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In the airline business politicians are best seen, not heard

Boeing MAS MOU 0917

boeing’s mou with malaysia airlines on sep 12

 

“I think you all know that I’ve always felt the nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.” – US President Ronald Reagan, Aug. 12, 1986

 

Thirty-one years ago and the words still ring true. The Gipper was an astute president and not ashamed to admit that many of the problems during his two terms in office were caused by the government’s long history of conflicting and haphazard policies.

On September 12 the Malaysian government, led by its prime minister (PM) and several key cabinet ministers went to the White House in Washington DC and announced that Malaysia Airlines (MH) would buy Boeing 787-9 and 737 MAX aircraft. At catalogue prices, the planes cost just over USD3 billion.

Regrettably the PM, perhaps unwisely advised, said this of the aircraft deal: “We want to help you in terms of strengthening the US economy… we intend to increase the number of Boeing planes to be purchased by MAS… We will also try to persuade airasia to purchase GE engines.

Additionally, he added that Malaysia’s Employees Provident Fund would make a sizeable contribution to the US economy by pumping “three to four additional billion dollars” in infrastructure redevelopment.

Predictably his remarks elicited a furore in Malaysia and understandably so as it appeared the investments were either to appease or to curry favour from the Americans.

Was there a political posture to the aircraft purchase? We think not but because the head of government said it, it is unfortunately perceived as such.

The fact is, MH had indicated its interest in buying widebody aircraft as far back as January 2017. It is well known in the airline industry MH wants to expand and was evaluating twin-aisle aircraft – either the Airbus A330neo or Boeing’s 787 Dreamliner.

Therefore, it didn’t really surprise the aviation community when the PM made that statement. What startled observers was: (i) him attributing the acquisition as a sign of Malaysia’s support of the US economy and (ii) the number of aircraft ordered.

The anger and allegations of political chicanery over the national airline inking a MoU with Boeing could have been avoided had the statement been made by MH’s managing director or its chairman or both since they were part of the PM’s delegation.

Think about it: why pay millions a year to a chief executive, fly him half way round the world to DC and not let him be accountable for the airline’s decisions and justify the move to buy planes to Malaysians back home?

The MH boss sings well and we believe he would have no problem serenading Malaysians on the virtue of spending a few billion bucks on Boeing aircraft. At an industry event in Manila last November 2016, the Irishman’s rendition of Stand By Me was pretty cool – check out this video.

Plane silly

No airline in its right mind would risk buying aircraft just to help create jobs in another country. It’s plane silly, pun intended. And Malaysians have the right to question the deal given that MYR6 billion of taxpayers money were used to bail out MH over two years ago.

This isn’t about the airline’s choice of Boeing aircraft, or even its ability to fund the planes. MH is fully backed by the sovereign, whose strong credit rating would provide easy and inexpensive access to the debt market. That’s not the issue.

The issue is about fiduciary duty. Given the airline’s tattered financial track record MH’s management has a responsibility to: (i) explain why it needs those aircraft, (ii) where it intends to deploy those aircraft, (iii) say if the planes are to be leased or purchased outright, (iv) assure Malaysians the assets would not end up like the A380s and finally, (v) ensure the purchase wouldn’t lead to uncontrollable debts (before it was nationalized end-2014 MH was paying close to USD500 million annually in interest alone).

The other burning question is this: why is the Malaysian government interfering in the running of AirAsia by trying to nudge it to buy GE engines? While it is a Malaysian carrier, AirAsia is a public listed company and answerable to its shareholders, not to Putrajaya.

Moreover, AirAsia is not the flag carrier and is being run competently. The airline makes purchases based on what’s good for the company and its equity holders, not on how it would benefit a certain engine manufacturer.

GE laggard

ge a laggard – could this be a reason to make airasia buy ge engines? grab pic taken off tv on sep 15

Pro aviation

The PM has been a staunch supporter of aviation for a long time, even when he held the defence portfolio. In his capacity as deputy PM, he personally welcomed an Airbus A380 prototype at KLIA in November 2005, after MH agreed to acquire six of the superjumbos.

Sadly the six A380s bought by Malaysia – which arrived barely five years ago – for over USD1 billion (MYR4.2 billion), have proved unsuccessful for MH. The A380s are now being refurbished (at great cost) for use on Hajj and umrah flights, a futile attempt in our view of trying to make something good out of the bad assets.

Although AirAsia is a huge success story, Malaysia’s aviation landscape is littered with the carcasses of failed airlines: Rayani Air, Pelangi Air, Silver Fly, Saeaga Airlines, Ked-Air… and the PM is well aware of it.

In March 2015 during the biannual Langkawi International Maritime and Aerospace show, the PM and transport minister witnessed a signing ceremony between a Malaysian company, Flymojo, and Canada’s Bombardier, for up to 40 regional jets. The PM made no public remarks then.

Flymojo was capitalized at MYR3 million and planned to have its bases in Johor Bahru and Kota Kinabalu. Its management team was helmed by chairman Alies Nor Abdul, coincidentally a former political secretary to the PM when he was deputy PM. Flymojo is believed to have lost its mojo and is now no longer active.

flymojo LIMA Najib March 2015

where’s the mojo gone to?

That the PM continues to be an active supporter of Malaysian carriers and the aviation industry is indisputable. Not many leaders pay such close attention to their countries airlines. Fewer still have the gumption to make tough decisions, even if it appears irrational and rash.

During a visit to China in May this year, he witnessed the MoU signing between AirAsia and Everbright Group and Henan Government to launch a discount carrier in mainland China. Much to his credit, the PM refrained from speaking publicly about it.

AirAsia Everbright Najib

airasia & china’s everbright group to form lcc jv

 

 

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