MAS: Logic Defying Economics

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(Will it work or it is going to be RM6 billion down the drain again? This is going to be the last chance for MAS and the people who are managing it. We do not want to see another bailout in 2018! Image source: TheStar)

It is going to leave the economists around the world speechless. It may even cause the rules of economics to be re-written all over again and the geniuses that came up with this brilliant plan will be worshipped as the God of Economy for many years to come.

If you do not know what I am talking about, well, read this first:-

Khazanah Nasional Bhd has unveiled a 12-point plan to enable Malaysia Airlines (MAS) to achieve sustained profitability within three years of de-listing, by the end of 2017.

Its managing director Tan Sri Azman Mokhtar said the plan involved a comprehensive overhaul of the airline.

“At its core, the plan involves the creation of a new company, (NewCo) which will house the ‘new MAS’ and the migration of the right-sized workforce and work practices and contracts into NewCo,” he told reporters at a special briefing at Khazanah headquarters on Friday.

(Source)

When I talked about re-writing the books on economy, blah, blah, I was not talking about Khazanah’s plans to restructure MAS. They seems to be doing things by the books and whether it will work or not, we will know in the next 3 years. One just hopes that they had identified all the correct shortcomings and have addressed them comprehensively in their plan. In an interview with the first CEO of MAS, it is obvious that there have been some serious bad decisions made in the past and all these must be addressed too:-

Generally, MAS poor performance is due to its wrong business plan and the loss of flight MH370 demoralized the staff and MAS has to handle this. How to do it? MAS must change its business plan. What’s wrong with the plan? The thing that is wrong with the plan is the choice of its routes which it has been plying for the past 15 years.

Those routes are now overcrowded with all the low cost carriers. The market now wants to fly domestic and regional and 80 per cent of air travellers want to fly budget. Only the rich and the businessmen fly full service. So MAS has to do something to capture that 80 per cent market. It has to reshuffle and realign its aircraft fleet. Utilizing Firefly as the main carrier for domestic and regional. The rest, let MAS handle.

And take a second look on the use of the A380. Does MAS really need six of the super-huge aircraft. No need to file for bankruptcy. Don’t be ridiculous.

Maybe in some departments there are a surplus of workers but we have to look at it in totality. We can’t lay off 5,000 workers out of the 20,000 employees which MAS has. It does not have to lay a single worker if it is restructured properly. But we have to take a look at the salaries of some of the management team of which I was told touch more than RM100,000 a month.

Why must they be paid such a huge amount at a time when MAS is in the red and why do you axe workers with low salaries? I question how the board of directors can approve such a huge salary. How did it come to this?

I question why MAS use the A380 which is hardly utilised but cost millions to operate.

Why do we need the six air-crafts? That is one out of a thousand and one issues plaguing MAS. MAS also wants to sell the MRO and the person who proposed it does not know anything about the aviation industry. Engineering plays a huge part in the MAS makeup and plays a vital role in safety, efficiency, integrity and operations.

MAS has to fully control that business and if properly managed can become an income earner. During my time, MAS maintains and services aircrafts from the US, Australia and Canada. MAS made money out of this division. So why do you want to hive off this division to another company and then buy back the service from the very same firm? MAS will bleed even more just like the catering business. Although MAS has a 30 percent stake, it has to pay a high price for the food. MAS can sell a small stake but make sure it still controls MRO. Don’t sell the entire stake.

(Source)

Anyway, we’ll see this one closely. Very closely indeed. However, the one that is going to rewrite the books of economics is going to be this:-

Khazanah Nasional Bhd not only intends to recover every sen of the RM6bil investment into Malaysia Airlines (MAS), but wants to make money on the venture, said Datuk Seri Najib Tun Razak.

The Prime Minister, dismissing perception that the money pumped into the airline was a bailout, said Khazanah would be injecting the money to make MAS a viable organisation.

“This is not a bailout but an investment. Khazanah intends to recover every single sen of the RM6bil and more,” he said after chairing the monthly Umno supreme council meeting Friday.

(Source)

And this:-

Umno mouthpiece Utusan Malaysia has given the thumbs up to the comprehensive revamp plan to revive loss-making Malaysia Airlines (MAS), saying that the move to turn the national carrier around will not affect its services.

Awang Selamat, the collective voice of the paper’s editors, said he was confident the national icon would be back in the black in three years, based on stringent regulatory controls over the 12-point plan unveiled by state sovereign fund Khazanah Nasional Berhad yesterday.

“The emphasis on these aspects will have a significant impact on the recovery effort. It also differs from previous efforts which have ended in failure.

“We are also confident such changes will bear fruit and more importantly, the services of the national carrier will not be affected,” he said in the column today.

(Source)

Yes, firstly use the word “investment” instead of “bailout” to hide the fact that IT IS a bailout. Then tell the whole world that the money spent on the bailout, opps err, investment will be recovered. And continue with the statement that the entity that was put in charge of the bailout, sorry, investment is doing it because they want to make money on the said venture. I wonder how many millions was paid to external consultants to come up with such brilliant idea to substitute a bailout with an idea of investment. Can they for once call a spade a spade? Malaysians are not that dumb, you know?

Then secondly get the editor of a newspaper (that is deep in shit themselves with RM11 million loss), to put on the hat of a learned economist and turnaround specialist to say that the proposed turnaround plan will definitely work and all that will happen in 3 years as promised. And this is despite of many failed attempts to turnaround the national carrier in the past by the same group of people. After all, if the editors are so smart and confident, why the paper is not making money themselves? After all, Khazanah themselves was reported to say this:-

Khazanah, which has injected more than 5 billion ringgit into MAS over the last 10 years, said its new fund injections would be strictly tied to the new company meeting performance targets.

“Success is by no means guaranteed,” Khazanah said.

(Source)

And even the Old Man has his doubts:-

I may be wrong but I think Khazanah’s 100% ownership of MAS will not be much different from its 70% ownership. We are going to see a lot of new people who will receive huge salaries, allowances and bonuses and not much else. That I believe is how Khazanah operates.

(Source)

Whatever bullshit that will be spinned in the next 3 years, one thing will be sure – the taxpayers need to be prepared for the worse to kiss their RM6 billion (or more in the coming years) goodbye. Unless of course, certain things happens.

The Government through Khazanah must have the will-power and political clout to make real changes that will see the RM6 billion to be spent on the turnaround plan of MAS be recovered with every cents accounted for in 3 years time. They must look beyond the color of the skin when it comes to picking the right people to run the airline (and never this piece of idiotic thinking again) and it should not be limited to Malaysians alone. Priorities must be set right and must be followed strictly.

They must not be swayed with likes of extremists like Perkasa, Pekida, Isma (do I need to say more?), dumb “keris wielding” politicians (who will make noise for the sake of making noise) or inexperienced consultants with unbelievable fat payroll (who may prolong the misery for more fat salary). Otherwise they will end up digging deeper into the taxpayers money for another turnaround plan after 2018.

And more importantly, they must always remember that national pride and the nation’s good name is at stake here and thus no matter what, this turnaround plan must work. No ifs or buts. They must remember that the RM6 billion that will spend on the turnaround plan belongs to the taxpayers (and not from their own personal pockets) and every cent must be accounted for. I hope so they will or otherwise we will talking about another turnaround plan in 2018.

Selamat Hari Merdeka!!

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