MAS, AirAsia and the Dealmaker

The issue is this. MAS is a nationally owned asset. Any changes as to the nature of it ownership must be done with all the indicators that the changes were done in a very transparent manner. Otherwise, it shows the government doesn’t know how to manage and handle assets belonging to the country. Otherwise it also goes to show, those people you trust to handle public asset can do whatever they want without giving proper and due consideration to non-commercial objectives. It’s a public asset not a private one.

So, you want AA to transfer his managing talent to MAS. You want to subject MAS to the TF touch, stroke or fondling or whatever. Or you actually want to put MAS under the knife of Surgeon General, TF. We have had SG in the persons of Tajudin Ramli, MOhd Noor YUsof the man credited with implementing the slash and burn job at MAS the first time around and now back with MAS a second time around( apa, first time wasn’t good enough eh?, premature ejaculation ka? ), Jala, T Azmil. All didn’t do justice with their appointments.

Yes, but none have the savvy and skills like dear TF. We want those special skills and because we want that, no, we must have them, we have to pay. So, why do it through share swap NOW? Ask him to do the job first and reward him later. Otherwise people will ask how come you give Jala and Tengku Azmil MAS shares AFTER they do some job not BEFORE. Why with TF, you are giving him BEFORE?  Where are the results of his management on MAS?  He hasn’t done anything yet.

So, it raises the suspicions that you people in Khazanah, TF and people from CIMB acting as the common advisor (which is dubious in itself), huddle up together in some watering hole somewhere, and ‘pakat pakat ’ let’s do a sting.

But then I remember, this has always been the modus operandi of the government. Perimekar for example, the notorious service provider, was paid over RM 500 million for support services. They were paid BEFORE completing their support services.

Another thing; Now, I never said, the sole purpose of Khazanah is to oversee the implementation of policies favoring ONLY bumi interests. I did say however, chief among the social and political adjustment policies are those concerning wealth adjustments for Bumiputeras. Meaning the money KHazanah has, can be put to several uses and not ONLY one. If one reader now wishes to dispute that observation, by patronizingly insisting that Khazanah carries out race blind policies, insisting that the application of Khazanah money is for ALL, angry at me for pointing out some connection with pro bumi policies, that is his liberty. It goes to show that reader is willing to dismiss the social and political realities and care only about winning ‘on paper’ arguments. But don’t worry man- yours is a typical response from a shocked officious person, discovering people under your care, can actually talk and write back! Me excuse you, master!

So that, being a collectively owned asset, placed under trust at Khazanah, all the proper care must be taken to avoid its handling as being free from manipulations or even impropriety. In this case, its sudden announcement with the usual cloak and dagger prior teasers,  does raise so many concerns; just weeks ago TF was announcing to the world he’s moving AA office to Jakarta, then a few days later, came the announcement of a share swap. What is the purpose?

The purpose, the real one we are told is to inject some entrepreneurialism into the management of MAS. Right now, the advisers and the largest shareholder see no one other than TF of Air Asia. MAS must be saved even if it will eventually lead to the execution of that rising competitor to AA- firefly.

Where is the sense of pride of the government people to show it can compete on commercial terms with AA such as empowering and supporting and allowing Firefly for example to operate under the same and similar regime by which AA was given or demanded for? Find a worthy opponent of TF and let him build up Firefly and make AA run for its money.

The deal offers (at the moment), no advantage to minority shareholders. Khazanah being largest shareholders of both MAS and Tune Air is flexing its muscle disregarding the smaller holders. In certain countries this is deemed illegal due to anti-trust laws; but it’s all ignored here in the name of making sustainable profits for Khazanah.

What does the deal look like? It looks like a deal for Khazanah to “fund” TF to buy MAS’s stake with his 26.5% stake in TA, with which he is now leveraging to buy up to 20% stake in MAS. So shares in a sendirian berhad can now be accepted as a leveraging tool. Only Khazanah can make that happen. If its capital injection that MAS wants, where is the money?

Remember Tajudin Ramli? Having TF to “run” MAS is like Tajudin Ramli Part 2. The main character has changed though. Tajudin Ramli, single handedly destroyed MAS. So what assurance that such history will not repeat by itself.

Now, one wonders, why would one swap share of a profitable company with a loss making entity? So TF must be thinking that he has a magic wand that can transform MAS overnight.   AA is operating with huge debt, with 210.6 times over its equity. Its liabilities stood 71 times against its assets, thanks to all the deferred payments it accrued such as owing to MAB. Would TF be leveraging AA’s huge debt of RM6.6 bil into MAS later? If that happen, then it is magic!

Further AA has committed itself to about RM55 bil from all the aircraft ordered. Such a huge financial burden over the next 10 to 15 years would place extreme pressure to achieve greater number to the bottom line. So this share swap then could be just the scheme to mitigate the situation, i.e. sharing of burden with MAS. After all the Government would not let MAS die at whatever costs. TF is hedging AA’s future already with our property.

This whole idea to streamline the business stinks; MAS on premium market and AA on low cost flight. But the deal is only great for AA it is a raw deal for MAS.

Should MAS from now on focus on the premium segment, it would be doing so in a, “shrinking pie”. The low cost carrier market is the one where the growth is significant and any restrictions or disbanding of Firefly could mean a loss of current and future income to MAS. Further MAS would no longer able to offer “Everyday low price" campaign as this would directly compete with AA. TF made a big fuss about this matter when it was launched some time ago.

Further this strategy would be against the world trend. Most major airlines own a low cost operation simply because it is the growth segment. Here, the Khazanah Mafia and the common adviser are advocating MAS throw away a possible goose that lays golden eggs. Chilaka!

Where are the main problems with MAS? Looking as its data, MAS problem lies in the COGS. With over RM12.0 bil in revenue, COGS stood at RM13.2 bil, this is not a new problem nor unique in the airline industry, certainly not to MAS. With improvement in ASK, improving fuel cost and new fleets (less dependent on aircraft leasing) MAS is poised to a greener pasture. MAS has experienced this before.

Further in this regard, TF would probably not be the best guy. MAS should learn from other big carrier such as Singapore Airline, KLM, and Emirates

Are we incapacitating MAS? Perhaps, MAS being competitive and back on recovery track would post a damaging threat to AA especially in the domestic market where Fire Fly operates from both Skypark (Subang) and KLIA. This could be the motivation for TF to be in MAS so as to “control” its growth. We all know over the year how TF has played MAS, first with the Sabah & Sarawak routes, then the Singapore routes. This could be another game that could finally check mate MAS

Of course at the moment MAS balance sheet is shitty. Beside cost improvement which is clearly the effort by the accountant led MAS boss, there are pertinent assets in MAS that are experiencing encouraging growth such as MAS engineering which is amongst the best and competitive aircraft maintenance outfit. And it IS making money. Firefly too is within this bracket. With all the financial wizards and brilliant accountants in MAS, surely they can come out with a leveraging blueprint. Of course Khazanah and CIMB have to be in it. Count me in, count me in!

Now, I have a final misgiving. With due respects to CIMB, how come CIMB is the adviser for both? It’s unethical? Bank of America owns Merril Lynch. Yet it does the ethical and proper thing not to appoint Merril Lynch as its advisors. 

CIMB has a blotted track record as advisor. Remember Synergy Drive? No more drive? (Now back to Sime Darby) = loss making never before experienced by Malaysian corporate. What was the advice given to Telekom Malaysia by CIMB? The advice was against the world trend (most telcos merge/take over cellular entities). But its advice was to have TM part company of its money making machine in the form of its mobile businesses to Axiata. What happened to TM?  It has never recovered financially. Indeed its now saddled with RM700 cash dividend yearly.

MAS? Throw out that Firefly pest. Its bothering the ears.