Agenda Daily

Disrupted flight plan

ykadirxWith a dwindling presence globally and poor financial results, can Malaysia Airlines take on the likes of fast-expanding low-fare giant AirAsia and the soon-to-be-operating low-fare long-haul subsidiary of Singapore Airlines?

SEVERAL WEEKS BEFORE AIRASIA X, THE LONG-HAUL subsidiary of the regional low-fare giant AirAsia Bhd, announced that the Malaysian Government had lifted restrictions on its routes out of Malaysia, I had written an article outlining my thoughts on the national aviation industry.

I had planned to publish it in my blog, but did not get to do so. In that unpublished article, I had, among other things, questioned the wisdom of continuing to treat Malaysian Airlines System Bhd (MAS) as the country’s national carrier and the risk of AirAsia expanding too fast.

On June 22, the Chief Executive Officer of AirAsia X, Azran Osman-Rani, was quoted by international news agencies as saying that the Malaysian Government had approved its new routes to Jeddah, Saudi Arabia, Beijing and Shanghai, China, and Osaka, Japan.

This could not have come at a better time for the upstart carrier as it prepares for the launch of its initial public offering, and soon after, it appointed a heavyweight chairperson, namely, the former International Trade and Industry Minister Tan Sri Rafidah Aziz.

In penning my thoughts on the subject, I was alerted to several major events affecting the region’s aviation industry.

In one, it was reported that AirAsia has the potential of operating up to 500 aircraft, thereby challenging some of the biggest airlines in the world. On June 23, it was announced at the Paris International Air Show that AirAsia had signed up to buy 200 Airbus A32Oneo, the updated version of the popular series, for US$ 18.5 billion (about RM55.5 billion).

The second was a media report on May 11 that MAS had incurred a 2011 first-quarter loss of RM242.3 million against a profit of RM 101 million a year earlier. It blamed the loss on soaring fuel costs and a stronger ringgit. I had thought that a stronger ringgit would help reduce its fuel cost and lower its international charges.

On June 21, MAS announced that it had exercised an option to purchase 10 additional next-generation Boeing 737-800s for about RM2.4 billion, in what its Managing Director and Chief Executive Officer Tengku Datuk Azmil Zahruddin said marked another step in the national carrier’s mission to strengthen and build upon its award-winning service and passenger value. I have to agree with the last statement.

The airline’s Boeing 737-400 classic fleet is too old for comfort. Some are still equipped with flush toilets when newer planes have long been using suction toilets.
ageing Boeing 737 classic fleet. It said it had placed a firm order for 35 Boeings, with an option for an additional 20 in a deal worth more than RM13 billion.

The third was a report on Singapore Airlines (SIA) planning to set up a low-fare long-haul subsidiary to rival’ AirAsia X.

SIA has since incorporated the airline. The media reported on June 17 that the new airline is expected to start operations within a year. It has been incorporated as New Aviation and is wholly owned by SIA. In a filing with Singapore Exchange, SIA said the new unit would be involved in ‘air transport’ activities.

Singapore’s sense of superiority may not allow it to acknowledge AirAsia X as the template for its proposed no-frills long-haul operations.

But the fact remains that since the successful re-launch of AirAsia by its new owners — led by Tan Sri Tony Fernandes as a low-fare carrier, it has spawned scores of copycat no-frills airlines around the region.

And the final news item was the continuing calls for the closure of India’s national carrier, Air India, for mounting losses amidst an explosion of new airlines in the economically booming country.

DESPITE glossy advertisements and a string of awards, MAS continues to struggle after it was re-nationalised in the aftermath of the 1997/98 Asian financial crisis.

With the strong growth of the AirAsia Group in the domestic and international arenas, and the widening of the open sky policy worldwide, some thought must be given to the relevance of continuing to treat MAS as a national airline or calling it the national carrier.

Many national airlines have been merged, privatised or closed down because the state could no longer afford to continue to bankroll their money-losing operations.

I remember flying in the late 1980s with the now-defunct French airline, UTA or Union de Transports Aériens from the Omani capital, Muscat, to Kuala Lumpur via Colombo. In those days, more European airlines operated in and out of Kuala Lumpur.

 I had also flown with the iconic-but-now-dead Pan American Airlines or Pan Am in short, from Los Angeles in the United States to Santiago in Chile in the early 1990s, just months before it folded.

Another now-dead airline that I flew with was Belgium’s Sabena, whose quality of service was supposedly so appalling that one smart passenger had allegedly defined its abbreviation as ‘Such a Bloody Experience, Never Again’. It went bankrupt in 2001.

MAS may be far from suffering the fate of these and other  former airlines, but it’s no longer the glorious oriental airline  that international passengers liked to be associated with and Malaysians were proud to call their own.

It has lost its lustre since being repossessed by the government, via Khazanah Nasional Bhd, in the aftermath of the 1997/98 regional financial meltdown.

MAS was incorporated as Malaysia’s flag carrier in 1971 following the breakdown of the Malaysia-Singapore Airlines partnership. Thoughtlessly, the leaders of the day surrendered the international operations to what was later to become SIA and concentrated on the money-losing domestic and regional routes.

It took MAS a long time and huge expenses to build its international network and global reputation. It was successful in the earlier years. By the mid-1980s, it had a total of about 60 domestic and international destinations in its network and a fleet of nearly 40 aircraft. But it soon faltered.

According to one report, MAS’ balance sheet suffered from the loss-making domestic services, where the government rarely allowed increases in fares because of a policy of promoting trade and tourism, and national integration between the Peninsula and the eastern states of Sarawak and Sabah

 To ease the burden and obtain new capital, the government privatised the airline in 1985, making it the first state agency to be partially sold to the public.

The government sold 40% of its shares to the public, including Brunei Investment Agency, in a private placement exercise that made Tan Sri Abdul Rashid Hussain a corporate household name. He was commissioned to carry out the share placement. I wrote extensively on the exercise for the now-defunct Business Times newspaper.

The government and its agencies retained the remaining 60% with Bank Negara Malaysia (BNM) holding the lion’s share. It later proved to be a bad decision as the Central Bank ended up shouldering the bulk of the airline’s losses.

Accordingly, in 1994, as an attempt to relieve BNM of the burden and also to reverse the weak financial position of the airline, the Central Bank sold its 32% controlling stake to Malaysia Helicopter Services, which later became Naluri Bhd, at above-market prices. It was a rescue operation of sorts and, for a while, made Tan Sri Tajudin Ramli a savior and a Malay hero.

Spooked by the prospects of a collapse of the domestic capital market in the aftermath of the Asian financial crisis, the government ‘hastily’ renationalised several highly geared transport and infrastructure companies, including MAS. The rest, as they say, is history.

SOME government leaders and public servants took the greatest pleasure in hounding and running down Tajudin while at the same time singing praises of the airline’s new civil service management.

However, despite the rescue and the much-touted asset unbundling exercise that supposedly turned the airline. -23/7/2011

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