Medicines for ailing MAS: losses RM2bil, 6,000 job cuts, RM6bil capital injection a bailout?

New medicine for ailing MAS

FOR the first time ever, a government-linked company (GLC) will lay off workers and renegotiate contracts with suppliers and employees – a move that will obliterate the view that companies owned by the Government provide steady employment and are safe paymasters.

In its strongest action to rehabilitate the ailing Malaysia Airlines (MAS), the Government has given its undertaking to its investment arm, Khazanah Nasional Bhd, with the necessary legislation to bring the employees and suppliers to the negotiation table.

This is among the highlights of a 12-point plan unveiled by Khazanah yesterday to resuscitate MAS.

To recap, Khazanah, in a bid to save MAS, has proposed to take it private and delist it by year-end. It has a 69% equity in MAS and has offered to buy the remaining 31% in the airline at 27 sen a share.

A new Bill called the MAS Act will be tabled in Parliament before July next year to facilitate the migration of MAS’ existing operations into a new company (Newco), which will take over MAS’ operations on July 1 next year.

“The MAS Act is to facilitate the migration of the existing operations to a Newco. It is something that was proposed by the Government so that a new airline can take over. It will have a finite life,” Khazanah managing director Tan Sri Azman Mokhtar told the media yesterday.

“The Government will allow the transfer of the AOC (air operator’s certificate) and tax losses to the Newco.”

Apart from the establishment of a Newco to carry on the business of the existing airline, the plan calls for the conversion of some debt into equity and Khazanah injecting RM6bil more into the airline. Kumpulan Wang Persaraan (KWAP) agreed to swap its RM750mil existing perpetual sukuk with ordinary equity, meaning that it will eventually become shareholder in MAS.

 

Azman: 'The MAS Act is to facilitate the migration of the existing operations to a Newco'.

Of the RM6bil, a sum of RM1.4bil is for the privatisation of MAS, RM1.6bil for cost incurred in shutting down the existing company and a voluntary separation scheme to reduce the workforce by 6,000 and penalties for early termination of contracts with suppliers, and RM3bil for working capital for the Newco to take over the operations.

Since taking over MAS in 2001 from Tan Sri Tajudin Ramli, Khazanah has injected more than RM7bil into MAS, which Azman does not think would be recoverable.

However, he is confident that the RM6bil capital that will be pumped in can be recovered.

“We have done the financial modelling and are confident that the money can be recovered,” he said.

“Also, it is a conditional injection of funds, meaning that the money will only be available subject to the MAS management fulfilling the conditions set out in the recovery plan.”



Azman admits that renegotiating contracts with suppliers, leasing agents and converting debt to equity could have some effect on the credit ratings of MAS and other companies within the stable of the strategic investment fund.

However, he opines that the shedding of the workforce and the renegotiations of contracts is only to bring about a significant change in work practices and supply contracts.

“It would not be done arbitrarily. There is some bench-marking on the pricing of the contracts. The suppliers will be given an option to migrate to the Newco on new terms,” he said.



Azman is also confident that the new MAS will achieve profitability by the end of 2017. The new plan will also see net gearing reduced from 290% now to about 100% -125% eventually.

But not many share Azman’s sentiments, as MAS has undertaken half a dozen restructuring exercises over the past 13 years and yet remains in dire straits.

“I obviously do not share the same sentiments as Azman and am not as optimistic about seeing a profit in 2017. I don’t think the new plan goes far enough to resolve the structural problems within the airline. You can call it downsizing or rightsizing, and the plan may appear bold and courageous by slashing 6,000 jobs, but the question is: how much can you actually save from that?” Shukor Yusof, an analyst with Malaysia-based aviation consultancy Endau Analytics, asks.

He says, “The real issue in MAS the past decade is an ill-conceived strategy and financial mismanagement. That’s the key contributors to the losses, shareholder value destruction and the mess built up over the years. While I do agree that MAS is overstaffed, resulting in low productivity levels compared to Singapore Airlines (SIA) or Cathay Pacific, it is not a critical aspect of the overall picture. The losses registered over the years by the airline are not because the airline is overstaffed, but because it had a management which, unfortunately, had little understanding of the airline industry and was slow to adapt to the dynamics of the landscape of the industry,” Shukor says.

Route rationalisation 

MAS has been loss-making for the past 10 quarters, and the amount has ballooned since the two tragedies hit the airline within a space of four months since March this year. The first was on March 8 when a plane, MH370 en route to Beijing, disappeared.

The second was on July 17 when MH17, which was on the way from Amsterdam to Kuala Lumpur, was shot down while flying over Ukraine.

Even before the first airline tragedy on March 8, the airline was already losing close to RM1bil a year due to competition from low-cost carriers and Middle-Eastern full-service carriers (FSCs).

However, the losses exacerbated to RM2bil following the airline tragedies.

For the second quarter of 2014, MAS announced on Thursday an RM307mil net loss, bringing its first-half losses to RM750mil.

 

A lack of demand and the massive cancellations of flights has become a norm after the two incidents, and the policy to refund passengers after the MH17 mishap has further seen flight bookings going down. The airline’s strategy of pushing for loads at the expense of yields has also backfired. However, it has embarked on a new plan to drop fares to win back customers, a strategy which, however, does not guarantee high yields, which MAS needs.

MAS’ current yield of 20 sen per seat kilometre is lower than Cathay Pacific’s 24 sen and SIA’s 22.9 sen.

Azman says there are several conditions for the money to be injected into MAS.

Among them is route rationalisation, whereby the emphasis is on destinations that are within eight hours of flying time. The plan is also to bring short-haul cost within the 15% of the low-cost carrier competition, at parity with Middle-Eastern FSCs and below those of the regional FSC competition. The Newco will only focus on profitable routes and secure global connectivity via oneworld and other alliances, says Khazanah, adding that MAS will come up with a business plan and fleet requirements.

Maybank Investment Bank senior analyst Mohshin Aziz says that with one-third of the jobs going, the route network also needs to be reduced by one-third.

“We were hoping to get the details of the route cuts, but they were not forthcoming. We really believe MAS should terminate its long-haul routes, such as Frankfurt, Amsterdam, Paris, Istanbul and even Dubai as soon as possible.

“They need to reduce frequencies on their Australian routes to twice daily from thrice daily now, and terminate the Brisbane and Adelaide routes,” Mohshin says.

Since the network will be reconfigured, MAS will also have to reduce the number of aircraft it flies from its current fleet of 127 to bring down cost.

Khazanah says MAS needs to renew its focus on revenue management to increase unit revenue by 10% to 15%, and among other things, it needs to also unbundle ancillary products and services and revamp its loyalty programme.

Staff buy-in

A major part of the success of Khazanah’s new plan for MAS hinges on the support of the airline’s employees and their unions. Yesterday, Azman met representatives of the unions to tell them of the new plan, but will the unions support the plan?

A major part of the success of Khazanah's new plan for MAS hinges on the support of the airline's employees and their unions.

“It was a good and frank discussion. I think we were at pains to try and explain what would be happening. And explain that the vessel of the Newco will not be able to carry everybody,” Azman says.

Throughout the day, Khazanah officials and MAS senior team members had various briefing sessions with its employees.

For now, the ties are somewhat strained between the senior team and many of the unions and their members, with many worried about the selection process of who would be axed.

Under the new plan, MAS will undertake a voluntary separation scheme to reduce its workforce to 14,000, with the plan also involving reskilling, redeployment and job creation.

“There seems to be a renewed effort to harmonise now so that Khazanah’s vision of rebuilding a national icon will succeed. But at a glance, the plan is wishy-washy and they are not able to give us details. We are worried as to who will decide on who stays and who leaves. We also do not want the existing team to decide, as there would be no professionalism, only partiality,’’ said a source.

Khazanah says the process of transfer migration and separation will be conducted with “utmost care, fairness and due process”.

A Khazanah official added that “the decision on who stays and who leaves will be done by the Newco”.

“The search for a new chief executive officer (CEO) for the Newco has begun and we are looking at both Malaysian leadership talent and global aviation specialists, basically for the CEO (post),” Azman says.

“Hopefully they will hire the best in the industry and not just anyone for the hot seat. It should be someone with entrepreneurial spirit and expertise to drive profits,’’ says an expert.

The current group CEO Ahmad Jauhari Yahya will leave MAS in June next year.

The plan to set up a Newco is also seen as a way to weaken MAS’ vociferous unions, although an expert says that the Newco could also set up new unions, provided there are no conditions attached to the Newco’s staff appointment letters.

Would minority shareholders sell out?

The biggest challenge Khazanah will face is whether it can get enough minority shareholders and institutional funds to vote in favour of its plan to privatise MAS at an EGM to be called in the coming weeks.

It needs 100% acceptance to take MAS private, and then there will be grounds for the Act to be established.

Khazanah cannot vote at the EGM, given the fact that it is an interested party and institutional shareholders only hold less than a 4% equity in MAS.

Now that there is a serious plan to resuscitate MAS, it is possible that some minorities may want to hold back and not sell their shares. Not only will MAS be profitable by 2017, but there is also a plan to relist the Newco in 2018-2020.

“There will be some minorities who will give up their shares, as holding MAS has been one painful episode. But there are yet others who may see that there is going to be creation of value in the future. So, why sell and miss out on future growth?” opined a source.

However, if Khazanah fails to get 100% equity in MAS, then the entire revival plan will be off.

By B.K. Sidhu The Star/Asia News Network

Radical plan to revive MAS

Khazanah Nasional Bhd has unveiled a radical plan to revive the ailing Malaysia Airlines that calls for job cuts, a capital injection of up to RM6bil and creation of a new company (Newco) to carry the airline business.

To facilitate the migration of the existing business to Newco, the Government will table a new law in Parliament called the MAS Act.

Khazanah managing director Tan Sri Azman Mokhtar said that the new legislation would have a finite life and was needed to facilitate the migration of the existing business to Newco.

In a move to ensure that Newco has a leaner workforce and cleaner balance sheet to compete effectively in a tough operating environment, Khazanah wants to see job cuts of 30% from the existing MAS workforce of 20,000 employees.

It is one of the many conditions Khazanah has imposed on the management of MAS if it were to inject more funds into the ailing airline.

 

“In our opinion, we think that Newco with its business model will require a workforce of about 14,000. A net reduction of 30% is an across-the-board number,” said Azman at a media briefing yesterday.

The job cuts also affect the top leadership of MAS, which comprises a team of 500 staff called the Extended Leadership Team (ELT). Most of them were holding senior positions with long service.

Azman said the current chief executive officer (CEO) of MAS, Ahmad Jauhari Yahya, has indicated his wish to leave.

In commending the MAS CEO for having led the airline during its toughest period, Azman said Ahmad Jauhari would remain in place until the transition.

“We have embarked on a global search for a new CEO and have engaged an international firm to undertake the task,” he said.

Some of the other conditions of the 12-point plan mapped by Khazanah for the recovery of MAS include the relocation of the airline’s existing headquarters in Subang to the KL International Airport and Khazanah owning 100% of MAS.

Towards this end, Khazanah is undertaking a privatisation of MAS at 27 sen per share.

Azman clarified that Khazanah had engaged a consultancy to undertake a review of MAS on Feb 26 this year, before the first airline tragedy on March 8.

“The review came about after the Government was concerned about the financial and general state of affairs in MAS,” he said.

On March 8, a MAS aircraft en route to Beijing went missing and further exacerbated the airline’s losses.

The Cabinet approved MAS’ proposal on Wednesday and yesterday the various stakeholders, which are mainly the unions, existing airline management and some key directors, were summoned for a briefing.

The management and union have been told to work together to decide the shedding of the workforce, he said.

The MAS Act is expected to arm Khazanah with the necessary bite to carry out the radical measures, especially in negotiating the new contracts and collective agreements of the unions.

“The Act would allow for the Air Operators Certificate (AOC) to be transferred from the existing MAS to Newco and the assets and liabilities,” said Azman.

By July 1 next year, Newco is expected to take off.

Azman said that employees who were not absorbed into Newco would be offered a retrenchment scheme or given an option to be absorbed into a scheme for re-training.

Towards this end, Khazanah is working with three business process outsourcing firms that have vacancies for 3,500.

Azman said Khazanah explored several options in coming up with the plan.

“Putting in more money into MAS would not save MAS. So we felt that enabling MAS to start on a clean slate and putting in new money into Newco provided it met the conditions stated was the best option,” he said. - The Star

Related articles:

MAS losses likely to double to RM2bil by year-end
Many workers will be affected, says union
Not so friendly skies for other airlines, too
MCA Youth calls for concerted effort to help MAS
RM6bil is not a bailout, says Najib 
Clean slate for MAS  

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Change or be changed!

Image by Danny Choo via Flickr

WE all know that people and businesses who don’t adapt get phased out. Generation X, of which I am part of, has seen the evolution of technology transform how we live our daily lives.

From the VHS tape to the DVD and Blu-ray discs, and from snailmail to email, there are numerous examples how one way of doing things has given way to a faster, better and cheaper methods.

The bankruptcy of Kodak is the latest proof of how businesses can become irrelevant if they don’t keep up with the times. Research In Motion Ltd, the maker of BlackBerry phones, is feeling what Nokia has gone through. The digital age is moving along at breakneck speed and is transforming a multitude of industries and leaving an indelible mark on people and businesses.



There are companies that have done well to make changes on the fly. Most famous is Apple and before that Corning, which was – and maybe still is – famous for its cookingware rather than its fibre optics.

The need to transform is also not lost on corporate Malaysia. A lot of the big banks have done so and have become a lot better at what they do today. MMC Corp changed from a miner to an infrastructure player and the likes of Genting and IOI have expanded dramatically in the business they are in to become world giants today.

That transformation is also seen in the big institutions in Malaysia. The Employees Provident Fund restructured its portfolio from owning 400-plus stocks, some of which most punters will not touch today, to a leaner portfolio of around 100. Its narrower focus has allowed it to take the plunge into private equity and property and, as a result, the returns it can make for depositors should also improve in time.

The same can be said of Khazanah Nasional Bhd. In 2004, when Khazanah first started under new “management”, it had a bunch of old assets sitting in its books. They included stakes in some of the largest companies in the country, but sitting idle and waiting for results was not the way to go.

Khazanah restructured its portfolio, and from a bunch of companies that was heavily leaning towards utilities and telecoms, it invested in new businesses and industries. New investments were in part funded by monies from asset sales such as the divestment of Khazanah’s legacy stakes in Pos Malaysia and Proton.

As a result, Khazanah’s returns improved. During a recent briefing with the media, Khazanah revealed that if it had just sat on it and relied on the government-linked companies’ transformation programme alone, its returns would have been a meagre 2% a year.

But it did not do that and instead invested in new businesses which it felt will bring better growth. Those new investments brought in a return of 22% a year.

One such investment is the hospital business. Integrated Healthcare Holdings (IHH), which consists of hospital investments such as Apollo Hospital Enterprise Ltd and Parkway Holdings, recently made a big acquisition in Turkey when it bought Acibadem.

Healthcare in the demographics in which IHH operates will be hugely lucrative. India, South-East Asia and now Turkey have the desired young but ageing population with growing incomes.

IHH is slated for a massive listing and the changes that some entities in corporate Malaysia have undertaken should be a showcase of how transforming when it needs to be done should be the course of action.

● Deputy news editor Jagdev Singh Sidhu wonders when the retirement age in the private sector will be raised.

Lawsuits with Tajudin Ramli, Is it time to settle?

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Is it time to settle?

OPTIMISTICALLY CAUTIOUS By ERROL OH

IT was only this week that most of us found out about the efforts to settle all lawsuits between Tan Sri Tajudin Ramli and several government-linked companies (GLCs), including a few listed entities. According to Minister in the Prime Minister's Department Datuk Seri Nazri Abdul Aziz the Government had been mulling over the out-of-court settlement for the past six months. It was reported that Nazri sent a letter to the GLCs this month, informing them that the Government and the Finance Ministry had agreed to settle all civil claims against Tajudin.

However, it appears that the possibility of a “global settlement” of the suits have been floating around for longer than half a year.

Last December, the now delisted DFZ Capital Bhd uploaded on the Bursa Malaysia website a circular by Singapore-listed Esmart Holdings Ltd, which was acquiring a 75% stake in DFZ. In discussing the material litigation of Atlan Holdings Bhd (the vendor in this transaction), Esmart touched on the developments in a particular case and said: “In view of the global settlement in respect of all suits concerning Tan Sri Dato' Tajudin Ramli (TSDTR), the said matter is now fixed for mention on Jan 12, 2011.”

A similar reference “the global settlement in respect of all suits involving TSDTR” popped up in the notes to Atlan's quarterly report for the period ended November last year.

Atlan's legal entanglement with Tajudin is a legacy issue arising from its 2004 purchase of a 32% block of shares in Naluri Corp Bhd from Pengurusan Danaharta Nasional Bhd. Tajudin lost control of Naluri following the Asian financial crisis.



A more interesting bit of information surfaced in Axiata Group Bhd's quarterly report for the period ended Dec 31 last year. In providing an update on its material litigation, the company said: “The Court has requested the parties to mediate and TSTDR has proposed a global settlement for all the cases involving TSTDR. The parties have since agreed to mediate the pending disputes.”

Axiata appears to be one of the GLCs whose lawsuits with Tajudin are likely to be withdrawn following the Government's agreement with Tajudin. Khazanah Nasional Bhd is a 39% shareholder of Axiata, whose subsidiary Celcom Axiata Bhd was once among Tajudin's prime businesses.

Malaysia Airlines (MAS) is another former Tajudin asset that's now a part of the Khazanah stable. Not surprisingly, the national carrier too has legal disputes with him. However, to date, MAS has yet to say anything about the change in status of its suits involving Tajudin.

Neither has Telekom Malaysia Bhd (TM), which (along with subsidiary Telekom Enterprise Sdn Bhd and 22 others, including Danaharta and Celcom) is a defendant in a counterclaim by Tajudin, who is seeking RM13.4bil, among other things.

So why haven't Atlan, Axiata, MAS and TM made any announcements about the global settlement? Atlan and Axiata have disclosed the development in the notes to their financial statements and quarterly reports, but this is still a step away from highlighting the information.

It has been established that these companies' lawsuits involving Tajudin are indeed material litigation, and Bursa Malaysia's listing requirements include “the commencement of or the involvement in litigation and any material development arising from such litigation” among the examples of events that may require immediate disclosure.

Of course, there's room to argue that the global settlement is very much work in progress, with many details yet to be worked out. However, shouldn't the investing public be alerted when there's a proposed global settlement on the table and it may result in the conclusion of several suits with billions of ringgit at stake?

Nazri was quoted as saying there was no special deal between Tajudin, the Government and the GLCs for the parties to agree to the settlement of the suits. He added that it was up to the parties involved to decide what to do next. “It is their right if they want to proceed with their court case,” he said.

As listed companies, they are obliged to take into account the interests of minority shareholders as well. It's impossible to please every shareholder, for sure, but whatever the decision of each company, the board and the management need to be transparent and consistent, and their rationale ought to be persuasive. If a company decides to drop a lawsuit it has filed, particularly one that seeks to address big losses, it owes shareholders an explanation.

For example, an Axiata subsidiary, Rego Multi-Trades Sdn Bhd, commenced proceedings in 2005 against Aras Capital Sdn Bhd and Tajudin for amounts due to Rego pursuant to an investment agreement with Aras Capital and an indemnity letter given by Tajudin. In turn, Tajudin filed his defence and instituted a counterclaim to void and rescind the indemnity letter and claim damages. Said Axiata in annual report 2010: “The board of directors, based on legal advice received, are of the view that it has good prospects of succeeding on the claim and successfully defending the counterclaim if the same were to proceed to trial.”

Similarly, both TM and Axiata have expressed confidence that they can put up a winning defence against Tajudin's RM13.4bil counterclaim.

Perhaps it's good for everybody or at least, for most people if the Tajudin-related suits are settled out of court. If that's so, the listed companies should have no problems presenting that case to their shareholders.

Executive editor Errol Oh has just realised that we often overlook the listed companies' disclosures on material litigation.

Who will solve MAS’ operational problems?

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The deal with AirAsia reads like the rationalization of the airline industry but does little or nothing for Malaysia Airlines' operations

Image via WikipediaWhile MAS has award-winning products and services, a competitive cost base, and only slightly below average load factors, our yields are dramatically lower than our competitors. – Idris Jala then CEO of MAS in February 2006 before turning around the badly ailing airline within a year.

AT the end of the day, the alliance between Malaysia Airlines (MAS) and AirAsia achieved via share swaps between their major shareholders does nothing by itself to improve MAS’ operations (see our cover story this issue for full details).

In fact a misguided overemphasis on MAS focusing on being a premium full service carrier (FSC) can have dire consequences on its revenue and viability as we shall explain.

What is clear from the figures in the chart is that the national airline has a severe revenue management crisis, which it must solve or perish. The yields broadly track the airline’s operational profits.

The problem with the yield and hence revenue is not the product, for MAS is rated consistently among the top airlines in the world for service.

The problem is not capacity utilisation because seats are on average filled three quarters, despite increases in capacity.

The problem is pricing. Despite a good, and even excellent, product it is not able to price it properly and this is reflected in its yield, which is the revenue per revenue passenger km flown (sen per RPK – the average amount an airline gets for flying a paying or revenue passenger one km.). Hence there are no profits but losses now.



If we look at the RPK in the chart for the first quarter of this year, it is back to what it was in the first quarter of 2006 after Datuk Seri Idris Jala joined MAS in December 2005. Idris’ quote above in February 2006 shortly after he took over is exactly applicable to MAS today, over five years later!

An examination of the chart shows that since Idris came in to MAS in December 2005, MAS had experienced a relentless increase in both RPK as well as revenue per available seat km or RASK (available seat km is a measure of capacity obtained by multiplying seats available by the kms flown and totalling them) up to end-2008.

The increase in RASK at the same time indicates that the seat factor (how much seats are filled, obtained by dividing the RPK by the ASK) or capacity utilisation was maintained at healthy levels.

Maximising revenue is a function of trying to control three key variables – capacity, capacity utilisation and fares. When any one of these increases, revenue increases if the other two at least stay where they are. The ideal is when all three increase simultaneously.

The issue is complex to say the least and is at the heart of the profitability of any airline. Costs, in contrast, are much easier to control and quantify. But in revenue management you need to have a good feel for what price you can charge without affecting capacity utilisation.

For this you need very good people who can feed the right information to some of the most complicated and complex modelling systems in airline operations. And you need to be constantly refining this because the situation changes all the time and from day to day.

Most FSCs like MAS have a basic fare to fill most of their seats. But with an average seat factor of say 75%, one quarter of the seats are empty and wasted if they are not utilised. They target these seats to be sold too, often at lower prices, because they bring in revenue at the margin almost all of which goes straight to profit because it is incremental.

Now here’s the paradox: MAS, like any other FSC, must in areas where the load factor or capacity utilisation is low compete on the back-end or economy class with the low cost carriers (LCCs). Not to do so would make it severely uncompetitive as an airline.

If the flights are likely to be full, MAS should move to higher prices and if they are not, than the airline has to offer discounts – sometimes considerable discounts – to fill up the seats and improve capacity utilisation. The conditions for these seats are like for LCCs – inflexible schedules and early bookings but low price.

The trick is to do this without actually cannibalising your current base customers who are willing to pay a premium for flexibility and full service and to charge a rate the market can bear for the front end – business and first class where demand is not that price sensitive.

Now, lets look at the chart again. MAS’ yields increased steadily and peaked in the fourth quarter of 2008 for a gain of 60% in just three years and exceeding even that of Singapore Airlines, indicating excellent revenue management.

It took a massive dip in 2009 along with other airlines in the aftermath of the global financial crisis which started in the last quarter of 2008. Most airlines recovered after that but MAS did not. Idris left in the third quarter of 2009 to head the Performance Management and Delivery Unit and become a Cabinet minister.

Singapore Airline’s yield in 2009 fell to 25.7 sen per RPK from 31.3 sen per RPK (at current exchange rates), down 18% and MAS’ fell from 32.9 sen per RPK to 23.4 sen by the fourth quarter of 2009, down a massive 29%. But in the first quarter of this year, SIA’s was back up to 29.9 sen per RPK but MAS’ continued to languish at 22.7 sen, even lower than that at the height of the crisis!

The difference between SIA’s and MAS’ yield now is a massive 7.2 sen. MAS has estimated in the past that one sen in yield translates to about RM500mil in revenue a year. That means that if MAS can increase its yield to that of SIA’s – not impossible, it has done it before - that’s an extra RM3.6bil in revenue.

Since this is incremental, it means an operating profit of over RM3bil assuming MAS’ operating profit this year is likely to be less than RM600mil!

That is basically the problem at MAS – its yields have not recovered post the world financial crisis which affected airlines very badly in 2009. If MAS focuses on getting its yield back while keeping costs down, it’s back in business and in a great big way too.

MAS is an airline. The argument that ancillary services will make most of its money is false, although that income is useful. It can and must make money from the airline operations, although there will be cyclical downturns.

The guy (or gal) who will turn MAS around has to understand airline fundamentals and if he has no experience in how pricing affects revenue in the airline world, he must learn pretty fast. And he has to be pretty fixated on costs and have a good eye for market opportunities. Someone like Idris.

Back to the deal. It is good for AirAsia, some of it for good reasons and some for bad reasons. It is good because AirAsia can get routes and compete with MAS on the long, medium and short haul. But bad if the intention is to cut competition through uneconomic means.

MAS should be able and allowed to compete on economic terms with AirAsia in the same way that AirAsia can – the competition must cut both ways. That is the key to a more vibrant airline sector. If MAS can increase its revenue overall and make money by offering cheaper fares on some routes, they must be permitted – and indeed encouraged – to so.

By all means collaborate via common procurement, maintenance, training and the like to bring costs down but allow full economic competition on pricing. Don’t carve the market out rigidly but let the markets overlap on the fringes as they do in reality.

Let MAS be a full service carrier on all sectors but with the liberty to compete on pricing when the economics dictate it. Let AirAsia do its low-cost thing – which it has done so well and with so much benefit for travellers – wherever it wants to and give it access to any route it wants.

And let Firefly do what it will from Subang with no restriction, meaning it does not have to be an FSC.

Then we have the best of both worlds – the most collaboration to bring down costs with the most competition to keep efficiency up, deliver excellent service and low fares. Then we will truly recognise the three elements in this equation – the two airline groups and the customers without whom the first two don’t exist.

Managing editor P Gunasegaram would like to quote another turnaround man Lee Iacocca, the one who took Chrysler back to profits against all odds sometime back: “In the end, all business operations can be reduced to three words: people, product, and profits.”

Lawyer to sue Khazanah for denying son scholarship

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By NG CHENG YEE,chengyee@thestar.com.my

KUALA LUMPUR: A man wants to sue Khazanah Nasional Bhd, Yayasan Khazanah and its director after his son failed to get a scholarship offered by the foundation and the Cambridge Commonwealth Trust.

Lawyer Chan Chow Wang, 67, said he was planning to retire and personally funding son Xiao Yao’s studies would be a huge financial burden.

He also did not understand why Yayasan Khazanah had rejected the application as Xiao Yao had on Jan 5 received a conditional offer for a place at the University of Cambridge.

Yayasan Khazanah works with the Cambridge Commonwealth Trust to offer the Khazanah Cambridge Scholarship to students who have gained admission to the university through the usual application route.

Xiao Yao is scheduled to do his BA Honours degree in Chemical Engineering via Natural Sciences. The course starts in October.



Chan said that when he appealed to the foundation and asked for an explanation for the rejection, all he got was a letter telling him that the competition for the scholarship programme was very stiff.

He added that he would file a suit against the three parties because of the embarrassment, anguish and depression caused to his son.

“I will also lodge a complaint with the Malaysian Anti-Corruption Commission and request it to investigate the scholarship programme,” he said at a press conference yesterday.

Chan said the tuition fee for his son’s first-year study was £18,000 (about RM89,000) while the college fee was £4,462.50 (about RM22,000).

“With living expenses, my son will need about RM150,000 a year for this four-year degree programme and it is a huge sum of money,” he said.

Chan said it would be difficult for him to fund his son’s education as he was planning to retire in two years.

He had also funded the education of his four children, including Xian Yao’s education up to A-level.