The never ending problems at MAS

An Email from inside MAS
13 November 2005

THE NEVER ENDING PROBLEMS AT MAS

AN internal memo circulated by MAS chairman and acting managing
director Munir Majid has made it to the press. The memo laments the
ongoing problems faced by MAS. Recently MAS announced losses of
RM280.0 million for the 1st quarter of 2005. Well the second quarter
lossed (to be announced soon end November 2005) was another 260.0
million. That is RM560.0 million losses in six months. Conservatively,
MAS can be expected to make losses totalling RM1.0billion for its
financial year 2005/2006. MAS has serious problems ahead.

Internal cash flow projections indicate that by June 2006 MAS many
not have cash to pay fuel bills and meet operational requirements.
When that happens what it means is that the planes will be grounded.
But MAS has contingency plans. They plan to sell the MAS building in
Sultan Ismail to raise cash. MAS is hopeful of selling the building
for about RM350 million but the very old building is only valued at
about RM250 million. And you cannot sell a building like that in one or
two
days. The bigger question is who is going to buy the building, even
for RM250.0 million?

Petronas already has enough unused building space at the Twin
Towers. KTM also does not need a high flying building. Maybe the
REITs (real estate investment trusts) will be asked to do national
service?

Many things in MAS are now being set aside pending the arrival of the
new MD Mr Jala from Shell Sarawak. A lot is expected of Mr Jala, who
sings and plays the guitar. Recalling his Dayak heritage, Mr Jala has
suggested a 'long house' type management technique. This means MAS
employees may soon share smoking a native peace pipe or worse eating
lunch from a common bowl in the cafeteria.

All of MAS' collective agreements have expired and are up for
renegotiation with the Unions. All salary increments for staff have
been postponed pending the arrival of Mr Jala. But the pilots have
been given a salary increment of 25%, even before the arrival of the
new MD. The Unions are complaining about this.

What will really happen when (not if) MAS runs out of cash by June
2005? MAS will most likely go to the Government for emergency funds
to meet operational costs. This is bad, really bad. MAS has undergone
almost everything that a turnaround situation would warrant including
restructuring, outsourcing, streamlining, financial reengineering
etc. The only thing that has not been done yet at MAS is brain
surgery on the people who run the airline. Perhaps this is an option
the Government may want to consider.

Another problem that MAS has to contend with is that the company now
reports to Tan Sri Nor Mohamed Yakcop, the Second Finance Minister.
If King Midas turned everything to gold with his golden touch,
everything Nor Mohamed touched went bust. He put Bank Negara into
technical bankruptcy with his forex deals which caused RM17 billion
in losses that are still not understood even by himself, let along the
average Malaysian. After Bank Negara, Nor Mohamed worked for Anwar
Ibrahim who got him a job at Rashid Hussein Research. Both Anwar Ibrahim
and Rashid Hussein went bottoms up, Anwar quite literally. Then Nor
Mohamed became Chairman of Abrar which not only went bust but was wound
up. During his tenure as Chairman, Abrar bought over Mun Loong Berhad
which went bust and became a PN4 company and lost its identity
completely. It is now
known as Kamdar Singh Textiles. Then Nor Mohamed worked for Tan Sri
Ali Abul Hassan who lost his job. After that Nor Mohamed worked for
Mahathir Mohamed who has also stepped down. Now Nor Mohamed works for
Abdullah Badawi and has the country's economy in his hands. Just
because he is Finance Minister Two now, can we expect Nor Mohamed to
have miraculously developed an ability to avoid disasters? I shudder
to say this but shall wait and see?

The appointment of Mr Jala also shows more short sighted thinking.
Why appoint an oilman? The simple reason is because 40 per cent of
MAS' operation costs are fuel bills – aviating fuel. It is hoped that
Mr Jala's experience as an oilman will help MAS do a better job in
buying aviation fuel on a futures basis (futures contracts). The same
futures markets that caused Bank Negara's RM 17.0 billion debacle.
But the fuel problem is not specific to MAS alone. The whole industry
suffers high fuel costs. MAS has other serious problems which may not
be in Mr Jala's domain or job description.

MAS suffers significant waste. For example the Prime Minister's
brother is a shareholder in SkyChef – a joint venture with Lufthansa
– which has taken over the job of MAS Catering. This is a very
lucrative deals for SkyChef but a bleeder for MAS.

Even if the flight to London is half full, SkyChef puts on a full
load of food on every flight. At the end of the flight, the extra
food is thrown away. MAS to pay for that wastage. Each meal in a
plastic try can cost more than RM25.00. How is Mr Jala going to deal
with that?

SkyChef has also negotiated the catering contract such that a full
load of mineral water is put on all flights that adds to the
airplanes' weight and burns more fuel. When the plane returns, any
unopened bottles of mineral water are put back on the flight and
charged to MAS again. A net way for SkyChef to milk MAS.

MAS serves salads in its meals, which were made using lettuce grown
in Cameron Highlands. Two months ago MAS stopped buying letruce from
Cameron Highlands and opted for very expensive imported lettuce from
Australia. No one (other than certain folks at the Purchasing
Department) seem to know the reason for this expensive switch.

In Engineering, MAS may have three test pads to check out avionics –
two in Kuala Lumpur and one in Penang. Because all avionics are
tested out in KLIA, the test paid in Penang is never used. Each costs
over RM200,000 a piece.

When MAS presented its quarterly results, they carefully avoided any
mention of Professional Services. This means 'consultants'

MAS has employed more than 17 different consultants and are still
employing more consultants. There are so many Australian and British
consultants that the MAS office in Subang looks like an orang putih
outfit. One consultant is paid RM5,000 per day. Other consultants
are paid in excess of RM 2.0 million per year. Considering that the
company's total losses are increasing, no one seems to know just what
is the positive impact of all these consultants.

The latest addition to this list of consultants is a lady hired from
Citibank Singapore who is paid RM60,000 per month. The headhunters
who hunted her down were paid RM180,000. This lady is in charge of
Services – to handle the outsourcing of MAS support services like IT,
ticketing, administration, etc. Outsourcing has been quite disastrous
for MAS too because it has cost the company even more money.

After outsourcing IT, response time to fix computer glitches at the
non front line departments have been slowed down (two to four days).
Some of these outsourcing contracts are also been eyed by companies
related to Directors that sit on the Board or MAS. One of them is the
Symphony Group that is controlled by Dato Azman Yahya (formerly of
Danaharta) who is a MAS Board member.

To bring the company around, Munir Majid has asked senior executives to
take voluntary pay cuts up to 30 per cent. This is childish and not even
foolish thinking. As a good example Munir says that he has not taken his
acting MD allowance for the past month. MAS folks say Munir's comments
are justified because he is not fit to be an MD.

But Munir's financial loss is consoled by the fact that despite the
company making so much losses, he has recently bought an oil painting
for over RM1.0 million using company funds that hands in his office.
What have financial losses got to do with appreciating art?

The people who know exactly what is wrong with MAS are the rank and
file. At meetings with the management they have voiced their opinions
but to no avail. The ringgits involved in MAS are huge. Many hands
are in the cookie jar.

Ends

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