Loss of two aircraft and more than 500 people
make it seem almost impossible to continue
The
tragic loss of Malaysian Airlines Flight 17 on July 17 with 298 passengers and
crew aboard, coupled with the mysterious disappearance of a second Boeing
777-200 into the Indian Ocean with the loss of 239 on March 8, could well doom
the airline.
No
other airline has ever suffered a double tragedy of this magnitude, especially
one that had swum in a river of red ink for years. The airline has a sad
history of exploitation by cronies connected to the United Malays National
Organization despite a record of excellent service that earned it five stars
from Skytrax.
MAS’s
current chief executive officer, Ahmad Jauhari Yahya and his team, have been
given credit for reacting well to the disappearance of MH370. They put in place
an array of promotions plus a banner on the website pointing out its five star
status. The airline attempted to convey a message that its operations were
proceeding normally. But passenger traffic had fallen drastically after MH370.
Given the double loss, the psychological impact on passengers is likely to cut
even deeper into passenger traffic. Add to that the psychological impact on
MAS's employees, with 27 friends and loved ones among the crews dead, which has
to be devastating
Despite
the most intensive search in aviation history, not a trace has been found of
MH370 – no floating debris, nothing. It is considered the greatest mystery in
aviation. The search, now four months along, continues although the focus of
where the plane might have disappeared to has changed several times, all to no
avail. By contrast, MH17 just happened to be in the wrong place at the wrong
time, flying a route flown by scores of other airlines even though a civil war
raged on the ground, when it was brought down by missiles apparently fired by
Ukrainian separatists allegedly trained by Russian technicians who thought they
were shooting at a Ukrainian troop carrier, if intercepted transmissions can be
believed.
It also
seems certain that the two disasters will attract the attention of the
Rottweilers of the US legal profession, no matter how the demise of the two
planes came about, generating a flock of lawsuits.
In
April, Malayan Banking Bhd. put out a post-MH370 analysis suggesting the
airline should be broken up and privatized because its component parts were
worth far more than the net asset value – at that time. Since then, with the
loss of MH17, its market capitalization has plummeted precipitously. Even
before the loss of MH17, according to the analysis, MAS’s shares were trading
at the lowest level in 12 years. They have since fallen farther.
According
to the analysis, the parent airline itself MAS lost RM1.35 billion on revenues
of RM10.859 billion in 2013. At the same time, its components Firefly, its
low-cost airline, MAS Engineering and Airport Terminal Services, all wholly
owned, Brahim’s Holdings (30 percent owned) which provides bonded warehousing,
freight forwarding and transportation services, and KL Aviation Fuel Services
(15 percent owned) all made enough money to reduce the losses by nearly RM300
million. Its wholly owned cargo line lost another RM29 million.
Even
before the latest disaster, MAS’s financial performance was terrible, losing
the equivalent of US$1.6 million a day. It has been deep in the red for at
least the past three years. Losses in 2011 were RM2.54 billion, the largest in
the airline’s history, because of rising fuel prices and mismanagement that
forced it to cut back eight international routes.
It
appears certain MAS will be unable to survive without yet another huge cash
injection from either the Malaysian government or Kazanah Nasional, the
government sovereign fund. Since 2002, the airline has gone through two capital
raisings and five new chief executive officers. Even with yet another bailout,
it appears that inevitably it will eat through vast amounts of money as it
struggles to regain its equilibrium and its passenger traffic.
MAS has
been required to do national service, flying into low-passenger-volume areas to
keep local politicians happy although it did chop back its domestic routes from
113 to 22, But it continues to lag its competitors such as low-cost airlines
like AirAsia, controlled by private entrepreneur Tony Fernandes, which eat its
lunch on both high-profit domestic and international routes. An attempt to sell
the airline to Fernandes last year foundered because of union opposition and a
political furor.
The
airline has 19,000 employees and efforts to cut staff have run into trouble
both from unions and from the political constituency connected to UMNO. As the
Maybank report points out, MAS “struggles to trim down its workforce. The
management has mobilized some employees from departments with surplus staff to
others which are in a deficit. However, there are many limitations on different
skill sets and licensing requirements. A ‘golden handshake’ is a plausible
consideration, but has not been talked about due to the highly sensitive
nature.”
With
compensation based on seniority, that limits the company’s ability to either
attract or retain talent. Staff benefits are lucrative and among the best in
the airline industry, Maybank says. “Whilst it is common to provide perks as a
mean to reward and retain talents, it can backfire if it is not structured
properly.
Cronies
have repeatedly very nearly ruined the business operations. Sources told Asia
Sentinel after MH370’s disappearance that contracts for everything from the packets
of nuts for passengers to cleaning contracts are vastly inflated and given to
UMNO cronies. The catering contract, for
instance, was awarded to the brother of former Prime Minister Abdullah Ahmad
Badawi and LSG Lufthansa for 25 years. It still has more than a decade to run.
Too
often, political cronies rather than professionals have been put in charge of
running the carrier although Ahmad Jauhari Yahya has earned respect. Despite
the bloated employee load, it is considered to have ignored investments in
customer service, especially in comparison to Singapore Airlines and Cathay
Pacific, considered to be the region’s best carriers.
MAS’s
safety record isn’t unblemished, even without the two disasters, although given
the record of other carriers in the region, including Garuda Indonesia, China
Airlines of Taiwan, Korean International and others, it isn’t that bad. It’s
worth noting, for instance, that Silk Air, a budget subsidiary of Singapore
International, suffered an apparent pilot suicide in December 1997 when the
pilot crashed the plane in southern Sumatra, killing 97 passengers and seven
crew members on board. Singapore officials attempted to cover up the reasons
for the crash.
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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