Malaysia Airline Grasping for Survival
From The Asian Wall Street Journal
31 July 2002
MAS Aims to Scale Back
To Boost Its Profitability
By S. JAYASANKARAN
Staff Reporter of THE WALL STREET JOURNAL
KUALA LUMPUR, Malaysia -- Debt-plagued Malaysian Airline System, or
MAS, unveiled details of a radical restructuring plan it hopes will
return the state-controlled company to profitability.
The plan, among other things, calls for publicly listed MAS to sell
most of its assets, sharply reduce debt and become essentially a
management concern operating most of Malaysia's international and
domestic air routes.
In a statement to the Kuala Lumpur Stock Exchange, MAS said a new
state-owned entity called Penerbangan Malaysia Bhd. would acquire 73
of its aircraft for 5.1 billion ringgit ($1.34 billion) and assume
almost seven billion ringgit of MAS's liabilities in exchange for new
stock in MAS. PMB, which will ultimately own 69.3% of MAS, will seek a
waiver from Malaysia's Securities Commission exempting it from having
to make a general offer for the remaining shares it doesn't own, the
airline said.
MAS said it would continue to operate its profitable cargo and
international passenger services with aircraft leased back from PMB.
MAS will also operate domestic routes, using leased planes, on PMB's
behalf for a fee. All revenue from the domestic routes will go to PMB.
Separately, MAS said it will sell its property assets for more than
1.5 billion ringgit to Global Network Sdn. Bhd., another newly created
government company. MAS will then lease back the properties it needs
for its operations. The airline said it will also sell its catering
unit to a private company for 175 million ringgit.
The airline said the shedding of assets and liabilities to the
Malaysian government would translate into a profit of 94.2 million
ringgit in the year ending March 31, 2003, against a loss of 835.56
million ringgit in the year-earlier period. The restructuring will
also result in an almost debt-free MAS holding 676 million ringgit in
cash by March 2003, compared with its current net debt of almost nine
billion ringgit.
"With an enhanced financial position, a clear balance sheet and a
strong holding company, we believe we are in a better position now
than last year," said MAS's managing director, Mohamed Nor Yusof.
With its current debt load and accumulated losses of more than 2.5
billion ringgit, MAS teetered on the verge of insolvency. The
government's rescue of the airline illustrates Kuala Lumpur's newfound
willingness to use drastic measures as part of a state-led initiative
to hasten corporate reform.
The decision to abandon the government's longstanding practice of
cross-subsidizing MAS's unprofitable, but politically necessary
domestic routes with profits from cargo and international routes also
marks a step toward a more market-oriented approach to
state-controlled enterprises. Government officials say it is an
indicator of the growing influence of Prime Minister Mahathir
Mohamad's pro-market finance adviser, Nor Mohammed Yakcop, a former
central banker who, since last July, has been the driving force behind
Malaysian corporate restructuring.
Indeed, controversy at MAS first prompted Kuala Lumpur's corporate
reform drive. In early 2001, the government purchased a controlling
interest in MAS from politically connected businessman Tajudin Ramli
for 1.79 billion ringgit, paying a 250% premium over the
then-prevailing market price for MAS stock. The deal was opposed by
Tan Sri Nor Mohammed, but it was pushed through by then-finance
minister Daim Zainuddin, Tan Sri Tajudin's longtime business mentor.
Public outrage over what was seen as a government bailout of Tan Sri
Tajudin exacerbated a growing rift between Dr. Mahathir and Tun Daim,
who resigned his post in June. Dr. Mahathir took over the finance
portfolio and Tan Sri Nor Mohammed has since emerged as the architect
of government restructuring policy.
Securities analysts expect MAS stock, which last traded at 3.86
ringgit each before being suspended on Monday, to climb when trading
resumes Thursday.
Apart from its restructuring plans, the airline announced smaller
losses for the first quarter of its 2002 financial year -- 80.8
million ringgit against a loss of 320.7 million ringgit a year
earlier.