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Criticism of Idris' MAS turnaround undeserved

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Criticism of Idris' MAS turnaround undeserved Powered By Docstoc
					Picture the Malaysian boy having been punched to the ground (in the
recent London riots), only to find himself being mugged.

Reading the comments from politicians from both sides of the divide,
rushing with glee to proclaim that the turnaround of Malaysia Airlines
was a sham, appears to me to be in the same opportunistic vein.

As someone who was intimately involved with the turnaround and later the
transformation of Malaysia Airlines, I feel compelled to tell the MAS
story as I see it.

The fact of the matter is that without the turnaround from 2006-2008,
there wouldn't be a Malaysia Airlines today. And no MAS-AirAsia share
swap!

When Idris Jala and his management team joined MAS in December 2005, the
projections were that the airline would ground to a halt by April 2006.

This projection was eerily accurate, and had it not been for a few
drastic measures such as the sale of the iconic MAS building in the heart
of Kuala Lumpur and the Four Seasons hotel in Langkawi, MAS would have
run out of cash as projected.

MAS at that time had little other assets to sell, having sold all its
aircraft much earlier in 2003 to Penerbangan Malaysia Berhad (PMB) under
the Widespread Asset Unbundling (WAU) exercise - way before Idris came
into the picture.

While the sale of the MAS building was a necessary pain, it merely bought
a few extra months for Idris and team to stem the flow of the cash bleed.

From a profitability point of view, MAS was also heavily in the red.
Annualised, MAS lost RM1.7bn in 2005.

In Idris' first year on the job, he reduced the losses to RM133 million
and turned the company back into the black with a record profit of RM853
million in 2007.

The profit in 2007 was the highest in MAS' corporate history and was
earned through a massive operational cost reduction of RM745m as well as
on the back of record revenues of RM9.4 billion. The profit numbers were
real as reflected in the cash balance at that time of RM5.3 billion which
had grown from RM1.5 billion at the end of 2005, when Idris joined MAS.

One may doubt the accounting, but you cannot window dress cash in the
bank.

It was not a result of asset sales, which was realised in 2006, it was
not a result of creative accounting (there were no accounting policy
changes or one-off profits in 2007).

It was achieved through changes introduced by the management team, by
cutting ridiculously unprofitable routes, reducing operational cost and
increasing yields (the price of the ticket per kilometre travelled).
Other drastic actions such as the Mutual Separation Scheme (MSS),
reducing the staff force from 23,000 to 19,500, were needed.

However, while the staff reduction amounted to approximately 15 percent
of the staff force, the largest single staff reduction by a GLC, the
reality is that with a 60-year old behemoth like MAS, cultural changes
will take years to happen. If at all!

So if the turnaround was achieved then, why does MAS find itself in the
position it is now?

If there was a failing by Dato' Sri Idris Jala, it would have to be his
inability to truly change the culture at MAS.

But I believe given sufficient time, this too would have happened. For
the new management team to succeed in the long term, the team understood
that real changes needed to happen with the culture at MAS.

Many companies will profess that the life of any company is its human
talent and MAS is a prime example of its people representing the company.

An insight into the prevailing culture in MAS would demonstrate this.

Up till 2008, there was no means of performance appraisal. There were no
means of measuring who performed well and who did not, nor was there the
corresponding reward mechanism which followed such a performance
measurement system.

MAS was akin to a mini communist state - regardless of performance,
everyone was rewarded equally.

Needless to say, MAS at that time was not a good example of how a company
should motivate its employees, with hardworking employees disheartened to
see their poorer performing colleagues being rewarded the same as them.
There was no incentive to perform.

When the Performance Management Scheme (PMS - perhaps a better name
should have been chosen for the scheme) - was introduced in 2008, it was
violently objected to by the unions.

The unions preferred instead to reward employees for loyalty, with the
longest serving employees receiving bonuses dependent on their years of
service rather than performance.

After much horse trading and compromise by the management team, the union
accepted the PMS scheme with a condition that the collective agreements
being negotiated guaranteed as much as a 10 percent annual increment for
the duration of the collective agreement.

The 'I want my pound of flesh no matter what' culture continues to plague
MAS today.
The standing joke amongst some of us was which union leader would be the
first to ask the 'bonus' question each time we released our financial
results, regardless of profit or loss.

Invariably, union leaders would never disappoint.

While good progress was being made, Idris' premature departure to take on
his role as CEO of Pemandu and cabinet minister was truly a loss for
Malaysia Airlines and came at a time which was a critical for MAS, with
increasingly volatile fuel prices and capital commitments in the form of
new aircraft.

While it would be unfair to place the blame solely on the shoulders of
the new CEO, Tengku Azmil, he was let down by a return to the pre-
turnaround culture at MAS.

Almost all of the management team which Idris brought in to turn around
the airlines has since left the company, the last of whom being Bernard
Francis who left merely a month before the recent changes at MAS.

I believe the politicians and the self-proclaimed 'economists' may have
gotten it wrong. The turnaround was real, and it was the transformation
of MAS that was not complete.

It would be interesting to see if there is any solid evidence to the
contrary. Or whether it is yet another case of Malaysians refusing to
give credit where it is due!

Even great empires the likes of Rome and Greece have fallen, and
hopefully MAS can be like those empires that have fallen but have risen
again.

As with all Malaysians, I too hope to see a MAS which I can be proud to
call Malaysia's flag carrier. I wish the new management team all the very
best and together with other Malaysians look forward to a stronger MAS.

Song Eu Jin was the investor relations officer for Malaysia Airlines and
subsequently moved to head the strategic transaction unit in the CEO's
office. He resigned from MAS in January this year.