MAS courageously gives monopoly caterer the boot

 No News Is Bad News

For image info, go to https://simpleflying.com/malaysia-airlines-turns-huge-2022-loss-2023-profit/ (Huge Turnaround: Malaysia Airlines Goes From $173 Million Loss To $125 Million Profit)

MAS courageously gives monopoly caterer the boot

KUALA LUMPUR, Sept 8, 2023: After bailing out national carrier Malaysia Airlines (MAS) twice, amounting to billions of ringgit, the federal government finally gave up.

In 2018, MAS was delisted and it has since struggled to pull itself out of the air industry’s doldrums. It made a huge turnaround last year, churning out a US$125 million profit from a US173 million loss the previous year.

Recently, MAS did not renew its contract with its food caterer, Brahim’s Food Services Sdn Bhd (BFS). The contract expired on Aug 31.

MAS’ cabin food services were disrupted and it also affected its flight schedule.

However, Malaysia Aviation Group Bhd (MAG), the parent company of Malaysia Airlines Bhd (MAB), has promised to bring back its hot food and beverage offerings on all its flights from the third week of September, after meals for certain domestic and international routes were disrupted during its transition to new catering service providers since Sept 1.

While it is easy to blame MAS for its management failure to ensure a smooth transition of its cabin food services, it must be noted that the new MAS management had the courage and will to get things back on track for the airline to soar back into the skies.

MAG group managing director Captain Izham Ismail said its negotiation with BFS for an extension of the contract started in November "but it was going nowhere".

“We couldn't come (to an agreement), knowing the fact that BFS has a monopoly in the local in-flight catering market,” Izham said, adding that the contract terms with BFS were “lopsided”.

It is about time for all monopolies, dominated by political cronies, to be given the boot for businesses to florish healthily on level playing fields.

Kudos to Izham for having the courage to do the right business deal for MAS.

No News Is Bad News reproduces below a feature report by The Edge business weekly and an old news posting on MAS:

MAG willing to bear short-term pain as it vows to take on legacy contract

By Kang Siew Li / theedgemalaysia.com

05 Sep 2023, 11:41 pm

"We are aware of what would happen [when we terminated the catering contract with BFS] and of the feedback from consumers and stakeholders, but if we don’t have the courage to take on legacy contracts, then why do you need me as a CEO?” — Datuk Captain Izham Ismail.

KUALA LUMPUR (Sept 5): Malaysia Aviation Group Bhd (MAG), the parent company of Malaysia Airlines Bhd (MAB), has promised to bring back its hot food and beverage offerings on all its flights from the third week of September, after meals for certain domestic and international routes were disrupted during its transition to new catering service providers since Sept 1. This follows the termination of its long-standing contract with Brahim’s Food Services Sdn Bhd (BFS), which expired on Aug 31.

MAG group managing director Datuk Captain Izham Ismail said its negotiation with BFS for an extension of the contract started in November last year, "but it was going nowhere".

"We couldn't come (to an agreement), knowing the fact that BFS has a monopoly in the local in-flight catering market,” Izham said, adding that the contract terms with BFS were "lopsided".

According to him, MAG had in its negotiation with BFS requested for a new clause where MAG will have a contractual right to terminate the agreement for any reason. “However, that negotiation is off the table now. To a certain extent, we had succumbed to a partner who is operationally inefficient and who tried to make margins by raising meals and handling charges to cover their inefficiency. So is it fair?

“We are aware of what would happen [when we terminated the catering contract with BFS] and of the feedback from consumers and stakeholders, but if we don't have the courage to take on legacy contracts, then why do you need me as a CEO?” he told reporters from selected media on Tuesday.

“So my team needs guts to implement change and change is never pretty. We hope consumers understand this phase that we are going through. It will not be forever, [but] a short duration of time. The timeline is the third week of September, we will start serving more hot meals again because we will have the equipment to upload the meals onboard the aircraft.

"We remain steadfast that MAG runs a fair and profitable business, and we want our partners to be profitable as well.”

Did MAG’s management and board of directors understand the magnitude of the journey that the airline was going to go through by addressing this legacy contract? “Yes. [We went in with our] eyes wide open. Will customers see degradation of food services? Definitely, but we are looking at the bigger picture. If I were nervous about this and not worry about consumers and stakeholders, then I will continue to inherit this lopsided contract,” said Izham.

Izham conceded that about 30 flights or 20% of flights suffered delays on the first day of operations, which he largely blamed on coordination issues.

“We have been improving since then. Catering-induced flight delays now range from seven to 10 flights or 2% to 3% of about 250 flights per day, reflecting minimal delay,” he said.

Following the end of its contract extension with BFS, MAG had on Sept 1 activated its business continuity plan for in-flight meal services, which, Izham said, was only for a week.

“We have now implemented the MAG Catering (MCAT) operation, where a temporary distribution centre has been set up on the airside of the Kuala Lumpur International Airport (KLIA). This operation is a short-term one to address MAB's transition to new catering service providers while waiting for 20 new catering high lifts to be delivered,” he added.

“We don't cook at all. There is no kitchen. And we don't have the expertise to cook meals in bulk. What our eight F&B suppliers do is cook the meals at their own facility, transport them to us, and all we do at the distribution centre is stack and distribute the food items [according to the flights] and then uplift them onboard the aircraft. Our suppliers don't have the licence and vehicles to load the meals into the aircraft.”

How long will this go on for? “This is in the interim. It will not last forever,” said Izham.

Still, critics have argued that MAB should have proactively prepared for the transition to its new catering service providers from BFS sooner.

To this, Izham said: “In June, when we knew that this negotiation with BFS for a contract extension on catering services was going south, we had our ground handling subsidiary AeroDarat Services Sdn Bhd procure 20 catering high lifts. We currently have four high lifts [which is insufficient].”

“The first 10 catering high lifts will be delivered in the third week of September and the remaining 10 will come next month. With the delivery of the catering high lifts, we will improve our hot food offerings,” he said. The catering high lift is designed to carry and load containers with airline food for passengers.

‘At no time MAG is going into this phase stupidly’

Asked when MAG can be on a par with BFS’ catering capability, Izham said this would take time.

He said the airline group still has to decide if it wants to buy out Brahim's Holdings Bhd’s (BHB) 70% stake in BFS or build its own flight kitchen. MAB holds a 30% stake in BFS.

“No doubt we have other catering players like Pos Aviation Sdn Bhd, which has a smaller capacity. Knowing that fact, how do we move forward? Do we build our own catering outfit? Do we get other people from overseas to open catering centres here? Or do we buy over BHB’s stake in BFS? These are the options available to us, but before we get there, we have to go through this pain (of transition from BFS to new catering service providers).

“But we are also aware that the current small players like Pos Aviation are ramping up their production capacity. So is our 60%-owned catering unit MAS Awana Services Sdn Bhd. So what consumers face today is in the interim. At no time MAG is going into this phase stupidly,” he added. Pos Aviation currently serves about 20% of MAB’s meals, while the rest are provided by MAS Awana and other service providers. Previously, Pos Aviation served 14% of MAB’s meals, with the remaining 86% from BFS.

Izham also dismissed a recent local report that MAB was allowing passengers affected by disruptions to bring their own meals on board flights during its transition, stating that the media had misinterpreted its Frequently Asked Questions on its website. “Passengers have always been allowed to bring food anyway before this, except for certain food items (such as self-heating meals and foods that exude a strong smell). It is not because of the transition.”

Wednesday, 3 October 2018

MAS loses RM2.4 billion in three years! What say you Azmin and Loke!

Still as Mana Ada Sistem as ever! Don’t the federal government ever learn from such heavy losses?

MAS loses RM2.4 billion in three years! What say you Azmin and Loke!

There’s an essay titled The Airline We loved… now being circulated in WhatsApp, and possibly shared on Facebook by the time this blog is posted.

However, there appears to be a typo or mix-up between MAS and MAB.

MAS refers to our Mana Ada Sistem national airline, that we all supposedly love, as loyal Malaysians. MAB is the acronym for Malaysia Airports Berhad.

However, No News Is Bad News is almost certain that the article refers to MAS.

The article may or may not be accurate but what is interesting, but definitely not surprising to Malaysia Boleh! rakyat (people) is that MAS has raked up RM2.4 billion in losses in the last three years after receiving a RM6 billion bailout from Khazanah Nasional in 2014.

What do you expect when MAS is still managed based on “business as usual”, appointing incompetents instead of the best and based on meritocracy.

Why worry? Just get another bailout from the federal government and let the rakyat foot the growing federal debt!

Malaysians now wonder what will the “New Malaysia” Pakatan Harapan (PH) Economics Minister Azmin Ali and Transport Minister Anthony Loke have to say and do about this humongous loss-making national airline.

This was what is being shared in WhatsApp:

"The Airline We loved...

The airline – which received a MYR6 billion bailout from Khazanah Nasional in 2014 – has now accumulated total losses of nearly MYR2.4 billion in the last three years since it was delisted end-2014. It filed its 2017 financial statement only in Aug

In an interview with The Edge on 8 Sept, the airline’s CEO spun a sexy story that MAB doesn’t need more money from the government but he cleverly omitted one key point: the MYR812 million losses in 2017.

He also failed to mention that by 2022, MAB would need to come up with a MYR5 billion payment for a Sukuk bond the company issued in 2012. How will MAB pay for this?

Of course, there’s the possibility that the CEO – who is on a three-year contract – will no longer be around in 2022 and whoever replaces him then (or earlier) will face the daunting task of raising the MYR5 billion.

He said: “I am here to turn around the airline, to make it efficient and hopefully profitable.” Hopefully? Turning an airline around isn’t as simple as turning an aircraft around, Captain… And the national carrier isn’t paying you a couple of million a year to be hopeful.

In July this year MAB’s CEO even had the audacity to say the company was on track to breakeven in 2019 . How can MAB break even in 2019 when it lost MYR812 million in 2017 and with jet fuel prices, intense competition and other prevailing industry factors stacked against it?

In the same article, the CEO claimed Malaysia’s Council of Eminent Persons (CEP) “advised the co to continue with its progress”. If that was really the case, then the CEP doesn’t understand airline economics.

Are three years of consecutive losses at MAB considered “progress”?

If anything, MAB is showing signs of a company deep in distress. Poor mgment and persistent leakages are part of the losses. MAB’s business model is completely outdated and the carrier is out of its depth competing against low-cost airlines. In short, mgment is clueless.

But MAB’s penchant for profligacy knows no boundary.

In Aug the carrier decided it could do with a change of fortune and promptly summoned a fengshui master to alter the luck of the company, starting not surprisingly, with the finance dept.

Nobody knows how much the fengshui master was paid but that it was done showed utter recklessness and a complete disregard by mgment in frittering taxpayers’ money. It is believed the CEO is an ardent follower of fengshui, and had engaged in a similar act during his tenure as chief of MAB subsidiary MASwings.

MAB’s misfortune is largely self-inflicted. The national carrier is on its way to self-destruction.

The airline has to pay GBP2 million (MYR11 million) in 2018 – money it can scarcely afford – to Liverpool Football Club as part of a foolish sponsorship it undertook under a previous expat CEO in 2016.

Safety and technical issues

Whilst the co's financial situation has worsened, there are other serious issues concerning the airline’s safety and aircraft maintenance.

Aside from the already well-documented recent incident in Brisbane, Australia – where MAB’s crew allegedly failed to follow mandatory pre-departure checks – there had been other technical troubles afflicting the airline recently.

A MAB Airbus A380 was grounded for 11 days at London Heathrow airport from late July to early August due to a fuel quantity indicator issue. MAB said the problem was a faulty fuel tank probe.

But according to sources in MAB the A380 in question – 9M-MNF – had a fuel issue when it flew from KUL to LHR on 25 July. Apparently it started with an indicator problem in Tank 2, which was resolved.

But oddly fuel from Tank 2 allegedly got transferred to Tanks 1 and 3, resulting in a contamination of both tanks, forcing the aircraft to be grounded at Heathrow.

There was a chain effect following the grounding of this A380. Due to the A380 (9M-MNF) being stuck in London, MAB decided to fly another A380 (which had dropped off pilgrims to Jeddah), to London. There wasn’t a problem with that, except for the small matter that MAB forgot to inform London Heathrow that its A380 was heading there!

In August four of the six A380s in MAB’s fleet had technical problems. One A380 (9M-MNB) had to undergo a C3 check, one (9M-MNF) went for tank cleaning, another (9M-MNE) grounded to replace a probe and another (9M-MNC) suffered a pack problem and spares had to be ordered from Airbus in Hamburg.

The grounded A380s not only resulted in costly repairs (estimated over USD10 million) but more importantly, lost income.

MAB now deploys its Airbus A350-900s to LHR and while these are excellent aircraft suitable for the job, they don’t come cheap. Each A350-900 is being leased at a price of USD1.2 million a month (MYR5 million).MAS

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The 21 years of mismanagement that brought MAS to its knees
Ram Anand
themalaysianinsider.com
May 27, 2015 10:29 am +08KUALA LUMPUR (May 27): Beginning September, Malaysia Airline System Bhd, the company Malaysians know as the national carrier since 1972, will cease to exist. It would instead be replaced by a new company, Malaysia Airlines Bhd, to be fully owned by Malaysia’s sovereign wealth fund Khazanah Nasional before a planned re-listing in Bursa Malaysia by 2019. This, however, is not the first time MAS has been subjected to a turnaround plan or a bid to save the airline. It has happened several times over the course of 22 years, beginning in 1994 … for more, go to http://www.theedgemarkets.com/article/21-years-mismanagement-brought-mas-its-knees and https://www.malaysiaairlines.com/my/en/about-us/malaysia-aviation-group.html