I have been following the MAS’ saga over the years with so much interest and anticipation. Memory of my first flight experience flying with MAS’ Being 747-400 some 20 years ago remains intact. Back to its heyday, MAS prided itself as the national icon over the years since its inception.
Once a profitable airline company, the national carrier has turned from bad to worse. This is owing to an intense competition from low-cost carriers and Middle-Eastern full-service carriers (FSC). MAS has lost its ground to budget airlines particularly Air Asia Group as a result of passengers switch to lower ticket price which is more affordable and attractive to lower income individuals or frequent travellers.
On the other hand, Middle-Eastern FSCs, such as Emirates Airline, Qatar Airways and Etihad Airways, have their extra edge due to their strategic geographical location and top-notch service delivery to their passengers. As a result, MAS has registered losses for the past 10 quarters.
The recent disappearance of Boeing 777’s MH370 in March this year and the downing of MH17 later in July, have only added an insult to injury. This has somewhat expedited the much-awaited turnaround plans as lauded by Khazanah Nasional Berhad, the Government investment arm, back in February this year. For record, MAS has undergone at least half a dozen restructuring exercise over the past 13 years. Money and time have been spent but there was still no light at the end of the tunnel. MAS must turn the table and bring back to its glory days. Much of hope and pride is at stake.
The recent news on MAS’ turnaround plans or better known as “Rebuilding a National Icon: The MAS Recovery Plan” as announced by Khazanah has proposed 12-point plan which inter-alia will result in significant workers lay off and a reset into a new company (“NewCo”) whereby contracts with suppliers and employees will be renegotiated. (The detailed full copy of “Rebuilding a National Icon: The MAS Recovery Plan” can be downloaded at www.khazanah.com or here.)
A reset mode is a good approach to start the operation with a clean slate as it is a lot easier to renegotiate contracts with existing employees and suppliers. It is however still unclear how the RM6 bil fund to be injected by Khazanah would be utilised. What is apparent is that of the RM6 bil, a sum of RM1.4 bil is for privatisation of MAS, RM1.6 bil is for shutting down of MAS and voluntary separation scheme compensation and penalty for early termination of contracts with suppliers, and the remaining RM3 bil is for working capital of the NewCo. Close monitoring by the Board of Directors is vital to ensure the funds injected by Khazanah is utilised effectively and efficiently.
Whilst it is true that workers lay-off may not be a popular move but it is not easy to please everyone during this painful period although politicians at the opposite camp may use this reason to garner votes against the ruling Government. MAS must be prepared to take the bull by the horns and bite the bullet to move on. It may be the best time for a right-sizing to optimise its resources and reduce redundancies albeit rather sounds inhumane.
By and large, a right sizing does not always end up in job cuts at all divisions. There are certain critical divisions that need to be beefed up and hence more people are required. The setting up of a NewCo would potentially see the end of the powerful MAS Employees Union (Maseu) that appears to be a major stumbling block in various past turnaround plans. If the plan is carried out for the best interest of the nation not a particular group of individuals, by all means, so be it.
Here are some suggested improvement areas that maybe applied in turnaround plan of a typical airline company:
1. Operational – aims at improving profitability by striking a better balance between demand and capacity and enable greater flexibility and adaptability in operations:
a) withdraw from unprofitable international routes and least profitable domestic routes
b) enhance alliance with other airline company that allows MAS to code share with another airline (one carrier markets service and places its code on another carrier’s flights. This offers carriers an opportunity to provide service to destinations not in their route structure)
c) reduce the number of aircraft models through early retirement of inefficient models
d) deployment of highly efficient smaller-sized models
e) concentrate managerial resources on the air transport business whilst non-core business subsidiaries to be disposed of
f) In the cargo and mail business, cargo-only planes (freighters) to be taken out of service and the business will focus on cargo service using passenger plane cargo compartments (bellies)
2. Management – aims at increasing efficiency, enable immediate response to unexpected risks event and nurture hungrier and talented employees that eliminate past bad practices:
a) greater transparency in renegotiating or awarding contracts in a competitive open tender
b) eliminate multilayer structure and redundant functions
c) create new departments responsible for cash flow on an individual route basis
d) create a divisional profitability management system
e) clarify responsibility for numerical results on revenues and costs for departments under each management team
f) strengthen risk management process in order to discover signs that an event of risk might occur, adjustment of flights, measures to reduce fixed costs can be flexibly implemented
g) establish new executive management team who has in-depth understanding of the airline industry and must be able to quickly adapt to the dynamics of the landscape of the industry
3. Finance – aims at reducing debts, headcount and fixed costs and improve productivity:
a) seek creditors’ consent for write off or discounts of debts owing to them
b) extinguish internal claims and streamline overlapping claims by creditors against multiple entities into a single claim
c) encourage early retirement and dispose of subsidiary companies
d) introduce a flexible personnel positioning among organizational units (Multi-tasking employees)
e) review office space, return partially airport terminal space, and reduce fees for joint facilities shared with other airlines
f) cost cutting measures, e.g. discourage use of new items that are reusable, turn off lights during breaks, pilots not allowed to use taxis, etc.
g) revise wage and benefit system in line with statutory requirements or the general norm
It goes without saying that the success of the MAS’ Recovery Plan would entail full support from all its employees, employees’ unions, partners and suppliers, Khazanah, the Government and other stakeholders. The staff morale will need to be restored. With the new plan and strategy devised by Khazanah and to be executed by the new talented leadership, I am positive that this turnaround plan will succeed and will become a cornerstone of airline restructuring plan alongside with the likes of Japan Airlines, Garuda Air, etc. Let us carry this ‘national flag’ and together we give our full support to MAS to fly back into black in a sustainable future.
Khairudin Ali
ISMA Economic Research & Studies Team (EkonomISMA)
2 September 2014
