There are three things that I advise my clients to be wary off:
- I have always maintained foresight is 50 – 50 and hindsight is 100%. The benefit of hindsight is it allows one to evaluate decisions and test its appropriateness over a period of time. The truly great people are those who make decisions that stand the test of time.
- I also say “we don’t know, what we don’t know” and because of that, what may seem like a brilliant idea or person for that matter over time as we learn more, we realise what or whom we celebrated as “brilliant” was really a mistake.
- And my third advise is always look at the results – not the words. As a good firend of mine – Brett Allen – taught me a long time ago – its deeds not words that count. Like wise the people can say what they like but most important is to look at the results.
With the above 3 in mind we now have a context to look at MAS WAU – or wide asset unbundling strategy which was a that time touted a genius of a solution and the current MAS WOW strategy which is clocking in the correct numbers faster that you can say “holy moly.”
Anyway this is what Bina Fikir says about the WAU:
MAS – WAU restructuring (Corporate Finance Advisory, 2002)
The restructuring involved ‘unbundling’ the airline of RM5bn of assets and RM7bn of liabilities, transforming MAS’ gearing ratio of 700% as at 31 March 2002 to a net cash position, thus creating an ‘asset-light’ airline.
It was successfully executed by 6 November 2002 (being a record duration of 8.5 months for a restructuring of this magnitude).
The deal was awarded the AirFinance Journal Asian Corporate Finance Deal of the Year for 2002 and The Edge’s Deal of the Year.
Some notable quotes from BinaFikir are:
Quotations from Malaysia Airline System Berhad
“2004’s after-tax profit of RM461.1 million [was] the best performance since the Airline was listed on best performance since the Airline was listed on best performance since the Airline was listed on best performance since the Airline was listed on Bursa Malaysia in 1985. This is a sign that MAS has made a turnaround, thanks to the implementation of the Widespread Asset Unbundling exercise in November 2002”
Dato’ Ahmad Fuaad bin Mohd. Dahalan, Managing Director, Malaysia Airline System Berhadin his Report for the company’s 2003/2004 Annual Report.
“2002 was a defining year for Malaysia Airlines, distinguished above all by the major reorganisation of the
Group Corporate Structure WAU, connotes a widespread asset unbundling exercise…came at a most critical juncture. It proved to be regenerative and deserves to be seen as a true landmark event.
Dato’ Md. Nor bin Md. Yusof, Managing Director, Malaysia Airline System Berhadin his Report for the company’s 2002/2003 Annual Report.
“In January 2002 we set up the Restructuring Task Force, tasked with rebuilding the airline…The remedy proposed was a rather ingenious one, which deserves a place in management literature as a case study of corporate innovation of corporate innovation.”
Dato’ Md. Nor bin Md. Yusof, Managing Director, Malaysia Airline System Berhad in his Report for the company’s 2001/2002 Annual Report.
I truly say these guys – all big wigs and smart fellows deserve the self praise they are heaping on themselves and on Bina Fikir. After all Dato Md Nor in now Azman’s “boss” in Khazanah…and Azman was the boss of Bina Fikir.
Now lets see what else comes up on the WAU that is not from BinaFikir. This is what is reported by Doreen Leong in the Edge:
The chief executive officer of MAS’ parent company Penerbangan Malaysia Bhd (PMB), Tengku Azmil Zahruddin Raja Abdul Aziz, has been redesignated as the carrier’s new executive director to drive the change. Tengku Azmil is already a MAS board member.
“This is a reality check. The company has not been making operating profits, even since the WAU (Widespread Asset Unbundling, about three years ago).
“The profits that have been reported are an accounting profit, attributable to gains from one-off benefits, not from sustainable operational performance,” Munir told reporters at a briefing on its first-quarter results in Petaling Jaya on Aug 22.
Then there is a saying that goes like this, “In every deal, there is a sucker.” The story being told above in only a half story, that is the financial benefit that accrued to MAS when the assets were unbundled – meaning they got PMB (penerbangan malaysia berhad), a government owned company to buy over the planes. What we need to find out is if PMB ended up being the sucker and the untold story.
By virtue of being 100% owned- by Khazanah and the irrevocable and unconditional guarantee by the government, PMB is still able to issue bonds with strong ratings.
In the quarter ended June, Malaysia Airlines stunned investors when it announced losses of RM280 million due mainly to soaring jet fuel prices. It has since fired its managing director, Datuk Ahmad Fuaad Dahlan, and put in place an executive committee led by chairman Datuk Munir Majid who promised to arrest the decline. In that quarter alone, escalating fuel and other operating expenses wiped out RM700 million from its coffers.
A new CEO, Idris Jala, is expected to fill the hot seat in December to execute changes in operations and corporate culture. read here
Taken from The Edge Malaysia, July 16 2007, Corporate, by Doreen Leong:
- PMB.. the aircraft leasing company carries huge accumulated net losses of RM4.04 BILLION as at Dec 31st 2006. It posted a net loss of RM1.75 billion on back of Rm14.77 billion revenue in FY 2006
- To recap, the lease agreements between MAS and PMB were entered into as part of the widespread asset unbundling exercise in 2002.
- “Transactions between PMB and MAS are done at arms length. PMB leased their aircraft to MAS at negotiated rates, which is more or less the prevailing rate at the time when the lease agreement was sealed….” a source told the EDGE
- PMB which is a wholly owned unit of Khazana, holds 69.34% stake in MAS.
Well the above is on Azman’s WAU and you be the judge of it. Hindsight is 100% perfect.
Now we look at Idris Jala’s WOW. The starting point is his announcement to the Press on what he plans to do and here it is , take from Bernama:
February 27, 2006 21:48 PM
RM4 Bln MAS Turnaround Plan Shoots For Profit By 2008
By M. Saraswathi And Massita Ahmad
PETALING JAYA, Feb 27 (Bernama) — National airline Malaysia Airlines (MAS) needs RM4 billion to turnaround, and with various cost cutting and rationalisation measures, including reducing some international routes, it aims to score an all time high profit of RM500 million in 2008.
Its managing director, Idris Jala, said MAS would churn out RM1 billion internally, another RM1 billion from external funds, and RM2 billion from the government to tide the company over its current cash crisis.
“For every RM1 invested in the aviation industry, the spin-off effects on the country’s economy is worth RM12,” said Jala.
He said the sale of the MAS headquarters building in Kuala Lumpur was still on and the company was evaluating the process to get the best price for it.
The sales of assets would come up to RM800 and RM1 billion, said a steady Jala who was unfazed with the five intermittent power black-outs in the packed media conference room and continued to speak for two hours on how to make the national airline profitable again.
“A real business turnaround is imperative for MAS,” he stressed, adding that without a strong and decisive action, losses at MAS would continue to grow and amount to RM1.7 billion by 2006 and under the current course and speed the airline would have hit a critical cash threshold of five percent revenue and run out of cash by April 2006.
However, he said steps had already been taken to avert this cash crisis.
The Business Turnaround Plan has been carefully sequenced over the next three years to deliver cash, profitability and growth-in that order of intensity and focus.
“In 2007, our plan will focus on improving efficiency and capabilities. In 2008, we will focus on new growth opportunities,” said Jala who was recruited from Shell Malaysia in December 2005 following his remarkable turnaround record involving the Sri Lankan petroleum industry a few years ago.
For the financial year ending Dec 31, 2006, MAS is expected to post a loss of RM1.7 billion, he said. For 2007, the plan forecasts a further improvement of about RM670 million, resulting in a RM50 million profit.
The company’s financial year-end has also been changed to Dec 31, 2005 from March 31, 2006.
Among others, he said the MAS turnaround plan included a change from its present “over-staffed and low productivity” situation to a company with “leaner workforce and high productivity.”
“In the future, MAS will definitely be running with fewer employees per unit of capacity,” he stressed.
The right-sizing, he said, would only be viewed after the government had completed its review of the domestic aviation policy and for MAS to have completed its route profitability initiatives and exhausted all avenues to turnaround its unprofitable routes.
“We will be in a position to make a firm decision about this (the right-sizing of staff) matter from 2007 onwards,” he said.
Jala said MAS would also cut some international routes.
Currently only 48 international routes are profitable while 66 are not.
As for domestic routes, Jala said there were only four profitable domestic routes while 144 were not.
“Our poor pricing, rising cost structure, mismatched fleet, weak operational performance, low-intensity performance culture, and social obligations all contributed to our dismal financial performance across most routes we fly,” said Jala.
Some of the routes that MAS was planning to cut would be involving some in India and China.
MAS would also launch a whistle-blower policy among its employees to curb misconduct in the company.
Jala said the turnaround plan would not only reverse the loss and return MAS to profitability, but also transform the company into a strong and vibrant institution capable of withstanding external shocks and aggressively tackling new opportunities.
The plan has five central thrusts:
* Flying to win customers-MAS will reconfigure its network and product portfolio to ensure that it has the tools and capabilities to be a top-tier player.
* Mastering operational excellence-MAS will build a unique operating capability. This capability will be reflected not only improved operational reliability, but also in higher productivity.
* Financing and aligning the business on profit and loss-MAS will relentlessly increase profits with the support of a world-class finance function that ensures true financial accountability, transparency and performance orientation.
* Unleashing talents and capabilities-MAS is committed to its people it has the passion and talent to achieve the goals.
* Winning coalitions- MAS needs the resolute support of the government, its employees, managers, customers, suppliers, agents and investors. It is only with the support of these stakeholders that MAS can have the mandate it needs to make the changes that will ensure long-term success.
“We will cooperate much more closely with AirAsia domestically (for example, by sharing maintenance facilities); with international airlines (for example through alliances) and with Malaysian business partners (through joint loyalty programmes with other government-linked companies),” said Jala.
Every news article on MAS, from the time IDRIS JALA took the helm, has been positive. He has given a clear, transparent, blow by blow account of everything he and his team plans to do and the results he is achieving against that plan. This is not shuffling assets but rolling up one’s sleeves and really getting into the guts of the business. No fancy lingo, no smart talk, just plain action.
MAS posts higher profit, load factor and yield
PETALING JAYA: Malaysia Airlines (MAS) reported a sustained turnaround with a net profit of RM133.1mil for its first quarter ended March 31, compared with a loss of RM319.9mil in the year-earlier quarter.
The net profit was derived from a group operating profit of RM129mil, comprising RM107mil from international operations and RM22mil from domestic services. Besides that, there was a gain of RM17.7mil from the sale of properties.
Chief executive officer Idris Jala said the improved operating results were due to a 21% increase in revenue, while expenditure, excluding domestic operations, decreased. The first-quarter results included the profit-and-loss account of domestic operations while it had not included that yet in the equivalent quarter last year.
On the first-quarter operating results, Jala told the media yesterday the airline’s load factor improved to 71% from 68.6% in corresponding three months last year, while yield – the average fare per kilometre – rose 15% to 26.1 sen from 22.6 sen.
At the same time, the airline’s workforce was trimmed by 15%, or 3,000, to 19,700. The employees left through a separation scheme, retirement and expiry of contract.
MAS chief financial officer Tengku Azmil Zahruddin said this was an ongoing process and that this year the workforce was projected to be reduced further by about 650 people through similar means.
The results were also helped by the stronger ringgit, Jala said, as a lot of costs, such as fuel and aircraft leases, were paid in US dollars while much of its revenue was in ringgit.
Note the humility of Idris, making clear every step of his plan and even recognizing that the stronger ringgit had been a help.
Let’s keep watching , but I must agree with the Minister who was quoted that Idris Jala is the Best CEO money can buy.