Monday, December 08, 2014

Bina Fikir-conceived PMB lost money too?

Tan Sri Tajuddin Ramli left MAS more than 13 years ago in February 2001 but still gets blamed whenever any negative development on MAS surface. Many forgot that Khazanah had managed MAS for almost a decade and half.

Also forgotten, Tajuddin bought MAS to rescue Bank Negara for Tan Sri Nor Mohamed Yakcop's RM16 billion forex trading losses.

Tan Sri Azman Mokhtar handled MAS as con-sultan for Bina Fikir and proposed the Wide Unbundling Asset (WAU) scheme.

It provided temporary relief but Khazanah poor management under his leadership made losses bigger and bigger. Tajuddin's accumulated losses from forex devaluation pales in comparison.

Over the weekend, business weekly Focus Malaysia unraveled another side of the WAU scheme that was hidden from the public eye.

Bina Fikir-conceived leasing company, Penerbangan Malaysia Berhad (PMB) lost money also.

Thanks to MyScan, a mobile scanner sold by a young entrepreneur, the article could be reproduced with ease.

First, an article about aircraft leasing:
Lease business tempts airlines

AIRLINES are eyeing the lucrative aircraft-leasing business but their success will depend on the infrastructure to support the business.

"Also, the skill sets needed to operate an efficient and profitable leasing company are not necessarily the same skills as running an airline," says an industry expert.

Budget-carrier AirAsia Bhd recently set up its own aircraft-leasing unit, Asia Aviation Capital Ltd (AAC), based in Labuan. AAC will acquire aircraft and secure financing for these aircraft as well as provide operating leases to AirAsia's affiliates outside Malaysia.

According to AirAsia Group founder and CEO Tan Sri Tony Fernandes, AAC is expected to generate up to US$50 mil over the next few years, with long-term projections seeing it earn US$100 mil in later years. Aside from its supply of aircraft to the AirAsia Group, AAC is expected to place aircraft in target markets such as China and Africa.

Joining AirAsia in the aircraft-leasing business is China's first low-cost carrier Spring Airlines Co, as it seeks to reduce costs and increase the use of its fleet.

Indonesia's Lion Air and the Norwegian Air Shuttle are also venturing into the leasing business, which gives good bottomline and net profit margins of about 20%. More often than not, airlines rent out unused planes to manage fleets.

Lion Air's Singapore-based lessor, Transportation Partners, aims to ramp up third-party leasing next year and in 2016 with a focus on China, Brazil, Japan and the United States.

Meanwhile, Hong Kong billionaire Li Ka-shing's Cheung Kong Holdings Ltd is also entering the aircraft-leasing business and is paying US$1.89 bil to buy 35 planes. The company will also form a joint venture with MC Aviation Partners inc, to buy an additional 15 aircraft for US$733.5 mil.

Nevertheless, the entry of airlines to the leasing business raises questions about whether these budget airlines have the know-how to succeed or if they have simply ordered more planes than they need.

Lion Air, AirAsia and Norwegian Air Shuttle collectively have ordered more than 1,400 Airbus and Boeing jets, worth about US$140 bil at current list prices.

Essentially, they are competing with established finance firms that lease out aircraft to cash-strapped carriers from China.

However some, such as Singapore Airlines Ltd, tried the leasing business but eventually exited.
If successful, the low-cost carriers could in theory take business away from traditional lessors, particularly smaller players. That could put pressure on lessors to cut their rates.
The main article below on Amokh and Danny's proposed leasing company as managed by Amokh at Khazanah:

Leasing gone wrong for PMB

AIRCRAFT leasing is good business. Many companies worldwide, including AirAsia, are jumping onto this bandwagon. But apparently not for Khazanah Nasional Bhd's leasing unit, Penerbangan Malaysia Bhd PMB). It has racked up accumulated losses of RM 1.92 bil as at Dec 31,2003.

A look at its annual financial statements over 11 years shows fluctuating fortunes. The statements also reveal little information such as to whom PMB leases the planes, at what rates and what other asset it owns.

Where has PMB gone wrong that it has suffered losses for six of its 11 years? Will Khazanah ever turn around the company and what are its plans for PMB? As of press time, Khazanah had not responded to FocusM's queries.

In the absence of answers, we can only speculate that PMB is a vehicle that generally buys planes from a third party and not from aircraft manufacturers Boeing or Airbus. However, it is learnt that it provides the executive jets used for the nation's leaders such as the King and the prime minister.

"Not everyone wants to buy new planes and can wait for a slot. This is where leasing companies like PMB come in. PMB is not making money probably because it is not leasing out planes that are sitting idle. It has old planes, which are not what the market wants. Also, you may wish to know how much the planes are leased for. It is below market price?" says an industry source.

"I don't see the relevance of PMB. It owns Boeing 777 widebodies, which are in demand. It can lease to cash-strapped airlines in China. PMB should list its fleet size and type as well. Why so secretive?" the source asks.

PMB is believed to own four Boeing 777-2H6ER aircraft. Incidentally, the missing MAS flight MH370 is a Boeing 777-2H6ER purchased in 2002, with one safety incident recorded in 2012.

Strangely, 2010 accounts filed with the Companies Commission of Malaysia (CCM) show a huge discrepancy in that its revenue - previously stated as being RM13.05 bil - was restated in its 2011 accounts as being just RM588.04 mil! Net profit for this period was also restated, from RM382.47 mil to RM 129.45 mil.

PMB slumped into the red with a net loss of RM96.74 mil for the financial year ended Dec 31, 2013 from a net profit of RM81.1 mil the previous year, on the back of a lower revenue of RM288.43 mil from RM525.94 mil.

Its revenue of RM288.43 mil - derived mainly from the lease of aircraft and engines - was dragged down by a huge jump in expenditure amounting to RM327.87 mil compared with a previous RM135.3 mil. In addition, for FY2012, PMB received a huge other income of RM359.7 mil compared with RM31.35 mil inFY2013.

The company has total borrowings of RM4.8 bil as of Dec 31 last year, while its cash and bank balances stood at RM1.15 bil.

PMB has been affected mainly by a huge unrealised loss on foreign exchange (forex) of RM212.8 mil and a realised forex loss of RM46.43 mil in FY13; while its depreciation cost was RM62.83 mil.
This is in contrast to its FY12 results, when it realised a forex gain of RM139.6 mil and an unrealised forex gain of RM3.37 mil. However, its depreciation cost was higher, at RM 129.64 mil, in FY12.

PMB's carrying number of aircraft, engines and spares was lower at RM861.77 mil as of Dec 31 last year versus RM1.39 bil the year before, as it recognised an impairment loss of RM52.11 mil with respect to aircraft, after taking into account the decrease in market estimates of the residual value of the assets.

It made a gain on disposal of aircraft, property, plant and equipment of RM 13.5 mil and RM204.61 mil in FY13 and FY12 respectively. It is not known what property it disposed of.

According to PMB, certain aircraft and spare engines have been transferred to subsidiary Aircraft Business Malaysia Sdn Bhd (ABM) by its former subsidiary, Malaysian Airline System Bhd (MAS) in connection with the Widespread Asset Unbundling (WAU) exercise in 2002.

PMB says as part of the restructuring agreement with MAS, MAS has the right to receive 80% of any profit (as defined in the WAU agreements) from the sale of aircraft or loss of an aircraft asset covered by insurance.

A third chance

BinaFikir Sdn Bhd was instrumental in the restructuring of MAS under the WAU scheme. The BinaFikir co-founders were Khazanah managing director Tan Sri Azman Mokhtar and Mohammed Rashdan Yusof.

Rashdan was appointed MAS director in October 2010 and redesignated to group deputy CEO in August 2011. He was also appointed Khazanah's executive director of investments.

Rashdan was part of the team that brokered the controversial MAS-AirAsia share swap in 2011, unwound in May 2012 following opposition from unions and politicians. Here, MAS perhaps lost a good opportunity to turn its fortunes around.

Rashdan also worked out the 10-year, RM2.5 bil, sukuk programme to shore up MAS' capital base under a three-pronged funding pillar. During his short stint at MAS, he was in charge of short-haul operations as well as the commercial, finance, corporate finance and strategic procurement units. This includes the purchase of aircraft. Rashdan resigned as executive director and group deputy CEO in 2012.

Now that Khazanah has stepped in to rescue the ailing airline, it appears Azman and former MAS MD Tengku Datuk Seri Azmil Zahruddin Raja Abdul Aziz, who is in Khazanah, are being given another chance to revive MAS.

The question is, if they have already failed to bring MAS out of the doldrums, how different will it be this time?

The WAU exercise

In 2002, MAS - led by former managing director Tan Sri Md Nor Yusof - engaged in a reorganisation exercise which separated the balance sheet from operations by unbundling and transferring to PMB the 73 aircraft on the balance sheet at an ascribed value of RM5.11 bil, together with associated liabilities amounting to RM6.97 bil.

On the completion of the exercise, PMB - wholly-owned by the Minister of Finance, Incorporated (MoF Inc) -became the designated government holding company of MAS. The transferred aircraft fleet was simultaneously leased back to MAS.

The liabilities transferred to PMB include MAS' redeemable convertible preference shares (RCPS), meaning PMB became contractually bound to bear the cost of the eventual redemption of the RCPS and changing the substance of the RCPS from equity to debt.

MAS operates domestic airline services on behalf of PM B, through an arrangement that transfers the financial effects of the revenue and cost of domestic airline operations to PMB, while MAS continues to own and operate international and cargo businesses.

The reorganisation resulted in the issuing of483.2 million new shares to PMB, at the weighted average market price of the previous five days: RM3.85 per share, in consideration of its assumption of net liabilities of RM1.86 bil. After the exercise, PMB held a 69.34% stake in MAS.

The reorganisation also allowed for the disposal of non-core assets and businesses consisting of the sale of 70% of MAS Catering Sdn Bhd (MCSB) for RM175 mil in cash to Gubahan Saujana Sdn Bhd (GSSB). GSSB is 51%-owned by Fahim Capital and 49% by LSG Asia. MAS retains a 30% stake in MCSB.

MAS also sold properties at the previous international airport at Subang to Asset Global Network Sdn Bhd (AGN), a wholly-owned special-purpose vehicle of the MoF, as well as properties at the KL International Airport, also to AGN, for RM1.01 bil.

The WAU exercise helped MAS return to the black with a net profit of RM339.1 mil for the financial year ended March 31, 2003, from a net loss of RM835.6 mil in the previous financial year; while revenue increased by RM 199.2 mil. Total expenditure in FY2003 was lower by RM699.7 mil following the restructuring exercise.

No WAU follow-through

However in 2005, MAS' non-executive chairman Tan Sri Munir Abdul Majid said the WAU exercise completed in November 2002 was not followed through, with the full operational transformation of the company not as envisaged.

He said the subsequent better financial results, largely the outcome of balance-sheet transformation and of a significant contribution from non-operating income, lulled the company into a false sense of security and achievement.

Munir said MAS was in a dire situation when the sources of non-operating income dried up, with no compensating strong income from operations, further undermined by the sharp rise in the price of jet fuel.

MAS then took immediate measures to check the slide, including cost control, a fuel-efficiency programme and a revenue-enhancement plan. In 2005, MAS roped in Datuk Seri Idris Jala as managing director.

In 2005, the airline changed its financial year-end from March to December. For the nine months to December 2005, MAS recorded a net loss of RM1.26 bil due to higher jet-fuel costs and staff costs which increased by 40% and 21 % respectively over the corresponding period in the previous year.

The losses were incurred despite a higher number of passengers over the nine months. The increase in passenger numbers helped boost its passenger revenue by 14% to RM6.3 bil.

Unbundling the WAU

During Tengku Azmil's tenure as MAS managing director, the carrier started buying more planes, putting a strain on its balance sheet. He took over the position from Idris in 2008 and stayed as MAS MD until 2011, when he handed over the reins to Ahmad Jauhari Yahya.

Ahmad Jauhari had the huge task of steering MAS back to profitability when it recorded its largest net loss in history of RM2.52 bil, due largely to rising fuel costs in FY2011.

He will stay until Sept 19 next year, to ensure a proper handover while MAS undergoes another rejuvenation exercise.

Ahmad Jauhari has presided over a difficult period for MAS, as the company continues to suffer losses and has had to face two tragedies this year with the disappearance of flight MH370, which remains a mystery, and flight MH17, shot down over the Ukraine in July.

Khazanah unveiled a radical plan in August to revive the ailing carrier; a plan calling for job cuts, a capital injection of up to RM6 bil and the creation of a new company (Newco) to carry the airline business. It is taking MAS private.

We don't know how prominently PMB will feature in the MAS restructuring plan but taxpayers will want to know when the bleeding will stop.

From a June 2011 posting here

For 2nd quarter ending September 30, 2002, MAS ended its string of quarterly losses. Come March 31st, 2004, they proudly gloated of a RM461 million profit for the financial year.

Then, bad luck returned as MAS made a third quarter cumulative loss of RM1.26 billion for December 31, 2005. CEO Dato Ahmad Fuaad Dahalan was asked to step down earlier in August to make way for Idris Jala.

After a fund raising exercise, MAS made a profit of RM851 million for financial year December 2007. However, the account massaging could not sustain as Idris made losses in first quarter Mar 31 2009 to the tune of RM694 million.

Idris claimed that he had planned for MAS to make at least RM1.5 billion in 2012 but it turned out as losses of RM2.52 billion loss to Ahmad Jauhari for financial year ending December 2011. Idris was rewarded for the loss with Cabinet Ministership.

Tajuddin managed MAS between 1998 to 2001 and had an accumulated PBT losses of RM365.4 million after deducting RM1.7 billion for forex loss. Operation-wise, he still made money.

Whose the incompetent? Still blaming Tajuddin ...


Anonymous said...

Untuk peringatan kpd hanazah yang ambil alih Mas 2015. Saya memang tidak bersetuju orang luar jadi CEO/atau apa jawatan dalam Mas.Sebagai bekas pekerja Mas yang bersama MSS 2006. Minta pengurusan mas baru jangan jual Engneering Service Aircraft kepada orang Luar atau syarikat nak ambil alih. Itulah sahaja tinggal aset yang berharga dalam Mas. Sekian pemandu teksi.

Petoi Boga said...

Bila taroh orang yg tak tau airline bisness kat pmb n mas, semua org yg ada share lemas. 12 tahon dah lalu dan rakyat dah rugi berbiliyon2. Kazanah masih kata dia saja yg pandai nak buat untong? Dia buat org lain yg untong adalah! Yg paling untong, mantan2 ceo dan chairman yg lepas begitu saja. Ada yg dah jadi punasihat bisness asean dan ada yg dah jadi menteri. Nampaknya kazanah ni indah kabar dari rupa. Bukan syarikat mas dan pmb ni saja yg rugi, kalau dibuat odit oleh PAC, banyak lagi syarikat anaknya yg public tak tahu menahu pon rugi. So goodluck kazanah. Pastikan keuntungan. Jangan akhirnya ada org yg akan mengamokh dipanggil bangang kerana menjadikan Mab Malaysia Airline Bangang!!!

Anonymous said...

If not because of some smart alex whom running the shows as finance minister and he allows to put all Khazanah share under securities lending and borrowing (SBL) to foreign hedge fund, the ringgit could have fair better at about 2.45 and TR could have still run MAS. Yes, he over borrowed but then he expanded to international stature. His safe guard is only arranging parachute with gomen for buy back the shares at 8.00 Ringgit, while the market was doing 3.80.

Then this Khazanah with so called smart alexes with CPA, FCA, CFA, MAA, MBA oxford, oxbridge and oxen yet they run the GLCs like a numbers game, without thinking a thought of human values, local values, sovereign legal stature.

Still blaming hidden hand and making a fool of PM. Just because PM is not hands on and he meant well to trust you all guys. And the worst is taking advantage of PM cool attitude, to work on MAS large revenue and do some sinister agenda. What about working in concert with the same old man that plunder forex USD$ Tbills trade. Is there a conspiracy?

Anonymous said...

Wahai Pemandu Teksi, Itu lah yang boss besor khazanah mau, meka nak pekerja MAS yang arif tentang industri kapal tebang jadi pemandu teksi atau keja jual MLM atau nasi lemak. Bukan nak hina pekerjaan itu tapi pekerjaan di MAS hanya untuk suku sakat meka dan omputeh atau ada besar kemuungkinan orang India.

Anonymous said...

hi bro ABITW , azman mokhtar helms khazanah from 2004 , do some homework please, 2003 yes khazanah days but your target is azman , danny and azmil...........

A Voice said...

Anon 9.55 am

Unnecessary extra homework. Still ... he was the consultant for wau n later implement wau as md of khazanah.

What do you wanna do? Get me to drag others for amokh to look good?

Keep your eye on the ball and not the cheerleaders.

maae said...

Let Zetty handles Khazanah. She knows what to do... sound funny ?

Anonymous said...

Bro Voice , granted , eyes on the ball , focus on azman , but he looks after overall khazanah , not mas alone and last 10 year azman has done many improvement at khazanah ,the mas md's idris jala, munir majid et al , all got pujian , don't forget that the ecosystem is also not amenable for good business , faham faham saja lah............

Anonymous said...

Anon 937am

saya rasa kalau cuaca bisnis dimalaysia samarata dan tiada camporan orang berkepetingan dan politik , orang melayu pon bolih , bukti tan sri Aziz buat untok 300 juta sebelom tajudin ramli ambil alih.........itu saja

Pemerhati said...

Anon 11.50 AM

True Azman takes care of a lot of other investment. Tell me what new investment had he been successful other than paper shuffling to delist and relist hospital.

Really, Azman has done a lot of good? Like what? SHow what start up initiatve he did that was successful. Start w his MCKK crony Harun Johari's.

Better system? If there is any good he did, it is thought out and recommended by consultants. Khazanah had to pay for it. Then let the consultant be CEO of Khazanah then instead of paying Azman!!! Anyway always be weary with these foreign consultants.

God knows what Azman show to the world to see. He could be hiding like the losses at PMB.

Pemerhati said...


Zeti? It is really funny. She was shivering in her kain when Msia refused IMF help and wanted to solve it themselves.

All central bankers are beholden to IMF and world Bank

Anonymous said...

yes... the rot started 15 yrs ago, until now they cannot fix it... why why why lah. Must do proper study n identify the root of the problems. The answer to Focus article is very is because of the drastic drop in MAS share price n market capitalisation. The hardest part to explain is why share price dropped to 27 sen from ?????

Aku bengong.

Anonymous said...

Bro Pemerhati , don't tell me azman is that bad to the extend he gained no credit at all. the fact that since 2004 till now we have a functioning sovereign wealth manger is good enough compared before as only legacy asset custodian. hiring others to advise and assist is normal in high finance enterprise , kasi laa chance sikit . granted he has soft spot for his buddies or generally from his alma mater , but who don't do that , ansara is now doing it , so ok lah tu.........cheers

maae said...

Just a recommendation in different environment...

My Say