MAS: Mueller’ s successor should have vision, experience and expertise.


April 29, 2016

MAS: Mueller’ s successor should have vision, experience and expertise.

by Scott Ng

http://www.freemalaysiatoday.com

http://www.freemalaysiatoday.com/category/opinion/2016/04/29/dont-make-an-issue-of-mab-chiefs-nationality/

At the end of the day, MAS is a business, and in a business you either prove yourself capable or you don’t deserve the job. This is our national carrier, and it should be a source of national pride, but we should not let national pride in and of itself be the sole determinant of whom we choose to lead it. That person should be someone with vision, experience and expertise.–Scott Ng

 

If there was any doubt about Christoph Mueller’s abilities as a business manager, this was dispelled last February when MAS, in its new incarnation as Malaysia Airlines Berhad, made its first monthly profit in years. His turnaround of our national carrier is indeed nothing short of phenomenal. So it was quite surprising to hear him announce his resignation as CEO, coming as it did less than a year after he assumed the position.

Some people are speculating that it was political pressure that forced the industry-renowned airline revival specialist to depart, though Mueller has denied this. He claims that personal reasons forced his hand, and he would be taking a huge financial hit with his departure.

While no Malaysian would be surprised to hear that rent seekers may have showed up the instant MAS turned a profit, what lies behind Mueller’s departure is his own business. But as conversation turns toward appointing a new head for the national carrier, there is some unsavoury talk about his status as a foreigner, with some saying the company should be run by a Malaysian, meritocracy be damned. Even PKR’s Tian Chua reminded the public that his party had warned about bringing in a foreigner to run MAS, saying, “It is unfair to bring in a foreigner at a critical time and ask him to turn around the national airline. How can he turn around the company if he does not understand Malaysian work politics?”

We do detect a touch of irony in Tian Chua’s remark, particularly where he refers to “Malaysian work politics”. Nevertheless, his complaint about the “unfairness” of hiring a foreigner instead of a Malaysian expresses a sentiment shared by a number of politicians on both sides of the divide.

Certainly, a foreigner would not be expected to be intimately acquainted with our politics, and MAS, like all national arms, is heavily linked to the ruling party. However, it seems rather a trite reason to protest against Mueller’s appointment. It appears that we Malaysians are indeed capable of extending our racism to include hostility to the idea of having someone from outside our ken coming in and telling us how to do our jobs.

The fact is that Mueller (above) was the most competent person willing to come in to help an airline that had lost two aircraft to tragedy in the span of a few months. He was chosen because he merited the role and the challenge, and no amount of hemming and hawing and subtle racism can take that away from him. Even if the announcement of MAS’ February profits seemed like one timed to save his face, he can still take pride in his achievement, considering the sordid state that the company was in after decades of national stewardship.

Look, it’s not about where someone comes from. At the end of the day, MAS is a business, and in a business you either prove yourself capable or you don’t deserve the job. This is our national carrier, and it should be a source of national pride, but we should not let national pride in and of itself be the sole determinant of whom we choose to lead it. That person should be someone with vision, experience and expertise.

 

Cambodia: The Rise of the Young Entrepreneur


April 29, 2016

Cambodia: The Rise of the Young Entrepreneur

by Scott Rawlinson

http://asiapacific.anu.edu.au/newmandala/category/cambodia/

A new crop are bursting onto the country’s business scene and showing the way for sustainable economic growth, reports Scott Rawlinson.

On  March 16,  Prime Minister Hun Sen expressed his disappointment at foreign journalists who, painted Cambodia as a sort of “hell”. At the same time, democracy and human rights forecasts for the Southeast Asian nation are frequently gloomy. For example, see this report from USAID published in January.

Regardless of the merits of either side of the argument, the story of Cambodia since the fall of the Khmer Rouge is one that is much more complicated and multifaceted, defying easy and universal classification. In fact, there is not so much a Cambodian story as a multitude of Cambodian stories.

In particular, young Cambodians without memories of the Khmer Rouge’s brutal reign are forging new narratives. Since the 2013 National Assembly elections, and the shock experienced by the long-incumbent Cambodian People’s Party (CPP), the need to appeal to youth and capture their imaginations has risen in the party’s political agenda and strategies.

Prior to the 2013 election, the opposition Cambodia National Rescue Party (CNRP) made effective use of various social media platforms, gaining much support from young urbanites in Phnom Penh and its surrounding areas. In response, the CPP, and in particular Prime Minister Hun Sen, became much more active on Facebook, giving users the chance to watch live streams from various public works and graduation ceremonies as well as the opportunity to follow the day-to-day activities of the Prime Minister and his interactions with — often young — Cambodians.

Nevertheless, it would seem that young Cambodian entrepreneurs are taking matters into their own hands. At a special public lecture hosted by the Cambodian Institute for Strategic Studies (CISS) I was fortunate enough to attend a presentation on the ASEAN Economic Community and its implications for Cambodian entrepreneurs delivered by HE Dr Sok Siphana — an advisor to the Royal Government of Cambodia.

Following the fall of the Khmer Rouge regime infrastructure and business, among many other things, had to be rebuilt from scratch. Throughout the Vietnamese occupation, the intervention of the UN and the shift towards privatisation, Cambodia witnessed the (re-)emergence of powerful business tycoons as well as the smaller family-run stalls that remain a common site throughout the country.

According to Dr Sok Siphana (above), what many of these early businessmen and women lacked was formal education and training, robust accounting procedures, and the ability to communicate in the languages of international trade, particularly English.

This state of affairs underwent huge changes in the post-1993 era. The provision of scholarships to talented Cambodian youths, giving them the opportunity to study abroad, raised the human resources and capacity available to Cambodia. Now a number of Cambodians study in universities elsewhere in Asia, the European Union, the US and Australia, attending a number of prestigious institutions.

Of course there remains the issue of a possible “brain drain”. It is not always guaranteed that Cambodian students who opt to study abroad will necessarily wish to set up their business or work back in Cambodia once their degrees are completed.

However, with this growth in the number of tertiary-level educated Cambodians and the enthusiastic embrace of social media and other new technologies that act as business aids, young Cambodian entrepreneurs with knowledge and business plans are already and likely to continue to transform the nation’s economy.

Additionally, organisations such as the Young Entrepreneurs Association of Cambodia (YEAC) provide a community for accomplished and aspiring businessmen and women to exchange ideas and advice with one another.

There are a few notable success stories. A perfect example is Brown Coffee a thriving coffee and bakery chain with a number of outlets across Phnom Penh and which was co-founded by five young Cambodians with formal education, practical skills and a robust business model. One of its co-founders, for instance, studied education and communications, another is an architect, still another a pastry chef as well as two structural engineers. While serving both expatriates and locals it employs many local Cambodians.

Whether legislation from the government keeps up the pace with the private sector and the influx of ideas-full prospective entrepreneurs is something we will discover in the future.

It would be naïve to think that Cambodia has solved all of its social and political issues and ills that act as a hindrance to a more equal form of national development. However, young Cambodian entrepreneurs are lighting the way for a more sustainable and localised form of economic growth.

I hope that success stories like Brown Coffee act as an inspiration for this and the next generation of young Cambodian entrepreneurs.

Scott Rawlinson received his MA in South East Asian Studies from the School of Oriental and African Studies (SOAS), University of London. He is currently a Fellow, and Coordinator for Fellows, at the Cambodian Institute for Strategic Studies (CISS), Phnom Penh, and will commence his PhD at SOAS in September 2016. All opinions are those of the author and do not necessarily reflect the views of the Institute. 

 

More on the MAS-Mueller Story


April 29, 2016

More on the MAS-Mueller Story

by Mariam Mokhtar

http://www.freemalaysiatoday.com

MAS in its Glory Days under Saw Huat Lye and Abdul Aziz Rahman

Last February, Malaysian Airlines Berhad (MAB) finally made a profit after years of being in the red. Two months later, Christoph Mueller, the company’s first non- Malaysian CEO, announced that he would leave in September 2016, well before the end of his contract.

What prompted his decision? Why leave after making such brilliant progress? Did anyone believe him when he said he was leaving because of “changing personal circumstances”? Let’s see if we can find a reason for Mueller’s decision.

MAS Today

In 1994, former PM Mahathir Mohamad gave control of the successful national carrier, then known as MAS, to his crony, Tajuddin Ramli. But instead of taking good care of the golden goose, Tajuddin and successive chairmen strangled the company.

Making Tajuddin MAS’ executive chairman and selling the company to him was part of Mahathir’s bumiputera corporate advancement project.

Mahathir should have instead adopted his Singapore counterpart Lee Kuan Yew’s approach to running an airline. In 1972, seven years after Malaysia and Singapore split, the Malaysia-Singapore Airlines had to be disbanded. On the eve of the formation of Singapore Airlines, Lee told the workers’ union that his government would have no compunction in closing the company down if it did not return a profit.

 Mahathir, Najib and MAS Advisor Badawi

Now that MAB is back in the black, we fear that the government and its cronies will start to bleed it again until, perhaps, it’s time for another foreigner to come to its rescue. There are Malaysians capable of doing the job, but only a foreigner can wield the stick without inviting too much scrutiny. After all, MAB has political appointees on its board.

Mueller’s role is to act as a foreign advisor. He also gives the MAB board a semblance of respectability.When Mueller first arrived at MAS, he allegedly asked Khazanah how many middle managers the airline had. Apparently, no one knew. It is alleged too that middle managers were running their own firms and bleeding MAS dry by providing services at inflated prices.

When the first cull was made in MAS, the cronies were the first to go. You might think this was a good move, but a MAS insider alleges that it was actually a plan calculated to give a golden parachute to faithful cronies. The cronies and middle managers received handsome retrenchment terms calculated from the time they were first employed. Some had been there for three decades. They received huge amounts in compensation.

Christoph Mueller, and Ahmad Jauhari Yahya

Aware that MAS could not afford to continue giving away these vast sums of money, the management announced that over the next few years, more people would be sacked or asked to retire early but would not be given the same generous compensation terms. In effect, it was a way of getting rid of workers cheaply.

When MAS changed its name to MAB, the employees who were thankful they had been retained had to accept new terms in their contract, which included the prospect of having their services terminated with only two months’ notice. That was why MAS workers were unhappy. Cronies were rewarded. Genuine, hard-working employees were treated shabbily.

So, did Mueller decide to leave because he has a conscience? Or was he concerned about his reputation? He once turned around the ailing Aer Lingus, but with all that is happening in Malaysia now, he probably realises that the longer he waits, the more he risks messing up his CV.

In the 1960s and 1970s, many proud Malaysians were happy to serve MAS. It was a respected and successful airline. If we were to remove political interference, MAB could soar in the skies once again.

Remembering Lee Kuan Yew: A life devoted entirely to Singapore

Mariam Mokhtar is an FMT columnist.

MAS and the Mueller Story


April 28, 2015

MAS  and the Mueller Story

by P Gunasegaram

http://www.malaysiakini.com

QUESTION TIME | Malaysia Airlines Bhd’s first non-Malaysian CEO Christoph Mueller announced he is stepping down last week barely one year at the top seat for “personal” reasons. Why? And, was he good for Malaysia Airlines?

Khazanah Nasional is now pumping in some RM6 billion into the airline for its recovery plan and in addition to the RM17.4 billion pumped in over the last 14 years, the total spent is soon likely to hit a massive RM23.4 billion. Will it be worth it?

Unfortunately statistics from Malaysia Airlines are insufficient to say how good a job Mueller has done. Where there is a paucity of information there are usually problems – why would anyone hide good news?

Mueller, appointed in March last year, will step down in six months as he serves his notice out – one and a half years before his contract ends. He will be a non-executive director after that. That Mueller can stay on for another six months is clear indication that his “personal circumstances” are not urgent, indicating other reasons why he is stepping down.

There are two sides to turnaround – cutting costs and increasing revenue. It is not only about turning to a profit – it is about sustaining a profit which the airline is capable of given its previous track record.

The easy way to turnaround is to shut down unprofitable operations, sell related assets and keep only profitable ones. That mean smaller profits but forever destroying the ability to rake in larger profits. If you want to turn around the entire operations, it’s a lot more work.

Mueller has overseen the cost-cutting quite well, much of the groundwork having already been laid by Khazanah Nasional before he came aboard. Some 6,000, or about 30 percent of workforce, have already been laid off. Routes have been cut drastically – and Malaysia Airlines is now just a regional airline with Emirates providing international connectivity. That may be a major problem.

At the heart of all airline operations is revenue management – the fine-tuning of ticket prices to ensure  the plane is sufficiently filled at a price which will maximise revenue. This is done for every single route.

If this is done right, the yield or amount received per revenue passenger km (RPK – no of paid seats multiplied by km flown) increases while the load factor (the amount by which seats are filled) are optimised to give maximum revenue.

This excellent article titled ‘What’s wrong with Malaysia Airlines’ gives a full explanation of how yields work for those who want a fuller explanation. The bottom line is if your fares are too low, you can have a serious problem.

From the chart, yields at Malaysia Airlines grew sharply after Idris Jala became CEO. By 2006 MAS’ yields were in tandem with some of its regional peers like Cathay Pacific and Thai Airways. The impact of the increasing yields on MAS’ bottom line was quick, and in 2006 losses were reduced to RM100 million from RM1.3 billion previously.

By the end of 2007, Malaysia Airlines’ yields were the highest among the regional airlines, and its net profit among the highest ever historically with some RM900 million. The onset of the global financial crisis resulted in yields tumbling across the board but Malaysia Airlines’ yield was the slowest to recover in the subsequent years and tumbled sharply post 2012, showing a wide gap with the yields of other airlines – the underlying problem for the airline.

Malaysia Airlines actually had a cost advantage over the other regional airlines in terms of costs per available seat kilometre (ASK – available seats multiplied by kilometres flown, a measure of capacity). Thus yield, not costs, was Malaysia Airlines’ core problem.

Khazanah Nasional figures show that Malaysia Airlines yield, measured this time in terms of revenue per available seat km, or Rask, at 20 sen, has a yield gap of 2.7 sen compared to the average of four other regional airlines – Cathay Pacific with a Rask of 24 sen, SIA (22.9) Garuda (22.5), and Thai (21.5). This means among the five, Malaysia Airlines charges the lowest fares relative to its capacity.

This is important – former CEO Ahmad Jauhari Yahya estimated that one sen in Rask accounts for RM500 million in revenue. That implies that 2.7 sen accounts for RM1,350 million. If Malaysia Airlines’ yield improved to industry average, the airline will be easily profitable. Also, Khazanah Nasional figures show that Malaysia Airlines has costs per ASK or Cask of 21.4 sen, below the peer average of 22.2 sen.

A battle Malaysia Airlines will lose

The problem becomes clear – Malaysia Airlines has the lowest unit cost which is good, but it also has the lowest unit revenue which is bad. All it has to do is to increase the unit revenue and its safe home. That however is a complex process undertaken with complex computer simulations and trial and error.

Has Mueller managed to do that? Unfortunately we don’t know because Malaysia Airlines does not provide the necessary figures. All he has said recently is that the airline turned to profit in February and even then did not say how much and how. What he should have shown is the progression of unit costs and revenues relatives to its peers. Then we would have known exactly what he has achieved and what he has not.

The paucity of information means that Mueller probably has things to hide. Anecdotally, there is evidence to indicate yield management is poor. I checked return ticket prices to Bali from Kuala Lumpur three months out for Malaysia Airlines and AirAsia. Guess what, it is about the same price of around RM850.

If a full-service airline is charging low-cost airline prices there really must be something wrong over its pricing especially for Malaysia Airlines, which has been on Skytrax’s list of 5-star airlines many times but recently seems to have dropped out though.

On top of that, there is the silly decision from this year to suspend serving of alcohol on short flights of three hours and less, even on business class and first class, a short-sighted decision that puts it severely at a disadvantage relative to its peers. Even all the major Middle Eastern airlines serve alcohol with no restrictions.

The way Malaysia Airlines is going, it is becoming a ticketing agent for Emirates internationally with the code-share arrangement it signed while it is shrinking its operations to become a regional airline taking on the likes of successful low-cost AirAsia – a battle it will lose. A full service airline cannot compete on cost with a low-cost airline – Khanazah Nasional figures show a huge 6.3 sen cost gap between AirAsia (14.8 sen Cask) and Malaysia Airlines (21.1 sen).

If Malaysia Airlines’ intention is to give up the international routes in favour of Emirates, to which it effectively becomes a ticketing agent, and fight an unwinnable battle regionally on cost with AirAsia – it might as well close shop and save the country billions of ringgit.

The true test of turnaround is not an indiscriminate lopping of loss makers but a carefully considered attempt to turn into profit a substantial portion of an enterprise’s entire operations. Otherwise, we might as well appoint liquidators.


P GUNASEGARAM laments terribly the extreme erosion of the Malaysia Airlines brand name, a reasonably competent and efficient airline whose service is still among the best in the industry, over the last few years. Contact: t.p.guna@gmail.com.


 

Malaysia Airlines:What Mueller could not do


April 28, 2016

Malaysia Airlines:What Mueller could not do

by Marion Tharsis

http://www.freemalaysiatoday.com

Khazanah Nasional Berhad probably expected too much from Christoph Mueller when it hired him to work his charm on MAS. Despite his glorious past, the turnaround expert probably didn’t count on the work culture and ethics and, most of all, the political environment in a government-linked company.

Mueller made all the obvious moves. He trimmed the work force, removed unwanted suppliers and closed unprofitable routes. What he could not do was remove political control. He probably learned soon enough that it would be futile to continue with his work, with so many hands pulling him from all sides to do their bidding.

Another person may try his or her hand at making MAS profitable again, but the same pressures will reduce the CEO’s position to that of a puppet to be manipulated.

So our once glorious airline is back to square one. The competition is overwhelming. Other carriers, including our very own AirAsia, are always looking into ways to make their companies more profitable through innovation.

We should not expect too much from the incoming CEO. He or she may be prevented from cleaning up certain kinds of mess. For example, he or she might not get a free hand to select a management team that would be capable of taking MAS on the path of good and solid governance.

An airline cannot run effectively merely on superficial changes. It needs an operating system that is smooth, unhampered, cohesive, innovative, customer focused, and competitive. Only then can it stay afloat in a tight and narrow market and play on a field that keeps re-inventing itself.

An airline that is subject to too much political control will keep failing and continue to be an embarrassment.

Marion Tharsis is a  FMT reader.

 

 

1MDB confirms that cross defaults have been triggered


April 26, 2016

1MDB confirms that cross defaults have been triggered

 1MDB Statement

 www.freemalaysiatoday.com

1mdb-ipic

PETALING JAYA: 1Malaysia Development Berhad (1MDB) states that the International Petroleum Investment Company (IPIC) has not made payment of USD50.3 million in interest as required under the terms of a binding term sheet executed on May 28, 2015 (Binding Term Sheet), under which IPIC assumed the obligation to pay the interest and ultimately the principal for, amongst others, the USD1.75 billion fixed rate 5.75% notes due 2022, issued by 1MDB Energy (Langat) Limited (Langat Notes).

Accordingly, due to a dispute between the parties, neither 1MDB, nor its subsidiary, 1MDB Energy (Langat) Limited, have made payment either, and are now in default per the terms of the Langat Notes.

Notwithstanding the dispute with IPIC, 1MDB reiterates that it will meet all of its other existing financial obligations and has ample liquidity to do so. 1MDB withheld the interest payment following claims by IPIC that certain payments and other obligations were still owed it.

1MDB has been surprised by IPIC’s comments and unequivocally asserts that it has attempted to meet all its obligations to IPIC, whereas IPIC has publicly denied receipt or knowledge of various financial transactions and/or guarantees entered into between the parties. Accordingly, whilst 1MDB has the funds to have made the interest payment, it is 1MDB’s position, as a matter of principle, that it was IPIC’s obligation to do so. Until IPIC accepts that all obligations have been met, 1MDB is obliged to withhold payments and will seek legal recourse and resolution.

Limited cross defaults

As a result of the default on the Langat Notes, 1MDB confirms that cross defaults have been triggered on the 1MDB RM5 billion Sukuk due 2039 (1MDB Sukuk) and the RM2.4 billion Bandar Malaysia Sdn Bhd Sukuk due between 2021 and 2024 (BMSB Sukuk).

There is no 1MDB cross default on an RM800 million loan from the Social Security Organisation (Socso Loan). However, there is a possibility that the “material adverse effect” clause may be triggered due to the developments highlighted above.

The 1MDB Sukuk and the Socso Loan both benefit from guarantees issued by the Government of Malaysia.1MDB confirms that there is no cross default on its other remaining debt, i.e. the USD1.75 billion fixed rate 5.99% 1MDB Energy Limited notes (Energy Notes) and the USD3.00 billion fixed rate 4.4% 1MDB Global Investments Limited notes (GIL Notes). 1MDB has no other debt.

Over the past week, 1MDB has proactively met with and explained the consequences of the IPIC dispute to the Trustees and investors of the 1MDB Sukuk and the BMSB Sukuk. 1MDB has also engaged with Socso. 1MDB trusts that the respective parties and the financial markets in general, will understand this unfortunate default as being very specific to its dispute with IPIC and is not due to an inability to make payment when due.

Engaging with all bondholders

1MDB has and will continue to undertake discussions with all bond and Sukuk holders to explain the background of the dispute; clarify why it has taken the position to not make the interest payment on the Langat Notes; and reiterate that it has a successful rationalisation plan in place that enables it to meet all its existing debt obligations.

1MDB wishes to underline that it is committed to working openly with IPIC to resolve the dispute in order to minimise the impact on all stakeholders and to avoid the need for accelerating bond or Sukuk payments in a way that would pose significant risks to its rationalisation plan.

1MDB welcomes dialogue with all its bond/Sukuk holders and urges them to make contact at investor.relations@1mdb.com.my

Notes:

On June 4, 2015, the International Petroleum Investment Company (IPIC) publicly announced it was assuming the Issuer’s obligation to pay the interest due under the Langat Notes in exchange for certain undertakings to transfer assets and cash to IPIC.

Interest was payable on the semi-annual interest payment date of April 18, 2016 in respect of the USD1.75 billion 5.75% Notes due 2022 issued by the Issuer.

Rationalisation plan

1MDB’s rationalisation plan is centred on three main pillars: first, the sale of the Edra Global Energy power assets; second, the sale of land at Bandar Malaysia; and third the debt-for-asset swap that was agreed with IPIC. Through these pillars, all 1MDB debt would be repaid, transferred or matched, as per current assumptions.

To date, the rationalisation plan has delivered on the sale of Edra Global Energy and the 60% equity stake sale in Bandar Malaysia. Proceeds from the sales have been utilised to repay all bank and short term debt of 1MDB. 1MDB now retains a cash surplus of approximately RM2.3 billion for infrastructure and other debt service requirements.

Future debt obligations are fully matched by the sale of Bandar Malaysia land, the development and sale of TRX lands as well as the eventual monetisation of the Pulau Indah and Air Itam land.

Statement issued by 1MDB.