Missing plane adds to CEO’s woes as Malaysian air losses mount

Bloomberg

Email Print


A man stands beside the arrival board showing the Malaysian Airline System Bhd. flight MH370, top in red, at the Beijing Airport on Saturday, March 8.

Malaysian Airline System Bhd. Chief Executive Officer Ahmad Jauhari Yahya was hired less than three years ago to steer the carrier into profitability. His mission has gotten harder as the national carrier hunts for a lost plane carrying 239 people.
The 59-year-old power industry veteran has presided over a 63 percent slump in the stock since joining the state-controlled airline in September 2011, battered by unviable routes and competition from low-cost carriers including AirAsia Bhd. (AIRA) The airline lost a total 4.13 billion ringgit ($1.3 billion) over its past three financial years.
Rescuers have been searching for Malaysian Air’s Flight 370 since it disappeared en route from Kuala Lumpur to Beijing early yesterday. It is the second mishap in six months. In October, a Twin Otter DHC6 plane operated by its unit MASwings crash-landed in Sabah on the Borneo island, killing two. That was the first fatal plane accident in Malaysia since August 2009, according to AviationSafetyNetwork, a Netherlands-based website that tracks safety statistics.
“When something like this happens, it does impact greatly on the reputation, their ability to turn around,” said Shukor Yusof, an analyst at Standard & Poor’s in Singapore. “Also it casts a negative light on the management and shareholders of the company.”
Malaysian Air has seen newer budget operators leapfrogging it with bigger fleets, with margins eroded on popular routes. Ahmad Jauhari has also had to contend with some politicians calling on the Malaysian government to sell its stake in the airline which lost 1.17 billion ringgit last year.
Malakoff success
Ahmad Jauhari spent about 16 years in the power-generation industry, where he rose to the rank of managing director at Kuala Lumpur-based Malakoff Bhd., the nation’s largest private-sector power generation group before it was delisted.
When he left Malakoff in 2010, the power producer had more than doubled its earnings per share to 93 Malaysian sen from 40 sen in 2008 following the global crisis, according to the company’s annual reports. Ahmad Jauhari was the CEO of privately-held Premium Renewable Energy Sdn for about six months before joining Malaysian Air.
His career also included stints at Esso Malaysia Bhd., the then petroleum-retailing unit of Exxon Mobil Corp., and newspaper-publishing group New Straits Times Press Bhd.
Fourteen out of 16 analysts who cover the stocks have a sell rating, while two recommend hold, according data compiled by Bloomberg.
Challenges ahead for Ahmad Jauhari include boosting worker productivity, while trying to convince travelers to stick with the airline even after this incident.
Fatal crashes
Malaysian Air employees are less productive than their counterparts at neighboring airlines, according to data compiled by Bloomberg. They each generate an average of $222,000 in annual revenue, less than half the figure at Singapore Airlines Ltd, the data show. Workers at Thai Airways International Pcl and PT Garuda Indonesia Persero each bring in more revenue.
The national carrier, incorporated as Malayan Airways Ltd. in October 1937, operates a fleet of 96 planes, according to its website. The company plans to order as many as 100 aircraft, and is seeking to start taking deliveries of the new ones from late 2016 or early 2017 as it works to upgrade its fleet over the next decade, a person familiar with the matter said in February.
The airline’s worst crash was in 1977 when 100 people died after a reported hijacking, according to the Malay Mail.
The carrier needs new fuel-efficient jets to cut costs amid rising competition from discount airlines. Budget operators in Southeast Asia have ordered at least 1,000 new aircraft in the past five years as economic expansion across the region enables more people to start flying in countries such as the Philippines and Vietnam.
Share swap
Khazanah Nasional Bhd. (MAS), a Malaysian sovereign investment company, has a 69.4 percent stake in the carrier, according to data compiled by Bloomberg. In May 2012, the fund reversed a share swap that had handed 21 percent of Malaysian Air to the parents of AirAsia, the budget carrier run by Tony Fernandes. The about-face followed complaints by Malaysian Air’s biggest union.
Among those who called for the government to sell out of Malaysian Air are former Premier Mahathir Mohamad, who oversaw its initial public offering in 1985, and the executive who previously returned the carrier to profit. Former Malaysian Air Managing Director Idris Jala, now a minister in Prime Minister Najib Razak’s cabinet, said in August the government should stay out of the airline business. Idris returned the company to profit on a quarterly basis in 2006.
Private owner
Mahathir, Malaysia’s longest-serving leader, told state news service Bernama last year a private owner would work harder to avoid losses than the government. Najib said in August the government won’t sell its stake and the airline’s turnaround “cannot happen overnight.”
Previous efforts to scale back state control of Malaysian Air failed. The government agreed to bail out the unprofitable airline in 2000 by buying back a 29 percent stake from businessman Tajudin Ramli for more than double the airline’s stock price at the time.
“They never had good cash flow but they had a lot of support from the government and they have been given a lifeline unfairly because when you receive support from the government it distorts the reality of your financial position,” Shukor said.
Maybank Investment Bank Bhd. analyst Mohshin Aziz said last year the government could raise billions of ringgit listing some of the airline’s units that do make money. Profitable units include the engineering and maintenance business, its airport terminal services unit and the airline’s low-cost rural service Firefly. Unprofitable ones are the main airline and the cargo unit, he said.

More World News