Saturday, June 18, 2011

Concluding what "the untold MAS story" did not tell

Since Wednesday, this blogger was out of town to give an unscheduled talk. Thus we couldn't post the final two part of the series. Apologise for the delay.

Malaysia Airlines Berhad reported a loss of RM267 million for the first quarter of 2011. There was an operating loss of RM242 as compared to RM310 million profit for 1st quarter 2010. The reason cited was the high oil prices and higher ringgit. Read The Malaysian Insiders here.

It is funny that the reason for the losses were reported in such manner. Back in 1998-2001, a sharp decline in ringgit had resulted in massive operating losses for MAS. The higher oil should have been profitable for the arbitrage placed by Idris Jala.

When MAS suffered the massive losses towards the end of Tan Sri Tajuddin Ramli's tenure as Chairman, the Group undertook a massive financial restructuring exercise to do a massive "sell and leaseback exercise" called Wide Unbundling of Assets. From thereon, MAS did not have to be burdened with acquiring asset and leverage.

Domestic operations, which were a burden to MAS, were taken out and given to Air Asia and other MAS own dedicated domestic subsidiaries.

There is no major financial crisis like what happened in 1997/98. During those tumultous time, ringgit weakened from the high of 2.47 in the first quarter of 1997 to just short of "see you at 5" at a low of RM4.88 on January 7th 1998.

Why is MAS still making occasional quarterly losses?

After Tajuddin left, everyone wanted to blame him for the problems in MAS. The opposition backed attempt with some member of MAS management concocted an RM8 billion loss but still no proof is coming.

They tried to pin a conflict of interest issue on him for the losses from the Hahn Airport but it did not hold up at the International Court of Arbitration (ICC). Should Rosli Dahlan and Dr Wafi decided to not wait for MACC and Police and go for civil court, it will not likely to hold up.

MAS is not going to be stupid enough to pick on petty contracts to Edaran Digital

There was talk that Tajuddin had "sebat" money through an insurance broker, Cendanasari Insurance Broker Sdn Bhd and MAS could save millions by going direct to Lloyd's. Since when do Lloyd deals direct with end customers? They do not even deal direct with Insurance Companies.

Check the rates given by Cendanasari. Why didn't anyone mention that it is lower than market? Otherwise, Puan Marni would have alerted Puan Nik Nadeemah and asked Rosli Dahalan to make a case out of it. With competitive rates and no margin, how is Tajuddin to take make a cut out Cendanasari?

In our first posting on December 16th, 2010 here, Tajuddin's tenure at MAS ended with total losses before tax was RM750 million and total losses after tax was RM908 million. That is far cry from the alleged RM8 billion.

When sales of aircraft and spares, sales of foreign quoted shares for RM100.4 million for March 2000 and sales of properties for RM83.4 million and RM104.9 million for 2006 and 2007, respectively are accounted for, the following was MAS historical profit and loss:

Notice Tajuddin's total losses before tax was RM365 million and total losses after tax was less than RM500 million. And notice too that post-Tajuddin MAS was still making losses and still erratic in their performance despite being relieved of several burdens.

Johari Yusof, an MBA student at the Islamic International University made a turnaround thesis of MAS. It is available here.

He provided a good background of Tajuddin's turnaround plan. That way no one should be taken in by oversimplified comments that Tajuddin's outsourcing plans resulted in higher cost.

Johari did commented that Tajuddin was expanding too fast.

Everyone is an expert on the hindsight. The truth to the matter was no one could survive a drop in currency like what happened. See another chart below to understand how it affected MAS instantaneously:

Tajuddin was picking up in profitability if not for the unexpected currency attack by Anwar Ibrahim's political financier, George Soros. No one could have survived in such a market.

Why was post-Tajuddin's profitability still erratic despite stable ringgit, no asset to deal and no domestic route to bring down profitability? Why is MAS with subsidise fuel is still making losses as compared to other regional Airlines?

Puzzling isn't it.

Those are questions for MAS to ponder and do an introspective of themselves. Everyone in MAS need to be honest and truthful. Instead of that, MAS was only blaming others like Tajuddin.

MAS had identified Tengku Dato Seri Azmil Zaharuddin from Price Waterhouse London to lead. He was groomed at Penerbangan Malaysia Berhad, then understudy Dato Idris Jala, and finally took the mantle of MAS.

He was under no heavy pressurre from the media, mainstream or alternatives. But he still did not meet expectations. Far from making any stamp in the airline industry, Tengku Azmil is only known for bringing in royals from Terengganu to fill in high positions. Talk is he is about to leave soon.

Before that MAS staff got what they had always wanted i.e. someone from within to helm the airlines. He was Dato Fuaad Dahalan. Read market's expectation in this report here. He failed miserably and could be solely responsible for the 2005 massive loss.

That brought in the Butcher from Shell, Dato Idris Jala. It is also time to review the CEO great at making powerpoint presentation.
His textbook turnaround plan is available here.

He ended up making 141 MAS staff into instant half-a-millionaire.

Did he think properly and listen to those who understand airline? He was using novices and newbies to the industry as advisers. There were amaterish mistakes made.

MAS share price vis-a-vis Airasia is low. Could Airasia be a possible predator? Frankly, no. The reason in another posting.

Before we give our view in the next and final posting, read The Star's coverage of MAS last Saturday below:
Tough times for MAS
MAS: On a wing and prayer
Making the necessary changes to ensure sustainable profit
MAS needs the ‘wow’ factor again
Grappling with fuel costs


Anonymous said...

Well researched, Tuan.

I agree with you, TR mess was 15 years ago and it was nothing compared to the current Flying Buffet.

Some of the nitty gritty details below.

George Choo said...

Dear Voicey, I want to be very honest in that I personally think that Munir Majid and Azmil are not businessman. They are in MAS to serve their political masters like the corrupt Nor Ysacop.

To me this Azmil is a SMALL BOY. The reason he is a BUDAK KECHIK is because he know very little about business and economy.Last year at a forum organised by Pemandu at KLCC convention center,he told the forum of few thousand listener that the govt is in deep financial difficulties because of the govt giving too many scholarship and to improve its financial position,he suggested a cut in scholarship.
Inilah orang pandai yang dilantik menjadi CEO MAS.So what can you expect from this kind of CEO who does not use his brain before he speak.
He is just like Munir and Che Khalib who are mediocre managers.

x-pilot said...


MAS is a good example of how these GLCs Managements manage the taxpayers money.

It's who they know, not what they know.

Anonymous said...

Salam Tuan,

Great that you have managed to get the historical P&L for MAS thru the years.

It would be more informative if you could provide the historical Balance Sheets for the same periods.

I can feel that you're a bit in a rush as usual! :)

Many, many best wishes

Skilgannon1066 said...

Let's see you apply your logic as to how Singapore Airlines (SIA) is consistently making profits and has a damn high market cap.

While you are about it, why not tabulate share prices and net profits for SIA and MAS from the time they came into existence? Let's look at historical trends and the growth picture.

After all, weren't MAS and SIA erstwhile siblings in the now-defunct Malaysia-Singapore Airlines (MSA)?

And which bright sparks on the Malaysian side participated in the negotiations that resulted in the breakup of MSA into MAS and SIA?

Another case of Malaysian negotiators being "taken to the cleaners" or being out-negotiated by pimply-faced "scholars"?

Anonymous said...

Strong rumours from Subang said that Munir Majid contract will not be extended.

Who will be next ?

Anonymous said...

"Malaysia stands ready to help African countries undertake economic transformation and is willing to send Idris Jala, the chief executive officer of the Performance Management and Delivery Unit (Pemandu) to help them with the mammoth task, Prime Minister Najib Abdul Razak said today"

Brilliant move, Najib. Make sure you send Munir and Azmil as a package. (Buy 1 and get 2 free)

MAS Voice

Wake UP! said...

Salam. MAS is planning to buy 10 Boeing Co 737-800 aircraft. So, surely they forecast a profit in there somewhere.

Anonymous said...


I don't care whether it is RM8b or not 8b. The fact is MAS went under water and the WAU and all sorts of mechanisms have been put in place by Idris Jala and everyone else and MAS is still losing money. And mind you for a company like MAS that keeps on losing money is still around is because it is being funded by tax-payers money.

THe only way to recover all these losses/monies is by going after people whom are responsible for running up the losses up to the MAS' eyeball.

My Say