#Highlight* MAS finalising options to rescue itself

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KUALA LUMPUR: Malaysian Airline System Bhd (MAS) is in the midst of finalising various options with the government and its majority stakeholder Khazanah Nasional Bhd to come up with a plan to rescue the loss-making national carrier. The government holds a golden share in MAS, while state investor Khazanah holds a 69.4% stake.

It is understood that the options include reducing its bloated staff strength as it continues to cut unprofitable routes as well as opting for sale and leaseback arrangements for some of its 151 aircraft to cope with the needs of short-term capital.

“MAS is likely to take a tougher line to restructure itself this time, which may include job cuts. But this has to be done this year because the government wants the national airline cleaned up before it prepares for the country’s next election,” a source close to the matter told The Edge Financial Daily yesterday.

In the latest annual report for the financial year ended Dec 31, 2013, MAS reported staff costs of RM2.33 billion for its 19,577 staff, which work out to an average cost of RM119,000 per employee, compared with revenue per employee of RM772,000 for the year.

Yesterday, after the group’s annual general meeting (AGM) which lasted for more than five hours, MAS group chief executive officer Ahmad Jauhari Yahya told a packed news conference that MAS’ only option at this point of its “business evolution” is a “radical and sweeping change” to its business model.

But he declined to say, when probed further, whether  the plan would include options to declare the airline bankrupt, spinning off its non-core business divisions such as MAS Engineering and a retrenchment exercise.

“We will explore all options. We are not here to discuss the final decision. But as far as the plan is concerned, we are narrowing down to a select few and once we have finalised the plan, we will go back to the shareholders and [tell] the rest of the world,” he added.

However, MAS chairman Tan Sri Md Nor Yusof said the airline would only consider going into the Chapter 11 bankruptcy route if it was insolvent.

“We are not [insolvent]. We will only consider bankruptcy if we cannot meet the obligation of the creditors, but we are not in that stage. For Japan Airlines, it had applied for [bankruptcy] protection (back in March 2011) from its creditors so that it could be reconstructed,” he said, adding that MAS’ cash flow stood at RM3.25 billion as at March 31, 2014.

Md Nor also said the airline needed to “go back to the drawing board” and “reboot itself with proper funding”.

“We need to rebuild (the airline) and we need to reconstruct the structural and financial plans and this is what AJ (Ahmad Jauhari) needs to do. A hard reset (to the business plan).

“We are looking to come up with a concrete (turnaround) plan. MAS has more than shareholders’ interest (to consider because) we are a national carrier/icon too,” he said, adding that MAS management is awaiting validation of its plan from the government and Khazanah.

Meanwhile, when asked if there was a timeline in place as Khazanah had on June 10 said the government will disclose plans to restructure the carrier within six to 12 months, Ahmad Jauhari said: “Time is critical now although radical changes were already on the cards before the tragic disappearance of MH370.”

However, some aviation analysts are of the view that MAS may not be able to sustain its operations for more than six months.

Ahmad Jauhari also dismissed talk of foreign airlines coming in to help with its planned restructuring.

“No, we are not (talking to any foreign airline),” he said. Reports of Abu Dhabi’s Etihad Airways taking an equity stake in MAS sent its shares up to a high of 27 sen last week, but this was subsequently denied by Etihad. MAS shares closed down one sen at 19.5 sen yesterday.

Ahmad Jauhari also said MAS will focus on its “four world-class assets” namely its product, service, engineering capabilities and safety track record to help lure back passengers to the airline.

Earlier, at the crowded AGM, nine non-executive directors of MAS unanimously agreed to return the fees paid to them in FY13 amounting to RM396,000, after objections were raised by minority shareholders over the directors’ remuneration.

During the meeting, the board of directors of MAS was also faced with accusations of being “non-performing” and “incompetent” by outspoken shareholders.

Several shareholders lamented that MAS has not turned around “plan after plan”, while others called for the board of directors to be removed.

One of the many frustrated shareholders remarked that the directors should only get RM1 as remuneration because of the poor performance of MAS. Nevertheless, all other resolutions were passed by show of hands.

Md Nor said the shareholders were “reasonable” to demand that the board of directors and top management resign in light of the continued dismal performance of the airline.

“It is only natural for them to be angry. It is reasonable for them to vent out, but it is not all of them, not unanimous,” he said.

MAS’ net loss widened to RM443.4 million in the first quarter ended March 31, 2014 from a net loss of RM278.8 million a year earlier.

This article first appeared in The Edge Financial Daily, on June 26, 2014.