NO ‘ECONOMIC SENSE’ TO CLOSE DOWN OR SELL MAS?

 Much has been written about the national air carrier in the past three weeks ― from shutting it down to selling it off.

This conversation has invoked much debate, including emotional ones, as to why the country needs to keep Malaysia Airlines.

Having covered the aviation industry for the past 30 years, I have witnessed the airline at its best and at its worst. What is happening to the airline now is the result of past decisions ― some good and some really bad.

To be fair to its critics, there have been more rescue attempts and turnaround programmes to return Malaysia Airlines back into profitability, but there is no airline anywhere in the world that is making profit from just its flight operations.

Uncertain fuel prices, falling seat yields, rising costs, slow passenger growth and competition from low cost airlines have made operating a legacy full-service airline almost an impossible task.

Why then not just close it down like what some critics have been suggesting?

The answer is simple and not an emotional one ― Malaysia Airlines is an important economic enabler for the country.

The International Monetary Fund in its 2018 World Economic Outlook stated that the aviation industry supports 30 million jobs and US$684 billion (RM2.79 trillion) in GDP globally.

It is a strategic asset which should not be cast aside in tough times and MAS needs to be fixed so that it can continue to serve the future generation.

But why should Malaysia Airlines be given another chance since it failed to meet its five-year Malaysia Airline Recovery Plan (MRP)?

The MRP was doomed to fail from the start. It was too ambitious as stated by Brendan Sobie, an analyst from Centre for Asia Pacific Aviation (CAPA), who said it was always going to be difficult, but market conditions worsened over the four years after the launch of MRP.

When the MRP was drawn up, fuel was at US$75.68 per barrel and the ringgit was at 3.91 to a US Dollar, but fuel and forex became increasingly volatile with fuel hitting US$84.8 and forex went up as high as 4.3.

In other words, while the MRP was a good plan five years ago, it is no longer relevant now.

Our national carrier has never been a gold mine in terms of profit and always had to be an instrument of national interests ― be it politics or as an economic instrument.

Its ill-fated privatisation to TRI in 1994 and the subsequent Asian Financial Crisis in 1998 left the airline reeling in debts ― its gearing was at 700 per cent. In many ways, Malaysia Airlines’ ills today started all those 21 years ago.

Of course, Malaysia Airlines despite its debts was required to play a role in the government’s foreign policy by flying to destinations that were not economically sound but diplomatically imperative.

The 2014 twin disasters of MH370 and MH17 would have shut down any other airline, but Malaysia Airlines has persevered largely due to the support from the public and its 14,000 staff.

One must understand the airline’s historical ills before calling for its demise.

On top of its legacy issues, Malaysia Airlines is operating in one of the world’s most competitive region where 40 per cent of new aircraft deliveries in the next 20 years will be in the Asia-Pacific, where according to Boeing, over 17,000 new aircraft will come into operation in that period.

Having four airlines operating out of Malaysia ― Malaysia Airlines, AirAsia, AirAsia X and Malindo – does not help the national carrier in a country of 30-odd million population.

The intense competition is affecting all of them. Even AirAsia just reported one of its worst quarter results recently and Malindo is not faring any better.

Something must give and I don’t think it should be Malaysia Airlines, which is still the only one of the four airlines in the country that provide an extensive connectivity globally through its One World Alliance and domestically as it still operates to all of the main airports in the country.

But more important than its national duties, Malaysia Airlines contributes greatly to the country’s economy.

The airline spends RM11 billion yearly, of which RM9 billion goes into wages for its 14,000 staff, landing charges at airports, catering, maintenance and aircraft leases. Some 1,700 local companies do business with Malaysia Airlines.

According to the International Civil Aviation Organization (ICAO), for every RM100 of output produced and every 100 jobs generated by air transport, it triggers an additional demand of some RM325 and 610 jobs in the industry. This translates into 85,000 jobs and RM40 billion in overall income.

These numbers do not take into consideration the tourism and trade sectors that depend on the airline.

Some have estimated Malaysia Airlines is worth 115,000 jobs and up to RM55 billion in income for the overall Malaysian economy.

It does not make economic, political or social sense to close down MAS (as I and most Malaysians still call the airline) or even sell it.

The present Malaysia Airlines team have done much to set the airline right structurally, but they need to be given more time to see through their plans to keep MAS flying.

MALAY MAIL

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