Whither Malaysia Airlines without Khazanah’s guidance?

Trouble can come in threes.

Or in Malaysia Airlines’ (MAS) case, trouble lurks in many places.

The most serious trouble, as far as the eye can see, is a drop in operational discipline. Here’s an incidentinvolving a MAS Airbus A330-300, registration 9M-MTK on a flight (MH134) from Brisbane to Kuala Lumpur on July 18.

Long story short, the flight suffered an airspeed indication failure on takeoff, because the covers on the aircraft’s pitot tubes weren’t removed. These tubes measure static and kinetic air pressure in a moving aircraft to determine the indicated airspeed.

Pitot tubes are critical in an aircraft; a pitot tube failure led to an Air France A330 crash into the Atlantic Ocean in 2009.

Other news from Australia are damning, too and reports from Down Under suggest the pilots should have seen a discrepancy during the takeoff roll.

MAS indiscipline appears to be rampant in Australia. On June 30 a cabin crew of the airline was arrested in Melbourne for allegedly smuggling 3.5kg of heroin aboard a flight into the country. The drugs were worth AUD1.4 million.

Just a day earlier on June 27, a passenger on board a MAS jet lodged a complaint alleging the airline lost his cat, that was supposed to be transported with its owner on the domestic flight.

Complaints against the airline are coming fast and hard.

One passenger took to social media to highlight how MAS had, firstly been cancelling flights, and secondly, served all passengers (including those in business class) on an A380 plane, standard economy class meals on a Kuala Lumpur to Bangkok trip.

Read his rant here.

What is going on in MAS?

The CEO of the airline has been spewing this mantra of late: Malaysian Hospitality Begins With Us, but the latest incidents and cancellations of 15 domestic flights daily in July are anything but a sign of hospitality.

We understand that poor duty rostering, cancellation of annual leave, aircrew fatigue and changing policies have in some ways contributed to the decline in not just morale but more importantly, discipline.

Critically, pilots have started to leave, creating a shortage. MAS acknowledged this but put a clever spin on it by implying the situation was a healthy one because demand has been soaring. But it appears more a sign of poor planning; why did the airline schedule more flights when it knew it didn’t have sufficient flight crew?

Can MAS make money?

An International Air Transport Association (IATA) survey concluded that airlines’ profits are set to rise over the next 12 months due to firm demand and better efficiencies.

Unfortunately MAS is unlikely to ride on this. The airline is spending more than it earns each month. In FY15 the carrier posted a loss of MYR1.13 billion and managed to narrow this to MYR439 billion in FY16. But oddly, as of June this year, MAS has yet to file its 2017 financial statement with the Companies Commission of Malaysia.

Most other carriers in Southeast Asia had revealed their results for 2017 in May and June.

A big question mark now hangs over the fate of MAS following the en masse resignation of sovereign wealth fund Khazanah Nasional’s board of directors on July 26.

Khazanah was the mastermind behind the MYR6 billion, 12-Point MAS Recovery Plan (MRP) that projects the airline to be re-listed on the bourse in 2019 and be profitable by 2020.

In our view, the MRP has so far been an abject failure. Two foreign chief executives that were appointed by Khazanah at a cost thought to be almost MYR20 million, left within two years.

Obscene pay for executives

Paying its senior executives exorbitant and obscene amounts of money has been a hallmark of MAS.

According to the company’s annual reports of 2011, 2012 and 2013 MAS paid on average an annual salary of MYR2.33 million to its CEO then. During the same period (2011-2013) the airline lost MYR4 billion.

How could an airline described in 2015 by its ex-CEO as “technically bankrupt”, and representing a country now saddled with over MYR1 trillion in debts, justify paying monthly salaries that are five to eight times more than the prime minister? And let’s not forget that MAS is essentially being funded by taxpayers’ money.

To compound matters, MAS is today in the debt market to tap funds for the acquisition of nine Boeing 737 MAX planes.

When Japan Airlines (JAL) filed for bankruptcy in 2009 and subsequently restructured, it eschewed any borrowings. Instead JAL tightened its belt: employees took pay cuts, adjusted the pension policies, shrunk the airline’s fleet and unprofitable routes, and sold all non-core assets.

Speaking of non-core assets, we’d like to know what happened to the Botero artworks bought by a former MAS chairman over 10 years ago at a cost of more than MYR1.5 million – where are they now?

Structural problems remain

After three years of the MRP, the flag carrier is still struggling, shackled by incompetency and an inability to compete effectively and efficiently in a marketplace that is constantly changing and evolving.

The first and foremost issue with MAS is a question of trust. The airline has lost its reputation and the respect of many Malaysians and non-Malaysians, and rebuilding trust requires patience and a solid strategy. And what exactly is MAS’ business model – is it a premium carrier or a low-cost airline or in-between?

The second issue with MAS is internal corporate governance. Morale remains low and many employees are frustrated at the lack of opportunities (personal and professional growth). With low morale and frustration comes complacency, and in the airline industry that can be detrimental, to the company and its customers.

The third issue is, what now after the departure of those Khazanah board directors? Can the airline’s senior executives manage, left to their own devices? Who will the management and board turn to, and who will be accountable beyond the CEO?

If MAS is to succeed, it is absolutely crucial to tear apart the MRP and have a complete overhaul and review of the company, its management and shareholders. The installation of a new government in Malaysia presents an excellent opportunity to do that but has the political leadership the will to do it?

Leave a Reply

Your email address will not be published. Required fields are marked *