to win back the Chinese market. In the meantime, some believe it should focus on India. But India is a tough market where competition is stiff. Prior to the entry of Malindo Air, MAS was enjoying a monopoly on the Mumbai and New Dehli routes but it has had to cut fares by nearly half because of new competition.

While MAS is not saying when, market watchers believes a new business plan will be revealed in about two months. Some see the only way to rescue MAS is to declare it bankrupt and start afresh.

“How else can all the contracts be renegotiated? MAS is paying a lot for supplies and salaries. A radical change means cut and restart, or else there is really no other way out,” said one executive. “The government or Khanazah cannot be pumping more money into the airline, it’s taxpayers’ money, and they are already not happy with any rescue efforts.”

There have been some reports that Khazanah plans to take the airline private and then restructure it, with some bankers already having been hired to look at the possibility.

Even Datuk Nur Jazlan Mohamed, the chief of the public accounts committee, was quoted as saying that MAS should stop receiving government protection. “It has to learn to become independent in an era of rising competition,” said Jazlan, whose personal opinion is that the government has to turn off the money tap.

Khazanah has injected more than RM5 billion into MAS. Last year alone, the airline raised nearly RM3.3 billion from a rights issue as part of a plan to stage a turnaround.

Following the AGM, CEO Ahmad Jauhari Yahya did not deny that the airline was looking at job cuts and even bankruptcy. “We are looking at all possibilities,” he said.

Bankruptcy would certainly help MAS erase the legacy of lopsided contracts and a bloated workforce. It remains to be seen, however, whether the government has the political will to allow such a radical step.

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