MAS to cut catering cost by 25 pct under new contracts with Brahim’s

KUALA LUMPUR: Malaysia Airlines Bhd (MAB) has awarded Brahim’s Holdings Bhd’s 70% owned subsidiary Brahim’s Airline Catering Sdn Bhd (BAC) new catering agreements (NCAs) that will slash the national carrier’s catering cost by up to a quarter.

In a joint media statement, MAB and BAC said the new pricing methodology, coupled with future new product offerings and menu structure at MAB, effectively provided for a 20-25% reduction of catering cost over the previous catering agreement.

“The NCAs provide a competitive pricing methodology for meals and cabin handling, which will help realise savings and operational efficiencies,” the companies said.

The agreements entered into on Sunday were benchmarked against international standards and based on industry best practices.

“Overall, the NCAs provide for a strict service level agreement and key performance indicators (KPIs) to be adhered to, considerably improved pricing, non-exclusivity and a shortened tenure, compared with the previous catering agreement,” the statement added.

The NCAs, which began on May 10, have an initial tenure of five years with an additional five years’ renewal subject to strict conditions.

The conditions include BAC meeting critical KPIs over the initial five years, no breach of specified key events which will trigger a termination of the NCAs, and upon mutually agreed pricing for the extended term of the next five years.

The agreements are in two separate contracts covering “wide body aircraft” flights and “narrow body aircraft” flights, in line with international norms.

The NCAs are the result of a broader on-going review and renegotiation of Malaysian Airline System Bhd’s (MAS) supply contracts, which is a key component of the 12-point MAS Recovery Plan.

BAC is currently the exclusive in-flight caterer to MAS under a 25-year catering agreement expiring in 2028 at the KL International Airport (KLIA) and Penang Internationmal Airport.

Brahim’s said in a statement to Bursa Malaysia that BAC had no option but to sign the service level agreement (SLA) to maintain its role as an inflight meals caterer to MAS as well as staying relevant as a global halal flight kitchen servicing 36 other international airlines at the KLIA.

“BAC can be compelled under the new MAS Act to continue supplies to MAS despite MAS withholding payments and is prevented from filing legal action for unpaid receivables. This had also caused severe problems in cashflows to BAC operations and had affected its ability to upstream dividends to Brahim’s. Brahim’s as a holding company required cashflows from BAC to meet its debt obligation to avoid triggering loan defaults,” Brahim’s said.

The company said the two parties had agreed that to avoid uncertainties in negotiations posed by the yet-to-be-appointed administrator over the existing catering agreement, or revisiting the terms of the NCAs agreed between BAC and MAS/Khazanah Nasional Bhd prior to the administrator’s appointment, the NCAs should be executed by MAB instead.

The new airline entity MAB is independent of MAS and is outside the ambit of the MAS Act.

“In view of the confidentiality clause on certain terms in the agreements, the agreements would not be made available for inspection,” Brahim’s said.

Brahim’s ended trading 0.5 sen higher on Monday at 96.5 sen.