Paul Lewis/KUALA LUMPUR
WHEN TAJUDIN RAMLI entered the international aerospace arena, he brought with him two essential qualifications for success: vision and cash. In the 18 months since taking the helm of Malaysia Airlines (MAS), Tajudin has shaken the national carrier out of its catatonic existence, masterminded a series of major acquisitions and alliances, and is now focusing his attention on the country's embryonic aerospace industry.
As the founder and chairman of Malaysian telecommunications giant Technologies Resources Industries, Tajudin has accumulated a sizeable financial war-chest over the years. In June 1994, his holding company, Malaysian Helicopter Services (MHS), paid M$1.79 billion ($700 million) for a 32% controlling interest in MAS.
At the same time, MHS acquired a 25% stake (since reduced to 20%) in US carrier World Airways for M$27.5 million, followed by a M$9.26 million outlay for a 66.7% share of Aerospace Industries of Malaysia (AIM), which, in turn, owns 34% of the Airod maintenance and overhaul operation.
More recently, the company increased its holding in Dutch helicopter operator Schreiner Aviation to more than 44%, bought a 49% share in Air Maldives and took a 40% interest in Royal Air Cambodge (RAC). It has also picked up a further 19% stake in Airod, with the final withdrawal of Lockheed Aircraft Services International from the joint venture.
While there is some concern that Tajudin may have over-extended himself, it is apparent that MHS' empire-building has had major benefits for MAS. The carrier has been able to draw on World Airways' McDonnell Douglas MD-11 fleet for added capacity, lease out smaller, surplus Boeing 737s and Airbus Industrie A300s to RAC and Air Maldives, and pool its engineering resources with Airod.
Within weeks of his appointment as chairman of MAS, Tajudin announced bold new plans to restructure the airline, reduce spending and increase turnover. Early results indicate that Tajudin is on course, with MAS announcing a net profit of M$139.3 million for the year ending 31 March, compared to just M$8.44 million for the previous year.
Incredibly, the turnaround in the fortunes of MAS has been achieved without any large-scale redundancies among the airline's 20,000-strong workforce. Tajudin says: "I didn't want to come in and start slashing people from the payroll. There were only one or two people who we did not think were contributing enough to the company, and I let them go."
Subsidiaries
MAS has already established a number of wholly owned subsidiaries to take over some ancillary operations, such as catering and duty-free concessions. The results have been good, with MAS Catering and MAS Golden Boutique reporting healthy profits for their first six months of operation.
Tajudin explains: "These subsidiaries were siphoned off because we knew from day one that they could easily be incorporated and contribute quickly to the group."
A third subsidiary, Tiara Malaysia Airlines, was established in late August as an investment holding company. It is planned to extend the restructuring process to other areas of MAS' activities, including engineering and cargo handling.
MAS has broken up its former finance department into three separate entities, in a move designed to improve budgeting and cut costs. The Budgets and Corporate Planning division has been given the task of long-term planning through to the year 2002, while Corporate Accounts focuses on day-to-day implementation and Treasury on reducing costs, such as those of fuel.
"Once this programme starts to take effect, our profit-and-loss balance sheet will not be so dependent on outside forces," claims Tajudin. "We'll be able to plan ahead for downturns and the effect on profits."
One formidable task faced by the financial planners at MAS is to reduce the airline's debt, already M$6.5 billion and forecast by analysts to rise to M$7.5 billion by 1997. There are still major items of expenditure in the pipeline, including buying up to 15 additional Boeing 747-400s and at least ten yet-to-be selected medium-capacity long-range aircraft (Flight International, 4-10 October).
An increasingly important source of income for MAS is cargo, and Tajudin has been quick to exploit this by adding more capacity. The airline has leased two MD-11Fs from World and converted its two Boeing 747-200s into freighters.
"Before I came, cargo used to be the dead end of the airline. It is now becoming a profitable part of the company," Tajudin claims. "We're hoping to increase its contribution in terms of revenue from less than 15% now to about 25-30% by the end of the decade."
MAS' international passenger traffic is also turning in a stronger performance, with revenues up 12% by the end of the 1994 financial year. The airline has concentrated its marketing efforts on its traditionally strong routes to Europe, and London in particular. Frequencies have been increased and code-sharing agreements signed with Virgin Atlantic Airways and British Midland.
The carrier has also signed a codesharing agreement with Ansett and secured extra flights to Australia and New Zealand. "We're bursting at the seams and, even with the increase that has been approved, it will not last very long, and we'll soon fill up all those seats," says Tajudin.
Other, more adventurous start-up routes to Buenos Aires and Johannesburg - launched in line with the Malaysian Government's "south-south" policy - have been less encouraging. Flights to South Africa have only just begun to turn a profit after two years of operation, while the onward sector to Argentina still requires "some more work", concedes Tajudin.
With partners in Europe and Australasia, MAS is looking to complete its global network with a codesharing tie-up in North America. "We're in discussion with one or two US carriers, but haven't finalised anything yet," he says.
He adds that, in the longer term, the airline is looking to build further on its international partnerships and to forge strategic alliances, including possible cross- shareholdings. "We don't discount any one at all," he says.
Of more immediate concern to MAS is its loss-making domestic services. Government-imposed fares force the airline to operate many so-called "social-service" routes at below cost. It is estimated that, per kilometre, Malaysia's domestic air fares are the second-lowest in Asia (after the Philippines) and less than one-third of those of Japan.
The problem in the past was compounded by the rapid expansion of MAS' domestic fleet of 737-400/500s and Fokker 50s, which doubled in size to 64 aircraft during 1989-94. Domestic traffic grew by only 13% a year over the same period, load factors slipped and revenue stagnated at its 1989-90 level.
"We can't ask the Government for an across-the-board 30-40% fare increase," says Tajudin. "Instead, we need to continue to address this on a sector-by-sector basis. We may not be successful all the way, but, at least in some sectors, we believe there is an opportunity to be more equitable."
Remedial measures to date have centred on increased aircraft use, leasing surplus 737s to RAC, Myanmar Airways International and Jet Airways of India, along with tighter cost controls. According to Tajudin, around a third of MAS' existing domestic routes within peninsular Malaysia, Sabah and Sarawak remain unprofitable, with another third at, or just above, break even.
Long-term solutions
Suggested longer-term solutions have included the development of more-efficient third-tier carriers and a rationalisation of Malaysia's airports. MHS already holds an 18% stake in Pelangi Air, and MAS has begun helping to develop new routes for the carrier, such as Penang-Kuantan and Ipoh-Johore Bahru, and equip it with more cost-effective Bombardier de Havilland Dash 8-300 turboprops.
In June, Tajudin called for the closure of some of the smaller airports, claiming that they had been made redundant by improved ground infrastructure, for example, the country's arterial North-South Highway. While the transport ministry was initially unresponsive to his suggestion, it has since commissioned an airport study.
"I'm not sure whether they reacted to my comments, or whether they have their own plans," says Tajudin modestly, "but, based on our flight patterns, we know that some of the airports need not be there."
A key element in Tajudin's success has been his close relationship with Malaysian prime minister Mahathir Mohamad, who is a strong proponent of an indigenous aerospace industry as part of his "Vision 2020" national economic blueprint.
Tajudin was accordingly appointed chairman of the Malaysian Industry-Government Group for High Technology (MIGHT), an offshoot from the Commonwealth Partnership for Technology Management.
"One of the challenges of the country is to become a creator of technology. I think people in MAS are ready to move away from just being a consumer of technology and help become the creator of technology," suggests Tajudin.
The MIGHT's aerospace sub-grouping has brought members of industry together with the Government and military to try and formulate a national policy. Discussions have also been initiated with companies from other Commonwealth countries, in particular Canada.
"We've found that, while we have skill in some areas, we don't in others," says Tajudin. "The programme which the Canadian private sector and Government can put together appears to be good for us and we've said we would like to work with companies involved in aerospace training and management."
It is hoped that the MIGHT will bring some clarity and direction to the development of Malaysia's aerospace sector. Previous efforts by the Government to kick-start the industry have met with mixed results. Of three programmes initiated before the last Langkawi International Maritime & Aerospace (LIMA) Exhibition in 1993, only one has reached fruition.
Plans to build the Dornier Seastar CD-2 amphibian in Penang have been scuppered, with the failure of the AIM-led joint venture to inject the necessary capital (Flight International, 16-22 August), while the Australian-designed Eagle X-TS composite light aircraft has run into certification difficulties. SME Aviation, in the meantime, has begun production of the two-seat Aero Tiga, formerly the Datwyler MD3-160 Swiss Trainer
Tajudin reveals that, immediately after the last LIMA show, it was decided to concentrate instead on "more established" avionics and composites technology programmes. He adds that Malaysia has amassed several hundred million dollars' worth of military-contract offsets, which would be used to put these projects in place.
"These programmes are more thought out and better structured, rather than rushed decisions," says Tajudin. While he refuses to disclose any further details, the planned programmes are understood to include local industry participation in the Malaysian air force's planned Lockheed C-130 avionics upgrade (Flight International, 4-10 October).
Eighteen months after taking control of MAS, Tajudin concedes reform and improvement has taken longer than he expected, but concludes: "I am now at least more comfortable with what I look at and the programme we want to do."
Source: Flight International
