MAS: Logic Defying Economics


(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.


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.


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.


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.


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.


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.


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!!


Talam: Facts or Spins?

(Chua Jr claims that it is a RM1 billion bailout by a reckless State Government and demands for a concrete answer. But the thing is, the Talam Debt Restructuring itself is very confusing and is not easy to be understood by the man on the street unless you are prepared to go into the details and analyse the debt restructuring ringgit by ringgit. Image source:

The first I heard about Talam is when my colleague of mine was complaining about the half completed house that he bought from Talam. That was in the late 1990s and it was not a big news back then because there were a couple more housing developers who facing the same problems.

Now Talam, is back in the headlines, thanks to the so-called revelations by MCA’s Chua Tee Yong and whilst we wonder why now and why no similar revelations were made by Chua on BN deals (does PKFZ rings a bell?), the constant barrage of allegations on the Selangor State Government proves nothing but a menace to Pakatan Rakyat. DAP’s Tony Pua have countered these allegations rather well and have attempted to explain the reasoning behind Talam Debt Restructuring Exercise.  But before one’s goes further into the micro details of the debt restructuring exercise, one needs to understand why we have the Talam issue in the first place.

For that, it will be prudent to read these 2 articles that explains the beginning of the Talam affairs.

First titled “Kicking into your own goal”:-

By exposing what the previous Umno-BN led GoS was trying hard to keep under wraps, Chua Junior may have unwittingly opened the proverbial Pandora’s box. I am, of course, referring to his Talam Debt Expose. If the current GoS had exposed this scandal, it would not have got even one line of coverage in the mainstream media (MSM). However, because it was MCA-BN that exposed it, it gets front-page coverage for weeks on end. Let us look at the details of the Talam Debt Settlement and see what skeletons are rattling where.

Debt Settlement of 2009

YB Teresa Kok had said on Tuesday that the Debt Settlement of 2009 was a continuation of the earlier Debt Settlement Agreements made in 2006 and 2007 — that means during the previous Umno-BN State Government.

One earlier Debt Settlement in particular is of great interest. That is, the one signed between Talam and Kumpulan Hartanah Selangor Berhad (KHSB) in 2005 — again, under the previous Umno-BN State Government. When this agreement was signed, Tan Sri Chan Ah Chye was a Director of KHSB and Talam was a major shareholder of KHSB. So this required KHSB calling for a Shareholders Meeting in 2005 to have the agreement approved by the shareholders. However, it was not done, as it would have meant that KHSB would have to appoint an Independent Adviser and all the shit would have been exposed — especially the ‘haircut’ or reduction that was being given to Talam from a more than RM150 million debt to slightly over RM100 million.

So Chua Junior did the Selangor voters a favour by exposing the issue and requesting for an investigation and action to be taken, as now the Bursa and SC can investigate the matter and take the appropriate action against the Board Members of KHSB in 2005. Interestingly enough, even the now controversial Debt Settlement in 2009 was also kept under wraps by the KHSB Board in 2009 — which was then still being controlled by Umno/BN — by not calling for another Shareholders Meeting to approve the 2009 Debt Settlement Agreement. I am sure the then Executive Chairman, Company Secretary, Board and Management were aware of the requirement to call for the Shareholders Meeting. But then, if they did, all would be exposed.

So, again, Chua Junior did the Selangor voters a favour by exposing the issue and requesting for an investigation and action to be taken, as now the Bursa and SC can investigate the matter and take the appropriate action on the Board Members of KHSB in 2009.

But what is this ALL?

How did Talam get to owe so much? Actually, the ‘problem’ started way back in the early 2000s when the then Umno-BN GoS was hard-pressed by unit holders of their unit trust, Amanah Saham Selangor or ASAS, to redeem their units for the minimum guaranteed price of RM1.00. The price of the units was then less than 30 cents. This shows the investment expertise of the then GoS, which can reduce a RM1.00 value to less than 30 cents.

Anyway, in order to show profits and redeem the units at RM1.00, the GoS came out with a plan, or I prefer to call it a devious scheme, to increase the value of their companies by having these joint-ventures with people like Chan Ah Chye. So, they created joint-ventures with their two public listed companies, Brisdale and SAP, and inflated the value by more than 300 million and then floated the shares through an IPO by creating two new companies, KHSB and Kumpulan Perangsang Selangor Berhad. The ‘profit’ made by the GoS in floating these companies were then used to redeem the units from the unit holders in 2003, just before the 2004 general elections. So, Prime Minister Najib Tun Razak was right, Malaysia can create history with their IPOs. This is yet another one.

But then what happened to the two companies, Brisdale and SAP? Brisdale is today under receivership and SAP is burdened with close to RM300 in million losses due to all these failed joint-ventures. So, as I said, Chua Junior did the Selangor voters a favour by exposing this issue.


Let us now look at the controversial lands and the failed joint-ventures. In order to create the value for the IPO, the then GoS took, as what Chua Junior is now indicating, useless pieces of land, which are more than half underwater, and placed them in the joint-ventures at inflated prices. This then created the illusion and impression that the joint-ventures would be worth much more than they really were. So, today, Chua Junior has done the GoS a favour by showing that these lands were worthless pieces of land placed to create value and nothing more.

However, good, reputable and respectable property developers would say that land with 50% water, are now prime development land for Lakeside Properties. Look at the Mines, SunWay, CyberJaya, etc. In fact, KHSB, which also owns about 5,000 acres in the same area of Bestari Jaya, with about 50% underwater, recently signed a MoU with some Chinese investors to develop the 5,000 acres into an eco-city development with a value of more than RM8 billion. This is what I would call creating value and my hats off to the new Board and Management of KHSB, which I believe is only about a year old.

And then read Malaysiakini’s “Nathaniel Puts TALAM in Perspective” who also explains the Debt Restructuring Exercise:-

“Confusing” probably describes most of our initial attempts to get to the bottom of what the deal was between Talam Corporation and Selangor. With a little diligence, clear thinking and attention to detail however, most mysteries can be unravelled and articulated efficiently.

This article attempts to explain in easy to understand terms the background and context of this issue, how Selangor recovered the debt owed to it by Talam, and how this debt recovery differs from the bailouts we have seen at the federal level.

In the Beginning

The story begins in the late eighties and early nineties, with an engineer and project manager who worked in Selangor state subsidiary PKNS – one Chan Ah Chye. This man later goes on to form Talam Corporation, and before long – possibly due to close connections with the ruling elite in Selangor, then headed by BN Menteri Besar Muhammad Muhammad Taib – he becomes a major player in the Selangor property and development scene.

Over time, an extremely large amount of state land is alienated to Talam, who basically gets it for free. A strong imagination is not required to speculate in whose pockets any resulting profit eventually ends up. Talam’s modus operandi seems to be to pledge this land to the bank in exchange for huge loans, which they then use to finance their development and profit making projects. In essence, since they got the land free, they have successfully achieved money for nothing (it is uncertain as to whether “chicks for free” were involved). The ‘wise’ businessmen of that era believed in the dictum of never using your own money when you can use someone else’s. This heavy lending continued to characterise Talam’s business approach, and their loans consistently kept getting bigger and bigger.

Tumbling down

Of course, no student of recent economic trends is unfamiliar with the concept of a bursting bubble. The financial collapse of the late nineties brings Talam’s debt-ridden house of cards crashing down. An overgearing of loans and inability to service them halts various half-completed projects, rendering them idle, half-built ruins. Incredibly however, this does not prevent Talam and their political patrons from altering their basic modus operandi.

In 2001, under BN Menteri Besar Khir Toyo, three parcels of land are alienated by Selangor to Talam via their subsidiary Maxisegar Sdn Bhd, who undertakes to construct Unisel’s campus at an estimated cost of RM750 million. It will probably come as no surprise that Talam failed to complete this project. By September 2006, the company had been classified as an affected company under Practice Note 17 (PN 17), indicating dire financial straits.

New Sheriff in town

In 2008, when Khalid Ibrahim assumes the Menteri Besar’s post, he inherits a situation in which Talam owes the state of Selangor and its subsidiaries (among other creditors), a great deal of money. Urban legend has it that when Talam was called in to explain why they have never endeavoured to pay their debts, the sheepish reply given was, “No one ever asked us to.” Thankfully for the citizens of Selangor, there was a new sheriff in town.

Corporate finance is not only an area of expertise for Khalid (left) – it is a passion. With great gusto, he set out to solve this problem, and recover that which was owed by Talam to the people of Selangor. The problem was undoubtedly challenging, but after some work and careful strategising, a plan was set into motion.The end goal was simple: to leverage the assets still held by Talam to repay the debt Talam owed to the Selangor and its state subsidiaries.

The technical nitty-gritty

Making this happen was a technically complicated process that required considerable financial acumen. The summary is this: firstly, the debts that were owed by Talam to Selangor state subsidiaries were properly booked and accounted for – something that, very suspiciously, had not been done before. Once these debts were acknowledged by all parties, the debts were consolidated and transferred to one state subsidiary – Menteri Besar Incorporated (MBI), which was then responsible for collecting the debts from Talam in the form of land and cash.

The rest of this section explains how this was done.

It is a boring and complex explanation, but I list it here for the record and for those interested. Talam owed RM392 million to three Selangor state subsidiaries: KHSB, PIYSB, and PNSB. After acknowledging and booking these debts, the next step was to have another state subsidiary, Selangor Industrial Corporation (SIC), purchase these debts from the other three companies. A loan from CIMB Bank of RM 392 million was given to SIC to complete this purchase. In November 2009, the state exco and legislative assembly both approved a grant of RM392 million to MBI, which then used the funds to purchase the original consolidated debt from SIC. SIC then uses those funds to pay off their CIMB loan. The end result is as simple as the transaction itself is complex – without any major or excessive transactional expenses, Talam now owes the same amount of money to just one state subsidiary, instead of the original three.

Restructuring and successful collection

It is important to note that at no point are funds transferred from taxpayer monies to Talam. Funds have instead only been transferred from one pocket of the state to another. This differs wildly from federal bailouts of corporations like Indah Water Konsortium, MAS, or the Putra/Star LRT, where taxpayer money was injected directly into companies that had probably lost untold amounts via mismanagement, corruption and plundering.

The transfers in the Talam debt restructuring allowed for a structure in which there is a clear acknowledgement and accounting for the RM392 million owed by Talam, and a single company for them to pay it to. The story does not end there. Another extremely important milestone in this tale is that MBI has in fact already succeeded in recovering all RM392 million in debt owed by Talam. For those who would like to keep score, this recovery came in two forms. RM340.88 million was recovered via acquisition of land and assets: 1,322 acres of land in Bukit Beruntung worth RM150.28 million, 2,264 acres of land in Bestari Jaya worth RM105.3 million, 400 acres of land in Ulu Yam and 60% equity in Ulu Yam Golf & Country Resort worth RM22.2 million, 134 acres of land in Danau Putra worth RM52.1 million and five office units in Menara Pandan worth RM11.1 million.

The remaining RM51.12 million was collected in cash: RM12 million from sales of land in Puncak Jalil, RM5 million in cash assignments from EON, RM7.68 million in payments by Unisel for earthworks, RM9.04 million from the sale of 25.94 acres of land in Bukit Beruntung, and RM17.4 million from sales of 218 acres of land in Bestari Jaya. Go ahead, count it – it’s all there.

Now that one have read the 2 articles, the next question that one need to ponder is whether the Selangor State Government did the right thing when they decided to get SIC to obtain the loan from CIMB (and whether there were still liabilities unaccounted for – Read “Talam Debts for Dummies – Questions for Khalid“) and why the Menteri Besar did not publish the White Paper earlier (which would have cleared all doubts and spins for once and for all) as promised and why Tony Pua (instead of the Menteri Besar or the State Financial Advisor) is taking charge in answering most of the allegations by  Chua Jr. Of course there is the question of why Khalid want to hire 5 international accounting firms to review the Talam Debt Restructuring which does not make any sense when the Debt Restructuring exercise is a done deal and there are capable accounting firms right here in the country to do the same review.

There is no easy answer for the above questions of course and it is made worse by the consistent barrage of allegations on the same issue from Chua Jr and very little effort (from the State Government) made to reply and to put to rest the issue for once and for all. And whilst we wait for a proper response by the State Government on the Talam issue, we should not also lose sight of the other side of the story on the Talam debts – the story of how a private entity end up owing millions of ringgit to State agencies which clearly happened when the Pakatan Rakyat was still in the wilderness and had yet to take over the control of the State.

The solution by Pakatan’s State Government may not been the best or the “cleanest” solution to the mess that they had to take over in 2008 but it is a solution nonetheless. The debt may have been collected in full without any bailouts with taxpayers money (other than perhaps the interest for the CIMB loan) as insisted by the State Government but this need to be clearly explained to the masses. Most of us agree that the Talam Debt Restructuring exercise is confusing (mainly because the debt is assumed and transferred to different parties) and that coupled with lack of access to debt restructuring papers and lack of financial understanding, the success of the debt collection seems to be obscured and laced with pre-election dirty politics.

We are aware that in any debt collection, there is a good chance that we may not be able to recover the debt in full. And since part of the repayment comes in form of land assets, the true recovery of the debt is highly subjective on factors like valuation, location, ready purchasers, etc. Thus creates the uncertainty on how much and how fast the State Government can sell those lands that they got in place of the debt. That is where the State Government need to work hard to convince the people that they have a solid plan in the event they have a problem to capitalise on the land obtained.

But what we are more interested is whether taxpayers money have been used to do multi-million bailout to Talam and whether there has been clear accountability, transparency and due diligence on the way the debt restructuring exercise was planned and executed. That is more important than harping on the value or the location of the land and that is is what we want to know from the Menteri Besar before the next general elections.