Najib became Prime Minister of Malaysia on 3 April 2009.
18 July 2017
Malaysia Airlines’ latest losses occurred during Najib’s time
A QUESTION OF BUSINESS | During electioneering, it is common to make political capital out of everything. Malaysia Airlines Bhd was not spared when Prime Minister Najib Abdul Razak blamed one of his “predecessors” at a Hari Raya open house earlier this month for “horrendous decisions”.
He was very obviously referring to former prime minister Dr Mahathir Mohamad, although he did not name him. But to be fair, Mahathir was not responsible for the latest disaster at Malaysia Airlines. Paradoxically this happened largely during Najib’s time.
This latest disaster which resulted in losses of billions of ringgit and required a RM6 billion injection of capital and privatisation in 2014 by Khazanah Nasional Bhd, the previous major shareholder and now sole shareholder, resulted after Malaysia Airlines was turned around in 2007.
What Najib was referring to was the previous disastrous privatisation of Malaysia Airlines, to a Mahathir-Daim crony Tajudin Ramli who bought a controlling near 30% stake in the airline in 1994 for RM1.8 billion. After mismanaging the airline into the ground, he sold back his stake in the airline to the government – at the same price – in 2000. The market price was less than half that.
Turned around in 2007
Najib’s immediate predecessor Abdullah Ahmad Badawi brought in Idris Jala from Shell to turn around Malaysia Airlines in 2005, the same Idris who would head the Performance Management and Delivery Unit or Pemandu at the PM’s Department in 2009 and join the cabinet.
Two years later, in 2007, Malaysia Airlines had turned around. In Idris’ first year on the job, he reduced the losses to RM133 million and turned the company back into the black with a record profit of RM853 million in 2007, according to this letter written by a former investor relations manager at Malaysia Airlines, Song Eu Jin, to Malaysiakini.
“The profit in 2007 was the highest in MAS’ corporate history and was earned through a massive operational cost reduction of RM745 million as well as on the back of record revenues of RM9.4 billion. The profit numbers were real as reflected in the cash balance at that time of RM5.3 billion which had grown from RM1.5 billion at the end of 2005, when Idris joined MAS (Malaysia Airline’s forerunner),” the letter said.
But in 2009, Idris left Malaysia Airlines to join Najib’s cabinet and head Pemandu. A succession of CEOs after him proved to be incapable and sent the airline down back into losses of billions of ringgit yet again. And no mistake about it, this happened during Najib’s time.
This is what Najib said at the open house: “The history of MAS was fraught with, I would say, horrendous decisions in the past. I’m not going down that road but that was a nightmare that was inflicted upon MAS that was done by one of my predecessors.
“But I will put it right. I will make sure MAS recovers and becomes one of the leading airlines in the world,” said Najib to applause from thousands in the audience present at the event. How ironic that is when the latest problems occurred during his time entirely.
P GUNASEGARAM says that Malaysia Airlines has been repeatedly grounded by poor management, not by the alleged inefficiency of its staff. E-mail: firstname.lastname@example.org.
2011–2014: Third unprofitability, 2014 aircraft losses
MAS recorded a stunning net loss of RM2.52 billion in 2011, which was the largest in its company history, due to rising fuel costs and mismanagement. A major restructuring saw the appointment of a new CEO, Ahmad Jauhari Yahya, in September 2011. One of the first initiatives to stop the losses was a rationalisation of the network. The company suspended services to Surabaya, Karachi, Dubai, Dammam and Johannesburg.
In February 2013, MAS reported a net profit of RM51.4mil for the fourth quarter. The airline’s improved financial performance last year was mainly attributable to its route rationalisation programme, which saw an overall 8% reduction in ASK. This was matched by a marginal 1% reduction in revenue to RM13.76bil in 2012 and seat factor holding at 74.5%. The reduced ASK also helped MAS register a corresponding 14% decrease in expenditure.
The airline struggled to cut costs in order to compete with a wave of new, low-cost carriers in the region. The airline lost RM443.4 million (US$137.4 million) in the first quarter of 2014. The second quarter—the first in the aftermath of Flight 370’s disappearance – saw a loss of RM307.04 million (US$97.6 million), which represented a 75% increase over losses from the second-quarter of 2013. As a result, MAS has not made a profit since 2010. In the previous three years, the airline had booked losses of: RM1.17 billion (US$356 million) in 2013, RM433 million in 2012, and RM2.5 billion in 2011. Industry analysts expect MAS to lose further market share and face a challenging environment to stand out from competitors while addressing their financial plight. The company’s stock, down as much as 20% following the disappearance of Flight 370, had fallen 80% over the previous five years, which contrasts with a rise in the Malaysian stock market of about 80% over the same period.
A month after the disappearance, CEO Ahmad Jauhari Yahya acknowledged that ticket sales had declined but did not provide specific details. This may be partially resulted from the suspension of the airline’s advertisement campaigns following the disappearance. In China, where the majority of Flight 370 victims were from, bookings on Malaysia Airlines were down 60% in March. He said he was not sure when the airline could start repairing its image, but that the airline was adequately insured to cover the financial loss stemming from the incident. In August, the airline warned of poor second-half earnings, citing a 33% decline in average weekly bookings following the loss of Flight 17. Media reported that some flights were largely empty and that the airline had slashed prices well below competitors on several key routes.
Even before the crash of Flight 17, many analysts and the media suggested that Malaysia Airlines would need to rebrand and repair its image and/or require government assistance to return to profitability. On 8 August, trading in the company’s stock was temporarily suspended when Khazanah Nasional—the majority shareholder (69.37%) and a Malaysian state-run investment arm—requested that MAS’ Board of Directors undertake a selective capital reduction exercise (e.g. buyback or cancel stock of other shareholders); Khazanah announced it will spend 1.38 billion ringgit (US$431 million; 27 sen per share) to compensate minority shareholders (a 12.5% premium of 7 August closing price). At the time, Khazanah Nasional did not announce much about its plans for the airline except that the airline had “substantial funding requirements” and that a “comprehensive review and restructuring” was needed.
On 29 August, Khazanah released a report, Rebuilding a National Icon: The MAS Recovery Plan, which outlines their plan for the restructuring of MAS and the process of completing the takeover. About 6,000 jobs (about 30% of MAS’s workforce) will be eliminated and the carrier’s route network will be shrunk to focus on regional destinations rather than unprofitable long-haul routes. Khazanah plans to de-list the airline from Malaysia’s stock exchange by the end of 2014 and plans to return it to profitability by late 2017, re-listing the airline by 2018 or 2019. On the business/legal side, Khazanah intends to transfer the relevant operations, assets, and liabilities of Malaysian Airline System Berhad into a new company (no name given in documents) by July 2015.:2