Investors “stupid” to invest in Malaysia Airlines, says its CEO

Malaysia Airlines Berhad (MAB) managing director Izham Ismail is either confused or crafty.

In interviews he gave to the Malaysian media recently the CEO of MAB said he would be happy to receive investors, be they foreign or local.

“I welcome strategic investors as they will help the airline navigate during this challenging market,” Izham told the New Straits Times.

On the sidelines of the International Air Transport Association (IATA) annual general meeting (AGM) in Seoul over the weekend, he emphasised the need for MAB to have partners that not only bring money to the carrier but “new culture” too.

But then he remarked: “Do we sell a hundred percent shares to them… are you brave enough to take on the liability of Malaysia Airlines? You’d be so stupid.”

Say what?

On the one hand he welcomes investors but on the other he thinks anyone daring enough to assume MAB’s debts are fools?

In 2017 MAB registered a loss of MYR812 million. The company posted losses of MYR439 million and MYR1.13 billion in 2015 and 2016, respectively.

Its financial result for 2018 has yet to be submitted to the Companies Commission of Malaysia (CCM).

However, MAB told an industry publication it had finished 2018 “on a marginally lower loss…”

That said, there is market talk the airline is losing in excess of MYR100 million a month since January 2019.

In our view that is a possibility, if the problems suffered by MAB subsidiary Firefly earlier this year are anything to go by.

Following the airspace dispute between Malaysia and Singapore over Seletar Airport’s use of the Instrument Landing System (ILS), Firefly was not allowed to fly to Singapore for almost five months, incurring losses of between MYR15 million and MYR20 million a month.

Whilst Firefly has resumed flights to Singapore and is hoping to increase more flights between Subang Airport and Seletar, it is struggling.

On that basis, it is conceivable that MAB – whose fleet is larger and costs higher – could lose at least MYR1 billion in 2019, taking into account fuel prices, forex volatility and intense competition, among other factors.

Since it was delisted in 2014 – the year it received a MYR6 billion bailout from Khazanah Nasional – MAB has accumulated MYR2.4 billion in losses between 2015 and 2017.

MAS indirectly contributes to Malaysia’s GDP?

Malaysia’s sovereign wealth fund Khazanah Nasional, MAB’s sole stakeholder, wants Malaysians to view the national airline from an economic perspective.

There is a price, said Khazanah’s managing director Shahril Ridza Ridzuan, of propping up a flag carrier that brings benefits to the economy “in terms of linkages and trade and so on.”

Khazanah’s boss reckoned MAB has an “8 to 10 times” multiplier effect on Malaysia’s economy.

And MAB’s CEO readily agreed with this flawed reasoning.

Said Izham: “Malaysia Airlines might not be profitable, but organisations, stakeholders, companies that give services to Malaysia Airlines are profitable. That itself is a GDP positive.”

This is grossly misleading, in our opinion.

Don’t take our word for it. MAB’s first expatriate MD, Christoph Mueller, said as much.

In an interview with German newspaper Deutsche Welle (DW) three years ago, Mueller revealed that Malaysia Airlines (MAS), the predecessor of MAB, had bought products from suppliers at up to 25% more than market value.

“Everything from pens to USD200-million aircraft were purchased at these rates,” said Mueller. “Furthermore we had a problem with the number of suppliers, which stood at around 20,000.”

So while the national airline perennially bleeds, the companies that provide products and services to MAB – as described by Izham – are profitable because they are milking the airline’s generosity!

How is that “GDP positive” and why should Malaysian taxpayers’ money be used to enrich other private companies in the supply chain at the expense of MAB?

Both Izham and Mueller had attended the prestigious Advanced Management Program at Harvard University but why do their economic analysis vastly differ?

Stupid is as stupid does

Notwithstanding that, Izham is absolutely spot-on that few (if any) investors would be so stupid as to take on MAB’s liabilities.

But the question becomes: does he think then it is justifiable for the Malaysian government (via Khazanah) to continue to support MAB by throwing good money after bad?

Or is it because some Malaysians are perceived as dumb? After all, Khazanah is thus far the only investor in MAB with an appetite for its huge liabilities. Does it make the sovereign wealth fund look stupid?

To be fair, MAB isn’t the only national carrier facing immense challenges and difficulties.

It was reported earlier this week South African Airways’ board of directors (BoD) had accepted the resignation of Vuyani Jarana, the airline’s CEO.

In a letter to the BoD Jarana had expressed his frustration with the powers that be over funding shortfalls, amongst others.

Unlike Malaysia’s government, South Africa’s politicians were unwilling to splurge more money on its cash-strapped, struggling national airline.

The question now is, what role is Izham playing in this Malaysia Aviation Group (MAG) labyrinth?

According to those familiar with him, Izham had exhorted his team in early March this year to remain focused and there was no sign of the boss contemplating resignation.

On the contrary, apparently some staff were touched when Izham said he loved those in the MAB family and that they made him whole.

The MAB chief need not worry.

His job is safe, as the Malaysian government still has abundant funds even if it has neither the political will nor gumption to make the national airline profitable.

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