Malaysia Airlines at pivotal crossroads

It is now up to Khazanah and the board of directors to right what is happening at MAS following the surprise audit by the CAAM.

MALAYSIA Airlines, the country’s flag carrier that was once a Top 10 global airline, is facing a crisis of confidence.

Beleaguered by problems ranging from lack of skilled workers for aircraft maintenance to a shortage of parts, Malaysia Airlines’ battered reputation took a further beating this week when the validity of its air operator certificate (AOC) was shortened to just a year.

The AOC is vital for airlines as one cannot engage in commercial air transport without the certificate. A shortened AOC simply signals the Civil Aviation Authority of Malaysia’s (CAAM) caution over the state of Malaysia Airlines’ operations.

The irony is that the CAAM is a government agency while Malaysia Airlines is also wholly-owned by the government through Khazanah Nasional Bhd.

However, on the flipside, it shows the government’s commitment in comprehensively resolving the issues plaguing Malaysia Airlines.

The CAAM now requires the airline to provide monthly reports, following how the mitigation measures are implemented.

The cut in AOC is possibly a new blow for Malaysia Airlines, which has in the past gone through years of losses amid bailouts, mishaps in the case of MH370 vanishing and MH17 shot down as well as reputational damage following a catering disruption in 2023.

While Malaysia Airlines faces a rising number of issues to resolve, Singapore Airlines had just paid its employees a bonus of almost eight months’ salary three months earlier.

This was following Singapore Airlines’ record-breaking earnings for the second consecutive year.

To Malaysia Airlines’ credit, it reported a net profit of RM766mil for 2023, which is the first time since 2015 for the airline to return to the black.

However, the fact that 15% or 63 of the 411 skilled workers at the airlines’ engineering department left the company since January raises the question of whether Malaysia Airlines had been pushing for profits at the expense of operation quality?

It is now up to Khazanah and the board of directors to right what is happening at MAS following the surprise audit by the CAAM, and answer questions over this issue considering the vast amounts of money that have been used to keep Malaysia Airlines afloat.

“As the majority shareholder, Khazanah fully supports Malaysia Aviation Group (MAG) in their effort to improve customer experience and operational efficiency to ensure the airline comes back stronger.

“We are fully aware of the challenges MAG is facing, which include technical and supply chain disruptions and resource constraints.

“These challenges have impacted the aviation industry globally, post the Covid-19 pandemic,” says Khazanah managing director Datuk Amirul Feisal Wan Zahir in a statement to StarBizWeek.

“While we deeply regret the inconvenience caused to passengers, Khazanah supports the difficult decision made by MAG to temporarily reduce flights across their network.

“Never compromising on safety, we believe that this measure is essential to ensure the reliability of the airline’s operations and to be able to comprehensively address the underlying issues.”

Amirul says MAG is expediting the hiring of essential personnel and procurement of critical parts to ensure swift and effective action.“To further reinforce our efforts, MAG has set up a board operational excellence and reliability committee. This committee, along with a special taskforce of key management personnel, are dedicated to implementing essential measures to address immediate challenges and secure the long-term stability of the airline’s operations.” he says.

Aviation consultancy Endau Analytics founder and analyst Shukor Yusof defended Khazanah Nasional, saying that its role is to “support” Malaysia Airlines and not run the airline.

“This is despite the fact that there are Khazanah Nasional directors on the board,” Shukor tells StarBizWeek.

On the CAAM’s decision to cut the airline’s AOC duration, he sees it as a knee-jerk reaction.

“Malaysian regulators have a poor track record of approving AOC to startups that have failed within 12 months of launch such as Rayani and MYAirline.

“CAAM must apply similar standards in assessing other Malaysian carriers.

“The problems facing Malaysia Airlines are many and while the management bears some responsibility, there were other issues that were beyond its control.”

He also noted there remains acute supply chain problems affecting many airlines globally.

MAG, the parent of Malaysia Airlines, has partly blamed its operational disruptions to global shortages of parts.

“This has led to longer turnaround times for engine overhauls and repairs, including for the MAG fleet, which relies on external partners for these services, resulting in a lack of engines for our operations.

“Despite these challenges, MAG has maintained the quality of its maintenance work, managing both internally and externally, even with the associated high costs and financial impacts,” it said in an Aug 29 statement.

Additionally, the global shortage of parts has affected the on-time delivery of Malaysia Airlines’ new aircraft orders,

Of the 13 contractually agreed Boeing 737-8 aircraft by 2024, MAG has only received four.

For the A330neo, MAG was scheduled to receive four aircraft but is now expected to receive three by the end of the year as committed by Airbus.

Frost & Sullivan senior aviation consultant Shantanu Gangakhedkar also acknowledges that workforce and supply chain issues are not exclusive to Malaysia Airlines.

“Many airlines globally are facing challenges such as workforce constraints including ground staff, engineers as well as pilots, supply chain issues leading to delays in availability of parts, coupled with increasing demand for travel while the aircraft deliveries are slow.”

Shantanu further notes that by reducing the renewal period of AOC, the authorities are able to closely monitor airlines’ operations as well as conduct regular audits.

“This is primarily aimed to maintain a high standard of safety which is the priority of both airlines as well as the regulatory authorities,” he says.

Meanwhile, Associate Prof Major Dr Mohd Harridon Mohamed Suffian says numerous technical issues are present in Malaysia Airlines.

“One of them is the utilisation of the aircraft which was perhaps not optimum in nature.

“Excessive usage of components and aircraft would degrade their performances and abilities even if their utilisation are within the operational schedule set by the Original Equipment Manufacturer.”

The head of the Universiti Kuala Lumpur Aviation Technology Institute search and rescue department urges Khazanah Nasional and the management of Malaysia Airlines to explore several avenues to mitigate the technical predicaments.

“One of them is the investment upon a more enhanced and fluid condition-based maintenance that could deter the emergence of severe technical issues.

“Malaysia Airlines should enhance its capabilities in predicting failure of the components of aircraft.

“It’s vital to utilise an astute mathematical model to analyse the engineering and flight data of the aircraft in order to concretely ascertain and predict the correct time frame of the failures of the aircraft components.

“This alone would save operational costs and and in the long run the financial health of the organisation would be sound and formidable,” says Harridon.

Endau Analytics’ Shukor urges Malaysia Airlines to be more disciplined and ruthless in weeding out the deadwood and underperformers.

“The government has a big role to ensure Malaysia Airlines and AirAsia can grow, be profitable by refreshing outdated policies.

“I strongly suggest the government set up a blue ribbon commission to look into Malaysia Airlines woes as well as recent failures of startup airlines and strengthen the country’s aviation ecosystem.”

Meanwhile, Shantanu stressed on the importance of hiring, training and retaining the right workforce for any airline to perform well.

Earlier this week, MAG said it is in the midst of increasing its skilled engineering workforce and that it has improved its remuneration packages.

While this should have been done earlier to prevent outflow of skilled workforce, it is still not too late for Malaysia Airlines.

To be fair to Malaysia Airlines, the entry of new maintenance, repair, and overhaul systems players into the Malaysian market has made it harder to retain talent, especially for an airline that is trying to rebound into profitability.

Looking forward, Malaysia Airlines needs a major overhaul from the top to bottom.

The success of Malaysia Airlines is also key in ensuring the growth of international airports in Malaysia, especially in making it the anchor for the Kuala Lumpur International Airport Terminal 1.

The restructuring of airports under Malaysia Airports Holdings Bhd cannot happen in a silo without a revitalised Malaysia Airlines.

Only when the issues plaguing Malaysia Airlines are resolved with the airline moving closer to Top 10 ranking again, can Khazanah Nasional start exploring the possibility of monetising the airline.

There should at least be some decent return on investment for the tens of billions in taxpayer monies injected into the airline.