MAB in a fight or flight state — again

The irony is that Asia’s best airline’s fate currently hangs in a balance — to be sold off, or shut down

By RAHIMI YUNUS / Pic By BERNAMA

The “Best Airline in Asia”, is now at a crossroads.

The award — which Malaysia Airlines Bhd (MAB) clinched at the recent International Council of Pacific Area Travel Writers Association International Travel Awards — could not have come at an odder time for the flagship carrier of Malaysia.

It is ironic that Asia’s best airline’s fate currently hangs in a balance — where it is at risk to be sold off, or shut down by the government due to its perpetual loss, and a potential bailout would not sit well with the public.

The fact is, MAB is a national carrier and some argued that it is worthy of protection — at all costs.

The sentimental value is legitimately engraved in the history of the airline which predated the birth of a nation.

The establishment of the nowdefunct Malaysia Airline System Bhd (MAS) was an ecopolitical spin-off from the formation of the Federation of Malaysia in 1963, after the separation of Singapore.

Malaysians have long regarded the carrier as a national icon, even before the existence of carmaker Proton Holdings Bhd, or state-owned oil company Petroliam Nasional Bhd.

MAS grew with the country, provided thousands of jobs for people at home, while carried the national flag to as far as New York.

The airline in its heyday used to be among the top choice for local and international users, but it had to retreat from most of its international routes due to unprofitability and financial woes.

Today, the new legal entity MAB has London as its furthest flight, among cities in Asean, Australia, Hong Kong, Japan, China and India.

Other long-haul sectors in Europe, the Middle East, South America, South Africa and the US are served via code-sharing with other airlines.

Very Strong Headwinds
Many may have viewed the twin tragedies of flights MH370 and MH17 in 2014 as the culmination of MAB’s financial distress.

But problems at the embattled airline had gone deeper than the twin tragedies, where its woes could be traced back more than 20 years ago, post the Asian financial crisis in 1997.

Since then, MAS/MAB has enjoyed two series of profitability (2003-2005, 2007-2010) and suffered three rounds of loss-making periods (1998-2002, 2005-2006, 2011-present).

Pioneers, former managers and industry observers argued that the company was derailed from success due to decades of mismanagement.

That had led to flaws including in business strategies, contracts and staff management, which only, arguably, exacerbated by political interference in the organisation.

Regardless, the airline was also caught up in a challenging global aviation industry.

After the 1997-1998 Asian financial crisis, the industry saw multiple adverse events such as the Sept 11 attacks, the SARS pandemic, the 2008 global financial crisis, fuel price escalation, exponential capacity increase and the emergence of lowcost carriers.

In total, the government injected RM17.4 billion to the company between 2001 and 2014, inclu- ding funds under the business turnaround plan launched by former MAS CEO Datuk Seri Idris Jala in 2006.

MAS indeed returned to profitability in 2007, but it only lasted until 2010. From 2011 onwards, MAS/MAB, has never seen a clear sky.

The privatisation move by Khazanah Nasional Bhd in 2014 was aimed to provide a glimmer of hope to the airline, with RM6 billion recovery and restructuring plans, partly inspired by the turnaround of Japan Airline Co.

During the period, two foreign CEOs left the ailing airline earlier than expected, before MAB appointed homegrown talent, Captain Izham Ismail, to manoeuvre the company out of the storms.

However, the industry is becoming even more challenging over the years and the plan set out earlier for MAB may no longer fit for the current business environment.

The recovery was not accomplished as MAB sustained dismal financial results every year. MAB’s last widely known net loss was at RM812 million in 2017.

The group managed to narrow its net loss last year with improved operational parameters.

Meanwhile, Khazanah posted a RM6.27 billion loss before tax last year, largely due to its RM7.3 billion impairments, of which half of the provisions was due to the state-owned airline.

Where Will MAB Head Next?
There is a growing pressure for MAB to consider a joint venture (JV) for a new source of fund and regain competitive advantage to compete against other airlines.

Certain quarters viewed that rivals such as Singapore Airlines Ltd or China Southern Airlines Co Ltd, or any of the Middle-Eastern carriers could be a good partner for MAB to consider offering a JV deal for mutual benefits.

Otherwise, MAB needs to fight the battle alone to return to profitability and additional capital injection would likely be required.

As it is, MAB is devising its next phase of a turnaround plan which will be presented to its shareholders.

The worst case scenario is that Malaysia may have to forego the national carrier and close it for good.

Even that is unimaginable to be done for thousands of people will lose their jobs.

It is a tough call for Khazanah and MAB, but ultimately they may have to lose some, to win some.