MAS Flight Delays: Idris Jala Lied!

The recent Special ESOS that instantly enriched few novice and non airline-experianced management, at the expense of hardworking and diligent MAS staff, has taken its toll. The workforce obviously demotivated by the biased share allocation has reluct from the companies taglined “beyond expectation” service and a spate of flight delays are happening daily.

In the Sunday Times today, Datuk Idris Jala denied it is due to demotivated staff and attempt to attribute the delays to technical reasons. Yet, the bulk of the statement is addressing problems arising from the controversial Special ESOS.

Who is he kidding? Is Idris Jala lying through his teeth?

Idris attribute the delays to 3 factors; namely technical problems, bad weather, and introduction of new check-in system. The most accessed story on NST Online on Sunday today entitled “Statement by Datuk Idris Jala with regards to article on MAS employees crying foul over ESOS distribution” is reproduced below:

WE are aware that there are employee concerns over the Performance Management System (PMS).

"We are taking immediate steps to address the concerns. Yesterday, Friday, 13 July, we met with the senior members from all Unions and Associations, and will immediately set up a Special Task Force on Performance Management, led by executive director and chief financial officer, Tengku Datuk Azmil Zahruddin.

All the Unions and Associations, and management will be represented in this Special Task Force.

The task force will meet next Tuesday and its first and immediate task will be to arrive at a workable solution to address the current concerns around the Employee Share Option Scheme (ESOS) and PMS that have been voiced by employees.

The members of the task force will be tasked to provide their recommendations on immediate actions to be taken at the very latest by Friday, July 20.

At the same time, we are experiencing several flight disruptions due to a combination of factors including technical issues, bad weather and the introduction of the passenger services system.

In terms of technical issues, there were two significant engineering related instances this week.

One involved a Boeing B777 grounded in Frankfurt on July 9 due to an engine damaged by an apron baggage loader.

The engine was subsequently rectified and the aircraft is now back in operation.

Another was an Airbus A330-300 now grounded indefinitely in KL International Airport (KLIA) since Thursday, July 12, after one of its cabin doors was structurally damaged when an airport aerobridge fell to the ground.

In addition, a Boeing B737-400 was grounded in Kota Kinabalu airport on July 12 awaiting special parts for its cockpit window while another Boeing B737-400 is currently undergoing a comprehensive rectification of its flight control system in KLIA.

Bad weather also caused several flight disruptions where among the notable ones were the Kuala Lumpur-Melbourne flight on July 10 that was diverted to Adelaide and a Kuala Lumpur-Penang flight of the same day diverted to Langkawi.

Every one of these situations invariably caused a shortage of operational aircraft, which necessitated the reshuffling and re-timing of some of our normal schedules.

In some instances, one or two `high frequency' flights were cancelled but we compensated by deploying a larger aircraft that could accommodate the combined passenger load.

Apart from our services to some domestic stations, our flights between KLIA and stations such as Penang, Bangkok, Jakarta and Singapore were impacted by such ad-hoc re-timings.

Where possible, we notified passengers in advance of these re-timings and flight rescheduling, whilst we also worked with the airport operators for such updates to be featured in the flight arrival and departure information display boards.

These were complemented by appropriate service recovery measures at the various airports to minimize passenger inconvenience.

The technical issues and bad weather were compounded by the introduction of a new passenger services system in line with the mandatory IATA (International Air Transport Association) requirement for e-ticketing.

Like any other new system, we are going through some teething issues as not all our employees are familiar with the new check-in system.

In some cases, this may result in passengers being checked in slower than usual.

We apologise to our customers for the discomfort they experienced arising from these situations.

We are aware that there are speculations that the delays are partly due to dissatisfaction over the newly introduced PMS, ESOS and bonus payment.

We have investigated every incident. At this stage, there is no clear evidence of this and we are continuing to monitor closely every delay and the causes.

As mentioned earlier, we are working closely with the Unions and Associations to address the employees' concerns through the Special Task Force.

Idris Jala lied in this statement!

Insider sources in MAS revealed that the flight delays are not few and normal. In the past two weeks, there has been 30-40 flight delays, or an average of 3-4 flight delays. That is perhaps superb for AirAsia standard of service but not for an Airline with International routes and credible service record like MAS. On a normal day, MAS runs an average 300 flights daily.

Idris Jala's claim to attribute to technical problems and bad weather is fallacious. These are part and parcel of a normal airline operations and should be addressed with ease. The questions that arise are MAS's ability in service recovery and its readiness in preparation and response to such normal happenings in the day-to-day of any typical airline operations (except AirAsia, off course).

To illustrate the point, insider described one such delay was a case of malfunctioning aerobridge or colloquilly described as, “it had fallen off”. Obviously, a standby aerobridge should be readily available or passengers redirected for their boarding with the least time delay.

MAS has a history of sabotage from disgruntled staff. Management have enhanced security and supervision in the engineering work area to ensure no repeated incident of wire cutting as happened many years ago. Perhaps, Idris Jala has considered personally doing late night surprise engine count check.

Dissatisfaction is clearly endemic in the past one month throughout the organisation. MAS Managers and staff has resigned to a work-to-rule unspoken protest. There is wide spread reluctance to undertake any "extra effort" initiatives. Sentiment among staff is "jangan susah-susah, boss baru tak tahu apa saja dapat macam-macam". The corruptible MASEU and MAS union officials does not help their cause either.

The reason to implement the new passenger services system or check-in system, spinned and justified by Idris Jala to meet the IATA requirement, raises more questions.

Is the new system necessary? Insiders within MAS has long complained that the new system, "SITA Check In Sytem" as more inferior to the existing "MAS Komputer" system. To know some story about the system, all one need is to recall back the “flying buffet” chain e-mail that was making its round few years back.

This system was proposed by one Puan Mazida bte Mohd Noor, a subject of that vicious email. She has recently resigned from MAS, but her proposed system is still being pursued by management. Could this be the system that raised in the e-mail suspicion of kickback, excessive salary for an over-rated expatriate, and sordid personal details?

Idris Deceived the Government!

The real reason believed for the rush to implement this system now is speculated as Idris Jala’s desperation to “score points”. Operational people have long highlighted the inadequacy of the new system to retrieve certain critical information. Could this system serves to falsify profit figures for Idris Jala?

As it is, he has successfully deceived the Minister of Finance (MoF) in face-to-face briefing into believing his 6 quarters of continuous profits guaratee. It is too obvious the praise by MoF II as “the best CEO money can buy" a statement typical from an easily deceived Pak Lah.

Pix taken from Cakap Tak Serupa Bikin's blog posting "Idris Jala: CEO that Money can Buy"

Industry circle have long questioned Idris Jala’s turnaround ability. Thus far, all he has done is to retrench experienced staff and management, and is replaced with novice or non airline-experianced, and over-rated Accountants.

Although partly stiffled by the Minister for “Air Asia affair”, Dato Chan Kong Choy and the politically influential AirAsia, Idris is incapable turning around AirAsia operationally. The so-called profit of MAS on those profitable quarters have been merely from asset sales and said to be creatively translated as operational profit.

Within Shell, he is merely known as "specialist" in retrenching exercise and busting unions. Existing and former MAS staff will never forget his press statement, when first joined MAS, to deny laying off of staff but focus on operational turnaround. Just to show that Idris Jala is a compulsive liar.

For more perspective with the happenings in MAS, read back Biggum Dogmannsteinburg's "MAS: Going Beyond Whose Expectations?" and Jeff Ooi's Citicorp: Sell Airasia to Take Profit.

The Human Resource Man Myth

The latest debacle involving the Special ESOS and PMS (widely ridiculed as Pre-Meditated Sacking) illustrates the myth of Idris Jala as a Human Resource man meant for human resource turnaround strategy. MAS is an organisation with one of the biggest workforce in the country and a leading player in the local aerospace industry.

The aerospace industry is one industry that provide a platform to elevates the country's ability in high technological capability. Try fathom the amount of money required to develop this industry? It requires millions or not billion to establish the facilities, and training the highly specialised technical skills. Pak Lah received headline for "Aerospace New Growth Area For M'sia To Exploit" in his November 21, 2006 statement (read from this PM Department link here).

With the appointment of Idris Jala as his "Human Resource Man" at MAS, does Pak Lah realised of the impact to the industry's "Pembangunan Modal Insan", to pun another of his slogan? How is Malaysia to meet his plan to be a global player in the aerospace industry by 2015 with the skilled and experienced aerospace personnel migrating abroad and existing ones disgruntled? How do you develop human resource, when you can't even manage in the first place?

If he care to find out, the majority, if not monopoly, of players and technical people in the Malaysian aerospace industry are Bumiputera. The plan for an aerospace industry has been set long before he learned to pronounced the word "aerospace" correctly as he is still struggling to learn to pronounce "aerospatile". It is not developed after his 2006 press statement.

This is yet another of his lying slogan, "Malay Agenda". His appointed turnaround man for MAS, Idris Jala is a case of "tikus membaiki labu". That seems to be the order of the day for Pak Lah's GLC reform and turnaround, like in Proton.

If Idris Jala is the Project Leader and MAS was the turnaround project for "The Apprentice", I can bet till my last dollar The Donald would utter to him, "You are fired! Now get out!". I would imagine he turn towards the standing Pak Lah standing and say, "You too! Go, you both!"

MAS Hina Sultan Pahang

Baru sahaja sikap derhaka Perdana Menteri, bekas Menteri Besar Terengganu dan ahli-ahli Dewan Undangan Negeri terhadap DYMM Seri Paduka Baginda Yang Dipertuan Agong dan Pemangku Sultan Terengganu reda. Satu lagi insiden biadap dan menghina terhadap Raja-Raja Melayu oleh Malaysian Airlines kini menjadi buah mulut ramai.

Pada Mac 16hb, 2008, dalam seminggu selepas Pilihanraya Umum, DYMM Sultan Pahang sepatutnya berangkat ke London di dalam pesawat MAS. Tuanku Sultan Pahang merupakan satu-satunya Sultan yang menyokong MAS dan hanya menaiki perkhidmatan penerbangan MAS.

Mengikut lazimnya, Baginda akan menaiki bahagian Kelas Pertama dan ahli-ahli rombongannya akan berada di bahagian lain. Pada malam itu, seebaik saja Baginda Sultan menaiki pesawat dan selesa duduk, Baginda menyampaikan hajat kepada Kapten dan International Flight Steward (IFS) untuk berjumpa dengan doktor peribadinya yang berada di bahagian lain kapalterbang.

Permintaan Baginda ditolak. Setelah dipinta lagi, kedua-dua Kapten dan Steward bukan Melayu masih berkeras enggan membenarkan. Mengikut sumber dalaman MAS, baginda yang terkejut dengan keengganan mereka telah mengadu kepada ahli rombongan yang berdekatan. Seorang Ketua Polis telah masuk ke pesawat dan memujuk Kapten dan Steward tersebut. Mereka tetap berdegil tidak membenarkan doktor peribadi ke hadapan bertemu Tuanku.

Baginda Tuanku yang berasa kecil hati dengan sikap pegawai-pegawai tersebut mengambil keputusan untuk tidak menaiki pesawat MAS. Baginda dan rombongannya terpaksa menaiki pesawat yang diberi oleh Air Asia untuk ke Singapura dan menaiki Singapore Airline untuk ke destinasi London.

Gambar Baginda Sultan di satu Majlis

Peristiwa ini menunjukkan betapa teruk menurun sekali kualiti perkhidmatan MAS di bawah pentadbiran Dato Idris Jala. Suatu masa dahulu, MAS terkenal dengan mutu perkhidmatan dan kecekapan anak-anak kapal dalam melayani pelanggan.

Sekiranya begini layanan dan penghargaan yang diberikan kepada Sultan Pahang, bayangkan layanan MAS kepada rakyat marhaen yang menggunakan perkhidmatan MAS. Padahal pegawai-pegawai tinggi MAS, termasuk Idris Jala sendiri, diberi penghormatan anugerah dan pangkat oleh DYMM Sultan Pahang.

Dato Idris Jala telah diberi penuh kepercayaan oleh PM Dato Seri Abdullah Badawi untuk memulihkan MAS. Mengapakah boleh berlaku insiden sedemikian?

Di bawah pentadbiran Dato Idris Jala, suatu polisi diskrimanasi yang tersirat telah dibudayakan terhadap pekerja-pekerja dan pengurus-pengurus Melayu. Ia sering berlaku melibatkan pengurus-pengurus atasan bukan Melayu yang dibawa masuk terhadap pengurus-pengurus dan pekerja-pekerja lama Melayu.

Padahal suatu masa dahulu budaya kerja di MAS begitu muhibbah dan bebas dari diskriminasi perkauman. Walaupun peratusan orang Melayu agak tinggi, semua kaum mendapat peluang yang sama untuk naik pangkat. Diskriminasi kini sudah begitu terang-terang berlaku hingga pekerja-pekerja lama MAS dari kaum bukan Melayu tidak selesa dan tidak setujui dengan amalan diskriminasi sedemikian.

Sebagai petunjuk (indicator), pasukan baikpulih (turnaround team) Idris Jala yang seramai lebih kurang 10 orang adalah terdiri dari pengurus-pengurus dari luar, baru dalam industri penerbangan, dan bukan Melayu, melainkan hanya seorang pengurus Melayu dan staf lama MAS. Majoriti pengurus luar dan pengurus atasan yang dibawa Idris Jala adalah dari kaum bukan Melayu. Bukankah ini pelik memandangkan orang Melayu jauh lebih ramai dan lama terlibat di dalam Industeri Aeroangkasa tempatan?

Adakah sikap diskriminasi telah dibisik-bisikkan dan menjadi-jadi hingga terbawa-bawa kepada pelanggan Melayu dan Raja-Raja Melayu pun tidak dihormati?

Mungkinkah pula sikap pucuk kepemimpinan UMNO yang sudah tidak menghormati hingga derhaka kepada Raja-Raja Melayu dari akhir tahun lepas hingga selepas Pilihanraya Umum telah menular ke rakyat biasa?

Dalam bahasa pasar, adakah sejak Tun Musa Hitam mengumumkan DEB tidak perlu diamalkan di WPI, rakyat bukan Melayu sudah "besar kepala" untuk berbalas dendam? Bukankah DEB itu untuk menyatukan rakyat melalui program ekonomi, pendidikkan, sosial, dan bahasa?

Hanya boleh difikirkan adalah ikan mula busuk dari kepala.

Regina leak info for evangelical cause

Regina Lee did a manouvre on the Allah name issue through her boss, Khairy Jamaluddin to put the issue back into play. That brought out Perkasa's Secretary General, Tuan Syed Hasan Syed Ali to tick off Khairy for meddling in an area outside his purview. [MI reported here]

Syed Hasan reminded the Pemuda UMNO Chief that he showed more concern for the torched chapel in Kuala Lumour than masjids and suraus desecrated by pig's head and content. He rebuked Khairy's claim that the Allah issue is resolve.

To refresh the memory of many, Syed Hasan vehemently opposed to the 10-point solution initiated or perhaps instructed by PM upon Dato Idris Jala to the point of threatening to withdraw his membership from UMNO. It is unimaginable for a communications graduate pretending to be an oil and gas man, and corporate and government turnaround assigned o address a social dispute.

A little bird alerted that the comments by Khairy was at the initiative of his press secretary, Regina Lee. She manouvred to leak a sensitive information still at cabinet discussion level.

Why Idris Jala did not reveal and financial press not ask MAS operating loss?

It is impossible for the financial press to not ask about MAS operating profit. Unless MAS has transformed the company's core business into jet fuel arbitrage, the operating P&L remains relevant. Hmm ... MAS a jet fuel arbitrage company, that's a niche business idea.

It is from the operating profit that cashflow is generated to maintain the company as an ongoing concern and eventually turnaround MAS. Operating profit will translate into the net profit, God willing could be used to reduced any accumulated losses. Without operating profit, MAS will continually be sucking money from Treasury.

P Gunasegaran wrote here on similar issue raised in the previous posting. However, he did not picked up where we left off. Kalimullah's contemporary should ask why Idris witheld the information and the financial press including The Star did not ask?

It is simple. In fact, Idris used the same generic corporate trick before. By witholding the operating loss, the financial press will highlight on "capital gain" from hedging revaluation. Still, why did he do it?

Idris Jala reminded me of Tan Sri Nor Mohamad Yakcop's past statement to praise him as the best CEO money can buy. See the newspaper clipping below:


Wonder what made Nor Mohammad impress by the so-called turnaround done by Butcher from Shell?

Butcher merely reduced overhead by retrenching experianced Airliners but later hired young cikus with zero Airline experiance, placed them in numbers at various levels of management, and were paid much higher scale than the senior retrenched staff.

Butcher retrenched the experianced ones so that they are no more pain in his ass to nag him of his amateurish manner in running a full service Airline. He brought in lots of Ah Piow accountants from Ernst and Young whose got no shindick knowledge of Airline.

If there are consultants like Booz Allen Hamilton, McKinsey & Co. and Ethos Consulting, then you know Khairy and Tingkat 4 has their hand in it. For sure, Khairy and Zaki Zahid had a direct hand to change the National Aviation policy in favour of Airasia. Part of the money goes to MyTeam.

Idris did the predictable reorganising of routes. He intended to cut the not profitable routes but Khairy and the corrupt MCA Transport Ministers force them to give some profitable routes to Airasia. The routes cut the company's capacity, which means limiting capacity to generate profit potential for the future.

Is it a suprise MoF II could claim Idris as the best CEO money?

All along, MAS was not performing well operationally. Thus the second phase of the turnaround plan is to show MAS generating operating profits. That way he could get an extension on his contract.

For that he sold MAS buildings and assets locally and abroad. With the smart and manipulative accounting mind of Tengku Azmil, the capital gain appears on the operating profit column.

That's the past. It's too time consuming to display what happened with facts and figures. Coming to the question again, why did he unethically manipulated the results announcement?

See the headline by The Malaysian Insider with it's link below:


The link here.

Doesn't that explains everything? With the aviation industry at a loss, don't Idris Jala look impressive for being able to outperform the industry?

MAS Adviser is in slumberland to notice such small but relevent technicality. He is likely to say MAS did well when others' are losing. His cricle of people are still operating. Kalimullah, crony to sleepy and Nor Mohamad Yakcop assisted MAS with this lie with the hope to make sleepy look good. See the headline given by The Malaysia Insider.

The full report can be read at the link here.

This is a clear cut con job by Idris Jala, Tengku Azmil, and Kalimullah. If there is nothing coming from the authorities, then Tan Sri Nor and Tan Sri Azman Mokhtar is together in this lie. Khazanah has yet to turnaround MAS, Proton and Renong/UEM Group since they were first assigned to turnaround GLCs.

KPI?

P/S MAS used this blog for it's internal Leadership High Development course to show the natural occurance of rejection towards new management. Hope they continue to do so and be sure to distribute this and previous postings. They need to prepare for another rejection because these postings will be send to high places.

MAS is Burning, Butcher From Shell Is Fiddling

After the "MAS Flight Delays: Idris Jala Lied" posting yesterday and Rocky's "MAS vs AirAsia" breaking news today, an SMS updated me that the flight delays is running into 20 a day and not 30-40 delays for the past 2 weeks. The truth is out there but lets read NST Monday July 16th report below:

Fury after being kicked off flights

SEPANG: The mood was ugly at the Kuala Lumpur International Airport (KLIA) yesterday. Hundreds of passengers were stranded and some, facing delays, were furious when informed that their Malaysia Airlines flights were overbooked.

Perth-bound MAS passenger Darren Woon, 25, was upset when told his flight was full.

He claimed a MAS employee said it was overbooked by 50 people.

"I can understand if it’s just five people ahead of me, but 50?

"They didn’t even make an effort to contact us. They merely waited for us to turn up, then tell us the bad news.

"This is so unprofessional."

Woon claimed he was supposed to be at work today in Perth.

Foo Ee Lin, 26, who was sending off her 17-year-old sister to Melbourne on a MAS flight, was outraged when told that the flight was overbooked by 60 passengers.

"I’ve been flying to Melbourne for the past six years but this is my worst experience."

She said MAS should have called as her sister’s seat was confirmed. "My sister is having her exam (today), if she misses it, how does MAS plan to compensate?"

Yesterday, the New Straits Times reported that on-time departures had fallen below the airline’s record of above 80 per cent of flights.

Productivity fell as many employees were reportedly unhappy after the management carried out a performance appraisal using a system which they said they were only trying out.

They were also disappointed about their performance bonuses, share options and a recent one-off payment.

MAS human resource senior general manager Effendi Abdul Rahman yesterday issued a statement saying that under the mutual separation scheme last year, 2,622 employees left the company, and not 20,000 as reported.

This year, he said manpower may be reduced by 700.

Sources at the KLIA claimed MAS employees were on a so-called "silent strike". Because of this, they said many international and domestic flights were delayed, including those to Perth, Melbourne, Auckland, Penang, Johor Baru and Kota Kinabalu.

Look! Everyone knows about it. Does Idris Jala have a "Zaki Zahid and Vincent Lim" on the staff insulating information from him? He needs to get his bony ass up and start doing a walk-a-bout to see himself the situation!

In a crisis situation, communication is an essential of crisis management. Why is Idris Jala's SGM "merepek" about spending RM200 million on ticketing system and a saving of RM70 million a year with grumpy customers having to queue and wait from the delays? Read NST Monday July 16th report below:

Malaysia Airlines to invest RM200 mil in electronic ticketing

SEPANG, MON: Malaysia Airlines (MAS) is investing RM200 million within the next three years to upgrade its passenger services system, providing customer with the option of completing all booking, ticketing and check-in transactions from their home or office.

By September this year, the airline will be electronic ticketing (e-Ticketing)-capable, providing customers with the ease of printing their own tickets and option of making changes to their travel itinerary themselves, thus doing away with visits to the ticketing offices or travel agents.

“Check-in will also be easier as passengers will just have to show their e-ticket number as a form of identification. There will be no more problems associated with misplaced, damaged or forgotten tickets,” said MAS senior general manager, transition management, Dr Amin Khan.

Speaking at a media briefing here today, he said once the eTicketing process was completed, there will be a cost savings of RM20 per ticket with physical tickets no longer needed. This will translate into savings of up to RM70 million annually for the airline, he added.

About indication on the aerobridge story, it seems that MAS has issued a statement published on The Star Saturday July 14.

Aerobridge slips, damaging plane door

SEPANG: An unmanned aerobridge, which was docked to an aircraft, caused damage to the aircraft door when it suddenly shifted downwards at KLIA here on Tuesday.

A statement from Malaysia Airlines (MAS) said that no passengers were involved in the incident. The cause has yet to be ascertained.

“The aircraft for flight MH378 was scheduled to depart from Kuala Lumpur to Beijing, but no passengers were using the aerobridge during the incident,” it
said.

“All the passengers bound for the flight were then in the holding lounge and were transferred to another aircraft to depart for their destination at 10.40am,” read the statement.

With the aircraft door damaged, the earlier posted remark "a standby aerobridge should be readily available or passengers redirected for their boarding with the least time delay" is inaccurate. What begs an answer now is how could an aerobridge be unmanned? Was it moving on its own? Aerobridge are people operated and the last thing you'd want in your organisation are annoyed ground handling personnel.

The Butcher from Shell needs to understand the nature of airline industry. This is a highly regulated industry with a standard of no tolerance, and many check and double checks. The staff is constrained by the many and types of regulatory requirements set by many International bodies to abide to ALL aspect of its operations.

If a bus stalled in the middle of the highway, it could pullover and wait for help. Should a distillate plant not working well, production could be stopped and problem fixed, if technically possible. Aircraft can't pullover and stop engine at 20,000 feet.

The safety feature and extra precautions is beyond any other industries, such that it is safer flying than riding a bus. The exception would be Dato Chan Kong Choy's favourite Airline, where pinching penny from every nook is a priority and emergency landing three times a year at Kota Kinabalu is a typical day-to-day affair.

Such are the standard to be met that the work environment in an airline is highly stressful. Staff can be penalised for the slightest of mistake. The repair for the aerobridge bust up with the aircraft door could run into hundreds of thousand and staff DI-ed. As a result, the airline industry is highly unionised and this arised out of the need to protect workers.

With such a tense and pressured work life, the last thing MAS needs is to have a "Best Money Can Buy" Butcher as CEO that failed in turning around the operation, merely doing sacking and asset sales, and bias ESOS for himself and his team, before the whole thing crash and burn.

These staff have long memories when lied upon. They have been through a long journey, gave their support, and made much sacrifices, since Tan Sri Aziz Abdul Rahman left. Idris Jala should have emulated Tan Sri Mohd Nor Yusof's open approach to communicate by updating and regularly briefing the staff to get their support. Tan Sri Mohd Nor promised no retrenchment. And, they are aware of the crap involving AirAsia and their seconded novice parked into management position in MAS over the more conversant MAS Managers are affecting the whole organisation.

Without a trusting and motivated staff to support, Idris Jala will never achieve the turnaround in this highly unionised industry. That, Idris Jala can personally guarantee Pak Lah and not the 6 quarters of continuous profit. Perhaps, this is all PMS or actually is Pre-Meditated Sacking meant to merge with the financially constrained AirAsia.

Answer this, PEMANDU

PEMANDU is so used to shocking the nation with their claims, statistics and projection to sell their wares. When being shocked, it took them weeks,  if not months, to respond. [Read Rocky Bru here and Kuala Lumpur Post here dated July 5th, 2012]

Idris Jala's reply for PEMANDU is merely a standard denial. It dismisses allegations and claim this and that without highlighting where the allegations are wrong. Basically, it has no news worthy substance.

It is his defense of Farah Intan, his claims are questionable.

Idris Jala bullshit results, 2nd Qtr operating loss worsen

MAS announced it's second quarter results today. Net profit was RM876 million and offset the first quarter loss of RM695 million for a first half profit of RM181 million.

That announcement manage to brush aside analyst expectation of further loss. Why bother about these life is a straight line forecast and everything remain the same like before analysts?

With the new accounting scheme of mark-to-market for any outstanding futures hedging, the real number that need highlighting was intentionally hidden. Read on to know stories shrouding their fuel hedging debacle.

The financial presses were really 'bodoh'. None bother to ask about the operating profit and loss. In the first quarter, MAS posted an operating loss for RM138 million. What was the second quarter like?

Read the Bernama report first below:

MAS Posts Net Profit RM876 Mil In Q2

KUALA LUMPUR, Aug 6 (Bernama) — Malaysia Airlines (MAS) posted net profit RM876 million in the second quarter ended June 30, 2009, the highest ever quarterly net profit recorded by the airline.

This profit offsets the national carrier’s RM695 million net losses in the first quarter, leading to a first-half net profit of RM181 million.

Due to the oil price recovery since March 31, 2009, MAS’ fuel hedging losses of RM640 million in the first quarter has been reversed with a RM1.3 billion gain in the second quarter, the airline said in a statement.

Since the beginning of the year, the airline has implemented aggressive sales campaigns to deal with the worst crisis facing the industry.

It successfully increased its load factor to 66 per cent in the second quarter, a double digit growth of 10 per cent compared to 56 per cent in the first quarter.

In response to the growing demand, with the domestic load factor up by 69 per cent in the second quarter, it said the national carrier had increased the capacity by six per cent by adding more aircraft for the domestic sector.

The airline also made substantial load factor gain for its international routes with loads up 11 per cent to 65 per cent compared to 56 per cent in the first quarter.

“We are managing well in this crisis. While the operating environment remains tough, the load factors have increased due to our aggressive strategies to boost sales.

“On the domestic front, more passengers are travelling with us,” managing director/chief executive officer Datuk Seri Idris Jala said.

“On international routes, we have performed better than the industry average as we are less dependent on the front end,” he said, adding that the airline forecast booking numbers for the second half of the year are encouraging.

All that bullshit about rising load factor and yet no mention of operating P&L.

In the first place, load factor is the old variable to manage airline. Pushing for purely load factor was the one that got former Managing Director Dato Fuad the boot for taking MAS into loss territory immediately after the financial restructuring. The fancifully named sell and leaseback scheme made Azman Mokhtar's Binafikir famous.

The important variable today is revenue per seat.

Before announcing MAS's operating loss, this is what was heard of MAS fuel hedging scheme. They left it to the total discretion of Investment Banker Morgan Stanley Singapore. Upon realising the mess Morgan had made, they were considering of hiring an oil futures trader, which they should have done in the first place, but he declined. The whole market have been talking about their messed up oil hedge position.

It is unheard of to totally out-source ones financial market hedging to others who
are without knoledge of the whole company's financial variables and constraints. Off course, this is market talk. It is usually more rumour than the truth. But beware that market talk move markets.

The absurd part of this is the much confidence given to Dato Seri Idris Jala to weather the storm from the oil crisis. That was the story sold to have him extend his stay at MAS. MAS also had highly paid accountants like foreign-trained Tengku Azmil and the many spectacled young Ah Piows from Ernst & Young.

The truth is the Butcher from Shell was never an oilman. He must have butchered all those with experiance in fuel hedging within the Treasury team built from the days of Encik Shahril and Low Chee Ting. Now this is the time to repeat my incessant and repeated complain of young inexperianced know nuts brought into MAS to replace those experianced and appropriately described as knowledge workers.

The mistake by Tun Lah to entertain the recomendation of Idris Jala by Kamaluddin's friend is also the second quarter operating loss of RM421 million. And that is a further deterioration from RM138 million in first qurter.

So what the f**k is this talk of rising load factor? Don't bullshit about net profit. If your operation don't make money, how are you to keep the Company afloat?

Oh yes, the 2nd quarter operating figure is also rumour. So don't sue.

A blast from the past

Much has been said of MAS losses and Airasia's potential operational problem. But really, Airasia is in a bigger trouble than that.

To understand it, one need to look back at history and start from MAS early years. There is a piece by The Star published on December 9th, 2007 for MAS 60th Anniversary that serve our purpose.

Since it was written during Tun Abdullah Badawi era, it is spinned to make Dato Idris Jala bigger than what he is really capable and continued villification of Tan Sri Tajuddin Ramli.

It was Tun Abdullah way of justifying his brother taking MAS Catering (today with Tamaddam) and enable "them" to steal away MAS IT. He was too sleepy and stupid to realise that there was a gameplan at work to kill MAS and MAB.

The mentioned The Star article below:

----------------------------

Flying high once more

Dec 09, 2007

From the “winged tiger” of Malayan Airways Limited (MAL) in 1947 through to the soaring Kelantanese wau kite emblem of today, it has been a momentous 60-year journey for Malaysia Airlines (MAS).

And it has endured, for better or worse, as a national symbol through its triumphs and tragedies.

After the break-up with Singapore in 1972, MAS had to rebuild virtually from scratch. By 1994, it had established itself as a respected and profitable international airline. And then it was privatised to tycoon Tan Sri Tajudin Ramli.

The airline incurred massive losses and six years later, the Government had to renationalise it. Even then, tales of mismanagement continued until MAS was on the brink of collapse in 2005 with losses of RM1.3 bil.

[Note: ABITW have proven that Tajuddin's losses pales in comparison with the losses of the post WAU era. Tajuddin's loses were attributed to foreign exchange revaluation but was profitable operationally. See past postings.]

It was then that Datuk Seri Idris Jala was appointed as the CEO. And what a difference two years have made – the airline posted its highest ever profits of RM610mil this year.

[Note: Idris Jala pulled rabbit out of the hat by selling assets and chopping 3,000 staff but later add back 3,000 sstaff. What an idiot? Although claimed to be an oilman, he was arbitraging jet fuel like an amateur spot trader and bled MAS badly.]

How was the rabbit pulled out of the hat? But it was no sleight of hand, just a solid demonstration of what Malaysians can achieve with proper leadership, hard work and thrift.

What a ride, or rather flight, MAS has been.

The early years

Malayan Airways began modestly in 1947 with propeller planes such as 21-seater DC3's with flights from Singapore to Kuala Lumpur, Jakarta, Medan and Saigon. By the early 1960s, jets such as the Comets were added.

Two name changes followed, first to Malaysian Airways Ltd in 1963, and then to Malaysia-Singapore Airlines (MSA) in 1967. The latter was equally owned by both countries and was highly profitable, with destinations including London, Rome, Bombay, Taipei and Perth.

Yet, the two countries had different priorities.

“Singapore was an island and wanted to promote itself through international flights while Malaysia was more interested in domestic services,” Bernard Thomazios, 65, explains in an interview. He was seconded from the Transport Ministry to MAS in 1971 and retired 21 years later as its deputy managing director.

The differences became so bad that the directors were quarrelling like “cats and dogs”, recounts one-time MSA chairman, Robert Kuok in Airborne, the MAS 45th anniversary book published in 1992.

Finally, Malaysia and Singapore agreed to split the airline. According to Airborne, Malaysian Airline System (MAS) inherited 12 smaller aircraft while the five larger Boeing 707s went to Singapore Airlines (SIA). More crucially, Singapore inherited the rights from MSA to fly international routes. In later years, this division was criticised, by former Prime Minister Datuk Seri Dr Mahathir Mohamad and others, as a raw deal from Singapore.

“We only took the 50-seater Fokkers,” says Thomazios. “As for the larger planes, we told Singapore we didn’t want them. We did not have the traffic and were not sure we could translate the planes into profits.”

Captain Hassan Ahmad remembers how, just before the split, the Government sent people to persuade Malaysian staff of MSA (based in Singapore) to return to KL.

“In their briefings, it was clear they (the government officials) were more interested in domestic flights. They didn’t even talk of regional routes. It was a mindset. I realised it was no way to plan a national airline but we were just employees,” says Hassan, 71, the first Malay civil aviation captain who retired as director of flight operations in 1992.

“We even lost the KL to Bangkok route,” recalls Thomazios. “The Thais stopped us from flying because they said it was a Singapore to KL to Bangkok route (belonging to SIA).”

Take off

So were we simply outmanoeuvred due to inexperience and lack of know-how?

“The head office as well as the management, engineering and financial people were all in Singapore,” reflects Lee Shu Poh, 77. He joined MAL in 1949 as clerical staff and worked all the way up to become MAS operations manager (1982-88).

“In 1972, I was the most senior Malaysian at MSA in Singapore. I was also at the Mandarin Hotel briefings to persuade other Malaysians to return. But most chose to remain in Singapore (as they felt they had better prospects).”

Despite the handicaps, MAS soldiered on, investing in engineering facilities and six new Boeing 737s. The board of directors was made up mostly of civil servants and, as Airborne recalls, “few believed that this motley team ... could actually create and run a viable commercial airline.”

“We had to buy tables and chairs for our first office,” recounts Thomazios, which comprised two rented floors of the Police Co-op building with two telephone lines.

Airborne quotes Tan Sri Saw Huat Lye, the first chief operating officer (1972–1982):“We were the underdogs.... We had to do everything ourselves, design our logo, decide on toothpicks, learn to create a flight kitchen ... our families did not see us for almost two years. Our home was our office. Every Sunday, every holiday, we worked.”

The slogging paid off. With help from Qantas experts, MAS took off three months ahead of schedule. On Oct 1, 1972, the pre-dawn darkness of Subang Airport’s rubber tree-lined road was lit up by many, many cars and buses carrying VIPs and ordinary citizens eager to watch history unfold.

The airfield became a spectacular stage featuring the new aircraft. At 5.30am, to the beat of rebana drums and rapturous applause, Deputy Prime Minister, Tun Dr Ismail, launched the first MAS flight to Singapore.

Tan Sri Abdul Aziz Abdul Rahman, the then company secretary, says in Airborne, “There were teething problems, delays, etc. It was to be expected.... But it was not long before Malaysians were able to acquire the necessary skills to operate the airline smoothly.”

However, MAS had to negotiate all its international routes afresh and Singapore’s head start as an international aviation hub was a hampering factor.

For instance, on the lucrative “kangaroo route” from Australia to London via South-East Asia, both SIA and MAS were fighting for market share. Thomazios, who spent “half his life” negotiating flight rights, explains:

“Qantas was only operating two KL-Sydney flights a week, so the rules said we were limited to two as well. Why should Qantas fly more when they were already making money from their seven Sydney-Singapore flights (and on to London)?”

“To get two extra flights to Sydney for MAS, I even had to offer Qantas half of the flight revenues. But it was okay because we could take (extra) passengers from Sydney and fly them on the more lucrative KL to London route.”

Making money

MAS managed to be profitable in all its first 20 years, except for 1981. It could even overcome the oil “price shock” (when it quadrupled!) of 1973.

“We watched every cost. Growth had to be planned and steady,” explains Thomazios. “You can’t say, 'Oh SIA is so profitable because they have 747s'. Doesn’t mean we go and order 10 747s also. Planes have to fit passenger demand. Otherwise, you leave them on the ground and you lose money every day.”

Lee adds, “It’s no point running a Rolls Royce when passengers will only pay Proton taxi fares.

“We developed a culture of thriftiness. Buy what you need, not what you want.”

He continues to live by that culture. He shows me his RM45 Casio digital watch and 20-year-old leather shoes.

“They work fine. Why should we show off? Does the watch say who I am?”

Thomazios recalls that MAS kept costs down by doing everything in-house.

“We could make nasi lemak for only 10 or 20 sen per pax. And we sold it to other airlines for RM1 each!”

But other considerations also came into play that overturned good business practice: “The Los Angeles route was glamorous but we were losing our pants. We tried to anticipate growth but sometimes, because of diplomatic relations, we had to do 'national service’ and set up new flights.”

What about long standing complaints (especially from Sabah and Sarawak) that MAS should have had cheaper air fares to fulfil its objectives of “promoting national integration” and boosting tourism?

“Well, we did offer cheaper flights at night and for groups,” he says.

However, one much appreciated part of MAS was the (government-subsidised) Rural Air Service using small Twin Otter 12-seater aircraft that provided a critical link to isolated villages such as Bario, Long Semado and Ba Kelalan deep in the interior of Sabah and Sarawak.

“Everybody will be waiting for the plane next to the airstrip, as if the ice cream man was coming,” recalls Lee.

In fact, one of those who waited for the plane at Bario was a boy named Idris Jala.

Growth and decay

MAS continued to grow in strength from year to year in terms of routes, aircraft and staff. There were hiccups such as the 1977 crash (all 100 on board were killed) at Tanjung Kupang, Johor, (the hijacker shot the pilots) and the big strike of 1979 (which ended after 18 people were arrested under the ISA).

Nevertheless, by 1985 MAS was so self-assured that it could go for a stock exchange listing. Aziz, who was CEO from 1982–1991, proudly pointed out that 90% of flights departed on time (the rest were 15 minutes late) while profits had soared to RM132mil.

The shares, offered at RM1.80 each, shot up way past RM5 upon listing, a resounding public vote of confidence in the company. The additional funds were invested in expansion plans and by 1990, profits rose to RM224mil.

The company had grown from 900 people in 1972 to 19,000 in 1992, serving over 9 million passengers.

The then chairman, Tan Sri Zain Azraai, said, “We can take pride that no major allegation of financial wrong-doing has ever been made. (Besides that) I also mean intellectual honesty. Officers in MAS, in submitting their views, should not tailor them to what they think their seniors want.”

[Note: He was the one insistence on the expensive and irrelevent George Lucas directed Star War styled advertisement.]

Zain’s words unwittingly forewarned of what was to come. In 1994, the Government privatised its controlling stake in MAS to tycoon Tajudin Ramli. By 2000, the airline was tottering under the weight of RM9.5bil in debt after a fourth straight year of losses.

The culture of thrift of the early years had been replaced by a spending spree. The MAS Executive Staff Association (Mesa) told the press in 2002, that third parties with “personal links” to certain corporate people were given lucrative contracts to handle services like air cargo, catering, insurance underwriting, a yacht business, off-shore aircraft leasing and IT.

Mesa claimed that the MASKargo scandal was just the “tip of the iceberg”.

The Government renationalised the airline in a highly controversial purchase of Tajudin’s MAS shares at RM8 each, though the market price was just RM3.62.

Tan Sri Azizan Zainul Abidin, the new chairman, frankly disclosed then that MAS’ culture had “fostered abuse, the plunder of the company for personal gains, high cost and inefficiency.” He promised new procedures to plug the “rampant leakages and stop the haemorrhage to protect it from predators.”

In 2002, the burdens of aircraft depreciation, various debts and unprofitable domestic routes were transferred to Penerbangan Malaysia Bhd, the Government’s airline holding company. MAS even lodged a police report against Tajudin for improprieties in MASKargo which had caused the airline to lose some RM1bil.

[Note: Till today, none of these allegations targeted towards Tajuddin have been properly exposed, substantiated and brought to court except for the Hahn Airport that went for arbitration in Geneva. MAS lost and have paid for it.

Government could lose billions if Tajuddin pursue his lawsuits for being unfairly stripped off control in Naluri, Celcom, etc. However, the public fail to realise that Tajuddin only asked for all demands to be dropped and he is willing to forgo what should be due to him.

He had paid and was the highest amount paid to Danaharta unlike other Chinese tycoons who refused to pay any, like Tan Sri William Cheng.]

Even then the haemorrhage continued, and Dewan Negara senators queried the purchase of Botero paintings and asked why a foreign “consultant” was being paid RM7,525 a day.In the first nine months of 2005 alone, the losses were RM1.3bil. So what was to be done?

[Note: That was the work of Kalimullah buddy that later became MAS Chairman to replace Azizan, Tan Sri Munir Majid.]

New helmsman

Enter Idris Jala, then a senior executive with Shell Malaysia, as CEO in December 2005. Relatively unknown, his appointment was somewhat of a surprise and he faced a monumental task: an overstaffed and demoralised MAS that was close to running on empty with the majority of its routes making losses.

Undaunted, he got to work. (See The Idris Jala way on SM6). When a local business magazine asked him last year how “MAS culture” had changed, he answered, “You change culture by doing.”

But some things may not be perfect yet. In mid-2007, there were rumours of employee sabotage apparently over alleged favouritism in giving out incentives, resulting in many missed and delayed flights (even Transport Minister Datuk Seri Chan Kong Choy was affected).

Idris' solution to tackling such residual problems was to have an open door policy and be transparent.

“There is no accountability without transparency,” explains Idris.

And it has gone down well. Says MAS staff trainer Faridah Abdul Rahman; “It’s fantastic. The CEO is online. He gives out his email address and staff can write to him directly. And he replies!”

“It’s the first time it has happened in the company,” testifies Alice Nazareth, a marketing executive, who joined MAS as a stewardess back in 1973.

Another factor is the CEO’s humility.

Mazlan Mokty, a senior steward, says, “When we see him, he doesn’t like us to call him Datuk. He prefers just plain Idris.”

Idris's upbringing must surely play a part. He grew up in the Bario Highlands of Sarawak’s interior, the home of the staunchly Christian Kelabit people.

There were (and still are) no roads and it took more than a week to reach Miri by jungle trail and riverboat.

“My father was a teacher and I followed him on jungle treks for days sometimes. Because of these hardships, we did not take things lightly. As a student I knew that if I wanted to see the world beyond our hills, I had to study hard.

“When the MAS Rural Air Service started flying to Bario, it was like a gift from heaven. If people were not working or at church, they would go to the little airstrip to wait for the plane. I grew up totally loyal to MAS.”

That steadfast belief in the organisation and its people has been rewarded. When Idris announced the turnaround plan in 2005, the business community was not convinced. Now just two years on, MAS has earned the highest profits in its history.

From a morass of low morale and abysmal losses, MAS' makeover – based on accountability, transparency, hard work and thrift –has been nothing short of magical.

The celebration of its 60th Anniversary has shown how Malaysians can aspire to greatness.

[Note: Idris Jala failed badly too! He did not managed to turnaround operation but did creative accounting to manipulate sales of assets as operational profit. He was piling loses in RM100 million per month and camouflaged it with his novice way of arbitraging fuel.]

------------------

That is the past and now the present.

The rumour mill is claiming MAS will be cheated and forced to purchase Airbus A320 NEO ordered by Airasia, rent flight simulator owned by "Airasia", forced to give "free" D and E check on Airasia planes, etc.

However, there is no agreement or collaboration signed between MAS and Airasia yet. Hopefully there is still room for MAS to negotiate for a better collaboration than one that only serve the interest of Airasia.

Nevertheless, it is tough for Managing Director, Ahmad Jauhari with Danny Nanny still in the management team, WAU and Tun Abdullah-linked members of the Board in control, Airasia proxies in MAS management and Tun Abdullah on MAS paid RM30,000 per month pension.

If AJ failed to do so, he will face a tough time ahead to get staff and union cooperation. He could even have his past dig up too.

All the while, the PR message on the CCF is that only MAS is in trouble and Airasia is there to help them. The truth to the matter, which many pilots, engineers and those in the know of industry development are aware, is that Airasia is heading for a major problem.

Don't talk of Airasia's fabulous growth, even for the near future, because that is history.

The industry talk is Airasia will face increasing competition from other LCCs, financial problems in servicing and maintaining their planes, failed long haul low cost model for Air Asia-X, stuck with large order of 200 Airbus over 15 years and caught with a "must grow" business model.

Save any unrelated comments for the real conspiracy to be unveiled but never realised by many.

Airasia is in bigger trouble and MAS is already in trouble. Both must work together and honestly or both will be ruined. Not only that, groups like Nazir's CIMB will be ruined too!

MAS 1st Quarter Loss: Poor hedging decisions?

Malaysia Airlines reported a loss of RM695 million for the first quarter 2009 and Tun Abdullah Ahmad Badawi’s first term as Adviser. Despite his first term, Tun Abdullah can’t absolved himself from being part and parcel of the massive loss created.

Pak Lah was the person responsible to choose the two Managing Directors - previously Dato Fuad and current Dato Seri Idris Jala - without proper and thorough background check.

This blogger personally heard a businessman-supporter of Pak Lah gloating in his claim that he recommended Idris's name to son Kamaluddin. Kamal had called to seek for a replacement MD for MAS. He recommended Idris simply because he knows Idris from his IT business without knowing his real competency and relevency of his skill set to MAS.

Pak Lah was not keeping abreast with the execution of the turnaround plan and the real financial status of the company. He gave the PKFZ-laden Chan Kong Choy the freedom to allow Air Asia to steal away MAS profitable routes under the Tingkat 4 designed National Airline Policy.

The official reason cited were the weaker demand, overcapacity and volatile fuel prices. The hedging losses for Quarter 1 was reported as RM557 million.

Bernama reported Idris saying MAS hedged 40% of its fuel needs for 2009 at US$103 per barrel, 60% for 2010 needs and 40% for 2011 needsd, both at US$100 per barrel. Current level is at US$60-70 per barrel. Those are massive position taking or in common lingo financial exposures.

Was Idris caught with the Nor Mohamad Yakcop bug?

Tan Sri Nor was personally responsible for evaporating some RM16 billion of the national foreign reserve. The massive losses was due to speculative short term position taking and hiding trading losses into the reserve account, just like the 1888 account of the Baring financial failure.

Profitability

AFP reported the RM695 million quarterly loss compares with a net profit of 120.1 million ringgit a year earlier. It was the first quarterly loss for the company in two-and-half years at the third quarter 2006.

When Idris Jala took over MAS, he declared a massive loss of RM1.7 billion. By that move, he hoped moving forward is only sunshine.

Malaysia Airlines' profit had only plummeted 71 percent in 2008 due to the global slowdown, while its fourth-quarter profits for 2008 were down 81 percent to 46 million ringgit from 241.9 million ringgit a year ago.

On the operational side, MAS posted a loss of 138 million ringgit. Revenue for the first Quarter was RM2.7 billion, down from RM3.8 million a year earlier.

Sources within PMB claimed the airline operation losses is RM300 million, depending on how the accountants manipulate the booking of revenue and cost. If he had booked early the losses, when he came in, this time around it is to delay the realisation of losses.

The company cited “the triple squeeze of overcapacity, extreme fuel volatility, and a global slump which hit passenger and cargo demand" as the reason for the loss.

Not mentioned is the oppurtunity loss that translate to the operational loss arising from the reducing market share in a declining market. Talk to Travel Agents to know the endemic operational problems in MAS.

The operational loss is proof of inexperiance in airline operation of Idris Jala's team. Including himself, his hiring of non-airliner and inexperianced young figure crunchers from Ernst & Young to the top management and key committee is taking its toll.

Hedging

Business Times Singapore reported AirAsia made a RM472 million loss in its last fiscal year to end-December after getting hit on its hedge. They took a one-off charge of RM426 million in the last quarter to get out of hedging completely. AirAsia resorted to the spot market for its fuel needs until there is greater stability in crude prices.

One oil analyst of a GLC CEO material met last night said, MAS made a cardinal and costly mistake to hedge on long term basis during highly volatilite market situation. High volatility is a situation of extreme uncertainty and hedging is taking a gamble. This bloggers concur with him.

When oil price was scaling up till US$140 per barrel last year, it is widely known that it was an artificial market pandemonium of panic buying talked up by trading houses analyst. The spike were on thin trading volume. This was the time that Pak Lah hike retail oil price by 78 sen and later saw spot oil prices tumbled down.

Oil economist having taken into account the suppply, demand and historical pricing characteristics insisted the fair value of oil was at US$60-70 per barrel. Water will eventually find its true level and oil price is at its temporary equilibrium state at the current level of market. Temporary because market always change.

Business Times reported Tengku Azmil excused MAS by saying, "As with other airlines which hedge, MAS only enters into long fuel hedges, where we are buying fuel, and do not speculate by selling short in the fuel market, as may be the case with certain low-cost carriers."

No, Azmil. Never follow the herd. Let others make the mistake. MAS does not have to.
His answer is indicative of decision made for excuse in the event of failure and not made on good judgement. This is typical accountants' conniving politics.

Did Azmil made the hedge because other Airline did or it was the necessary thing to do? Did he understood the risk and market behaviour?

The problem is not about hedging of taking long/short or buy/sell position but taking long term futures contract, when market condition was more suitable for spot or longest one month futures. Just like Pak Lah, he panicked at market top. Did the same adviser to Pak Lah advised MAS?

Despite claim by Idris that there will be a writeback of RM1.1 billion in the next quarter, it just prove to show the airline is in dire needs of treasury man with experiance in the market and true airliner to turnaround the organisation.

The mark-to-market practise to recognise fuel hedges under new accounting rules to reflect their market value took a charge of RM3.8 billion from its balance sheet. Raymond Yap, an analyst at CIMB investment bank was reported in Business Times today saying MAS is theoretically insolvent. However, MAS still has 0.95 ringgit net cash per share.

The more the reason for new set of team to takeover, from Adviser down to the CFO and the various management team. It is no more time for guesswork from industry newbies.

------------------------

June 12, 2009 20:02 PM

MAS Faces 'Triple Squeeze'

PETALING JAYA, June 12 (Bernama) -- Malaysian Airline System Bhd (MAS) registered losses for the first quarter ended March 31, 2009 as it faced a "triple squeeze" -- overcapacity, extreme fuel volatility and global slump which hit passenger and cargo demand.

MAS registered a net loss of RM695.398 million compared to a net profit of RM120.06 million in the same quarter last year.

"It reported a first quarter 2009 operating loss of RM138 million, the first for the airline since third quarter 2006," said Managing Director and CEO Datuk Seri Idris Jala, when announcing the company's first-quarter results here Friday.

MAS also saw losses from fuel hedging amounting to RM557 million.

Revenue declined to RM2.7 billion from RM3.75 billion previously, in the face of the worst global recession in 70 years, with seat factor dropping 13.1 percentage points.

Passenger yield, however, was up four percent to 29.5 sen/revenue passenger km (RPK).

Idris said MAS, however, has strong liquidity and RM3.8 billion cash in its coffer, thanks to its across-the-board cost-cutting measures and cash conservation stance.

"Cost savings over the last three years amounted to RM2 billion.

"To-date we have proactively cut capacity by 11 percent in 2009 and we have put in place stringent controls over costs and investments," he said.

Total expenditure for the quarter decreased by 20 percent, mainly due to a RM730 million reduction in the total fuel bill as a result of lower price and consumption, he said.

He said MAS expected to save RM700 million to RM1 billion this year with among others, a freeze on recruitment as well as budget cut of seven percent across-the-board in 2009.

"There is also a freeze on all discretionary training and travelling and it is not taking any delivery of new aircraft until end-2010," he said.

Besides this, MAS has adopted an aggressive sales approach, especially via Internet, he said, adding that its focus in 2009 was to continue its competitive fares initiatives to stimulate demand.

Shareholder equity, however, shed by RM459 million which meant that technically, MAS met the definition of Practice Note 17 company but it has obtained exemption from Bursa Malaysia with its strong cash balance, he said.

He said effective 2009 financial year, MAS has adopted the new accounting standard, FRS 139, which would be mandatory in Malaysia effective Jan 1, 2010.

"This provides the financial community with transparency of its financial results, enabling them to evaluate MAS on a like-for-like basis as its peers.

"Many airlines have already adopted similar accounting standards," he said.

With the adoption of FRS 139, the unrealised mark to market (MTM) fuel hedges, foreign exchange and interest rates that were off the balance sheet, were recognised on the balance sheet, he said.

Idris said however, the unrealised fuel MTM were contractual fuel hedge arrangements over the next three years to 2011.

"There will be no impact on the profit and loss. The fuel MTM losses are effectively 'paper losses' and will only be realised over the next three years. The quantum realised depends on the actual oil prices," said Idris.

He said the fuel MTM was sensitive to oil price movements.

"Assuming all things remain equal, MAS could potentially see a hedging gain of RM1.1 billion in second quarter of 2009 based on the fuel price of US$66 per barrel on May 29, 2009.

"This could mean that MAS' RM695 million net losses in first quarter could be fully reversed by the RM1.1 billion potential gains," he said.

MAS has spent RM400 million to restructure some of its hedges, he said.

For 2009, it has hedged 40 percent of its fuel needs at US$103 per barrel, while for 2010 and 2011 is 60 percent and 40 percent respectively at US$100 per barrel, he said. -- BERNAMA

* Edited and updated 9:30 pm

The Greatest Fool

Of late, everyone speaks about the oil marlet with much gusto and with authority. Market contrarian philosopher would see that as a typical situation of bullish at the top and bearish at the bottom. It's an alarm bell to do the reverse to what others' are doing.

To back up a contrarian views are these excellent analyses.

The first is Dato Idris Jala's fundamental observation as reported by The Star on June 5th entitled "Idris: There’s no global fuel shortage". Second one by blogger S. Dali of Malaysia Finance blog that got published in The Star entitled "Potential puncture in the oil bubble".

The greatest fool theory says that those alarmist will end buying at the top. By the look of it, Abdullah may have made himself as the greatest fool to decide at height of market exuberence.


Idris: There’s no global fuel shortage

By WONG SAI WAN

ISTANBUL: There is no shortage of oil in the world and its present price level was driven up by unreal speculation, said Malaysia Airlines managing director and chief executive Datuk Seri Idris Jala.

He said the present oil price at over US$135 was unrealistic and based on certain global events that might have caused a shortage of supply.

“These people (speculators and hedge funds) buy oil futures and say that this or that event may cause an oil shortage.

“Not very long after this, people react to this and by then the message would be ‘there is a shortage of supply’ even though there is none,” Idris told the international media here at the close of the 64th International Air Transport Association annual general meeting.

IATA, which is an association of legacy full service airlines with over 200 members, had issued a statement at the end of its meeting that the industry was now in a state of an emergency because of the fuel price crisis.

Idris was a former senior executive with Shell Plc based in London and the Hague for almost 20 years. While there, he had headed various departments, including business development.

Speaking as a former oilman, Idris said there were two ways to see whether there was an oil shortage.

“First, look at the oil tankers at sea. If they are not moving and just floating out at sea, that means they have no crude or processed oil to transport. That is not happening and that means there is no shortage.

“Second, go to the petrol stations. If there are long queues, that means there is a shortage. Again, this is not happening and this can only mean there is more than enough supply.

“As an ex-oilman, I tell you there is no shortage.”

Idris pointed out that certain analysts and financial companies that produced reports about the shortage were also oil futures traders.

Asked what he thought was the fair value of crude oil at present, Idris replied: “US$40.”

He also criticised speculators and hedge funds, saying that he did not trust anything that he could not touch.

“I always believe in the brick and mortar – something I can touch. These people are trading with nothing.

“Many years ago, we at Shell had wanted to buy Enron. I was leading the team then and we hired over 60 consultants to study how a company with no oil fields, refineries or gas stations could make so much money.

“One of the consultants tried to convince me to recommend to the Shell bosses to buy Enron but I said no because I could not touch what they were trading in,” Idris said in the one-hour briefing for the media about MAS’ performance and future.

He only expressed his opinion on the oil crisis after being asked by several journalists.

Idris was proven right on Enron because the so-called energy company collapsed four years ago under massive accounting fraud.



Potential puncture in the oil bubble

ACCORDING to Shell Oil president John Hofmeister, the “proper” range for oil should be somewhere between US$35 - US$90 a barrel.

Based on that statement and assuming it’s more or less accurate, what do you think we should make of the current oil price of US$130 - US$140 per barrel? How much of the spectacular rise in oil is due to speculation? That is important to determine as excessive speculation could basically drive prices much higher than its real demand-supply equilibrium.

Open interest in WTI oil futures has been growing exponentially at 18% per annum since 2001, thanks to the entry of non-commercial players. The entry of more non-commercial players and speculators generally mean they would be on the long-side of the futures and options.

Speculation stands out as the biggest culprit for the oil price boom.

Many reasons are being cited for the oil price boom – speculation, fundamentals, dollar weakness, fuel subsidies, inflation, low interest rates. All factors are playing a part at some time or another, with different factors dominating at various times.

But one factor stands out as the biggest culprit – SPECULATION.

Spike in speculation

According to Michael Masters, index speculators are the primary cause of the recent price spikes in commodities.

This is not selective information to back my view as he heads a highly respected fund management company – Masters Capital Management.

He recently (May 20, to be exact) delivered a testimony before the Permanent committee on “Investigations committee on homeland security and governmental affairs” to the US Senate. Hence his testimony carries a lot of weight.

Masters talked about the resurgence of several groups over the past five years who he deemed as newcomers to the “commodity speculation scene”. They are corporate and government pension funds, sovereign wealth funds, university endowment funds and other institutional investors. Collectively, they constitute the largest share of outstanding commodities futures contracts than any other group.

Masters refers to them as “index speculators” because they distribute their allocation of dollars across 25 key commodities futures according to popular indices, namely the S&P Goldman Sachs Commodity Index and Dow Jones AIG Commodity Index.

The rising interest in commodities was largely based on the assumption that historically, commodities have no correlation to fixed income and equities. It has to be noted however that while previously the futures market may have been relatively “not big enough” to provide this kind of diversification, this has not been the case over the last 10 years.

As at end 2003, assets allocated to commodity index trading stood at a whopping US$13bil. As of March 2008, that figure has ballooned to US$260bil!

Obviously, something highly significant has happened here with equally significant consequences.

The culprits

Some political leaders have pointed their fingers at speculators as the primary culprits for driving oil price by more than 50% over the last 12 months alone. In my opinion, they are correct, partially.

The new index speculators are not your average in-and-out trading outfits. Collectively, these funds have stockpiled (long on inventory via the futures market) 1.1 billion barrels of petroleum. It’s not like they are actually going to take delivery of these oil barrels, but their stockpiling is tantamount to hoarding 1.1 billion barrels from the real market place. If real supply is constant, one can imagine what the 1.1 billion long positions will do to oil futures prices if they are rolled over.

Apart from index speculators, a huge number of long-only commodity funds and plethora of dedicated commodity ETFs have entered the scene in the past five years. A quick glance at Nasdaq will be able to give you an idea on the rising emergence of ETFs.

Essentially, they are long players, trying to cash in on investors interest on a prolonged commodity bull run.

But are they really interested to consume these commodities? NO.

Joining the bandwagon

Lending a great deal of support to index speculators are, unsurprisingly, investment banks. Swaps loophole exempts investment banks like Goldman Sachs and Merrill Lynch from reporting requirements and limits on trading positions.

The loophole allows pension funds (or any other aforementioned funds) to enter into a swap agreement with an investment bank, which can then trade unlimited numbers of the contracts in futures markets.

Even more interesting is that the WTI crude oil futures traded on ICE in Europe are exempt from regulatory action!

ICE (Intercontinental Exchange) operates global commodity and financial products including the world’s leading electronic energy markets and soft commodity exchange.

Amidst all these hoopla, it would appear that Opec, which is traditionally everyone’s punching bag, is probably an innocent party to this catastrophe, this time around.

According to market estimates, the actual costs incurred in producing the most expensive oil is only around US$70-US$80 a barrel; the rest of the current oil price represents the market’s risk premium plus speculation.

Note, that assumption is based on the high end of the cost spectrum and most are produced at a much lower cost.

Rising trend

You have heard this before: according to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels – an increase of 920 million barrels.

Over the same period, Index Speculators demand for petroleum futures has increased by 848 million barrels. The increase in demand from Index Speculators is almost equal to the increase in demand from China!

Bearing in mind that commodity futures markets are much smaller than capital markets, these substantive funds will have a far greater impact on commodity prices.

In 2004, the total value of futures contract outstanding for all 25 index commodities was US$180bil. In 2004, index speculators poured in US$25bil into these markets – a significant 14%.

It would be safe to assume that the sums being ploughed into the commodity futures markets in the ensuing years to present is much higher.

Rising trend means index speculators are making a lot of money. The run attracts momentum players. Typically, rather than take their profits and run, index speculators tend to stay on because the allocation is a diversification bet not a straight out investing bet. They are more likely to reinvest their compounded gains and even more due to profit-motivated demand thinking.

Psyche of speculators

Index speculators are different from traditional speculators.

The latter will trade, take their profits and run. The former prefers to keep the long position and generally, never sell. Instead of providing liquidity, index speculators are actually draining liquidity. Even if Opec promises to release more oil now, it would probably not dent the rally by much.

If index speculators weren’t a group but an individual, regulators would be on his back like a hawk and he’d be hauled up for attempting to corner a market.

Masters highlighted to the US Senate that it is most important to close the loophole in the Commodity Exchange Act 1936 which exempt investment banks from speculative position limits when these banks hedge OTC swaps transactions.

According to Masters, almost 90% of index speculators effectively enter into commodity index swaps and face no limits on their positions.

To puncture the oil price bubble, and yes, it is a bubble, Masters recommended that pension funds be forbidden from using commodity index replication strategies.

He added that the swaps loophole should be plugged immediately, thus causing all speculators to face position limits.

In all likelihood, if the recommendations put forth by Masters or moves similar to that are put into action, the oil price bubble may be punctured.

Judging from market developments in recent weeks, it may be wrong to assume that “nothing will be done” by the US lawmakers soon.

We will find out – very soon.

The ploy to rechannel subsidy to development

Idris preaching his ETP nonsence like an evangelical pastor

Not long after Dato Najib took office, he took in the failed Turnaround Manager for MAS, Dato Idris Jala.

Initially, it was thought to appease the Sarawakian before he was given the boot. But no, he was given a prominent role to so-called turnaround the economy with a program called ETP using an outfit called PEMANDU.

Immediately, the Communications graduate from USM masquarading as an oil and gas expert and turnaround specialist did a PR exercise by giving a shock treatment exercise to say government will be bankrupt.

With his expertise acquired from Shell, he displayed a series of presentation to give the simplistic picture of the state of economy.