Time To Sell or Liquidate Malaysia Airlines

M. Bakri Musa
28.8.2014

When I think of the many needed functions of government, owning or running an airline is not one of them. Instead, taking care of the health, welfare and security of its citizens should rank way up there.

Once you have done an excellent job in those essential areas and still have extra time, talent or resources, then you could consider running an airline. A humble and conscientious leader would never be satisfied when it comes to serving the public, for no matter how excellent a job he may be doing there will always be room for improvement. The Finns have the finest schools yet their leaders are consumed with improving the system. That is what progress means.

Malaysia once again contemplates pouring billions to rescue Malaysia Airlines (MAS). Apart from consuming a never-ending amount of scarce and expensive government resources, the company receives an inordinate degree of attention at the highest level of the Najib Administration. I would have preferred that those leaders be concerned with our deteriorating schools and universities, or the awful delivery of our public services. On the day of the news of the proposed MAS bailout, there was another headline on a fire at the waste dump in Klang Valley.

Not being a vendor, customer, employee, or shareholder of MAS (that’s 95 percent of Malaysians and 99 percent of Malays), I could not care less if the formerly blue-chip company is sold or liquidated. I am however saddened that the University of Malaya is now third-rate, and falling fast. I am even more dismayed that there is no comparable bailout plan to rescue it or the education system generally.

The future of Malaysia or Malaysians (especially Malays) does not depend on Malaysia Airlines. Nor does the fate of the company reflect adversely on the caliber or future of Malays, Malaysians, or Malaysia. Our schools and universities on the other hand do determine the future of our people and society.

Malaysia does not need MAS to project the nation’s image abroad. Besides, the image MAS now projects is of the worse kind. Malaysia also does not need MAS to bring in tourists. The other airlines including Air Asia do a fine job at that, and at no cost to the government. Malaysians do not need MAS for their international travels. You can choose from a dozen airlines to fly from Kuala Lumpur to San Francisco. In fact MAS no longer flies to the west coast of America.

There can only be one prudent decision on what to do with MAS now after all the repeated expensive and unsuccessful bailouts and reorganization exercises. Sell it or declare bankruptcy, with a view of total liquidation.

MAS Now But A Shell Company

After its “successful” WAU (Widespread Asset Unbundling) manouver a decade ago, MAS today is but a shell company, burdened with tons of liabilities. Even its brand is now tarnished. That leaves only its traffic rights as assets. I reckon there would be few takers for its slots in Buenos Aires and Mexico City.

We should not be squeamish about or be ashamed of bankruptcy; it is an integral part of business. No enterprise is guaranteed to be a success.

Swiss Air, once dubbed the “Flying Bank” because of is solid finances, went bankrupt in 2002. Nobody would conclude negatively from that the business acumen or executive talent of Swiss managers. The more relevant lesson for Malaysia from the Swiss bankruptcy is this. The company’s entire top management was prosecuted for alleged criminal misconduct. They were found not guilty; nonetheless they were made to go through the wringer. A thought should MAS file for bankruptcy.

Japan Airlines, another government-linked company, also filed for bankruptcy. Today it is flying high after its reorganization. The venerable Pan Am, the very icon of a once glamorous industry, too was done in; likewise all the major legacy US airlines (Delta, United, American). Neither Japanese nor American pride was dented. Life (and business) goes on.

Malaysians need an airline, a safe and reliable one without regard as to who owns or runs it. If MAS is liquidated, other airlines would fill in the void. That is the law of the marketplace. Government intervention would only distort this reality, and then only for so long. Despite Air India, also a GLC, Emirate Airlines is the de facto official airline of India.

Instead of spending the one and a half billion ringgit buying the rest of MAS shares, and many billions more to “rehabilitate” the airline, Khazanah should sell the company and use the resources to enter a new line of business, such as private education and healthcare. There is certainly a great need for both not only in Malaysia but also the region.

If I were running Khazanah, I would direct MAS management to settle quickly with its insurers over the loss of its two planes, and distribute the proceeds as dividends and then promptly declare the airline bankrupt. That way it would have recouped part of its bad investment.

American Airlines posted its biggest quarterly “profits” from the insurance settlement of its DC 10 that crashed on take-off from O’Hare in 1979. However with MAS today, thanks to that “brilliant” WAU scheme, both planes were probably owned by another company with MAS leasing both back. So the insurance payments would go to that company instead of MAS!

In a statement referring to the proposed MAS reorganization Najib said, “Only through a complete overhaul of the company can we deliver a genuinely strong and sustainable national carrier.” He went on to say that renewal involves painful steps and sacrifices from all parties.

What Malaysia needs desperately is for Najib to overhaul his administration. Getting rid of MAS would be a great first step in that direction. Unfortunately Najib is incapable of undertaking that. He just does not have what it takes to lead the nation.

Najib’s leadership, like MAS shares, is penny stock quality. MAS is an apt metaphor for Najib, except that Najib was never blue chip to begin with.