Friday, December 9, 2011

In the footstep of Idris Jala - tough call


Thursday December 8, 2011

CEO sets in motion business plan to bring airline to profitability by 2013

By B.K. SIDHU
bksidhu@thestar.com.my


PETALING JAYA: Malaysia Airlines (MAS) will cut unprofitable routes, spin off its ancillary units, explore joint ventures with other airlines and launch a regional carrier by second half of next year in a bid to return to profitability by 2013.
The airline, which will focus on offering premium air services, targets a net loss of RM165mil for 2012. However, by 2016 it hopes to report a net profit of RM900mil.
About 40% of MAS' network is unprofitable but beginning next year it would cut capacity by 12% and save about RM302mil by suspending flights to Dubai, Cape Town, Johannesburg, Buenos Aires and some European cities.
Ahmad Jauhari: ‘We are very deep in crisis. Our cumulative losses until the third quarter amounted to RM1.25bil and we do not see any improvements in the fourth quarter.’
It would focus on serving the premium market in Asia where there is growth despite the intense competition from low-cost and premium carriers that are also adding capacity in the region.
“We are very deep in crisis. Our cumulative losses until the third quarter amounted to RM1.25bil and we do not see any improvements in the fourth quarter. MAS needs to make hard and unpopular decisions simply to survive. We hope this plan will set the course straight,” MAS groupchief executive officer Ahmad Jauhari Yahya told a press conference yesterday. The new business plan that he unveiled yesterday focused on reversing the airlines' fortunes and outlined steps to sustain its performance.
He cited the loss of focus of the premium segment, declining product quality, an ageing fleet as reasons why MAS was in a loss-making situation. The airline's overall ranking in the industry had also dropped but with the new business plan, there would be greater focus to win the customers back.
Ahmad Jauhari said the series of actions that the airline would take next year was expected to generate an improvement of between RM1.1bil and RM1.5bil in the profit impact for the group.
On the new premium carrier - not Sapphire he said it would begin operations in the second half of 2012 with a fleet of 45 B737-800 aircraft. It would fly to cities in South-East Asia and Greater China while MAS would continue to serve long-haul flights. It planned to add frequency to cities like Manila, Jakarta and Tokyo.
This is the fourth time in a decade that MAS is being restructured, though the theme this time is be a leaner airline, but some analysts attending the briefing were unimpressed.
“It seems their consultants did the work for them and we are disheartened by the fact that the management only aspiresfor RM900mil net profit when benchmarked against first-tier airline, they should be aiming for RM2bil to RM3bil,” said an analyst.
A Maybank Investment analyst added: “It is a strategic mistake to set up a new airline when they could service the short-haul routes using the MAS brand name. Why the need to gamble when there is no guarantee of immediate success? However, what is convincing is that they are suspending flights to unprofitable destinations.”
MAS has also begun discussions with AirAsia and AirAsia X to cooperate on fuel-purchasing, maintenance, training and ground-handling, which could save the national carrier RM100mil annually.
On the rationale to spin the ancillary units engineering, pilot training/safety academy, cargo and ground services Ahmad Jauhari said it was to allow strategic investors to take a stake in them so that the units could grow.
The airline will take delivery of 23 new aircraft including five A380 in 2012 and that would help the airline save RM392mil in cost since the new aircraft are more fuel efficient.
The airline also needed to raise RM12bil to pay for the new aircraft it had ordered till 2014 and it might finance them via debt and Islamic bonds but MAS deputy CEO Mohd Rashdan said the airline would not opt for a cash call.
MAS has cash reserves of RM1bil now but it expects return of aircraft deposits to help it ride through next year.
“We would not deny we are in talks with Qantas as these days you have to work with other airlines but the discussions are still at an exploratory stage,” he said, adding that: “We are exploring the possibility of joint ventures with (other) partners in order to serve multiple markets together, while reducing the financial risks of going alone.”
The airline will also join the oneworld air alliance by September 2012.
Asked if the MAS workforce was behind him in the push for better fortunes, Ahmad said: “They understand the gravity (of the problem) and are horrified by the losses, but they also understand that painful actions are necessary.”
Asked if there would be job cuts, Ahmad said it depended on all the spin-offs but a (voluntary separation scheme) was the last option.
There is also apprehension towards the comprehensive collaboration framework from with AirAsia.
Asked if the CCF was really necessary, he said “it makes it easier with the CCF.''
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MAS plan lacks critical details?


Friday December 9, 2011

Analysts: MAS plan lacks critical details

By SHARIDAN M.ALI
sharidan@thestar.com.my

“We feel that this is the key factor that investors want to hear in order to be convinced about the business turnaround story,” it said in a report.
Maybank IB was also concerned about the risk of MAS starting a new airline for regional services.
“MAS will start a new regional airline focused on the premium segment by second half of 2012 and it will gradually dissipate to become a long-haul airline only as its regional services are taken over by the new airline.
File picture shows MAS and AirAsia aircraft at Kuala Lumpur International Airport. - EPA
“Although the management asserts that the new airline would have significantly better quality and services, we see a risk as MAS has a strong brand name with proven quality and service.
“For an airline that aims to turnaround and stem losses, this is not a suitable time to take start-up risk, in our view,” it said.
Nevertheless, Maybank IB applauded the move that MAS would cut capacity or available seat per km (ASK) by 12% in 2012, on loss making routes such as Buenos Aires, Dubai, Cape Town and Johannesburg. “The move was overdue for decades as these routes have no chance to make money. This move is also a confidence booster because it shows that the management is bold and clear minded in its cost cutting approach,” said Maybank IB.
On Wednesday, troubled the airline unveiled its third edition of business turnaround plan that entailed cuting unprofitable routes, spining off its ancillary units, exploring joint ventures with other airlines and launching a regional carrier in a bid to return to profitability by 2013.
The airline, which would focus on offering premium air services, targeted a net loss of RM165mil for 2012. However, by 2016 it hoped to report a net profit of RM900mil.
Meanwhile, OSK Research said the plan shed some light on the strategies lined up to turn the national carrier around by cutting capacity, wooing back its customers, enhancing costs, and focusing in its core business.
However, they were still skeptical as MAS faced tough challenges amid growing competition.
“There are also concerns about potential funding for its RM6bil capex, which could burden the flagship carrier with a gearing of four times by end of 2012.
“But, management reassures that as long it is able to achieve positive Ebitda (earnings before interest, tax, depreciation and amortisation) in first half of 2012, this would not be an issue. We believe this is achievable as long the airline executes its strategies well,” it said.
AmResearch said while it was positive on MAS' business plan from a structural perspective, it believed it was too early to be bullish on the stock given the muted earnings visibility as a weak global economy in 2012 would not support air travel where loads and pricing power were negatively affected, particularly for premium travel.
“There is also the risk of a cash call to support fleet renewal, which is central to MAS' business plan, if profitability and cash flows do not improve as much as expected,” it said.
Both AmResearch and Maybank IB maintained a “hold” call on the stock while OSK Research retained its “sell” call.
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AVIATION - Conjuring Long Term MASterplan


Saturday December 10, 2011

Analysts wonder what long-term plan can the airline conjure

By LEONG HUNG YEE
hungyee@thestar.com.my

IT is undeniable that Malaysia Airlines (MAS) is facing a crisis and is in a dire state now. The carrier is having both cash and profit crisis for a while and may fail if it continues the way it is now. Realising this, the management introduced a new Business Plan 2012 on Wednesday hopefully to turn its fortune around. Many will be interested in the business plan and the details on how it will help steer MAS away from turbulence.

But surely many will ask ... doesn’t MAS have enough business plans already? Over the past decade, the flag carrier has undergone several business plans including the Widespread Asset Bundling (WAU), Business Turnaround Plan 1 (BTP1) and Business Transformation Plan 2. Some of these initiatives have produced some promising results but the momentum was not sustained, nor did it steer MAS from further turbulence.
Ten years on, it is back to square one. For the first nine months to Sept 30, 2011, MAS posted a net loss of RM1.24bil against a net profit of RM8.55mil a year ago. Its cash and cash equivalent have depleted to RM968.5mil as at Sept 30 compared with RM1.92bil a year ago.
Some analysts are saying the new business plan was basically a new plan with the same story they have been seeing over the years. Analysts tracking the airline concur that its history, both financially and operationally, is an eventful one, especially since its low-cost counterpart AirAsia Bhd has now become a substantial shareholder in MAS. Ironically, AirAsia is celebrating its 10th year of success this year.
“The carrier (MAS) has faced strong financial challenges over time. Yet, it has managed to survive them. It’s interesting in the sense that one day it was flying high and the next thing you know, it has hit bottom but it has, through it all, managed to turn around,” says an analyst.
Basically, the business plan will see MAS turning itself around by cutting capacity, wooing back its customers, enhancing costs, and focusing in its core business.
“This business plan outlines our near-term recovery plan to move us to profitability by 2013, as well as a set of ‘game changers’ to sustain our performance and create a platform for continued growth for MAS’ future,” group CEO Ahmad Jauhari Yahya says.
He adds that MAS needs to make “hard and unpopular” decisions simply to survive and realise the airline’s vision.
A decade ago, MAS suffered high losses due to high fuel prices. The Government took control of the airline in 2000, but failed to turn it around. MAS had lost much of its core competencies in many areas of operations and was burdened by route and fleet expansion programme.
MAS reported an operating loss of RM776.6mil and a net loss of RM835.6mil for the year ended March 31, 2002.
In the same year, MAS underwent the famous WAU revamp to restructure the whole group. The WAU exercise wowed many with the almost instant result of turning around MAS.
Penerbangan Malaysia Bhd (PMB) was set up in 2002 as a wholly-owned subsidiary of the Minister of Finance Inc following the restructuring of MAS.
Under WAU, 73 aircraft of MAS (which were tagged with a value of RM5.1bil) as well as an associated RM7bil in debt were taken over by PMB.
The shortfall of RM1.9bil was made up by issuing additional MAS shares to PMB at RM3.85 each.
The aircraft were then leased back to MAS to enable the carrier to focus on operational efficiency.
With no aircraft assets on its balance sheet, MAS essentially became a marketing entity and operator of leased passenger and cargo capacity on international routes.
One of the immediate effects was that the restructuring transformed MAS’ gearing ratio of 700% as at March 21, 2002 to a net cash position, thus creating an “asset-light” airline.
The restructuring was successfully executed by Nov 6, 2002 over a record duration of 8.5 months.
The success of the WAU exercise speaks for itself. In the following year, MAS posted a significant improvement after its restructuring exercise. MAS narrowed its operating loss to RM47mil in 2003. It turned around in 2004 with an operating profit of RM195.6mil and RM317.7mil in 2005.
Not only did MAS manage to turn around its operation, the carrier also saw its share price increased from RM3.06 on Nov 5, 2002 upon shareholder approval of the WAU restructuring and reached a high of RM5.60 on March 31, 2004.
However, the momentum was not sustained. MAS continued to be in a precarious state despite having had all its debts transferred and seeing some improvements operationally and financially. High jet fuel prices were a serious concern, and a big factor in pushing it from a newly turnaround company into the red again was high oil prices in 2005.
For the period from April to December 2005, MAS’ losses amounted to RM1.3bil, shocking the market with its worst results since the WAU exercise.
Again, the company needed a restructuring plan to turn the company around – one more time. This time around, the Government appointedDatuk Seri Idris Jala as new CEO on Dec 1, 2005 to steer the company out of turbulence. Within three months, he came up with a BTP1 where he played a key role in helping MAS return to the black.
The success of the BTP1 saw the airline reporting record net profit of RM851mil for the financial year ended Dec 31, 2007 from a loss of RM1.3bil in 2005.
Jala launched BTP2, a five-year plan to transform MAS into a five-star value carrier and turn in profit of at least RM1.5bil in 2010 according to the plan. MAS posted a net profit of RM234.5mil for the financial year ended Dec 31, 2010.
MAS has managed to return to profitability within a short period. Route rationalising was one of the major contributors to the airline’s return to profitability.
Sustaining momentum
However, like in previous plans, the momentum could not be sustained. MAS continued to be in a bad position. One of the contributing factors for the massive losses was fuel costs. Another factor for the losses was high operating costs. MAS substantially lagged its peers on yields.
Some analysts say it was unfair to say the WAU and BTP have failed. The plans have managed to turn MAS to become an asset light carrier as well as to improve efficiency. Albeit a short period, the plans have also helped MAS to recover from unprofitability.
“If those plans did not take place, the airline would essentially be bankrupt by now. It may not even have survived the subprime mortgage crisis in 2008,” an analyst says.
Post WAU and BTP, MAS has taken all the necessary steps to improve its operations and efficiency. Now, it is time for them to look at ways to reduce their operational cost, an analyst says.
“As for routes, I think it had already stopped servicing unprofitable routes during the BTP days. What it should look at right now is on the capacity. It will also need to win back some of its customers,” an analyst says, adding that the national carrier’s biggest problem is in managing its cost.
Going forward, MAS’ network will include routes where its premium travellers will want to go, and where we can win in terms of competitive position and home advantage.
Maybank Investment Bank applauds the move that MAS would cut capacity or available seat per km (ASK) by 12% in 2012 on loss-making routes such as Buenos Aires, Dubai, Cape Town and Johannesburg.
“The move was overdue for decades as these routes have no chance to make money. This move is also a confidence booster because it shows that the management is bold and clear-minded in its cost-cutting approach,” says Maybank IB.
MIDF Research says MAS will deploy the resources to profitable routes by increasing frequency and the ASK is expected to increase by 3% over those routes. Hence, there will be a net reduction of 2% in ASK. The estimated impact will be RM220mil to RM302mil to core airline profit.
MAS currently leases its aircraft from PMB and will eventually return the aircraft to the latter when the lease expires.
As its fleet replacement programme shifts gear, MAS will have the youngest fleet in the region by 2015. Under its fleet renewal exercise, MAS could potentially own an additional 56 aircraft by 2016 excluding options for twenty B737-800 and ten A330-300. The aircraft deliveries are scheduled up to 2016.
“We will take delivery of 23 aircraft in 2012, each with state-of-the-art passenger amenities. As we introduce these products, we must also reinvigorate our sales and marketing functions,” MAS says in its Business Plan 2012.
MAS adds that it needs to “win back the hard-earned loyalty of customers”, especially those in Malaysia, and convince them of the superior value of our enhanced services. It also need to optimise our revenue management to enhance yields.
MIDF Research says MAS will accelerate the return of 36 older lease aircraft to PMB. “We believe that this will bring significant cost savings as the newer aircraft will be more fuel efficient.
Also, it will install state-of-the-art passenger amenities for better product offering and optimise yields through better revenue management. Impact is estimated to be RM394mil to RM477mil.”
Analysts say proper execution will be key risk factor to making that sure its MAS’ Business Plan come true and will be able to sustain for future growth.
“The execution of MAS’ business plan is important, as it will prove MAS’ ability to turn around and compete. It is for this turnaround story that MAS will be more significant for investors,” a local bank-backed analyst says.
Another analyst says that with all the building blocks in place, MAS may provide investors with a turnaround story. “It is not a new story but will be an interesting one considering its ups and downs. However, the results will only start showing in the next couple of years,” he adds.
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AVIATION - MAS a retransformation?


Saturday December 10, 2011

It’s a tough pull for MAS

By B.K. SIDHU
bksidhu@thestar.com.my

A decade ago its books were severely tainted with red ink and had to be cleaned up via the Widespread Asset Unbundling (WAU) exercise where it became an asset light airline. But 10 years later it is still in dire straits and appears not too far from where it was a decade ago.
This Wednesday the new boss of MAS, Ahmad Jauhari Yahya, after coming in one-and-a-half hours late for the media briefing, threw in yet another plan to put it back on course. The theme is “right sizing'' and it involves cost cuts to spinning-off businesses.
Ahmad Jauhari says the theme of his plan is ‘right sizing’.
Some analysts were quick to say the plan “is yet another exercise to cut cost and sell assets to show profits. This is the fourth in a decade after WAU, Business Turnaround 1 and Business Transformation 2.''
“The same people who crafted WAU are back. Had they put in place a long-term plan then, would MAS be in this state?'' ask Standard & Poor's senior aviation analyst Shukor Yusof from Singapore.
To him, the new team “has taken a short-term view of MAS when they should have engaged with the experts from within to get to the root of the problem as the plan to him does not address that.''
Brendan Sobie, the analyst at CAPA Centre for Aviation adds: “MAS has an unenviable track record of failed turnarounds and transformations, its rivals will be watching closely as MAS takes a stab at yet another new strategy.''
The question is no longer about whether it can do it, but about confidence.
New plan, same story
At a glance, the plan is no different from the previous ones that focused on cuts and asset sale to remove the red ink from its books in the short term.
A Maybank Investment Bank Bhd analyst describes the 43-page business plan document as a “fairly good academic paper, full of comparisons, but lacks critical details on exact execution plans which is key for investors to decide'' if the turnaround story is bankable.
Of the 17 brokerages tracking the stock, according to Bloomberg data, only two are still maintaining a “buy” call while 12 have a “sell'' recommendation and five “hold'' with a target price of RM1.30 a share. Yesterday MAS closed at RM1.31
But Ahmad Jauhari, who declined to be interviewed for this article, contends that there was a recovery plan that focused on “right-sizing'' to address the bleed, and a growth plan for sustainablity.
He says MAS is in a “deep crisis'' due to lack of focus on the premium segment and its quality of product fell. Basically the attraction waned because of its pricing, an ageing fleet, a stale product and it was not as fast as its rivals to adopt change.
Ahmad Jauhari believes that by replicating the “playbook used by Japan Airlines (JAL) and Garuda International'' to turn around MAS, there will be success.
Mohd Rashdan is not unduly worried about the financing or cash reserves.
But not to Shukor.
“It is naivety at its highest order to do that. JAL's recovery plan was based on making the Boeing 787 as the workhorse of its fleet, and slashing 16,000 employees 30% of its workforce. What is MAS prepared to do? The airline has close to 20,000 workers; will the company lay off a third of them now that it is downsizing?''
He also warns that downsizing is not the best way to address MAS' problems when it wants to be considered a serious premium player and is going to add five 500-seater A380s in 2012.
It will open itself to “predators, and there is no shortage of them in the region from Jetstar, LionAir, Singapore Airlines (SIA), Cathay Pacific and many others,'' Shukor adds.
Ahmad Jauhari contents that, if nothing is done, in terms of a fundament re-engineering, the losses could balloon to RM2bil. For first nine months, MAS reported a net loss of RM1.2bil.
More cuts needed
Under the new plan, MAS will shrink its network by 12% to grow.
In 2012, it will suspend flights to loss-making routes such as Dubai, Johanesburg, Cape Town and Buenos Aires which make up only 5% of total international available seat kilometer (ASK). Sobie says MAS needs to cut 25% of its capacity to European cities (probably Rome and Frankfurt) to make up for a 12% system-wide cuts.
“This figure could be reduced slightly if MAS opts to also trim back its Australia/New Zealand operations,'' he adds.
Some experts say the Singapore-Langkawi route will go, and so will the long-haul routes out of the Kota Kinabalu hub, whose future as a hub appears dim.
“It is surprising they find the Dubai route loss-making when its rivals can make money from it,'' says the expert.
When a particular route is suspended, the rights go back to the government and here is where AirAsia or AirAsia X (AAX) can apply for them.
MAS and AirAsia are now partners by virtue of the share swap deal in August, and to facilitate the working relationship, a comprehensive collaborative framework (CCF) exists so that both can work together in many areas in a bid to reduce cost and MAS is looking at RM100mil savings a year. But the bigger aim is really to prepare the players for the onslaught of competition with liberalisation of Asean's air sector by 2015. Here is when any airline in Asean can fly to any city and pick up passengers, and having a strong home carrier is therefore key.
The CCF also means there will be sharing of flights to save cost, though the airlines have not made it clear how this will work.
But Ahmad Jauhari did say that “we are close to finalising a connecting-service that will enable passengers on either airline to seamlessly connect between carriers and non-overlapping routes.”
While AirAsia's group CEO Tan Sri Tony Fernandes has declined comment on this issue, the market has gone on to speculate that AirAsia X may be looking at giving up some routes, such as Mumbai and the European routes, in exchange for Sydney and some China routes. AirAsia X has been fighting to get Sydney for a long time.
Premium equation
To get back at the premium market where rivals such as SIA, Cathay Pacific and Emirates reign, MAS has to do a total revamp of its approach to branding, distribution, customer loyalty, product and the works in order for these high-fare paying customers to re-look at MAS.
It would be a tough battle and shrinking its network puts it back a few notches in the premium game where frequency and connectivity is king, says an industry expert.
“It is not just frequency, but the right product, a top-notch frequent flyer programme and knowhow to treat the customer right. SIA, Emirates and Qatar Airways know best how to treat the customer, they even know what toilet paper their high-paying travellers use. That is premium service. Is MAS willing to go down that route?'' asks an industry expert.
The good thing is it will have 23 new more fuel-efficient aircraft plus the six A380s which will be its star product. It will use the jumbos for the London route.
However, Sobie says that the KL-London-KL routes where MAS has double daily flights had suffered over the last several months from low load factors and yields. With the A380, there will be more capacity at a time when market conditions in Europe are worsening. But MAS hopes to woo more premium passengers after noticing the impact of the A380 from other carriers in attracting new clients.''
To offer premium services, Shukor points out that MAS needs a reservoir of premium passengers and KL is not considered a premium city. Still, others think MAS' entry into the oneworld air alliance provides some reprieve in linkages and volume, though small.
MAS also wants to re-focus on South-East Asia and Greater China, But others are also zooming in on Asia, such as Qantas, British Airways, SIA and even Emirates.
There will be more capacity added into the region by existing players and new players, and that points to more competition. Next year, SIA's long haul low cost carrier Scoot enters the market, Emirates will fly its A380 into Kuala Lumpur and Qantas will set up an Asian hub.
International Air Transport Association director-general Tony Tyler predicts Asia will do better than most regions amid the gloom and doom due to the eurozone crisis that threatens to throw the global economy into a tailspin. CAPA says the overall Asian market is poised to grow at a much faster rate of 10% per annum, to reach 900 million passengers (excluding China) by 2020.
MAS wants to launch a regional airline by the first half 2012 to tap into Asia but analysts warn of the execution risks of doing so.
“Ten years and the problem at MAS still persists. Now they want to adopt a new baby, perhaps they should re-look their strategy,'' an analyst says.
The regional airline, yet to be named, will give MAS the needed traffic as it will act as a feeder airline to MAS and more importantly yields, while MAS will focus on long haul routes.
The existing Firefly turboprop operations will also remain as a feeder to MAS.
MAS is targeting to increase its revenue per available seat km (ASK) by about 20% to 22.3 sen from an estimated 18.7 sen this year, and decrease its cost per ASK by 27% from 22.4 sen to 22.3 sen.
But more interesting is the talk that MAS, Qantas and British Airways may work together. It is mere speculation at this stage. If it does materialise, there is a good chance that Ahmad Jauhari will succeed in turning MAS around.
“Something is certainly brewing with Qantas, and BA may be involved,'' said an expert.
Qantas, on its own, wants to set up an ultra-premium carrier airline to be based either in KL or Singapore. A report from Australia yesterday says that Qantas is keen to work with MAS and “discussions are continuing with relevant parties about the establishment of a premium carrier. Qantas remains very much committed to this,” a report citing Qantas' government relations chief, Olivia Wirth, as saying, adding that any future activity between the two fliers “would be complementary” to MAS' plans for a new short-haul carrier.
They could collaborate on scheduling, interlining, pricing and revenue management or just interlining. Whatever they do they have to move fast.
“MAS can be the link into intra-Asia, South East Asia, BA for Europe and US points, and Qantas for Australasia. By combining to scale they can beat Emirates and even SIA,'' says the expert.
In the black
Despite all the cuts, MAS will remain in the red this year and the next. Ahmad Jauhari estimates the net loss for 2011 to be RM1.32bil and his “base case'' net loss for 2012 is RM165mil. The light at the end of the tunnel will only shine in 2013, and by 2016, he expects MAS to report RM900mil in net profit.
That projections are a bit conservative, says Maybank, which expects a RM903mil net profit for 2013. By 2016, the expectation is that it should report RM2bil in net profit, provided of course it is able to turn around as per the business plan.
“The one thing they are doing right is cutting loss-making routes that has not been possible previously,'' says a Maybank analyst.
“Whatever they do, it will take a while before any research house will turn bullish on this stock.”
MAS also needs to conserve its RM1bil cash in its coffers and raise RM12bil in financing for its aircraft, but a cash call is not on the cards.
MAS deputy CEO Mohd Rashdan is not unduly worried about the financing or the cash reserves for he feels it can roll into next year and the airline can raise about RM5bil worth of funds from banks, credit agencies, and leasing arrangements of its new aircraft.
“We have our funding mix plan for aircraft purchases and another RM1bil will come from the return of pre-delivery deposits from the aircraft manufacturer.''
The move to spin off its ancillary units and getting strategic investors may also raise some funds for the airline.
“Selling assets or stakes to raise money to show profits has been done before, and AirAsia is a potential buyer,'' says a source.
AirAsia recently formed a joint venture with Canada-based CAE International Holdings Ltd to set up an aviation academy to provide training for pilots, cabin crew, engineers, guest services, ramp handlers and aviation management. And since MAS wants to spin its pilot training unit, it could end up with CAE and AirAsia, says the source. Ahmad did not name the potential strategic partners that may end up having stakes in the ancillary units that it wants to spin off.
Job cuts
Will there be job cuts since MAS is downsizing?
Ahmad Jauhari says that will be the last resort.
AmResearch says any workforce downsizing and change in performance-driven incentive mechanism could face hurdles especially with the unions.
“It would only be fair to make it very clear to the staff, instead of talking in riddles about job cuts. It is their livelihood and don't blame them for MAS' misfortunes,'' says an industry expert.
Sympathy is not what many employees are looking for. They want straight answers and not answers like “work in progress,'' says another industry expert, who adds that “During Tan Sri Idris Jala's time, we knew exactly what was happening but now we are clueless. We don't even know if there will be layoffs and who will be affected... it is utterly confusing.''
The issue of jobs cuts could send another wave of uncertainties when the unhappiness over the share swap and CCF is still fresh. Many parties have lambasted MAS and AirAsia over the CCF and share swap.
Labour is the second-biggest cost item after fuel and oil for MAS.
“The larger issue on cost side is inadequate labour productivity. In the months ahead, there will be a need to overhaul our organisational structure,'' Ahmad Jauhari warns.
“Following the share swap and board revamp, Fernandes and Datuk Kamarudin Meranun of AirAsia were appointed directors of MAS. Ahmad Jauhari was head hunted for the job and joined the airline on Sept 15 on a three-year contract.
Shukor felt MAS must do more to develop and nurture its own set of managers to run the company in future. It is a sad day for MAS that, in the past decade, it can't even produce a single individual from its own rank and file who has the ability to steer the airline now. You can't parachute leaders when there is a pool of talent within waiting to be recognised.''
While some in MAS feel that the CCF should not be there, the feeling is mutual for some at AirAsia.
“Many have questioned Fernandes on the need for the share swap and CCF, but his answer is “do you want to go on fighting for routes or do this for the greater good,'' says an insider.
Fernandes when contacted said “they (those at AirAsia) are quite indifferent, they are willing to go (for the change).''
Fleeting chance
The odds are lesser than previously as the biggest challenge previously was an ageing fleet. With the new deliveries, MAS will have one of the youngest fleet in the region and the partnership with AirAsia will hopefully drive cost savings as promised. More importantly, the partnership is intended to make them into stronger entities in a liberalised environment.
But like in all restructuring exercises, the “devil is in the execution'' and whether Ahmad Jauhari can pull the airline across to safe grounds remains to be seen. One thing for sure, the market is not going to believe any more stories if this fails. It has become a confidence issue.
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AVIATION - Airlines Going Banktrupt

Is AirLine Bad Business?

The news on November 29, when AMR Corp. (better known as American Airlines) filed for bankruptcy. The company has lost $10 billion since 2001. As with almost all bankruptcies, it's likely common shareholders will get nothing.

American Airlines needs to go bankrupt so it can reduce its debt burden and remain competitive with United and Delta – both of which have been through bankruptcy and mergers.

It seems the only way to stay in the airline business is to declare bankruptcy. That's because airlines are bad businesses.

Before you can sell one ticket, you need airplanes and all kinds of machines and people to keep the planes loaded and functioning. You also need to deal with unions. You need to borrow huge sums of money. And you need to compete on price with a dozen other airlines. You really don't have any pricing power as an airline. The cost of fuel can rise at any time and eat into profits.

All those factors pushed American Airlines to consistently produce net losses. Its operating margin last year was a measly 1.4%.

Bad businesses – like airlines – must consistently spend money. But because of circumstances outside their control, they can't consistently earn it. That's why American Airlines, like so many airlines before it, is going bankrupt. It's hard to run a great airline business.


excerpts from Daily Wealth
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Tuesday, December 6, 2011

MARITIME STRATEGIC PLAN MALAYSIA


DPM launches Malaysia Maritime Strategic Plan 2040

BERNAMA - Tuesday, December 06, 2011

LANGKAWI, (Bernama) - Deputy Prime Minister Tan Sri Muhyiddin Yassin today launched the Malaysia Maritime Strategic Plan 2040 (MMST 2040) book at the Mahsuri International Exhibition Centre, here. 

The MMST 2040 is the blueprint which will drive the Malaysian Maritime Enforcement Agency (MMEA) towards excellence. 

It is a prime document that sets the direction for the agency in the short term and long term in carrying out the mission set by the government. 

MMEA director-general, Maritime Admiral Datuk Mohd Amdan Kurdish, said the MMST 2040 was the outcome of the review of the MMST 2020 documented in 2006. 

He said MMST 2040 was drawn up using the approach called Balanced Scorecard. 
"Nine strategic objectives were identified to ensure the vision and mission could be accomplished to make the MMEA a forward-looking organisation not just in the country but in the international arena as well.

"In the current geopolitical scenario and dynamic maritime security situation, the MMEA needs a flexible approach, that is, being able to make suitable changes to a strategic plan in setting the agency's direction, and in building capacity and developing assets in a holistic manner." 

Mohd Amdan said as Malaysia's sole maritime enforcement agency, the MMEA had to monitor the country's waters. 

"Its task is different from that of similar agencies of other countries as the MMEA not only has to enforce Malaysia's maritime law but to also prosecute those who violate the law," he said. 

Mohd Amdan said the MMEA's performance had been positive and one to be proud of since its establishment in 2005. 

"Its good performance shows its seriousness and use of effective strategies which not only focus on domestic operations, but also playing an active role on various regional and international platforms of cooperation," he added.

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