‘MAS NewCo should focus on the big picture’
BY SHAREN KAURKUALA - 29 AUGUST 2014 @ 11:44 PM
THE new Malaysian Airlines (NewCo) should focus on Blue Ocean Strategy or Green Ocean Strategy to increase its chances for growth and the extent of its potential success.
The strategy should include insights about the innovative positioning of new ventures and tools to make it possible, said aviation experts.
“The NewCo should focus not just on numbers, but the overall picture. It should go beyond the existing demand and establish a strategic sequence in a correct way,” says Jeong Chun Phuoc, member consultant of corporate compliance and strategy practice group at Azmi & Associates.
Jeong said MAS should also review existing contracts.
“If MAS cancels the existing agreements, it would have to fork out a lot in terms of compensations and penalties. The existing agreements and terms are bad. What MAS should do is to focus on future agreements for the NewCo,” he told Business Times.
Khazanah National Bhd, which owns 69 per cent of MAS, unveiled a 12-point comprehensive exercise for MAS, which aims to return the airline into profitability, the earliest by 2017.
Under the plan, Khazanah will invest up to RM6 billion on a staggered and conditional basis over three years.
It will set up a new company to house the carrier, rationalise routes, renegotiate current contracts, cut 30 per cent of the 20,000-strong workforce and move its operations from Subang to Kuala Lumpur International Airport.
Industry players said this is a good move by Khazanah to save MAS from bleeding further.
“MAS is cutting 30 per cent of its workforce, which is just nice as there are too many redundant positions at ground level. The challenge would be to keep their crew on board.
“The other good thing is that the NewCo will get away from current problems faced by MAS.
“MAS has two big issues, which are its existing contracts and union,” said a key official from a rival airline.
Khazanah unveils 12-point plan for MAS
Updated: Saturday August 30, 2014 MYT 9:37:05 AM BY ISABELLE LAI
KUALA LUMPUR: Khazanah Nasional Bhd has unveiled a 12-point plan to enable Malaysia Airlines (MAS) to achieve sustained profitability within three years of de-listing, by the end of 2017.
Its managing director Tan Sri Azman Mokhtar said the plan involved a comprehensive overhaul of the airline.
“At its core, the plan involves the creation of a new company, (NewCo) which will house the ‘new MAS’ and the migration of the right-sized workforce and work practices and contracts into NewCo,” he told reporters at a special briefing at Khazanah headquarters on Friday.
The plan, entitled “Rebuilding A National Icon – The MAS Recovery Plan”, has four categories which are governance and financial framework, operating business model, leadership and human capital, and regulatory and enabling environment.
Azman said this plan followed a review of all relevant aspects of MAS’ operations and operating environment that commenced in February this year.
He said current MAS chief executive officer Ahmad Jauhari Yahya would continue to lead the old company during the transition period over the next 10 months to July 1, 2015.
“Khazanah has commenced the search process for the CEO of NewCo and we envisage that the conclusion of this search will be announced in due course, expected to be before the end of 2014,” he said.
Azman said it was estimated that NewCo would require a workforce of approximately 14,000, representing a net reduction of 6,000 or 30% from the approximately 20,000 current staff.
He said Khazanah would invest in a Corporate Reskilling Centre to address the reskilling of the appropriate MAS staff who did not migrate to NewCo.
“MAS and Khazanah are committed to helping each exiting employee minimise the negative impact to their livelihoods and quality of life,” he said.
On Aug 8, Khazanah announced it would undertake a selective capital reduction and repayment exercise at an offer price of RM0.27 per MAS ordinary share, representing a 29.2% premium to the 3-month volume weighted average market price at the time of announcement.
http://www.khazanah.com.my/docs/140829 Khazanah announces 12-point MAS Recovery Plan.pdf
Khazanah announces 12-point MAS Recovery Plan Khazanah Nasional Berhad (“Khazanah”) today announced a 12-point enabling plan forreturning Malaysian Airline System Berhad (“MAS”) to sustained profitability and reviveMalaysia‟s national flag-carrier. A summary report of the plan entitled "Rebuilding a National Icon:The MAS Recovery Plan"
was also released in this regard.
The 12 key elements of the MAS Recovery Plan over four categories are as follows:
A. Governance and financial framework
1. Creation of NewCo to house New MAS, delist and relist
a. Delist MAS (“OldCo”) by end of 2014. This process has already commencedwith the announcement of 8 August 2014
b. Migrate the relevant operations, assets and liabilities of OldCo to NewCo by 1July 2015
c. NewCo will critically involve a significantly corrected cost and operationalstructure and workforce, properly benchmarked to competitive industrypractices and norms
d. NewCo is targeted to return to profitability within 3 years of delisting, and torelist within 3 to 5 years, that is between the end of 2017 and the end of 2019
e. If such financial conditions are met, a sell-down or partial sell-down ofKhazanah‟s stake to appropriate strategic buyers from the private sector willbe considered
2. Funding of up to RM6.0 billion on a strict conditional basis and a reduction ofnet gearing to approximately 120%
a. Total restructuring and investment funding amounting to up to RM6.0 billion
to be disbursed in a staggered basis subject to fulfilment of strict restructuringconditions, consisting of:
i. Delist MAS OldCo at a cost of RM1.4 billion
ii. Restructuring and retrenchment cost at MAS OldCo subject to strictconditionality, amounting to up to RM1.6 billion
iii. Progressively inject capital amounting up to RM3.0 billion
into NewMAS, subject to strict conditionality, on a staggered and milestonebasis, over a three-year period from 2014 to 2016
b. Reduce net gearing (net debt over shareholders‟ funds) from 290% currentlyto a target range of 100% to 125% through, inter alia, debt-to-equity swaps
c. In this regard we are pleased to announce that Kumpulan Wang Persaraan(Diperbadankan) (“KWAP”) has today agreed to swap a total of up to RM750million of their existing Perpetual Sukuk into ordinary equity, subject to adefinitive agreement between the relevant parties
B. Operating Business Model
3. Reset the operating business model through a more regionally-focusednetwork, lower cost structure and greater emphasis on revenue yield management
a. MAS – both OldCo and subsequently NewCo as the operating airline entity – will continue to rationalise the network to be principally regionally-focused, with strong global connectivity through MAS‟ oneworld alliance and othercode-share partners
b. The migration to NewCo, with its strong funding conditionality imposed, isenvisaged to result in a lower cost structure based on industry benchmarksand work practices, with savings principally coming from improved supplycontracts and labour practices
c. A renewed focus on revenue yield management
4. Consolidate headquarters and operations from Subang to KLIA
a. MAS is currently an exception among airlines in having its HQ and operationsaway from its principal home airport
b. One of the conditions of the MAS Recovery Plan is for MAS to move its HQand principal operations from Subang to KLIA
c. This will allow MAS to consolidate its operations, improve workingconditions and signify a new beginning under New MAS
5. Strengthening of the assurance, integrity and safety functions
a. Another condition of the MAS Recovery Plan will be the strengthening of keycontrol and operational systems
b. These include, inter alia, the creation of a Governance & Ethics BoardCommittee and a voluntary Enhanced IATA Operational Safety Audit
6. Review and, where appropriate, renegotiate supply contracts
a. It is intended that New MAS will honour all properly benchmarked contractsunder OldCo
b. The migration to NewCo will nonetheless provide an opportunity for NewMAS to reset and renegotiate supply and other contracts, based on marketnorms and benchmarks
C. Leadership and Human Capital
a. The transition period between OldCo and NewCo over the next 10 monthsto 1 July 2015 will see significant changes to leadership, which will beexecuted in an orderly fashion
b. Ahmad Jauhari Yahya will continue to lead OldCo as the Group CEO duringthis period until 1 July 2015, when NewCo is envisaged to come into force.
c. The Board of OldCo will also continue during the same period, until furthernotice
d. Khazanah has commenced the search process for the CEO of NewCo and weenvisage that the conclusion of this search will be announced in due course,expected to be before the end of 2014
e. The search process involves reviewing both local Malaysian leadership talent,as well as global aviation industry executives. The final decision on the CEOof the NewCo will be made in consultation with the Special Shareholder, Minister of Finance, Incorporated.
8. Right-sizing the workforce to an estimated 14,000 employees at NewCo
a. It is a critical requirement that NewCo starts on a right footing in terms of itsstaff size and work practices
b. It is estimated that NewCo will require a workforce of approximately 14,000
c. This is a net reduction of 6,000 or 30% from the approximately 20,000current staff in OldCo
d. Khazanah is nonetheless committed to ensuring that the process of transfer,migration and separation is conducted with the utmost care, fairness and dueprocess
9. Strengthen industrial relations and internal alignment
a. A critical component of the MAS Recovery Plan involves significantlyimproved industrial relations
b. New measures and practices, including introducing an Employee ConsultativePanel to better align staff, employees‟ unions and management, would be acritical condition of the MAS Recovery Plan
10. Reskilling, job creation and redeployment
a. Khazanah will invest in a Corporate Reskilling Centre, to be located in theSubang area, specifically to address the reskilling of the appropriate MAS staffwho do not migrate to NewCo
b. We envisage that this will involve a reskilling and redeployment program andthe active creation of new jobs
c. MAS and Khazanah are committed to helping each exiting employee –minimising the negative impact to their livelihoods and quality of life. Inaddition to appropriate financial compensation, MOUs have been signed with:
i. Scicom (MSC) Berhad (“Scicom”), a Malaysian listed company toprovide a structured pathway to employment for up to 2,000transitioning MAS employees. This will be done by providing acustomised and certified reskilling training programme, coupled withjob placement in Scicom, Malaysian companies and multinationals
ii. Sutherland Global Services, a global business process and technologymanagement services company with operations in Malaysia, to trainand employ up to 1,500 exiting MAS employees in operationsprocessing.
D. Regulatory and enabling environment
11. Appropriate Government support on key initiatives including:
a. Subject to Parliamentary and other approvals (as may be applicable), theenactment of appropriate enabling legislation, including a standalone Actspecific to MAS, with a finite period, to facilitate the restructuring in acomprehensive and timely manner
b. The establishment of an Aviation Commission
12. Continuous communications and stakeholder engagement
a. Regular communications and engagement with key external stakeholders
b. Periodic public accountability briefings
Taken together, these steps will support a specific timeline for the return of MAS to sustainedprofitability, as envisaged in this recovery plan as follows:
a. By the end of 2014:
to complete the delisting of MAS and to announce theleadership of NewCo
b. By 1 July 2015:
The formal transition to NewCo
c. By the end of 2017:
3 years from the delisting, for NewCo to achieve profitability
d. Between 2018 and 2020:
between 3 to 5 years from delisting for NewCo to berelisted.