FOUR years after embarking on a highly publicised and controversial turnaround plan, Malaysia Airlines Bhd (MAB) has checked off most of the points in the plan, but still fails to achieve the ultimate target – to go back to the black, and relisting with an initial public offering.

In fact, the national carrier’s financial accounts filed with the Companies Commission of Malaysia and sighted by The Malaysian Insight showed that its net loss increased in the last two years.

MAB reported a net loss of RM1.125 billion in the 2015 financial year, but managed to trim it down to RM438.86 million in 2016.

However, its net loss jumped again to RM812.107 million in the 2017 financial year.

Saving the national airline

In 2014, sovereign wealth fund Khazanah National Bhd, the airline’s main shareholder, pledged to pump in RM6 billion to save the ailing carrier, which has been struggling financially since the 1990s.

Prior to the 2014 turnaround plan, the carrier received RM17.4 billion in several bailout attempts.

In 1994, businessman Tajudin Ramli acquired from the government a controlling stake of 32%. Loans were taken from several government-linked companies to foot the RM1.79 billion purchase.

The airline suffered huge financial losses in the 1997/1998 Asian financial crisis, and in 2001, the government ended up buying back the loss-making Malaysia Airline System Bhd (MAS) at RM8 per share, the price Tajudin paid in 1994, at a time when the shares were trading at RM3.68 per unit.

In the 2001/2002 financial year, the airline posted a loss of RM836 million, more than double the RM417 million posted the year before.

A wide asset unbundling exercise succeeded in making the airline profitable for a time, but in 2005, MAS found itself in the red again with a net loss of RM1.3 billion.

Idris Jala was then roped in from Pemandu to become the airline’s CEO and execute the first business turnaround plan.

Unpopular measures, such as cutting routes, reducing operational costs and selling assets, were taken, eventually helping the airline swing back into the black with a record RM853 million profit in 2007.

Idris then came up with a second business turnaround plan, but left the carrier in 2009 to take up a ministerial appointment.

In 2011, the airline flew into turbulent skies once more with its worst performance yet, posting a net loss of RM2.52 billion due to high fuel costs and, according to critics, poor management. Tengku Azmil Zaharuddin was at the helm at the time.

In 2013, MAS, under Ahmad Jauhari Yahya, reported RM1.2 billion in losses from the RM400 million recorded previously.

Stiff competition from low-cost carriers and the twin tragedies of MH370 and MH17 did not bode well for the airline, which has now gone through almost two decades of on-and-off financial haemorrhage.

Challenges and recovery

Khazanah’s 12-point turnaround plan entailed MAS being delisted from Bursa Malaysia, and its operations, assets and liabilities transferred to a new company, now known as MAB.

As part of its restructuring exercise, manpower was reduced to 14,000, after 30%, or 6,000, staff from the old company were let go.

Insiders familiar with the matter said another major impediment is the low volume of maintenance, repair and operations services, as well as outdated lease agreements.

MAB was also supposed to reset and renegotiate supply and other contracts, based on market norms and benchmarks, but it is not known how many of the unprofitable legacy contracts have been renegotiated or terminated.

MAB recently came under public scrutiny again, with critics saying the airline’s financial haemorrhage is unsustainable for the government.

The group’s financial woes have taken a toll on Khazanah’s financials, with the fund reporting its first losses in years – a pre-tax loss of RM6.3 billion due to higher impairments, lower dividend income and fewer divestments.

Half of Khazanah’s RM7.3 billion impairment is the result of trying to sustain MAB.

On March 1, MAB said it finished the year with a marginally lower loss compared with a year ago, citing crew shortages in the second half of 2018 as one of its challenges.

However, the airline did not make its financial records available to the public.

Earlier this month, Prime Minister Dr Mahathir Mohamad responded to critics’ calls to shut down the carrier or sell it off to private bidders by saying the government is evaluating all options.

But having done all that is required in its ambitious turnaround plan, the question remains as to what is stopping the airline from being profitable, and whether its leadership has the boldness and skills to take the necessary steps to make it so. – March 27, 2019.