Transparency is needed in the restructuring of MAS

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 28th of November 2014

A MAS which is healthy and profitable is important to our country because (i) it will be able to pay taxes and contribute to government’s budget (ii) it will be less of a financial liability to Khazanah, its largest shareholder, and increase the ability of Khazanah to pay more dividends to the government and (iii) it will provide steady and secure employment to its employees.

The passing of the Malaysian Airline System Berhad (Administration) Bill 2014 or “MAS Bill” in Parliament yesterday is meant to help MAS restructure in order to put it on the road to profitability once again. This bill gives wide ranging powers to the Administrator of the new entity or “NewCo” that will replace Malaysian Airline Systems Berhad or MAS.

In ensuring that the powers given to the Administrator and “Newco” are not abused, it is paramount that the following principles should be adhered to during the restructuring of MAS:

(i)               Ensure transparency in the financial restructuring process

Point 2 in Khazanah’s 12 point MAS Recovery Plan states that “where appropriate and necessary, MAS will examine options for financial restructuring and negotiation – including debt-equity swaps and debt term-outs.”[1] The MAS Bill gives wide powers to the Administrator to transfer property and liabilities belonging to MAS.

It is acknowledged that financial restructuring of MAS is necessary given its borrowings of over RM11b. Since both the Prime Minister[2] as well as the Managing Director of Khazanah[3] have come out to say that the expected capital injection of RM6 billion into “NewCo” does not constitute a bailout, the terms of this financial restructuring has to be made public. For example, what will happen to MAS’ payments to the three companies that were set up to buy assets (planes and buildings) and then lease them (back) to MAS? The debts of these three companies – Assets Global Network Sdn Bhd (RM961m), Penerbangan Malaysia Berhad (RM5.8b) and Turus Pesawat Sdn Bhd (RM5.3b) – totalling up to RM12.1b are guaranteed by the government. Any changes to the payment terms of “NewCo” to these three companies would impact government finances and hence must be disclosed for the sake of transparency and to ensure that the promises of the Prime Minister and the MD of Khazanah are adhered to.

(ii)              Ensure fair and transparent renegotiation of existing supply contracts

The ability of “NewCo” to renegotiate existing supply contracts, especially those which are seem to be excessively costly, is provided for under Section 18 of the “MAS Bill”. In addition, Section 14, which was amended yesterday, is supposed to ensure that there are no disruptions to the services provided by MAS and its subsidiary companies. The fear expressed by some Pakatan MPs yesterday is that Section 14 will be used to preserve some of the existing supply contracts to MAS such as the RM6.25 billion 25 year catering contract given in 2003 to Brahim’s Airline Category (BAC) that is deemed by some to be overpriced.[4]

To assuage such fears and to ensure transparency, any renegotiation of major supply contracts by “NewCo” must be publicly disclosed.

(iii)            Ensure that the welfare and rights of MAS employees are protected

The “MAS Bill” allows “NewCo” to be freed of any obligation to continue to hire existing MAS employees based on the same contractual terms. The new bill also exempts “NewCo” from being named as a party in any claim registered by current or former employees of MAS and its subsidiaries. Point 8 of Khazanah’s 12 point plan estimates a net reduction of 6,000 employees from the approximately 20,000 employees currently being employed by MAS.

Khazanah must ensure transparency and fairness in the treatment of employees who will be employed by “NewCo” and also those who will be let go as a result of the recovery plan. Details of the “Employee Consultative Panel” (ECP) promised by Khazanah to ‘address employee-related concerns’ must be transparent to ensure that the welfare of the employees are protected. The details of the “Corporate Reskilling Center” which will be set up to address the ‘reskilling of appropriate MAS staff who do not migrate to “NewCo” must also be disclosed.

The promise by the Managing Director of Khazanah to provide an update on the restructuring of MAS every three months is a move in the right direction and must be commended. We ask that the MD respond to the issues raised here in the next MAS update which will take place by the end of this week. [5]