Monday, December 22, 2014

MALAYSIA:::Jentayu Danaraksa’s MAS rescue plan

Jentayu Danaraksa MAS Issue inside story bannerAbdul Aziz Abdul Rahman was CEO of MAS from 1981 to late 1991. After more than two decades of watching MAS flounder, Aziz is no longer willing to sit on the sidelines. As chairman of Jentayu Danaraksa, Aziz is proposing what he thinks is a better plan to rescue MAS. In the first part of an interview with KiniBiz, Aziz explains what Jentayu’s plan is.
When Abdul Aziz Abdul Rahman stepped down as chief executive officer (CEO) of Malaysia Airlines (MAS) in late 1991, he left the airline, which was doing well, with large cash reserves .

Handing over the reins to his deputy, Aziz must have believed that his tenure at MAS, which began with the airline’s inception in 1971, was a job well done. Since then he has watched the national airline descend into financial turmoil, with one business plan after another failing.
After staying on the sidelines for over two decades, Aziz believes that he can no longer remain silent when it comes to the future of MAS. Following record losses this year, the former CEO began voicing his opinions on a myriad of issues related to MAS.
Abdul Aziz Abdul Rahman
Abdul Aziz Abdul Rahman
KiniBiz spoke to the former CEO, now 81 years of age, at his residence in Kuala Lumpur to get his opinion on Khazanah Nasional Bhd’s (Khazanah) 12-step recovery plan for MAS, the controversial MAS bill and his concerns for the employees of the airline.
Of course, it is also important to note that Aziz’s speaking up has coincided with the emergence of Jentayu Danaraksa Sdn Bhd, a management consultancy firm that is pushing a different plan to save MAS.
Aziz is the chairman of this consultancy, which he said was formed specifically to present a MAS recovery or rescue plan.
Jentayu came to be after Aziz was approached by a group of people who felt that something should be done to help revive MAS. Aziz said that the group was motivated by the substantial losses being recorded and what they saw as a lack of clear direction.
The group is made up mainly of individuals with business or finance backgrounds. With the exception of one other who was a civil aviation analyst, Aziz is the main aviation expert in the team.
‘I have kept pace of the sector’
Many opine that MAS’ problems stem from the fact that it has had a succession of CEOs without aviation knowledge or experience instituting wrong business plans. Given that Aziz is the main aviation expert in Jentayu’s team, the question of whether or not he has been out of the industry for too long arises.
Aziz however refuted that suggestion and emphasised that he has kept pace with industry developments over the years. He said “although I have been out of running airlines, I have not been out of the aviation industry. I have been the chairman of a company in Sabah that does helicopters and light aircraft. I am also involved in two big tour operators.”
He also added that he specialised in aviation law, and highlighted that he drafted Malaysia’s civil aviation law in 1996, which is still used today.
‘We will take over some divisions’
Jentayu’s plan to revive MAS centres around the injection of funds into MAS, said Aziz. “We felt that we can come in with funds. For example we can take the engineering division or FireFly,” he explained. This would allow the government or Khazanah to focus their attention on other areas that need work.
Jentayu Danaraksa logoAfter they have acquired these divisions, the idea would be to keep most of the staff already working in those divisions, while bolstering the management with several individuals with the right expertise.
Aziz is confident that not much will need to be changed, as most of the original staff will be retained. Jentayu will take a continuing management role in the divisions which it has bought from MAS, but will continue to work with MAS on a preferential basis.
Since this interview last Thursday, Jentayu has released more details of its plans which centres around a RM8.5 billion offer to acquire all MAS’ aircraft though the acquisition of Penerbangan Malaysia Bhd (PMB).
This will be through a RM5 billion sale and leaseback agreement with the new MAS or Malaysia Airlines Bhd (MAB). The aircraft will be owned by a company to be called JD Leasing.
In addition, JD Leasing will also refinance the US$1 billion (RM3.49 billion) bond issued by PMB which is due in 2016. Jentayu will then lease back the aircraft to the new MAS Co at preferential rates.
To be able to cover its own costs and increase its profits, the leasing company will also provide aircraft to other airlines, both locally and overseas.
According to Aziz, Jentayu will also look to do something similar with MAS’ maintenance, repair and overhaul (MRO) unit. Upon acquiring this division, Jentayu will offer MRO services to any airline that requires them.
Malaysian Airline System Bhd. (MAS) signage is displayed as a traveler stands at the company's check-in area at Kuala Lumpur International Airport (KLIA) in Sepang, Malaysia, on Saturday, July 19, 2014. Flags in Malaysia flew at half-mast after the nation's second air tragedy in four months, as Prime Minister Najib Razak urged citizens to pray for the country to be protected from disasters and threats. Photographer: Brent Lewin/BloombergAziz confidently stated that he has clients lined up to take up the services provided by both the leasing company and the MRO unit. However, he stops short of naming them, and said this was to avoid them being poached by others.
However, he emphasised that he believed securing jobs will not be difficult, as companies based here will be able to provide the services at lower rates.
In essence, said Aziz, the idea behind Jentayu’s plan is simple. Take some of the divisions MAS is currently struggling to maintain off their hands, and allow Khazanah to concentrate its attention on the full service carrier or long haul portion of the business.
Funds will largely come from foreign investors
Central to the plan of course is a large amount of money, and understandably critics of Jentayu are wary that the group might not be able to back up its talk with the funds. KiniBiz asked Aziz where he would source the money from, and what would be offered in return for the billions pumped in.
According to Aziz, the majority of the money will come from overseas investors. However, he is quick to emphasise that the foreign investors will have no direct investment in MAS or a say on the everyday running of any of the divisions.
Khazanah Logo 03When asked what the return for these foreign investors would be, Aziz offered a vague response “that it would be between the investors and Jentayu”. When pressed further, he said that the investors would get returns in line with market levels or norms.
Khazanah so far is not interested
According to Aziz, the Jentayu team has met with Khazanah to present their proposal. However, so far they have been disappointed with the response. “Khazanah is not interested. They have said they will call us, and if they do we will go and explain further.”
Although said to complement Khazanah’s 12-step plan, Jentayu’s suggestions seem to differ from Khazanah’s in several key places. And judging from the conversations he has had with Khazanah, Aziz believes that the investment fund will prefer to go forward with their own plan and that they do not want to split up MAS.
‘I won’t be involved in setting up another airline’
If Khazanah does not accept Jentayu’s proposal, the question of “What’s next?” arises.
Aziz said that should Khazanah reject their proposal, then the group will look to pursue other aviation-related endeavours. “If they do not accept us there is nothing we can do; maybe we can try and do something else,” said Aziz. He added that any venture will be in the aviation industry.
Former MAS CEO Abdul Aziz Abdul Rahman 02When asked if this included setting up a new airline, Aziz emphatically said no. However, in a press conference yesterday, Jentayu Danaraksa managing director Feriz Omar and director Shukor Yusof said that the group is considering setting up a new “premium economy” airline. It is unclear if Aziz will play any role in the airline should that happen.
He also said that he would not consider working with another airline, as he is too firmly associated with MAS. “If they see me working with AirAsia, I think the MAS staff will ask, what has happened to this fella?’”
Tomorrow: In Part 2 of the interview, Aziz gives his opinion on Khazanah’s 12-step recovery plans and controversial MAS bill, the need to hold failed senior management accountable and sticking up for MAS employees.

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