Was Malaysia Airlines set up to fail?
“We spend a great deal of time studying history which, let’s face it, is mostly the history of stupidity.” – Stephen Hawking
FOR over a week now Malaysians with (any) interest in the country’s national airline have been giving their (mostly unsolicited) views over remarks made by the carrier’s CEO during an aviation event in Langkawi on 27 February.
Many voiced their opinion on social media, critical of Malaysia Aviation Group’s (MAG) chief, Capt Izham Ismail, accusing him of unfairly blaming the airline’s founders for its deterioration and woes in the past two decades.
During a Q&A session moderated by David Casey, an editor from Routes, an aviation network forum, Izham was asked about Malaysia Airlines’ (MAS) poor track record in recent decades and what actually went wrong.
A reporter who was present at the media conference shared with us a voice recording of the conversation.
Izham’s response: “It wasn’t the emergence of low-cost carriers (which contributed to MAS’ decline in recent times)… reflecting on my journey as CEO over the last seven years, MAS was set up to fail in 1972, with the creation of two separate carriers. People don’t see that.”
However, he did not expand on this casual but controversial allusion to the past and went on to discuss other issues.
And that’s how the miscommunication and misunderstanding started.
But first, a bit of history – the factual, not the stupid part.
Malaysia and Singapore once shared an airline. It was known as Malayan Airways Limited (MAL). It was registered in 1937.
Malaya was then a colony of Britain and this entity was therefore owned by the British: Imperial Airways, Ocean Steamship Company and Straits Steamship Company.
When World War II erupted, MAL was sidelined and only kick started operations in 1947.
Deploying an Airspeed Consul, MAL flew from its hub at Kallang Airport in Singapore, to Kuala Lumpur and Penang, and also to Indonesia (Medan, Jakarta, Palembang), Bangkok and Saigon (now Ho Chi Minh City in Vietnam).
Business grew and by the time the Federation of Malaysia was created in 1963 (incorporating Malaya, Singapore, Sabah and Sarawak), Borneo Airways was absorbed into MAL.
When Singapore was – in the words of its founding father Lee Kuan Yew – “turfed out” in 1965 both Malaysia and Singapore became major shareholders of the new airline, called Malaysia-Singapore Airlines (MSA), with each controlling about 43% in equity.
The remaining stakes were farmed out to the British, namely the British Overseas Airways Corporation (BOAC), Ocean Steamship and Straits Steamship, and Australia’s Qantas Airways. Brunei, too, received a small allocation.
Relations between the two big shareholders were often strained and by January 1971 both decided to part ways.
The divorce was official from 3 April 1972 when Malaysian Airline System was registered and started operations under the new brand in October of that year.
On 28 January 1972 Mercury Singapore Airlines was founded; “Mercury” was inserted as Singapore wanted to retain the MSA label. It was renamed Singapore Airlines (SIA) six months later.
The terms and conditions were agreed upon, whereby Malaysia would focus on its domestic and regional markets and Singapore would pursue destinations beyond Southeast Asia.
Long story short, MAS got what Malaysian politicians then wanted: the domestic and regional markets along with the Rural Air Service (RAS) in east Malaysia that would provide air connectivity to remote areas within Sabah and Sarawak.
Meanwhile, as Malaysia took control of the Fokker 27s for use within the peninsular, Singapore retained the Boeing 707s for its medium to long-haul flights.
It was clear at the time of the split that Singapore (and SIA) already had an edge, both geographically (London-Singapore flights operated by BOAC) and with infrastructure (airport, engineering etc) facilities established on the island state.
Moreover, and this was crucial, SIA was helmed by two incredibly visionary leaders, Joe Pillay and Lim Chin Beng, who laid the foundations for the carrier.
Pillay was born in then Malaya while Lim’s parents came from Penang. Lim himself was born in Indonesia. His successor Dr Cheong Choong Kong, a mathematician, was also born in Malaya but joined SIA in the early 1970s and spent 29 years (19 years as MD) at the airline.
Did MAS get a raw deal?
They say hindsight is always 20/20.
MAS (and Malaysia) got what it wanted, even if that agreement now appears lopsided.
This is not the only contract that some Malaysians have felt hard done by.
The 1962 Water Agreement between Malaysia and Singapore entitles Singapore to take up to 250 million gallons a day from the Johor River.
Singapore pays MYR0.003 per thousand gallons of raw water and then sells treated water back to Johor at MYR0.050 per thousand gallons. This pact expires in 2061.
It may look grossly unfair today but this was what both countries had agreed on.
Admittedly there were many differences between both countries during MSA’s short lifespan, mainly on how the airline ought to be run.
Singapore believed the airline must be commercially driven. Malaysia did not dispute this but felt there was a responsibility to support air services in east Malaysia, even at a loss.
Thus, to say that “MAS was set up to fail” was not only misleading but misguided.
No government, no matter how daft, would knowingly build an airline in order for it to flounder.
Izham was careless to suggest the airline he now leads was “set up to fail.” It was set up to cater to Malaysia’s needs then, albeit without much thought on the future of aviation in the country and of the airline it had just created.
He was, however, absolutely right in implying MAS was disadvantaged from the get go.
“I was merely replying to a question on what went wrong. We must reflect on how the structural deficiencies developed,” he said.
MAS’ negotiators meant well although their choices were probably also influenced by emotion. Relations between the two neighbours in the early years of the divorce were fraught with mistrust and suspicion.
To begin with, the competition for routes resulted in an unfair outcome for MAS during the split. There was a lack of connectivity between mainland Malaysia and east Malaysia where often times flights needed to stopover in Singapore.
Secondly, Singapore had hitherto become a hub for international flights coming into Malaysia and during the six years that both governments shared MSA, Malaysian leaders in Kuala Lumpur never questioned this monopoly.
That said, MAS nevertheless was profitable in its first 10 years of operations.
Despite supporting the RAS, which was perennially loss-making, MAS managed to make money, achieved by cross-subsidising from its profitable regional routes.
“In that sense, MAS had fulfilled its obligations,” Izham added.
Malaysia was successful in its attempt to improve connectivity across the South China Sea, as well as running a profitable airline.
All this happened at a time when the world was a very different place. For instance, despite the oil crisis of 1973-74, jet fuel remained relatively inexpensive and few airlines could challenge SIA or even MAS.
When did it all start to falter?
MAS’ decline, it can be argued, began in the mid- to late 1990s when politicians became embroiled in its ownership and interfered in its operations, including making the airline fly to destinations that were commercially unprofitable, such as Buenos Aires (via Johannesburg), Stockholm and Zagreb (via Vienna).
Compounding this was the government’s choice of leaders to lead the airline, including smart and well-meaning men but managers lacking in imagination, intuition and inventiveness needed to make MAS a winner.
With the advent of LCCs in the new millennium, especially the emergence of AirAsia, and arrival of deep-pocketed carriers from the Gulf – Emirates, Etihad and Qatar Airways – MAS felt the full brunt of it.
Izham lamented: “MAS was not designed to compete in (such) an environment of fierce rivalry.”
No airline is designed to behave in any certain manner, particularly in a fast-changing, erratically evolving world. Airlines either adapt or adjust whilst adhering to strict fiscal discipline and then just hope for the best.
Post-Covid MAS has proven it can not only be profitable but decisive.
A quick resolution during the pandemic to restructure its debts with bankers and lessors was the turning point.
The airline is a lot more stable than what it was a decade ago and the current CEO has lofty ambitions that are well within reach, provided MAS stays the course and takes calculated risks.
When it was set up MAS was short of ideas and, more importantly, short of experts. The irony that its bitter rival SIA went on to become a world class carrier, led by those with roots in Malaysia, has not been lost on many Malaysians.
C’est la vie…
The “disappearance” of MYAirline is bad news but good for Malaysia
It shows a need for accountability and transparency, and to separate the wheat from the chaff
“Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines.” – Warren Buffett, 2007
Before dawn broke on 12 October sleepy passengers scheduled to fly on MYAirline, a discount carrier, were told that flight Z98903, from Kuala Lumpur to Tawau, in the state of Sabah, had been cancelled.
It was the start of a sordid saga as Malaysia’s latest startup airline announced it had suspended operations due to a cash crunch, barely 10 months after its inaugural flight in December 2022.
At least 125,000 passengers were affected, having paid tickets worth MYR20 million.
Anthony Loke Siew Fook, the transport minister, expressed his anger by calling the suspension “irresponsible” and said his ministry was neither informed nor prepared for the airline’s cessation of operations.
“MYAirline just disappeared,” Loke lamented, as past photos and videos of him endorsing the airline and its management were re-circulated online.
The domestic airline market had been rife with talks of a troubled MYAirline for several weeks leading up to its suspension, with employees grumbling about unpaid or half paid salaries.
Apart from disruptions in staff pay, suppliers and vendors were also affected, including Malaysia Airports Holdings Bhd (MAHB) and state-owned oil giant Petronas, both allegedly with over MYR30 million in arrears.
Malaysia’s twin regulators, the Civil Aviation Authority of Malaysia (CAAM) and the Malaysian Aviation Commission (Mavcom), have lots to explain.
CAAM confirmed in a statement it could not find any sign of financial distress following a technical audit done in May.
However, a source claimed if the regulators looked internally, they might just discover that MYR800,000 in navigational services fees and regulatory service charges (RSC) due to them have not been paid in months.
Then there are the trade payables, including unpaid fees to Thai authorities following MYAirline’s launch of flights to Bangkok’s Suvarnabhumi and Don Muang in June this year, that point to a wider systemic failure and blunder.
A report by The Edge, a business daily, cited sources saying the airline had burnt some MYR380 million since it began flying at end-2022 with a further loss of almost MYR50 million in forward bookings.
All told, observers reckoned MYAirline may have racked up losses of up to MYR500 million.
MYAirline is backed by groups with names like Trillion Cove Holdings and Zillion Wealth Bhd. Trillion Cove is a money-lending and financing company controlled by businessman Allan Goh Hwan Hua.
The names of these entities alone ought to have alerted regulators, particularly after a company belonging to Goh, I-Serve Online Mall, was one of seven companies fined a total of MYR50 million recently by Bank Negara Malaysia, the central bank, for accepting deposits without a licence.
Malaysia’s domestic landscape
MYAirline’s failure has incited an active debate over the appropriateness of Malaysia’s airline and aviation policies.
The airline’s finances were in a bad way since its launch; it grew quickly, leasing a fleet of A320 jets, purportedly for about USD200,000 a month for each plane.
The carrier was believed to be running a liability deficit from day one.
Its business model – unsound from the start – was to take on AirAsia, and to fill in the vacuum left by domestic carriers due to a shrunken capacity and fewer routes during Covid.
Operations were exceptionally expensive: a monthly budget of MYR10 million for its 700 workers, with management and crew (cockpit and cabin) getting paid MYR4 million, nearly half of it.
Analysts estimated leasing rental costs of around MYR9 million a month, to eight international lessors, due to the weakening ringgit and firm oil prices.
These lessors have since sent termination of contract letters to retrieve their nine A320s (plus two currently in the hangar).
The leasing companies are not blameless in MYAirline’s fiasco. Desperation to place aircraft post-Covid and pure greed led the lessors to punt on a shady startup.
The problems with MYAirline are indicative of long-standing concerns with the airline industry in Malaysia.
In 2016 a shariah-compliant carrier, Rayani, went under barely six months into its operations and years before, several privately-owned airlines went bust.
Evidence point to over-capacity in a population of just 32 million, thus creating intense competition. In short, there is no room for a new carrier in an already over-crowded scene comprising Malaysia Aviation Group, AirAsia and Batik Air.
Another issue in Malaysia has been the relative ease in acquiring an air operator certificate (AOC) and air services licence (ASL), aided by lax supervision and the rise of nouveau riche individuals who think they can be the next Tony Fernandes.
Low-cost carriers or hybrid airlines make up the bulk of failures.
They failed for many reasons, including: (a) not having a “franchise” and not operating on a wider geographic scale; (b) limited funds compounded by inexperienced managers; and (c) inability to compete with MAS and AirAsia which have established “fortress” hubs at KLIA and KLIA2, respectively.
Rescuing MYAirline will be excruciating and unwise.
As of 31 August it had total liabilities of MYR200 million, so even if (brave) investors are found, the 90-day suspension of its licence and the arrest of Goh on 17 October makes the exercise futile.
Where are the ex-CEOs?
Police said Goh’s arrest, together with his wife Alice Neow and son Sean Goh, was to facilitate investigations under the Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities (AMLA) Act 2001.
This further complicates the airline’s resurrection.
Rayner Teo, an ex-AirAsia middle manager who led MYAirline from the get go and who held a 2% stake in it, quit in a huff a week before the carrier collapsed.
Stuart Cross, also a former AirAsia alumnus, was named interim CEO but he, too, bailed out within days. Cross was chief operating officer with South Korea’s discount carrier Aero K before joining MYAirline.
Reporters covering this scandal said Cross and Teo cannot be contacted and may have left Malaysia. Cross has deleted his profile on LinkedIn and other social media platforms.
Having hauled Goh and his family members in for questioning, investigators doubtless will need to interview Cross and Teo as they were accountable managers and ultimately responsible for the airline’s crash.
Malaysian officials must not stop there. They should take this opportunity to find out, from the regulators, if there are submissions to form new airlines. Additionally, AOCs already awarded to newbies need to be reviewed.
The chances of MYAirline being resuscitated are slim, but its exit will not deal a major blow to the domestic market, where the airline had around 8% share.
This sorry tale highlights the importance of understanding the causal effect of airline economics and regulatory policies on the country’s economy when rogue carriers are allowed to take root.
The larger question – what are the implications to Malaysia’s aviation eco-system if there is no clear and consistent approach to control capacity while remaining open to competition? – is trickier to address.
What lies ahead in 2024?
Oil prices, geopolitics and the global economy are again key factors to the industry’s health in 2024.
Even as airlines have successfully shifted to more efficient aircraft, fuel remains critical in the equation and in 2024 – a dragon year in the Chinese calendar – energy prices could be more volatile as a result of worsening regional conflicts.
Currencies, too, will be crucial for Asian airlines.
Malaysia’s ringgit is the region’s worst-performing currency ex-Japan, and will likely weakened further, perhaps by between 5% and 10% in the first quarter of 2024, causing serious cracks on airlines’ balance sheets.
Moreover, there is little sign of interest rates easing, while inflation levels will stay persistently high everywhere.
The most severe damage on the sector could be an acute demand reduction in air travel brought about by potentially new areas of conflicts, those intermittent but savage skirmishes.
That said, two Airbus A320s in MYAirline livery, registered as 9M-DAG and 9M-DAB, with “Allan” and “Alice” respectively emblazoned on the noses, are unlikely to re-emerge in its current form again.
“Our industry always finds a way,” says Air Astana CEO
Air Astana’s story can be simply divided into two periods: before and after Peter Foster.
Foster runs one of the world’s most under-rated airlines – there aren’t too many – and he says the airline’s flexibility and solid principles are the keys to success.
Kazakhstan’s flag carrier has a fleet of 43 aircraft (11 added in the last five years), comprising mostly the Airbus A320 family (including the remarkably resilient and comfortable A321LR) and three Boeing 767s.
Air Astana – also known by its code “KC” – is a relatively small carrier in a country that is ninth largest in the world (population 19 million).
In 2022 the airline posted its highest after-tax profit of USD78.4 million (up 115% year-on-year), on revenues of just over USD1 billion while carrying some 7.35 million passengers.
Its unit cost, commonly referred to as available seat kilometer or ASK, hovers around USD6 cents – amongst the lowest in the world – depending, of course, on the price of jet fuel.
Air Astana’s business model is somewhat peculiar.
When it first flew in 2002, it was neither a network nor discount carrier but a point-to-point airline with not much traffic at its two hubs, Almaty and Astana, and a secondary hub on the Caspian Sea city of Atyrau.
Today it flies to 62 destinations, which will soon rise with the inclusion of Tel Aviv and Jeddah (an interesting pair, no?) and Kuala Lumpur, in the third and fourth quarter of this year.
Talkin’ about a revolution
Foster became Air Astana boss in 2005 – 18 years ago – making him one of the most, if not the most senior airline honcho on the planet.
He landed in Central Asia after spending 16 years with Cathay Pacific Airways and then a three-year stint in the Philippines (helping to restructure the flag carrier PAL), and subsequently a brief sojourn with Royal Brunei.
Having read history at Cambridge, he has a plain but proactive approach to managing Air Astana, introducing (in his first few years at the carrier) robust and rigorous concepts to decision-making.
In so doing he sparked a revolution in the way the local Kazakh employees operate the airline.
“Ours is a defensively aggressive strategy,” Foster tells us in Almaty recently.
“We started doing well before everyone else,” he continues, “when we began to offer our ‘lifestyle routes’ during the onset of Covid.”
The idea was to lure middle-class Kazakhs – about 20% of the adult population – to fly to warmer climes, such as the Maldives, the Turkish Riviera (Antalya) and Heraklion in Crete.
After much deliberation Air Astana’s management went ahead and launched a subsidiary low-cost carrier, FlyArystan, in May 2019.
The LCC has been a runaway success, growing by an astonishing 366% since its inception, Foster reveals, with the region perhaps having the world’s fastest growing discount travel market globally.
FlyArystan operates independently, with its own management team but the parent airline retains overall control in order to maximise synergies.
Kazakhstan is rich in resources (anything on the periodic table, one can find or rather, mine it there), driven by oil and gas, and so Air Astana has benefitted greatly from a thriving domestic market.
To paraphrase Tolstoy, healthy economies are all alike; indeed, Kazakhstan’s GDP will likely expand 3.5% this year and 4% in 2024, according to the World Bank.
Additionally, Kazakhstan remains the only sovereign in the region with an investment-grade rating (BBB- with a stable outlook from S&P).
An on-going war but opportunities abound
While the western media continues its obsession with Russia’s invasion of Ukraine – how this might eventually play out and if Central Asians, specifically Kazakhs, are going to be better or worse off (they are doing well, thank you very much) – Foster has a slightly different view.
“I’m not at all under any illusion about the magnitude of the challenges we are facing but the war hasn’t hurt us,” he stresses, referencing too, to Kazakhstan’s social uprising in January 2022, growing geopolitical grievances in eastern Europe as well as the carbon emission crisis.
On the topic of sustainability and sustainable aviation fuel (SAF) Foster believes it is never going to replace jet fuel.
“That said, I’m optimistic about what Airbus is doing with hydrogen, and what our industry is doing through various other initiatives. We (airlines) need to persuade our governments more to act. The aviation industry always finds a way.”
Foster is extremely confident of Air Astana’s near- to mid-term future.
The airline is growing significantly, resulting in the acquisition (via Air Lease Corp) of three Boeing 787 Dreamliners starting in 2025 (to replace the B767s) and maybe a few more A321s, if available.
The thinking behind this is to add more passengers without necessarily adding too much capacity, and with Air Astana’s current load factor of just over 70%, there’s plenty of room to manoeuvre.
However, the downside to this rapid growth will mean the exit of the carrier’s fleet of five Embraer E190-E2, dubbed the snow leopards.
The Brazilian jets entered service in December 2018, amidst much fanfare, but almost five years later are looking jaded and tired and will be phased out in 2024.
To list or not to list, that is the question
There is, finally, the subject of Air Astana’s much-talked about (since 2011, in fact) desire to have an initial public offering (IPO).
It may be a blessing in disguise this hasn’t happened as the reasons for Air Astana to be listed, in our view, aren’t that compelling.
The airline’s unique selling proposition (USP) includes its brand and reputation and being the top carrier in Central Asia for the best part of the past decade.
Air Astana has a strong track record in safety and for providing excellent service.
There are weaknesses, particularly the need to increase network frequency and connectivity required to stimulate growth.
And more importantly, Kazakhstan’s dependency on energy revenues – any dislocation or mismatch in crude prices affects the currency tenge, which in turn has a negative impact on the airline’s bottomline.
It has thus far been a happy marriage between the two shareholders: the sovereign wealth fund Samruk Kazyna (51%) and BAE Systems PLC (49%).
An IPO brings with it financial benefits, raising capital and improving the company’s balance sheet – funds which can be used towards reducing debt, finance capex and improving public awareness of the airline as a listing typically generates publicity by making Air Astana known to a potentially wider audience (read: new customers).
The other side of the coin is that a public company faces disadvantages, including the need for added disclosure for investors along with the high costs of complying with regulatory requirements.
On top of that, once listed, an airline is confronted with the added pressure of the market which may make management lose sight of the bigger picture, focusing more on short-term results than long-term growth.
There will be closer scrutiny, too, on management from new investors looking for constant and consistent dividends and profits.
Foster says he cannot speak about the IPO although Air Astana clearly is evaluating it, warts and all.
Nevertheless, he is from the old (Swire) school and having built the airline into what it is today – fun, ebullient and vibrant – will leave nothing to chance.
Rethinking sustainable aviation
Screen grab of Boeing CEO Calhoun taken off a CNBC tv interview.
“The truth is rarely pure and never simple” – Oscar Wilde, The Importance of Being Earnest
On TV David Calhoun comes across as feisty and fearless.
He appears candid and unafraid to call a spade a spade.
Since becoming Boeing’s boss in January 2020, he seems to relish the challenges of leading a company which was badly maimed by the MAX scandal.
We have never actually met Calhoun.
We had hoped he would swing by to Southeast Asia – home to nearly 700 million and a region Boeing reckoned will need some 4,200 jets in the next 20 years – but perhaps his PR wonks think it’s not a good idea.
CEOs tend to come only when there are billions of bucks at stake or when asked to accompany your country’s president on a state visit.
Calhoun went to India in 2022 (where he met PM Narendra Modi) and then Air India serendipitously signed a deal for 220 Boeing jets valued at USD34 billion earlier this year.
In March 2023 the Boeing chief was in Saudi Arabia where he oversaw the sale of B787s to Saudia and Riyadh Air worth USD37 billion (at list prices, including options).
Our interactions with him have thus far been virtual, listening to him talk (mostly on CNBC’s Squawk on the Street), watching him on YouTube, reading his emails to Boeing staff (he calls them “team-mates”) and speaking to people who have had dealings with him.
The first thing that strikes us are his words and how he phrases them.
In an interview with the Financial Times on 23 May, Calhoun was refreshingly forthright.
While most OEM and airline bosses waffle their way, stating the obvious on sustainable aviation fuels (SAF), Calhoun is not one to mince his words.
SAF, Calhoun told the FT, will “never achieve the price of jet fuel.”
To say this is a slight departure from the mainstream aviation mindset is an under-statement.
While we are constantly inundated with the phrase “net zero” and constant pledges by airlines to push up the use of SAF, Calhoun took a different view.
“I don’t think that will ever happen (SAF priced like jet fuel),” he stressed. “It’s gonna be what it’s gonna be.”
If it ain’t SAF, we ain’t flyin’
The issue with SAF is not just affordability but availability. In Europe it’s been estimated that even if scaled up, SAF will cost three times more than jet fuel.
The reality is, there is a long, long way to go. And 2050 is looking a tad too optimistic.
Aviation accounts for about 2.5% to 3% of the world’s carbon emissions.
Some have even gone so far to suggest that a seven-and-a-half-hour flight (e.g. Singapore-Tokyo or Singapore-Sydney) produces 0.7 tonnes of carbon per passenger in economy class.
This, they claim, is equivalent to an entire year’s carbon emission by an average person in a third world country.
However, it is not just about CO2 emissions.
Studies have shown that flights also generate contrails, cirrus (cloud) changes, particulates, water vapour and nitrogen oxides – stuff that makes our planet warmer.
In 2021 the White House announced a SAF Grand Challenge whereby the goal is to supply 3 billion gallons of SAF annually by 2030 and 100% of expected commercial jet fuel by 2050.
And Boeing dutifully said it will do its part by agreeing to buy – wait – 5.6 million gallons of SAF from Neste to support its US operations in 2023.
Développement durable
Meanwhile, over in Toulouse, Calhoun’s counterpart at Airbus has a similar inkling about SAF.
If Calhoun is blunt with his comments (honed by many years of deal-making on Wall Street), Guillaume Faury, the suave Frenchman helming the European aerospace giant, is more circumspect and diplomatic.
“By 2030, SAF will need to be produced at many times the level of today… ambition is not yet matched by action,” he lamented in a subtle, Gallic way.
Which explains why Airbus is betting on hydrogen.
In a CGTN interview in April, when he accompanied President Emmanuel Macron on a state visit to China, Faury confirmed Airbus remained committed to a hydrogen-powered aircraft in 2035.
We have had the privilege of meeting Faury (thank you, Airbus communications team – the best in the business), and on the strength of his responses to our questions, we are confident this goal will be achieved.
Faury’s flair fits in nicely with an aircraft maker that sits on top of the pyramid, synonymous with products that are chic and made with elan.
But if there is a foible in Faury’s diction, it must be his penchant for the word “granular.”
His tendency to pepper his remarks during Q&A sessions, such as – “very deep and granular” or “very granular work” or “we will have a more granular picture” – is surely guff.
This has indeed become quite pervasive and has rubbed on to at least another senior member of the Airbus leadership.
When Julie Kitcher, EVP Communications and Corporate Affairs and a member of the Airbus Executive Committee, spoke about sustainability on 29 March in Singapore, she too gravitated to granularity. Twice.
You spin me right round, baby
On the topic of sustainability, you might fall off your chair then when we tell you that Marie Owens Thomsen, chief economist at the International Air Transport Association, said fares will stay high until around 2040.
Sharing her outlook during the recently-concluded IATA AGM in Istanbul, Thomsen gave a simple argument.
“To be a robust business, everybody needs to cover their costs,” said Thomsen.
SAF are multiple times costlier than jet fuel, and so airlines have to up airfares or “they will start making losses again, which is not in the interests of anybody.”
Especially not IATA’s.
We do understand the airlines’ plight.
In 2015, when crude fell over 50%, airlines continued to charge baggage fees (ostensibly introduced to offset fuel prices) and airfares did not come down.
In airline economics, there are many ways for carriers to tweak airfares.
Adding or subtracting capacity is one. Post-Covid many airlines have yet to fully restore capacity because… because they can afford not to.
Still, by the time 2040 comes around, SAF may well be another unfashionable acronym – stale and fetid – in a world that continues to spin for no other reason than to make plane-loads of money.
Coalition Malaysia
Anwar Ibrahim inherits a country with rising debts and a polarised population. Without a parliamentary majority, the new premier will be hamstrung
Red is the colour of hope… or a warning sign? Harapan flags fluttering a fortnight after Malaysia’s election.
It was never meant to end this way.
Malaysia’s 15th General Election (GE15) produced a hung parliament which the country was unprepared for and which has resulted in a fragile coalition.
Still, some Malaysians are happy with the outcome, though not quite as exuberant as when Mahathir Mohamad led a hodge-podge alliance of opposition parties to a shock 14th General Election (GE14) victory on 9 May 2018.
Then, as now, a new prime minister has arrived in Putrajaya, full of fervour, full of hope.
How will Malaysia’s 10th prime minister Anwar Ibrahim lead and manage, or will he simply reign?
His elevation has been widely welcomed and has sparked quite a buoyant national mood.
What Anwar actually got was an election that not a single party won outright, a mixed mandate and an uneasy union.
For a start there will be constant pressure on the coalition, dubbed a “unity government,” to justify its legitimacy in response to criticisms that no one voted directly for it.
Even if Anwar claims his cobbled-up government has an overwhelming majority of at least two-thirds, simple arithmetic, when broken down and dissected, reveals a different picture.
The Dewan Rakyat comprises 222 parliamentary seats, with 166 or 75% in peninsular Malaysia and the rest (56 seats or 25%) from East Malaysia: 31 in Sarawak and 25 in Sabah.
Although the results of GE15 showed Anwar’s Pakatan Harapan (PH) consortium winning 82 seats, it collected just 11% of the Malay votes, in a land where the Malays (excluding other Bumiputeras) comprise close to 60% or almost 20 million of Malaysia’s 30 million citizens.
UMNO, the right-wing United Malays National Organisation which had dominated until 2018, gathered 33% while Perikatan Nasional, a league consisting the nationalist party Bersatu and Parti Islam Se-Malaysia (PAS), achieved an astonishing 54%.
More surprisingly voters in Permatang Pauh, a constituency in Penang state where Anwar first contested in 1982 and which has since been successively defended, including by his wife and daughter, rejected him this time round.
Anwar would thus do well not to think results from the GE15 equalled an overwhelming stamp of approval, when just a handful of the Malay electorate voted positively for him and PH.
And despite suggestions that the administration reflects a new era of political maturity – a unique blend of Malaysian horse trading – the opposite is true.
The nature of alliances means different views need to be accommodated but politics in Malaysia are so fragmented it has exposed rifts within society which a change of government can do little to address.
The majority Malays are basically divided into three tribes, with their respective leaders jostling for influence and power.
Sectarianism has become the norm, with conservative Malays adhering to a defiant and distant doctrine from the one PH adopts.
Their political beliefs seem incompatible with urban and moderate Malays who form the bulk of Anwar’s support.
And then there are the orthodox followers of PAS, who have raised the party’s number of seats by a colossal 172% (from 18 to 49) and will make it a formidable political force in parliament.
Will the coalition survive?
Anwar has formed a line-up where, in football parlance, he is the captain, libero and striker, all rolled into one.
But this team is flawed with many fissures.
For one, it does not have a solid fan base, because it is a squad borne out of political expediency, rather than shared hopes, beliefs and passion.
Two, there is a lack of common vision on what it is trying to accomplish and three, it has no credible coaches and strategists.
On a personal level, Anwar’s relationship with deputy PM Zahid Hamidi, 69, UMNO’s chief and a loyal friend for decades, has always been good; a leaked phone call with Zahid ascribing Anwar as his mentor further attest to this.
Conversely, nobody would pretend that Rafizi Ramli, 45, the economy minister and PKR’s No.2 leader, and Zafrul Aziz, 49, the minister for international trade defeated during the polls, are buddies.
While personal differences can be overcome with Anwar at the top, new policies may not be easily approved due to deep and divisive ideological differences.
Many Malaysians are now mimicking the narrative about “making Malaysia great again,” a slogan paraphrasing Donald Trump and espoused in a recent open letter by Lim Kit Siang, an ex-leader of the Democratic Action Party (DAP), a core component of Anwar’s PH pact.
Malaysia was once very good, but it was neither great nor a time machine; the country cannot turn back the clock and return to what it was before.
Malaysians of a certain generation long for those halcyon days when there was more predictability, social cohesion and an underlying stability which allowed the economy to prosper and generate a golden era of growth.
This nostalgia for that period obscures the reality.
Malaysia is a different country today.
Anwar comes into office inheriting debts and liabilities of some MYR1.42 trillion (USD320 billion) and his past accolades and experience as finance minister in the 1990s – when the world was a less complex place – will not help much.
Federal government debt accounts for 61% of debt-to-GDP, at MYR1.04 trillion, up from MYR979.8 billion in 2021. Total debt and liabilities hover around 84% of GDP, according to the auditor-general’s report.
By comparison, the US national debt stands over USD23 trillion while regionally Thailand’s is USD243 billion, Vietnam’s is USD145 billion and USD231 million for the Philippines.
One reason for Malaysia’s stagnant economy since the new millennium is that past governments did not embark on bold and usually unpopular reforms which a modern economy needs.
There can therefore be no financial and social reformasi unless Malaysians take a long, hard look at themselves and decide – soberly, not emotionally – what they can and cannot realistically achieve.
This is where Anwar can assert himself.
Under the constitution, the PM is not just first among equals, he also enjoys the right to set the tone of government policy.
Anwar will be the central figure in this new Malaysia.
His first words uttered to the international media were: “This is a national unity government and all are welcome on condition they accept the fundamental rules: good governance, no corruption and a Malaysia for Malaysians.”
The concept of a Malaysian Malaysia is seen as taboo, associated with the late Singaporean leader Lee Kuan Yew in the early 1960s, and had been one of the key contributors to Singapore being “turfed out” of the federation in August 1965.
Malaysian Bumiputeras, or sons of the soil, enjoy many educational and social benefits under the New Economic Policy (NEP), a race-based policy that was crafted in 1970 following communal riots the year before.
Anwar is unafraid to denounce the NEP, calling it “a gimmick for those in power in UMNO to virtually rob wealth opportunities for themselves” during an Asian Financial Crisis talk at Singapore’s Nanyang Technological University in 2007.
His idea of reformation is at odds with Malaysia’s traditions.
While his intention is undoubtedly noble in wanting to build a Malaysia for all Malaysians – irrespective of race and religion – as PM he is constitutionally obliged to defend and uphold Malay rights and Islam as the official faith.
How will Anwar appease and acquiesce to the growing demands and expectations of non-Malays, many of whom see him as Malaysia’s messiah and voted for him, in a system that by definition and design provides privileges to the Bumiputeras?
Older and wiser?
Online entrepreneurs have taken advantage of Anwar’s victory. Here the Malaysian PM is the face of a Hotwheel pickup.
In Malaysian politics, like those in the US, China and India, gerontocracy rules.
It was never like this when the country was growing up.
Najib Razak, currently jailed after being convicted for the 1MDB fiasco, was 56 when he became PM in 2009, coincidentally the same age Mahathir was when he was first anointed in 1981.
Najib’s father Abdul Razak was Malaysia’s youngest ever PM.
He was appointed in 1970 aged 48; two other former PMs – Abdul Rahman and Hussein Onn – Malaysia’s first and third, were both 54 when they took office in 1957 and 1976, respectively.
When Mahathir, then 93, led for the second time in 2018 he created the Council of Eminent Persons, a five-member group whose average age was 76 – fondly called the Geriatric Gang – to advise on economic and financial matters.
A nation run by political dinosaurs, when the median age is 30.4, will hurt Malaysia in the mid- to long-term.
One reason for this gerontocracy is that previous leaders, like Mahathir and Najib, assumed power at a relatively young age, drawing on decades of political capital, ensuring themselves almost unlimited years of rule.
Anwar could be an exception though.
At 75 he appears robust and sprightly, and has a prodigious appetite to engage with the intelligentsia and keep up with world affairs and new technology.
His success is in convincing voters that his incarceration between 1999 and 2010 (plus a brief jail time in 1974 when he was a student activist) and stints as agriculture, education and finance minister make him a natural leader.
Indeed, he has been hailed as Malaysia’s Mandela, a comparison Anwar himself found rather flattering, if not a little discomfited.
Hung parliaments of the future?
There has been no historical precedence of a hung parliament in Malaysia, making it difficult to analyse its political or institutional implications.
This has arisen due to the rise of multi-party politics resulting from profound social developments which have taken place in the past decade.
The transition, from big blocs based on race, like Barisan Nasional (UMNO, together with the Malaysian Chinese Association and Malaysian Indian Congress in the past) and DAP, to a more socially fragmented society has weakened the focus on party identification.
Malaysia’s geographical fragmentation is also more pronounced, between city folks and countryside dwellers.
The recent election was fought not on a national basis but within regional belts dotted by race and religion.
This explains PH’s narrow base of support from the Malays, and its inability to garner a national mandate overall, making it incredibly tough for this “unity government” to achieve its goal of unifying people.
Additionally with hung parliaments, the raison d’etre of polls is modified.
Instead of directly choosing a government, future elections could be about adjusting the power relations between parties, thereby affecting their strengths in post-poll wheeling and dealing.
Now that the possibility of future hung parliaments is higher than ever, voters should demand that parties tell them before rather than after GE16 with whom they would consider forming a coalition and which items in their respective manifestos are negotiable, and those which are not.
Meanwhile Anwar has his work cut out for him.
His job and that of his cabinet – if it lasts the full term – is to simply deliver on policies that immediately affect Malaysians’ lives.
And please, no more macho talk about pay cuts, eschewing luxury cars or austerity measures whilst loss-making GLCs and the sovereign wealth fund continue to pay their top executives millions in remunerations.
Recent turmoil in Malaysian politics since the “Sheraton Move” of February 2020 has led to many citizens agreeing on one thing: what the country needs now are competent, (relatively) honest leaders and less drivel.
Asia Pacific airlines are having a good time, for now
The crème de la crème of Asia Pacific’s aviation world turned up in Bangkok from November 10 to 11, in a show with everything but Yul Brynner.
Just like Somerset Maugham 100 years ago, we found ourselves congregating in a hotel – not quite The Oriental – but a stretched, sanitized resort nevertheless, overlooking the muddy Chao Phraya.
The two-day pow-wow saw chief executives (or their representatives) from 13 regional airlines, all members of the Association of Asia Pacific Airlines, gathered together to deliberate, then passed three resolutions, namely seamless cross-border travel, safety excellence and sustainability.
When it comes to Asia Pacific’s aviation future much will depend on whether the issues faced by these airlines, most of which are national carriers, are just one-off problems (brought by Covid) or if they will worsen as we prepare to enter what could be a period of prolonged global recession.
There was a general consensus that, despite the ominous signs of financial fissures, 2022 will likely close out with several of the AAPA members in very healthy liquidity positions.
Indeed, Singapore Airlines, often seen as a barometer for the industry, reported a record first-half operating profit of SGD1.2 billion or close to USD880 million, just days before the conference in the city of angels.
Malaysia Airlines, still feeling the impact of two tragic incidents from 2014, appear to be on the mend, too, and would have broken even this year, claimed its CEO, had it not been for the outbreak of conflict in Ukraine and rising jet fuel prices.
The airline, wholly owned by the government, was the quickest carrier to restructure in the world, concluding a deal with 75 creditors that were owed MYR15 billion in under five months.
Worryingly, however, for MAS (which is unhedged) and the other airlines, is the continued strength of crude and the correspondingly higher costs of hedging due to the weakening of local currencies against the greenback.
“That is the single biggest concern for all member airlines,” confirmed Subhas Menon, the AAPA’s director-general.
One night in Bangkok and the world’s your oyster
A century ago Maugham complained of “insipid Eastern food” and wats that “oppressed me by their garish magnificence…” but thousands of tourists have thronged Bangkok so far this month alone, with Airports of Thailand – the company managing the country’s six international airports – lamenting its lack of staff at Suvarnabhumi Airport to cope with the crowds.
The AoT isn’t the only Thai organization facing a crunch.
Thai Airways International, which hosted the AAPA event, is drowning in debts.
The flag carrier filed for bankruptcy before the onset of Covid, and posted a loss of USD4.5 billion in 2021.
Despite having won court approval to restructure debts of close to USD13 billion, the outlook remains bleak for THAI unless the government is willing to inject more than the USD2 billion it hopes to raise via a debt-to-equity scheme.
The airline remains bogged down by bureaucracy and still feels the brunt of foolish forays committed over 15 years ago, when it acquired the exceptionally uneconomical Airbus A340 family, using them to start money-losing ultra long-haul flights to the US.
The fundamental problem for THAI, as it is for another beleaguered Southeast Asian national airline – Garuda Indonesia – is that the governments which control these airlines are now bereft of ideas (and funds) to rejuvenate the companies.
That, and in the case of Garuda, a misplaced pride in its ability to amicably and sensibly resolve financial and leasing disputes with creditors and manufacturers, has led to the airline languishing without a clear trajectory post-Covid.
Garuda is emblematic of a state-owned enterprise which has for decades been abused by vested interests and corrupt individuals managing the airline.
And as the likes of SIA, MAS and Cathay Pacific Airways used the crisis to boost its resilience and balance sheets, Garuda’s poor governance became exposed, compounded by the growth of savvy discount carriers such as the PT Lion Group.
And so whilst the AAPA rightfully chastised many governments for remaining sluggish and uncoordinated in harmonizing travel requirements which would have greatly helped their airlines, and domestic tourism, it is clear a few of its members will continue to struggle because of hubris.
Things will get better or worse, you decide…
Venice of the East: A panoramic view of the Chao Phraya coursing through Bangkok
Notwithstanding the profits being generated today – largely due to very steep airfares and driven by an unrelenting desire to travel – the general consensus at the end of the communion was positive.
The first quarter of 2023 is projected to see more or less similar pent-up demand for flying, “revenge travel” as many have now come to romantically describe it.
Although there is a clear conundrum – airlines are showing upward momentum even as micro-economic numbers slip further south – it is hard to see how this could all be sustained.
Apart from inflation and a looming financial crisis, other external threats have the potential to upend this nascent recovery, including geopolitical tensions, natural disasters and climate change.
The complexity of the impending economic crisis means airlines, especially those backed by weakened currencies, cannot do much to change their fate until or unless they learn how to plug the gaps.
It seems clear trade will stagnate with China remaining shut – and not just for the goods that country produce – but the vast supply of Chinese tourists that once traversed all four corners of the globe prior to Covid.
Recent data have shown a marked decline in the middle class, between 20 million and 30 million – as a result of the pandemic – in both China and India, that could severely shift travel patterns for the rest of this decade.
There are other implications, too.
What happens in Hong Kong, for instance, could provide a clue on how quickly (or slowly) the mainland manages to reemerge from its self-imposed hibernation, according to Lavinia Lau, a Cathay Pacific executive during a panel discussion.
In other words, Hong Kong is a guinea pig, a test bed that could help determine how well China exits its lockdown without damaging its infrastructure and more importantly, its social cohesion.
All told, in the longer term (beyond 2030) AAPA member airlines will require an industrial strategy that ensures many of the problems that arose from the crisis are dealt with.
There is uncorroborated data that Southeast Asia’s savings ratio – how much households save as a percentage of their resources – have slipped some 10% so far this year due to intense inflation.
The real fear is that this could rise further next year.
Moreover, there is a lingering fear in the industry of a permanent loss of skilled workforce, punctuated by stagflation and growing individual and regional inequalities.
Many academics now suggest that the long-term costs of Covid are going to be considerably bigger than what officials have anticipated.
The hope is that airlines in the region will find new ways to generate revenue once airfares stabilize and subside, and demand for flying wanes due to a depressed market.
For the time being, there are far too many unknowns as to what a post-Covid landscape shaped by a stressed demand-supply chain would look like.
Remembering SQ006 (9V-SPK)
Cyrano Latiff in the left seat of an AirAsia Airbus A320.
In 1964 a Singaporean man of Javanese descent named Latiff saw a film poster of a swashbuckling character played by Oscar-winning actor José Ferrer and was so captivated by the ravishing musketeer that he named his newborn son after the movie’s hero.
The film was Cyrano et d’Artagnan, about two French swordsmen who ganged up to prevent a plot against the king, Louis XIII.
Today there is absolutely no doubt in Cyrano Latiff’s mind that his father was a maverick, a man ahead of his time.
“He’s my hero,” says Cyrano. “He dared to be different. A man with no formal education, who earned extra money as a caddy, and then married a Chinese woman 16 years his junior – inter-racial marriage unheard of then!”
It has been 40 years since we last met, and by chance were reconnected in May this year, courtesy of a mutual friend.
We were both A-level students (he a year older) at St Andrew’s Junior College, then located along leafy Alexandra Road in Singapore.
Cyrano went on to study botany and zoology at the National University of Singapore, joined the army for several years before fulfilling his desire to fly by becoming a pilot with Singapore Airlines.
And so the wannabe biologist became an aviator.
“I had been keen (on flying) since secondary school. I failed to get into the junior flying club scheme and then failed again to get into the Republic of Singapore Air Force as a fighter pilot.”
However, it was third time lucky when he was accepted into SIA, aged 30.
Little did he know his luck would end six years later.
Xangsane, PVD and all that palaver
The hospital card issued to Cyrano Latiff when he was sent to hospital following the crash of SQ006.
As a first officer of SQ006 (SIN-TPE-LAX) Cyrano was one of three flight crew members who were on the ill-fated SIA Boeing 747-400 which hit construction equipment on a partially shut runway at Taipei’s Chiang Kai-shek airport (now known as Taoyuan International) on the night of 31 October 2000.
The plane broke into three pieces, 83 passengers and crew perished and all that was left – when morning broke and the carnage became clearer – were mangled pieces of burnt seats, baggages and body parts.
Time may have helped to heal but 22 years later, Cyrano recollects it vividly.
He recalls the moment of impact, the sound of screeching metal and, once the aircraft stopped spinning, the darkness.
And how he fought to stay alive.
He remembers leaping out from the upper deck door of the aircraft – “my leap of faith” – and landing onto the tarmac, suffering lacerations to his right palm that needed stitches.
But his pain had only just begun.
He and his two cockpit colleagues remained in Taipei for 52 days while investigations and legal proceedings were conducted and when they returned to Singapore their movements were limited for two years.
At the time of incident typhoon Xangsane (Laotian for elephant) was fast approaching Taiwan, reducing visibility and slowing the movement of the aircraft as it taxied along.
Taiwan’s Aviation Safety Council determined the crew of SQ006 had neglected to check the para visual display (PVD) which, it claimed, would have shown the plane was lined up on the wrong runway.
The ASC apportioned blame on SQ006’s flight crew for, among other things, not taking off from the right runway and for losing situational awareness.
The ASC’s findings were challenged by Singapore authorities.
Its own findings suggested infrastructure at the airport’s runway did not meet international standards and that the plane was cleared for takeoff when air traffic control was unable to see the jet due to low visibility as well as the absence of ground radar.
Singapore’s Ministry of Transport said systems, procedures and facilities at the airport were “seriously inadequate.”
That said, both Cyrano and the captain of SQ006, Foong Chee Kong, left SIA in 2002 despite investigations concluding they had not contravened any regulation or operational procedures.
Coincidentally the two airmen later resurrected their flying careers at AirAsia.
Not being put off flying…
The film poster in 1964 which inspired Cyrano’s father.
One might think that having experienced a plane crash would put people, whether as a pilot or passenger, off flying altogether.
This, however, varies from person to person.
There’s the famous case of the former Dutch international footballer Dennis Bergkamp who had a special clause inserted in his contract while playing for Arsenal that he would not be forced to fly for games played outside of England, at the expense of a slice of his salary.
Bergkamp was spooked from flying many years ago while playing for Ajax following an incident that killed some of his friends.
Cyrano admitted his life following SQ006 was anything but smooth and credited his family and faith for helping him regain his emotional and mental strength.
Following his decade-long stint at AirAsia, where he rose to become captain, the 58-year-old is now fully immersed in academia and the development of the young at institutions in Singapore.
He says even in his darkest days he never really thought of giving up flying or doing non-aviation stuff.
And each year on 31 October he goes about life like “any other day… nothing extraordinary, just that I’m aware it’s a significant date in my life’s journey.”
Flying is the safest mode of transportation and many pilots we know consider a crash as just one of the hazards of their profession.
Indeed, we’ve heard and read many times of planes being described as metal tubes that just happen to fly.
Pilots and (some) passengers acknowledge that, in spite of state-of-the-art technology and innovation put into aircraft recently, things could still go wrong.
Is the theory of probability on your side once you’ve encountered an air disaster and survived?
Cyrano, who lived through a nightmare most of us will never fully understand, doesn’t quite see it that way.
He shares that when one of his four children wanted to be a flight attendant, he was fully supportive of it, even though SQ006 caused the deaths of four of the airline’s cabin crew.
Whilst the loss of lives from that accident – and how it continues to affect families – remain a constant in his mind, he says he is at peace with himself and is grateful he has the chance to contribute to making the industry even safer.
A new passage to India
The iconic Maharajah. Photo courtesy of Mayur “Mac” Patel.
Now that Johnny Depp has been cleared, it’s time to turn our focus back to the aviation industry again.
Quite a number of the world’s most valuable companies (Google, Microsoft, Twitter) are run by Indians.
Very clever Indians.
And when the new owners of India’s national airline chose a foreigner – a white man, no less – as the airline’s chief, many Indians were understandably and naturally miffed.
India has over a billion people, the world’s second most populated nation after China.
The logic then, is this: if Indians can control Silicon Valley, home to many of the world’s most creative enterprises, why not an Indian to helm Air India?
In reality, however, it’s a tad more complicated than that.
While many Indians have a natural predisposition towards mathematics and science, the best have chosen information technology over other jobs.
It’s not difficult to see why.
There are plenty of job opportunities in software, coding and other segments of the IT eco-system and it pays handsomely.
There is no shortage of role models, too.
Satya Nadella (Microsoft) and Sunder Pichai (Alphabet, parent company of Google) each earns in excess of USD50 million a year.
Parag Agrawal, Twitter’s CEO, had a compensation package of just over USD30 million in 2021.
No airline CEO makes even half that much.
And for a very good reason.
The airline industry, despite its glamour and full of high-tech sophistication, has largely been operating at heavy losses over the past three, four decades.
The sector, therefore, is not attractive enough to lure top Indian minds, who view the risk:reward ratio of the aviation industry unappetising.
There have been lots of criticisms (some bordering on hysteria) following the Tatas choice of Campbell Wilson as the boss of Air India last month.
Conspiracy theorists would have us believe he is a Trojan horse, planted by his erstwhile employer (Singapore Airlines) in a bid to facilitate a merger between Air India and Vistara, where SIA and the Tatas have a respective 49%:51% shareholding in the latter.
Nothing could be further from the truth.
It is more likely that the 50-year-old Wilson, a New Zealander who has spent 26 years with SIA, is merely jumping aboard the Indian juggernaut, with China still shut and India the fastest growing aviation market.
He craftily avoided sensitive topics in his statement during the announcement of his appointment.
“Air India,” Wilson said, “is at the cusp of an exciting journey to become one of the best airlines in the world… I am excited to join Air India and Tata colleagues in the mission of realising that ambition.”
In a note to Scoot (the low-cost airline that SIA owns and which he heads) staff, he described the “honour and pleasure” he’s had in transforming the airline from a “mere spreadsheet” to being one of the world’s top carriers.
“But there are other mountains to climb,” he added, as he spoke of the humility and opportunity to have been appointed as Air India’s new CEO.
India’s media gave ample coverage to Wilson, while cross-referencing to the Tatas’ initial (misguided) anointment of Ilker Ayci, ex-chairman of Turkish Airlines, as managing director of the Maharajah.
To be fair, the Tatas got their act right the second time round.
Wilson has a unique track record, one of a very few select foreigners who was able to deftly navigate his way around SIA Airline House and managed to found an LCC along the way.
A Scoot alumni who left after a short stint because he felt stifled by the SIA Group, remembers Wilson being very welcoming to “unorthodox ideas.”
“There weren’t many like him within the organisation,” he recalls.
“He understood the limitations of SIA yet he was open to pushing the boundaries. I really hope he succeeds with Air India but then India is a completely different beast!”
The middle class holds the key
India’s 100-million odd middle class (defined as consumers with incomes of between USD10 and USD20 a day pre-Covid) is probably the most economically dynamic group in the world.
However, a Pew Research Center report at the end of 2020 found the middle class to have shrunk by a third in India, or roughly 32 million due to the pandemic.
This is worrying because the middle class supports (directly and indirectly) the airlines.
Most Indians fall into the low-income bracket in 2020.
Some 1.2 billion Indians were thought to be in this tier pre-Covid, accounting for 30% of the world’s low-income population.
What does all this mean to the new CEO of Air India?
Clearly there is vast inequality across the country.
Not too long ago a study found that only 1% of households in India take 45% of flights.
By comparison, in the UK 70% of flights are taken by the wealthy 15% of the population.
Data from India’s DGCA suggest recovery in both domestic and international traffic remain slow.
Nevertheless, the competition is intense.
There are at least 12 airlines currently operating, big and small, and includes the four owned by the Tatas (AI, AI Express, AirAsia India and Vistara), SpiceJet, IndiGo and Go Air.
Majority of the carriers are budget airlines, thereby putting pressure on airfares.
Like many airlines in other parts of the world, India’s aviation sector is facing tough times, compounded by one of the world’s most expensive jet fuel costs (up to 15% of these include excise duty, VAT and state taxes).
Another challenge the Tatas will also face is how to integrate all four of its airline businesses.
It is possible Wilson may oversee the world’s biggest airline consolidation during his tenure at Air India.
All things being equal, the Indian aviation industry has plenty of upside.
In 2010 some 80 million flew to or from or within India.
Less than a decade later, in 2017, the figure was almost double, to 158 million. Before 2040 the number is expected to be close to 550 million.
Meanwhile India’s total fleet size as of end-2020 was just under 720 aircraft.
Now compare that with American (almost 1,000) and United (over 900).
Beyond its long and tense border with China, India falls short, too.
China Southern has about 640 planes, Air China 450 and China Eastern 570.
As for airports, only 29 out of 130 Indian airports cater to international flights. The government has plans to invest some USD2 billion in airport development before 2030.
As India prepares to celebrate its 75th independence on 15 August 2022 there is – as epitomised by its immense aviation potential – much to be optimistic and to be excited about what’s to come.
Air India (and India for that matter) is looking to the future, not to the past.
And if the Tatas, the media and the public in general can be more realistic about where Air India is now – not where or what it was before – we could well see Wilson reach the summit of his Indian mountain.
“An absolute gem”
Air Astana CEO Peter Foster
Switch on the television and you are likely to hear about the conflict in Ukraine and endless discussions on CNBC if the US Federal Reserve would hike interest rates more in 2022.
And oh, let’s not forget oil prices.
It’s enough to make many airline CEOs lose their hair and sleep.
Not Peter Foster.
He doesn’t merely absorb all these; he cobbles them all up and then dissects them, much like what Enlightenment thinkers once did. You know – reason, authority, legitimacy… Kant, Rousseau, Voltaire.
But Foster isn’t a philosopher, at least not in that sense.
He read history at Cambridge and from 1983 onwards found his calling in the airline industry, first as a management trainee at Swire (owner of Cathay Pacific) and subsequently Philippine Airlines, Royal Brunei and then Air Astana.
Foster’s greatest accomplishment, however, is as Air Astana’s boss, where his Yorkshire-cum-Asian infused style of management complements and overcomes the bitter cold and barrenness of the vast country (9th largest in the world).
His expertise is in finding gaps in the market and eking out profits.
In 2021 Air Astana posted an after-tax gain of USD36.1 million. Revenue was up 92% (USD756 million) and Air Astana, the parent carrier, carried 3.5 million passengers, up almost 80%, the highest it’s ever achieved.
During our hour-long chat on 15 March, Foster moved from profit-generator to sublime strategist, a bit like Hawking explaining, quite simply, the theory of everything to you.
“We’ve had our own share of challenges,” he began, “unrest at the start of the year, rise in operating costs and now the Ukraine crisis. Although 2021 exceeded all expectations, this year will be difficult.”
In Foster’s analysis, the headlines – higher crude prices, rate hikes, Covid – are just part of the disruption an airline faces, and will continue to face, for the foreseeable future.
This is how he assesses the industry: the landscape is mostly in tatters (especially in Southeast Asia) following the pandemic, and the war in Ukraine and subsequent geopolitical tensions are causing unimaginable chaos (think leased aircraft in Russia and the rerouting of airspace).
That said, “central Asia and its peripheral regions, including the Caucasus, remain very strong markets.”
“Look at it dispassionately,” he suggested, “the war (in Ukraine) is by no means catastrophic to us. Turkey is doing extremely well, as are India, Phuket and Crete. And we might even have a look at Malaysia, again.”
An Air Astana Boeing B767-300ER cruises above Tajikistan en route to Almaty.
Opportunities abound
Whilst the carrier’s widebody workhorses – three Boeing 767-300ERs that roamed Bangkok, Kuala Lumpur and Seoul pre-pandemic – remain relevant, Air Astana’s indisputable stars are the 18 Airbus 320 family of aircraft, particularly the A321 (LRs and neos) that have been attributed to last year’s success.
The Airbus fleet is critical to Air Astana’s promotion of its “lifestyle routes”, a term which Foster has consistently raised since the onset of Covid, where middle class Kazakhs are lured to not so far away warmer climes, well within the range of the incredibly versatile A321s.
“In a way opportunities have opened up for us in places like Georgia, Heraklion and even Chengdu,” he continued. “And all these happening in spite of the oil crunch.”
Oil can be a blessing and a curse. A double-edged sword.
Revenue from oil (and related products) make up over 70% of the country’s exports, which is great when prices are high (like now) but problematic when not, exposing Kazakhstan to terms-of-trade fluctuations and fiscal revenue volatility.
Air Astana is allowed to hedge just 40% of its jet fuel needs, said Foster, following a board decision some years ago that placed a cap on such activity.
The carrier has taken hedging positions for the rest of 2022 at between USD60/bbl and USD75/bbl.
We asked if, like many other airlines, Air Astana would like to get more involved in the freight business, for instance.
The carrier has an LOI for two A330Fs that are scheduled in 2024, by which time the current super-charged cargo feeding frenzy may well have ended.
Or not.
“Who knows what will happen next,” Foster remarked, “we’ll just have to focus on being an efficient company and leverage on our competitive advantage.”
Discerning shoppers stop by a duty free outlet at Nursultan airport.
Between the dragon and the bear
Notwithstanding the political dimensions, the prospects are indeed good for Kazakhstan and therefore, for its national airline.
Kazakhstan is a wealthy, proud country on the borderlands of the “Stans” – Pakistan, Tajikistan, Uzbekistan – to its north Russia, and to its far east, China.
Economically it is looking at registering another strong growth, with GDP projected to clock in better than the 3.5% posted last year. Investors like what they see, with Kazakhstan being the only investment-grade (BBB- by S&P Global) country in the region.
The national museum in the capital Nursultan – a huge blue-glass-and-white marble building – proudly displays a golden eagle soaring above a map of the country, as well as highlighting Kazakhstan’s rich history and culture from ancient to modern times.
The main actor in Kazakhstan politics is very much Nursultan Nazarbayev, the former president who resigned in 2019 but retained a vice-like grip as head of the nation’s security council and leader of the ruling party.
Nazarbayev’s administrative skills were so good, it was said Mikhail Gorbachev – the Russian leader credited with glasnost and perestroika – had at one point planned to appoint him as deputy premier of the entire USSR.
But that was then.
This is now.
Riots that erupted in January had threatened to cast a shadow on the real achievements of 81-year-old Nazarbayev, including his support for the creation of the flag carrier, which is 51%-owned by Samruk-Kazyna, Kazakhstan’s sovereign wealth fund.
British aerospace giant BAE Systems holds the remaining 49%. An interesting coincident, as BAE’s roots are in Lancashire, not very far from Skipton where Foster was born.
Foster conceded there were “underlying structural weaknesses” that led to the skirmishes and that the government is making efforts to improve transparency and inequality.
The numbers support this.
Close to 20% of the urban population in Kazakhstan is classified as middle class. Annual household income per capita this year is likely to hit near USD3,500. But more interestingly, women (52%) outnumber men (48%).
There is the small issue of the tenge, the country’s currency, and its continued weakness. The National Bank of Kazakhstan, the central bank, may have to intervene more than it would like to this year, to rein in inflation and protect tenge assets.
Oil and forex dislocations are existential threats that confront all airlines.
Foster is neither Michael O’Leary (Ryanair) nor Alan Joyce (Qantas).
However, he remains a pragmatist of the old (Swire) school and having built and developed Air Astana for almost two decades, takes nothing for granted.
The airline’s stakeholders know they are, as Foster unabashedly acknowledged, “sitting on an absolute gem.”
Asia’s aerospace future, according to five white men
Diversity is a delicate topic but one that must be discussed and debated.
It’s been over a week since Aviation Week Network (AWN), a publishing and event production company, hosted a webinar entitled “The Future of Aerospace in the Asia-Pacific.”
We suspect the majority who tuned in were Asians, given the event was held late in the afternoon in South, Southeast and East Asia.
Once in, you see images of five men on the computer screen. One was located in Singapore, one in Germany and the rest in London.
And then you notice something: none of them were Asians.
The following day one Asian gentleman – a distinguished aviation practitioner – rang to ask if we had seen the entire programme.
“Do you find it insulting,” he asked, “that decades after the end of colonialism, we have Caucasians tutoring us in our own backyard?”
We said we weren’t exactly offended, but he concluded it was ethically wrong.
He explained that the absence of Asians in an event focusing specifically on Asia was not just disappointing but insensitive and rude.
“Have you ever come across five Asian men talking publicly and expressing their views on European aerospace in the run-up to Farnborough or Le Bourget (airshows)? The white men would have a fit!”
Touché.
However, to be clear, the webinar on 29 November was designed to stimulate interest in the upcoming 2022 Singapore Airshow.
The organiser of the airshow, Experia Events, and AWN had entered into a “strategic media and knowledge partnership” that was announced on 16 November.
It is, therefore, AWN’s prerogative how it sees best in generating publicity and the promotion of the airshow, scheduled from 15-18 February 2022, even if the sight of five white men discussing Asian aerospace affairs admittedly appeared awkward.
Dearth in diversity in Asian aviation?
Many of us might be reluctant, or even afraid, to take on a topic such as this, but following the Black Lives Matter movement in America, Asians are becoming acutely aware of biases – however subtle – in all walks of life, including aviation.
Following the candid conversation with the eminent Asian aviation expert, we spent much of last week asking several executives (men, women, Asians, non-Asians) who work in various fields, including academia, finance, engineering, regulators and legal, what they thought of diversity in the industry.
All were spot on when they claimed women were under-represented in aviation, by a very wide margin, although a growing number of women in Asian aviation are becoming influential in recent years.
But the same cannot be said of the disabled and / or people of colour.
A senior Chinese official expressed disgust that while China and large chunks of Asia Pacific are the world’s largest aviation markets, those controlling or “running every aspect of the business are predominantly from the West.”
“Don’t take my word for it. Go look at the statistics, and see how many Asians are leading the international aviation bodies that have offices in Asia, purportedly looking into Asian affairs…”
While we concede there is some truth to this, it is unfair to generalise with such sweeping statements.
Key aerospace companies have fully embraced diversity.
For instance, Airbus’ president of Asia-Pacific is an American citizen of Indian descent, whose diplomacy, demeanour and dare we say it, darker skin, have proved invaluable in resolving restructuring issues at airlines during the pandemic.
Similarly, some European and American companies have appointed Asians to run their businesses.
But these are few, and far between.
Not enough Asian women are in leadership roles within airlines, trade associations, regulators, advisory roles and various parts of the supply chain.
Diversity brings huge benefits to the Asian aviation workforce.
Companies that have encouraged and institutionalised diversity say this has resulted in better profitability, increased innovation and even an improvement in safety approaches and tackling climate change.
That said, in spite of the multitude of challenges and resistance the aviation industry encounters, it has done far better than others in crafting the right direction for diversity in the past decade.
Endau Analytics 