Dubious accounting of Bina Fikir incompetent duo

Malaysia Airlines Bhd (MAS) gave a shocker of a result.

For the financial year ending December 31, 2011, the "Bina Fikir" team or more accurately "Tak Bina Tak Fikir" duo of Khazanah head honcho, Tan Sri Azman Mokhtar and Dato Rashdan Yusof recorded the biggest ever losses in its corporate history of RM2.52bil.

Out of the losses, RM1.09 billion are non cash provisions. Immediately, there is something dubious about these provisions.

The losses

Before asking more questions, let's read the news report first:

Thursday March 1, 2012

MAS posts biggest-ever loss in its history

By B.K. SIDHU
bksidhu@thestar.com.my

PETALING JAYA: National carrier Malaysia Airlines Bhd (MAS) posted a shocking RM2.52bil net loss for its financial year ended Dec 31, 2011 the biggest-ever loss in its corporate history led by higher expenses, despite revenue rising 2% to RM13.9bil.

In comparison, the airline reported a net profit of RM234mil for the whole of 2010 and chalked up sales of RM13.58bil.

The RM2.5bil figure for 2011 includes a RM1.09bil provision, essentially a non-cash item, to reflect the state of health at the airline.

“The company is in crisis. The accounts for 2011 recognises provisions and escalating operational costs which, although painful, gives us a holistic snapshot of the organisation,” group chief executive officer Ahmad Jauhari Yahya said at the briefing of its results yesterday.

Ahmad says MAS is in crisis and that the accounts for 2011 recognises provisions and escalating operational costs which gives a holistic snapshot of the organisation.
On the right is Rashdan.

“With full knowledge of our actual position, we will be better prepared to move forward,'' he said.

The non-cash items include RM179mil of stock obsolescence (mostly spares for the B737 aircraft), RM602mil for re-delivery of aircraft (it will return 52 of its leased aircraft and will incur some cost in making sure they are in pre-delivery condition), and RM314mil impairment of freighter aircraft (adjusting the freighters to current market value).

For the full year, the airline's loss per share was 75.52 sen versus earnings per share of 7.25 sen in 2010.

For the fourth quarter, MAS reported a net loss of RM1.28bil and sales of RM3.67bil. But a year earlier, it had reported a net profit of RM225mil and sales of RM3.66bil.

“If you filter all the accounts off the non-cash items, it is a decent performance by MAS given the challenges it is facing,'' said an analyst with Maybank Investment Bank.

He believes that the numbers are slightly better than analysts' estimates.

By stripping out the RM1.09bil provisioning from the net loss of RM2.52bil, the actual loss incurred by the airline for 2011 is RM1.43bil. For the first three quarters of 2011, the airline incurred a net loss of RM1.24bil and with the stripping out of the RM1.09bil, the actual net loss for the fourth quarter is only RM184mil. However, when added with some additional items it should be a net loss of RM231mil for the quarter.

Ahmad said that group expenditure had gone up by 21% mainly due to higher fuel costs. MAS' fuel bill for 2011 swelled by 33%, or RM1.46bil, to RM5.85bil from RM4.38bil a year earlier. Jet fuel prices have risen from US$95 a barrel at the end of 2010 to US$133 at end-2011. Currently, it is hovering around the US$137US$138 per barrel range.

For 2011, MAS saw a 6% improvement in passenger revenue, while yields were up 4% to 24.7 sen per revenue passenger kilometre. But the improvement, according to Ahmad, was insufficient to offset the rising costs, especially fuel.

Bearing in mind that it only has RM1.1bil in cash reserves, and in view of the big number of aircraft deliveries it has to take, MAS is in dire need of more cash.

Ahmad said the next task was to strengthen the balance sheet or else it would be difficult for the airline to get financing for its new deliveries.

“The bottom-line group losses for 2011 underscore the need for MAS to adopt strong measures to stop the bleeding, and they include staff redeployment, increasing productivity and efficiency, relentless cost control and making further route review,'' he said, adding that thus far the airline had implemented 9% route cuts.

In order to strengthen the balance sheet to boost cash reserves and funding capacity, he needs another 60 days to come up with a plan.

“The plan includes, but not limited to, debt and/equity market options. Khazanah Nasional Bhd and Tune Air, the two largest shareholders, are supportive of these initiatives,'' he said.

His deputy Mohammed Rashdan Yusof did not rule out the possibility of a cash call and the selling of non-core assets to raise cash.

Ahmad also disclosed that talks with Qantas were under way but declined to reveal the scope of the talks. MAS will be joining the one world alliance by November this year.

Despite the huge losses and funding requirement, Ahmad remains positive on the outlook for the airline, saying “if we follow our business plan, we should be in the black (this year)."

Ah ha ... that last line tells it all. Provided for everything and then reverse it back for profitability for the next few quarters to resurface. They will then be seen as doing it right.

Unnecessary provision

It is easy to spot dubious hands at work in the latest report.

Back then, MAS would use non-operational gains to cover operation losses but this time the boy genius of MAS is using non-operational losses to make more losses. The 4th quarters' is usually the best result for airline like MAS but it became the worst.

No worry there, with help from Danny's Mamasan to massage the numbers. The first quarter, which is the weakest for an airline like MAS, will suddenly show positive results. For that matter, there have ready profits for a couple of quarters from the write-backs of Danny's provision.

It is an upside world under these airline newbies pretending to be airline turnaround experts.

Lets look at the biggest ticket item in the provisions which is RM602mil for re-delivery of aircraft. The explanation is MAS will return 52 of its leased aircraft and will incur some cost in making sure they are in pre-delivery condition. Why should it be written as loss at one go?

Leased aircraft will be replaced by newer aircraft, so that cost can be included in the cost to refit the new aircraft and depreciated over few years.

There is then RM179mil of stock obsolescence which is mostly spares for the B737 aircraft. Again, to be asked is why is there the need to write-off spares that is still in use at one go?

Finally, why the need to impair RM314 million of freighter aircraft at one go for the sake of adjusting the freighters to current market value. Off course, what constitute current market value is subjective for a non commodity and big ticket item like aircraft. Why the need to impair?

Such huge loses will further put MAS at a disadvantageous position to secure financing and funding. But why did he intentionally make such humongous provisions?

One source in MAS claimed that operating profit registered was only RM310 million due to rise of non-fuel cost. If not for the stupid route cuts, operating profit could have covered for his provisions.

There is sinister intention by Rashdan, which is being dubbed by the staff as Itchy Dan in their expose blog, Malaysian Airlines Families, to make such disastrous provisions.

Devious Intentions

MAS management explanation is that the results reflect the state of health at the airline which recognises provisions and escalating operational costs, to give us a holistic snapshot of the organisation. With that only, can the management move forward?

Is he saying that management only knows the true state of the airline only when everything is provided for as a finalised audited accounts.

That's a stupid remark which any chinaman shopkeeper reknown for the practise of maintaining two sets of accounts; the true accounts and the income tax one, will laugh till fall on their chair.

When former MAS Chairman, Tan Sri Tajuddin Ramli was brought in to turnaround MAS, there were strict orders not to allow such fancy accounting amounvre. The Government wants to see the turnaround be the true reflection of usual management of airline.

Why did the Government allow such cheap trick to be used? Even one untrained but self taught in accounting can spot with ease.

Sources within MAS are saying that the current so-called turnaround management team of MAS had planned to throw in every cost under the previous management and intentionally make the 4th quarter shockingly bad.

That way they can place the blame on the already removed previous CEO. In fact, it was told to this blogger that Rashdan wanted to force on the previous management to sign for decisions relating to the Air Asia corroboration which they were not part off.

Off course, they refuse to be responsible for decisions they were not a party to and later get blamed. That makes wunder boy Danny fumingly angry that his conniving trick was refused and he can't put a number on someone. This made him ever more vindictive to ridicule the previous management.

By making the 4th quarter shockingly bad, they can plan and massage profit for the next few quarters to boast later that their turnaround plan works and have proven to be right. So the next few quarters of profit will be sheer creative accounting crap.

The staff maybe behind this blog expose initiative, Malaysian Airlines Families

Another reason was to silence MAS' unions and critics, like yours truly, who do not believe the financial situation is really beyond manouvribility and Air Asia has to be part of the turnaround.

It is heard that the unions met the Prime Minister few weeks back and told without reservation that if it will affect their jobs, they will not give their votes to Barisan Nasional Government in the next general election. Plus the multiplier, that could be 100,000 votes to be spread over few parliamentary seats.

Words within MAS are saying that Ahmad Jauhari (AJ) was called up and told to stop the corroboration to allow Government to review the CCF, but Amokh defied the Prime Minister at the insistence of Tony Fernandes in a Board Meeting.

It was sadi that AJ had offered his resignation to the PM and that brought the anger of Chairman Tan Sri Mohd Nor Yusof in an email that is circulating. With Danny holding on the finance portfolio and a lackey for Tony Fernandez's interest, AJ has no meaningful role to play in MAS.

The losses with such humongus provision serve to substantiate their objective for the CCF which the unions do not trust the intentions and not agreeable to.

The losses only serve to make MAS shares cheaper for Tony Fernandez's rights issue. This is an old ECM Libra - Avenue merger trick.

It also presents the opportunity to push faster the plan to break up the company into many more smaller companies in which there will be a company MAS Sdn Bhd for short haul.

As it is, MAS sources are saying that the plans to outsource engineering, ground handling, etc have been executed and all the company have Tony Fernandez interest in it. That detail will come later.

Could Amokh and Danny have a cut in it too?

Failure and incompetence

When the so-called disastrous management of Tan Sri Tajuddin Ramli tookover, they were not allowed to make provision and start on a clean slate.

Nevertheless, Tajuddin's tenure for FY 1994 to 2001 ended with total after tax losses of RM908.4 million but take out the foreign exchange loss of RM1.398 billion, he actually made about RM490 million.

The slogan from the blog Malaysian Airlines Families here.

In comparison, the total after tax loss of the "Tak Bina Tak Fikir" era from FY 31 March 2002 to 31 Dec 2012 accumulated to RM1.79 billion. Revenue were on the up but profitability were inconsistent.

This latest results proves that the "Tak Bina Tak Fikir" derived solution are not workable but kept putting MAS in deeper and deeper hole. One wonder what was was the justification for Maybank to buy Bina Fikir Sdn Bhd for RM8 million with such so-called consulting crap?

All the MAS CEO, except Mohd Nor Yusof who executed the WAU and left, from Dato Fuad Dahalan, then Dato Idris Jala, and followed by Khazanah's choice of Tengku Azmil, all left due to losses.

It also proves that the Tak Bina Tak Fikir duo of Amokh and Rashdan are incompetent managers and have no turnaround expertise. They are fake and con artists. And they should be walking the plank from the top of the KLCC tower.

But the Government kept giving the same incompetent bunch the mandate again and again to helm MAS out of financial wilderness?

That should also be the question asked by BK Siddhu in her column today entitled "What does it take to turnaround MAS?" that translate the question that puzzles the public.

One important step in strategic management is that the choice of CEO is the most important aspect of the implementation step of the strategic plan. There lies the issue of competency and leadership much needed for big organisation like MAS.

Having entrepreneurs that make decisions at a whim and flip flop won't do. They would just jammed up the organisation.

That is where MAS kept making the same mistake over and over again under the Khazanah leadership of kemo sabe Amokh and his Tonto, Danny.

This time the leadership lies with Danny. Forget Ahmad Jauhari, he is a mere puppet Managing Director.

How could an Airline have a CEO for short and medium haul and another CEO for long haul? Those expatriate airliners brought into the management team would surely be shaking their head?