5 things that the new Malaysia Airlines should not repeat

If the Bunga Raya is our bunga kebangsaan, Malaysia Airlines, or MAS, is our syarikat kapal terbang kebangsaan. The difference is, the Bunga Raya can’t go bankrupt while Malaysia Airlines can.

Malaysia Airlines has been making headlines recently because of the news surrounding its restructuring and layoffs of 6000 staff.

In light of the rebranding or reconfiguring or restructuring or whatever re-ing they are planning on doing, we’ve gotta admit that mistakes have been made in the past. Stuff that they really should stop doing la.

P.S. Before we begin we would like to thank CILISOS friend, Dennis, for pointing us in the right direction when we were thinking how to approach this. Some of these points would not have been here if not for him telling us about them.  😀

 

1. Stop agreeing to over-priced, long term contracts

According to MAS’ new CEO, Christoph Mueller, stuff like staff allowances, overtime abuse, and over-priced contracts have contributed to MAS’ financial woes. We’ll get to all 3 but lets just start with overpriced contracts.

Christoph Mueller didn’t exactly specify what these overpriced contracts were (even if it was reported that over 4000 contracts were being renegotiated)  but one such contract was pointed out by Khazanah Nasional. And that is Malaysia Airlines’ food contract.

At the moment, Malaysia’s in-flight food is prepared by Brahim’s Airline Catering (owned by the brother of former prime minister, Tun Abdullah Badawi). We wanted to find out when did this agreement begin but all we could find was a blog post. In it, the blog post stated that Brahim’s first entered into an agreement with MAS after the gomen bought back MAS from private hands and wanted to sell off their assets.

According to the blog, the contract between MAS and Brahim’s was a little….overpriced. It was a contract that would see MAS pay Brahim’s RM250 million a year for 25 years…..!!!

Sorry, let us attempt to explain. Well we tried comparing these numbers with contracts of other airline food companies. We couldn’t find any comparison in terms of price but what we found was that no airline hires an airline food provider for 25 years. The few that we found usually had a 5 year deal or contract extension. Links of such deals here, and here.

So if you’re maybe unsure if RM250 million a year is a lot of money for airline food, at least be assured that a 25 year deal for airline food is a heck of a long time.

But as far as contracts go, it’s good news that MAS renegotiated a new contract with Brahim’s. A new contract that will see Brahim’s take a 60% pay cut and a 25% reduction on its monthly bill.

 

2. Stop letting your staff misuse company benefits

Another factor that had been causing money to bleed out of MAS was company benefits. Reports stated that Christoph Mueller talked about how overtime abuse was so bad that the OT payments were sometimes higher than the salaries.

“That is just bad practice because it not only results in us paying an enormous amount of overtime; the aircraft also leaves the hangar late.

That is because you can only justify the overtime if the work you do is delayed.” – Malaysia Airlines CEO, Christoph Mueller, as quoted by The Star

He also went on to say that the overtime made delays an incentive. Now we’re no aviation experts but if any company’s employees are purposely slowing down productivity, and getting paid to do it, something quite salah la.

But it’s possible that this is only part of a bigger problem in which MAS needs to not repeat and that is to….

 

3. Stop hiring too many employees

This is a serious problem, because staff cost is the second biggest expenditure of MAS and that is probably one of the reasons why MAS recently laid off 6000 employees.

As mentioned, Christoph Mueller talked about how staff allowances contributed to MAS’ financial difficulties. But what kind of allowances? Well The Star reports 180 different types of allowances. Among these were bicycle allowances and inconvenience allowances. Sadly, we were unable to find a full list of what these allowances (if anyone has info on this, please let us know k?).

The funny thing is, staff allowances are apparently common in the airline industry.

“In many airlines, it grows over the years. You have a flight into a cold area and there is a winter clothing allowance.

It is not just the base salary you get. You have a lot of other things.” – Christoph Mueller, as quoted by The Star

So considering that MAS is now going to be 6000 workers less, would they also be cutting down on their flight routes? As far as we could tell, no. Christoph Mueller recently announced that MAS would be retaining all its current domestic and international routes.

Which means that despite laying off 6000 of their 20k workers, MAS is going to work the remaining 14k like never before? Or was it that MAS was overstaffed from the start? We’re gonna put our money on the latter.

4. Stop buying expensive paintings

Yeap, that too is one area that MAS can work on. Buying expensive stuff is common when you’re part of a large multinational company but when you’re pretty much bleeding out billions by the year, you might want to cut down on that a bit.

We’re talking about that one time when MAS spent RM1.55 million on 3 paintings.

Yea, that’s one of them right there. The other 2 were

1. Still Life With Violin | Fernando Botero | RM1.14 million
2. Coeur de L’Impenetrable | Sophia Vari | RM75k

It was reported that MAS bought these paintings because they were the main sponsor and so got these paintings at a discounted price. But still, a million and a half on 3 paintings when things aren’t going so well?

Maybe we’re walking a very fine line with this but at least consider this. KiniBiz reports that at the end 2005, MAS was expected to run out of cash in April 2006. This story about the artwork was published in December 2005.

We’re not saying MAS shouldn’t appreciate the fine arts. We’re just saying that MAS should calm the fudge down with their purchases, especially when they’re months away from running out of cash.

Buttttt….at least there hasn’t been any reports of them doing anything of the sort since 2005. We’ll give them that (but let us know if we’re wrong about this!)

 

5. Stop getting bailed out!

About RM20 billion of taxpayers money has been lost by MAS since 1994. The website KINIBIZ mentions how the money problems in MAS started during a time when the gomen tried to privatise MAS.

Basically what happened was that this dude Tan Sri Tajudin Ramli bought a 30% share of MAS (the private hand mentioned earlier0. Then stuff went downhill because of the Asian Financial Crisis of 1997/1998 (as did many other big projects in Malaysia).

MAS posted losses for 3 consecutive years after that. So to save MAS, the gomen bought that 30% back in 2001 for RM8 per share, a lot more than they were actually worth (the actual price of one share varies from source to source).

But this didn’t stop MAS from making losses. From 2011-2013, MAS made losses totalling more than RM3 billion (if we did the math right la). More than a decade later and after the two airplane tragedies of 2014, the gomen once again decided to come to MAS’ rescue.

In the events that followed, MAS was delisted and is now owned by Khazanah Nasional (our other sovereign wealth fund, the other being 1MDB). But this should be the last time the gomen tries to save MAS.

Columnist Koon Yew Yin mentions that the mismanagement of the airline is the biggest reason for money constantly being leaked out of MAS. And maybe this mismanagement is caused by the gomen constantly providing a way out. This safety net has prevented MAS from being competitive because it knows no matter how badly it does, someone will come to save it.

Which in turn allows this to be said…

 

But actually it’s the gomen that needs to stop saving MAS

Let’s face it. It’s never fun when a national company does badly, even more so when taxpayers money is wasted in keeping it alive. And that’s why we feel that maybe all this isn’t a MAS issue but a gomen issue.

The recent appointment of new CEO, Christoph Mueller (MAS’ first non-Malaysian CEO), is a bold move. It’s also a tragedy that his first big decision was to layoff 6000 employees. But the thing is, he is the first CEO who was actually brave enough to make that decision (MAS was already trying to cut down its work force back in 2009 and 2012).

But this Christoph dude seems to be serious about turning MAS’ fortunes around and making the necessary changes for it to happen. We don’t want to go all out and say that he will solve all of MAS’ problems but time will tell if this really the time MAS gets back on track (or the runway).

But if after all this MAS still loses money, the gomen should not step in to save it anymore because it’s just not worth the cost. We could even learn a thing or two from Singapore in regards to a national carrier.

In July 1972, MM Lee met with Singapore Airlines’ management and unions, and made it clear the country couldn’t afford to fly a flag simply for the sake of it. If there was to be a new airline it would have to survive on its own merits. Losses would inevitably lead to it being shut down. – As quoted from airlines.iata.org

Because at the end of the day, a national carrier is supposed to serve its country, not the other way around.