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MAS to turn profitable end 2014 under new plan, says commercial chief

Former Malaysian Airlines Systems Bhd (MAS) CEO Datuk Seri Idris Jala is currently head of the government’s efficiency unit, PEMANDU. — The Malaysian Insider pic, September 3, 2012.Former Malaysian Airlines Systems Bhd (MAS) CEO Datuk Seri Idris Jala is currently head of the government’s efficiency unit, PEMANDU. — The Malaysian Insider pic, September 3, 2012.Loss-making Malaysian Airlines Systems Bhd (MAS) is expected to be profitable by the end of 2014, says the flag carrier's commercial director Dr Hugh Dunleavy.

The national carrier has been hitting the headlines this past week over its running losses and remarks by former chief executive Datuk Seri Idris Jala and former PM Tun Dr Mahathir Mohamad that it should be sold to private hands.

“That timeline is according to our turnaround plan which was put in place at the end of 2011,” Dunleavy told The Malaysian Insider in Kuala Lumpur over the weekend.

He added the passenger load factor of MAS has improved to 80% from the previous average of 74% for the last two years.

“Our fleet utilisation time for the narrow body aircraft has improved from eight hours previously to 11 hours currently,” said Dunleavy. The flight utilisation time is a barometer of the efficiency of aircraft usage.

Another factor reflecting the airline's recovery was its fleet renewal programme to ensure its aircraft are relatively new.

The average age of MAS’s aircraft is around 5.6 years and a younger profile of aircrafts ensures fuel efficiency. Previously, the average age of its fleet was 12.2 years.

But the MAS Employees Union (Maseu) has expressed concern about the current losses, calling for a new management to turn around the beleaguered airline that has seen at least four management changes since 2002.

When asked to comment on Maseu president Alias Aziz statement that MAS had stored spare parts amounting to RM1 billion, Dunleavy said that it was normal for an airline of MAS’s size to have stocks of spare parts of that amount.

“If we require an a spare engine for an aircraft  we cannot be waiting for Seattle (Boeing headquarters) as it takes two and half days to reach Malaysia,” he said.

For the first quarter ended March 31, 2013, MAS registered a loss after taxation of RM279 million and if these losses are annualised MAS losses for this year will exceed the RM1 billion mark. It is expected to announce its second quarter results this week.

Idris, who is now the Performance and Management Delivery Unit (Pemandu) chief, said MAS should be sold but not at a loss.

He took over the controls at MAS in 2005 when it recorded a net loss of RM1.7 billion and introduced a turnaround plan for the company by disposing its non-core assets.

Among the assets hived off were the MAS corporate headquarters building in Jalan Sultan Ismail and Four Seasons Hotel in Langkawi.

His efforts, critics say trimmed losses but did not grow MAS organically. Losses in 2006 were reduced to RM136 million.

The year 2007 was a watershed year for MAS when it recorded its highest ever corporate profit at RM853 million.

Its earnings were hit with the onset of the global recession of 2008 and by crude oil price at an all-time high of US$147 per barrel which saw its profits slide to RM245.7 million.

MAS posted its largest  losses in its 60-year history in 2011 of RM2.52 billion and it managed to narrow its losses to RM430.7 million in 2012.

Across the causeway, Singapore Airlines (SIA), one of the most efficient airlines in the world, posted a profit after tax of S$1.01 billion (RM2.6 billion) in 2011 and S$390.2 million in 2012. It recorded a passenger load factor of 78% in 2011 and 77.4% in 2012.

MAS shares are currently trading at the 30 sen leve, nosediving from the RM6.20 high when Idris left MAS in 2009. There have been numerous corporate exercises in the company that have expanded its share base the latest being the RM3.07 billion one for four rights issue in June.

It undertook a rights issue of RM1.6 billion in 2007 and RM2.67 billion in 2010.

Inter-Pacific Securities Sdn Bhd research chief Pong Teng Siew pointed out that in the early days, MAS was needed because there was no connectivity between the peninsula and East Malaysia.

“But now we have AirAsia, Malindo Air to serve these routes. The airline business is getting tougher and full service airlines around the world are struggling.

"The raison d’ etre of MAS needs to be relooked,” Pong told The Malaysian Insider in Kuala Lumpur.

“The argument for maintaining a full service airline is getting weaker,” he added.

Malaysia's sovereign wealth fund  Khazanah Nasional Bhd holds 69% of MAS through Penerbangan Malaysia Berhad (PMB).

The special purpose vehicle took over the MAS fleet in the wide asset unbundling (WAU) done in 2002 by BinaFikir, the consultancy headed by Tan Sri Azman Mokhtar, who is now Khazanah’s managing director.

The WAU programme transferred RM7 billion from the books of MAS to PMB but the jury is out  whether it actually helped MAS to better its performance.

Dunleavy said the WAU was akin to “setting fire to the furniture to keep warm” and the shuffling of MAS liabilities did not impact in improving the organisation organically. - August 19, 2013

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