By Tommy Thomas
That Malaysia Airline System Bhd (MAS) is in life-support is not in doubt. According to statements made in the Dewan Rakyat last month when the Malaysia Airline System Bhd (Administration) Bill 2014 (the MAS Bill) was discussed:
(i) RM24 billion has been pumped into MAS in the last 15 years;
(ii) with 22,000 employees, the revenue generated annually by every MAS employee is US$240,000, whilst it is US$700,000 per SIA employee; and
(iii) for the first six months of this year, MAS suffered a loss of RM748 million, which works out to approximately RM5 million per day.
And yet, MAS is in deep trouble. Apart from financial haemorrhaging, MAS must be the only airline in the world which suffered two crashes within four months killing some 500 people. Having regard to the closing of some national airlines (Sabena and Alitalia come to mind) and also private airlines (TWA and Pan Am) it is a question of great public importance whether it is in the national or public interest that tax-payer monies should continue to be wasted on a miserable business. Further, having regard to the deficit in the budget and the state of our national finances, can the country afford a national airline?
Anyone with even a passing interest in MAS will be aware that the two greatest problems that have afflicted it in the past 15 years is a bloated work-force and lop-sided contracts with third parties. There was never any courage or political will to resolve them, the problems worsened over the years, and losses accumulated.
The MH370 and MH 17 tragedies received world-wide publicity, and the incompetence of MAS’s management was universally condemned. Whether it was for false pride or otherwise, the government will not entertain the option of closing down MAS. The two plane crashes however meant that it is not business as usual. Yet the political will to take radical reforming steps to save MAS remains absent.
It is against this background that the MAS Bill, just passed by the Dewan Rakyat, must be considered. The MAS Bill provides strong legal power for an Administrator to take steps to re-negotiate one-sided contracts and to reduce staff. It creates a legal regime for drastic action. It tries to make up for the hitherto lack of political action to resolve the problems. The MAS Bill is closely modelled on the Pengurusan Danaharta Nasional Bhd Act, 1998 (the Danaharta Act) which established the nation’s highly successful asset-management corporation, Pengurusan Danaharta Nasional Bhd (Danaharta).
The Preamble to the MAS BILL is worth reproducing because it clearly sets out its objectives and purposes:
- WHEREAS special provisions are required in the public interest to ensure the continuity of the essential air services by the Malaysian Airline System Berhad as the national carrier and the provision of uninterrupted connectivity to and from and within Malaysia by the national carrier;
- AND WHEREAS legislation is the only means to expeditiously administer and manage the Malaysian Airline System Berhad, its wholly owned subsidiary companies and its partially owned subsidiary companies providing goods or carrying out services or both that are essential to the operations of the national carrier without disruption to their operations;
- AND WHEREAS the establishment of a new entity, that is the Malaysia Airlines Berhad, with a new business model is critical to ensure continuity, profitability and viability, and to assume certain businesses, property, rights, liabilities and affairs of the Malaysian Airline System Berhad;
- AND WHEREAS it is in the public interest to ensure the continued existence of a national carrier to facilitate Malaysia’s economic development; and
- AND WHEREAS legislation provides an effective, efficient and seamless means to transition the business, property, rights, liabilities and affairs of the Malaysia Airline System Berhad to the new entity.
I will briefly consider the scheme of the Bill. A member or the board of directors of MAS (collectively described as “the appointer”) may place MAS or its wholly owned subsidiaries under administration (Clause 4), and appoint an Administrator for these companies (Clause 5(1)). The Administrator has wide functions and broad powers (Clauses 9 and 10), including the power to carry on MAS’s business, take possession of all assets and properties, and sell and transfer them. The Administrator, in effect, takes over management of the MAS companies from the directors. Clause 18(1) is critical: it gives the Administrator, at his sole discretion, to:-
(a) re-negotiate the terms and conditions of any contracts of MAS and its subsidiaries with counter-parties; and
(b) prepare a proposal with respect to the MAS companies.
In preparing the proposal, the Administrator may provide for the transfer of property or business of the MAS companies to a person named in the proposal, which shall then be submitted to an Independent Advisor (IA).
The IA shall review the proposal submitted by the Administrator (Clause 20(1)), and submit his own report to the Administrator and the appointer. If the appointer approves the proposal, the Administrator shall implement it (Clause 21(2)) and in so doing shall have wide legal powers to do all things necessary to give effect to the proposal (Clause 22(4).
Clause 24 is also critical because it refers to the incorporation of another corporation under the Companies Act 1965, that is, a new entity called “Malaysia Airlines Bhd” (MAB) which shall “have the main objective of operating the national carrier of Malaysia and shall carry on the business of the national carrier as a commercial enterprise”. Clause 26 expressly states that MAB is not a successor to the MAS companies. MAB has a discretion whether to engage MAS employees, and may impose its own terms of employment and work rules – (Clauses 25 and 27). The way in which MAB deals with trade union is dealt with at length in Clause 28, and Clause 29 expressly states that MAB shall determine 4 key employment matters without any input from trade unions:
“(a) resourcing and allocation of resources;
(b) assessment of employees;
(c) leave entitlement; and
(d) working hours and scheduling of work, including flight time limitation and flight duty periods.”
Merely clothing an Administrator of MAS and the new entity MAB with massive legal power is no guarantee that things will improve. The new law must be independently and properly applied, without political interference, that is, without fear or favour. The success of Danaharta in collecting 65 cents in the ringgit after the Asian Financial Crisis of 1997 ravaged corporate Malaysia was not primarily due to the Danaharta Act. Rather, it was due to the excellent professionalism displayed by the leadership of Azman Yahya, Hamidy Hafiz and Zukri Samat, ably assisted by its outstanding senior management, and combined with minimum political interference. This formula must be replicated in MAS and MAB.
Christoph Mueller
The chauvinistic criticism of the appointment of Christoph Mueller as MAB’s CEO to take office in May 2015 is not a good harbinger of things to come. These critics must realize MAS is not a domestic airline : instead, it flies to numerous countries and carries millions of non-Malaysians. It has always aspired to be world-class. Its international reputation and credibility is at stake. MAS faces extra-ordinary problems which require the world’s best. Does the colour, nationality or gender of its CEO matter? Would these critics accept our own Tony Fernandez? Does such jingoistic reaction from the extremist fringe suggests that when the Administrator re-negotiates lop-sided contracts with influential third parties or MAB refuses to employ thousands of MAS employees, our political leaders will be spooked, and reform stalled. If the government is serious of wishing to save MAS, then let us hope that the spirit of the MAS Bill, a first class piece of law enacted to provide the platform for tough business decisions, will serve as an impetus for a new, lean, efficient and money-making MAB. Fortunately, there is one silver lining: the world is entering into an environment of rapidly declining oil prices, which can only benefit MAS and MAB.
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Tommy Thomas is a prominent lawyer specialising in corporate litigation and insolvency, and commercial and public law. He has appeared in litigation involving bonds and other sophisticated financial instruments, and has dealt with administrative, labour and constitutional cases.
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