What went wrong at MAS

By Stephanie Jacob

In this second part of our interview with former MAS CEO Abdul Aziz Abdul Rahman, he talks about what he thinks went wrong for MAS, where he disagrees with Khazanah’s 12-step plan, and why he believes that MAS’ employees always end up as the scapegoats.

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In our interview with former Malaysia Airlines (MAS) chief executive officer (CEO) Abdul Aziz Abdul Rahman, KiniBiz asked when he thought things started to go wrong for MAS. Aziz said that he believed that the first misstep of many since he left the airline was the government’s decision to privatise the airline in 1994.

‘The damage during that period was severe’

The Mahathir Mohamad government privatised MAS to Tajudin Ramli, a well-known associate of then Finance Minister Daim Zainuddin.

Tajudin, through his listed vehicle Naluri, purchased a 30% stake in MAS for around RM2 billion or around RM8 a share. At the point of purchase, MAS shares were hovering around the RM6 mark per share.

Over the next six years MAS went on a downward spiral, made worse by the Asian financial crises. In 2000, after three consecutive years of substantial losses, the government bought back Tajudin’s stake and paid RM8 per share despite the fact that its counter was trading at less than half of that.

“Tajuddin diversified quite a bit. But all that diversification turned out to be wrong. He made many changes to MAS business plan, to the assets and all this. As a result, I think staff morale went down. The airline started to lose money because the plan was wrong,” said Aziz.

He also acknowledged accusations that there was mismanagement during Tajuddin’s time, but emphasised that he did not know for sure.

When asked whether MAS’ continuing woes are still due to mistakes made during Tajudin’s tenure or because of the airline’s subsequent failure to adapt, Aziz said he believed it was the former.

He said that “the damage during that period (during Tajudin’s time) was so severe”. Aziz added that a lack of individuals with strong airline industry experience also likely exacerbated the situation.

Subsequent CEOs have lacked good business plans

The former CEO said that since then every CEO which has been brought in has failed to find long-term success because they have failed to put in place a holistic business plan.

“Every few years, a new person is hired and given the task to turn around MAS. And they will try and do it, even if they do not know how to, they will try and do it. They will use different methods, perhaps juggle the accounts to appear to be okay,” he said.

He said this tends to provide temporary reprieve, and the CEO will likely be able to show increase profits or lower losses in the near term. And the shareholders will think that the turnaround is going well, but that might not be an accurate picture, explained Aziz.

“It is natural because if you are put there you must show some results. If you make it worse they will send you to the gallows,” he quipped. Therefore MAS recoveries have been short term, as no CEO has succeeded in fixing MAS’ core problems because they have not had the right business plan, he added.

What is the rationale of cutting 6,000 jobs?

As mentioned yesterday, Aziz’s re-emergence into the MAS debate has coincided in him becoming chairman of Jentayu Danaraksa (Jentayu). Jentayu is a management consultancy which believes they have a more appropriate recovery strategy for the national carrier.

Aziz said that his biggest disagreement with the plan is Khazanah’s claim that MAS was overstaffed, with some 6,000 redundant employees.

“We do not agree with the calculation that there are 6,000 staff who are redundant and that they need only 14,000. We don’t believe that 6,000 people are sleeping (not working) everyday,” he said.

Aziz said that MAS might be overstaffed but not by such a large number. He said “the (current) management must be mad to have carried on with 6,000 unwanted people for years”.

He said that he could prove his point, as he thinks MAS spends a substantial amount on overtime. And if they were in fact overstaffed by such a large number, that would not be necessary.

According to Aziz, the mistake was in the method used to calculate how many staff an airline like MAS needs. He said that during his discussions with Khazanah, he was told that those crunching the numbers were comparing MAS with its peers such as Singapore Airlines.

He said Khazanah’s consultants compared MAS against SIA, which has about the same amount of aircraft but only has 14,000 staff and concluded that MAS was significantly overstaffed.

However, Aziz opined that this method was flawed. Taking the SIA example, he noted that they might only have 14,000, but pointed out that there were numerous differences between the two airlines that also needed to be factored in.

These included the fact that SIA only flies long haul, while MAS flies both long and short haul. He also added that SIA is exclusively an airline, while other divisions such as maintenance, repair and overhaul and airport operations are separate entities. All combined together, SIA’s staff numbers balloon to around 23,000, said Aziz.

Aziz believes that the decision to cut 6,000 jobs is in line with what he thinks has been a disappointing tradition of blaming MAS staff or the unions when things go wrong for the airline.

MAS bill is harsh, especially on the staff

When presenting its rescue plan, Khazanah set forth several terms that needed to be met in order for it to release the funds. These included the airline being privatised and MAS bill being passed in Parliament.

According to Khazanah, the MAS bill is to smoothen the transition from the current company or Old MAS into a new company or New MAS. Recently the bill passed the first hurdle in the Dewan Rakyat, during its first reading.

Critics of the bill have said that it is too widespread and gives too much authority to the the administrator to carry out his duties. These include forcing suppliers to do business with new MAS at Khazanah’s terms, allowing MAS to commandeer businesses if they refuse to comply and severely limiting union powers. KiniBiz asked Aziz about his opinion of the bill both from his legal and aviation perspective.

“The law is unprecedented, and it is the government’s way to help its own company to survive. If not, MAS may have to go through liquidation and Malaysia’s laws will mean paying dues to all the creditors. So the thinking is very simple, you pass this law and then you appoint someone to administer the old company and you transfer the assets to the new company,” explained Aziz.

Aziz said that the government’s rationale probably stems from the fact that it wants to keep MAS flying without disruptions. He explained “the reason is that the airline needs several services (to run).

“For example, you need catering and you cannot establish a company in just a few days. So you (the administrator) will have to negotiate, and let’s say that they (caterers) are being tough (in negotiations) you can say ‘fine and go and do it yourself’ (take control of the business). So the running of the airline is not disrupted.”

Aziz is more concerned that the bill might also be used on the staff, to strong armed them into accepting lower salaries or less attractive packages in exchange for keeping their jobs. He said that with the bill in place, many staff might be pushed into accepting deals that are unfair to them.

“I think this would be very unfair. From a human point of view, some of these people have worked for over 20 years and are in this situation not because of their own fault but the fault of others and they will suffer.” Aziz said that even as a lawyer he would not use such a law because he would not want something similar used against him.

Aziz was not willing to speculate with regards to whether a similar bill might be introduced in the future to rescue another mismanaged company. But he concurred that once the law is in place it establishes a precedent.

However, he said he could understand the government’s perspective on the issue, and that although the law is harsh, it was seen as necessary to save MAS. And this is preferable to doing nothing, and letting MAS fail.

A commission of inquiry should be formed

That said, in order to ensure that it is not just the employees that bear the brunt of rescuing MAS, a full inquiry should be launched into the past performance of MAS to determine if there was any wrongdoing by those in positions of authority.

This includes an investigation into whether there was mismanagement and a review of contracts and operational decisions to see if there were things like leakages, said Aziz. “This will be fair of all,” he said.

He said that the decisions of a few had caused misery for so many Malaysians. He said “they caused a number miseries. One is public funds — billions gone. Two, the members of the public, also billions. All those who bought the shares at high value, these are mostly our citizens who lost money. And then of course the staff, who will lose their jobs.”

Aziz emphasised that those who cause these miseries should be punished. As such, he said he “is recommending an investigation: a commission of inquiry of independent people to determine this (if there is wrongdoing)”.

To underline how firmly he believes this is necessary, Aziz said that he would be willing to participate in some capacity in such a commission, although he feels that he will not be seen as independent enough to sit on the commission as he has been vocal in his criticism.

However, Aziz said he would be willing to serve as the prosecutor in the inquiry. He said that an inquiry would not only bring those, if there are any who have mismanaged to the point of negligence to book, but it will also establish whether 6,000 jobs need to be cut and a new company is actually needed.