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The Asian Wall Street Journal
2nd January 2002

Mahathir Taps Advisor to Oversee Sale of Malaysian Airline System

By LESLIE LOPEZ
Staff Reporter of THE WALL STREET JOURNAL

KUALA LUMPUR, Malaysia -- Malaysian Prime Minister Mahathir Mohamad has appointed his chief economic troubleshooter, Nor Mohamed Yackop, to accelerate the restructuring of ailing state-controlled Malaysian Airline System Bhd., or MAS.

Tan Sri Nor Mohamed's assignment, according to government officials, includes speeding up sales of MAS assets and trimming the airline's bloated work force, measures officials and bankers say have been stalled in recent months by squabbles among MAS's directors and senior managers.

Officials say Dr. Mahathir, fed up with the slow pace of restructuring at the airline, summoned the MAS board for a meeting in mid-December and named Tan Sri Nor Mohamed to oversee a rescue plan for the airline, which is struggling under 9.2 billion ringgit ($2.42 billion) in debt.

Tan Sri Nor Mohamed couldn't be reached for comment. But his appointment, which has yet to be made public, reflects the increasingly important behind-the-scenes role the former central banker is playing in Malaysia's efforts to restructure its debt-heavy corporate sector. Tan Sri Nor Mohamed was the prime mover behind the government's recent takeover of Renong Bhd., Malaysia's biggest corporate debtor and former investment arm of Dr. Mahathir's ruling party.

Publicly listed MAS has become a headache for Dr. Mahathir's administration. Even before the Sept. 11 terrorist attacks in the U.S. undermined the global travel industry, MAS had been suffering from mismanagement, declining passenger loads and higher fuel costs.

The airline's accumulated losses stood at 2.08 billion ringgit at the end of September, against shareholders' funds -- consisting of paid-up capital and reserves -- of 1.9 billion ringgit. U.S. dollar-denominated loans account for almost 70% of MAS's borrowings.

"There is no immediate fear of the air-line going belly up because the government will stand by all urgent debt obligations," says a finance executive familiar with MAS's restructuring situation. "But the long-term problems are serious and a big sticking plaster needs to be slapped on the airline's wounds."

Government officials close to the restructuring plan say Tan Sri Nor Mohamed and MAS's chief executive, Mohamed Nor Mohamed Yusof, will try to sell the airline's food-catering division, its headquarters in Kuala Lumpur and its big operations complex at Kuala Lumpur's new international airport. Officials expect the sales to bring in more than two billion ringgit. "That will free up some cash, cut [the airline's] debt and allow us to tap the market for fresh funding," a senior government official says.

The official adds that government funding to prop up the airline will only be considered if MAS is unable to borrow from commercial financial institutions.

Some securities analysts are skeptical that the planned asset sales can be concluded quickly, however. They cite Malaysia's sluggish property sector and predict the government will have to inject fresh funds into the airline soon to keep it aloft.

But a government bailout of MAS would be politically sensitive, especially at a time when Kuala Lumpur is trying to convince foreign portfolio investors that it is serious about restructuring its corporate sector.

Early last year the government paid 1.8 billion ringgit to acquire a 29% equity interest in MAS from businessman Tan Sri Tajudin Ramli, a protege of then-Finance Minister Daim Zainuddin. That deal, which raised the government's equity stake in the airline to almost 50%, damaged Kuala Lumpur's already tarnished reputation with investors, who widely viewed the purchase as a bailout of Tan Sri Tajudin. The government paid eight ringgit a share for the MAS purchase, a premium of almost 250% over the then-prevailing price of MAS stock on the Kuala Lumpur Stock Exchange.

Funding isn't the only problem facing the MAS restructuring. The airline has 21,000 employees and aviation analysts say it urgently needs to sharply cut its annual wage bill, which accounted for almost 17% of total operational expenses in the year ended Mar. 31. But authorizing the sizeable layoffs needed to improve efficiency could be politically sensitive for the Mahathir administration.

http://asia.cnn.com/2002/BUSINESS/asia/ 01/02/malaysia.mas/index.html

Malaysia Airlines to get its man

By Alex Frew McMillan CNN Hong Kong

KUALA LUMPUR, Malaysia -- Malaysian Prime Minister Mahathir Mohamad has reportedly picked the man to turn around the country's flagging airline.

Mahathir has tapped his top economic reformer, Nor Mohamed Yackop, to revamp Malaysian Airline System Bhd., according to The Wall Street Journal.

It's another key role for Nor Mohamed, Malaysia's former central banker and already the prime mover behind the government's taking control of Renong Bhd., Malaysia's largest conglomerate.

Mahathir told the MAS board that he had found the man for the job at a meeting in mid-December, the newspaper states, though the choice has yet to be made public.

Leader looking at running again

Separately, Mahathir, 76, said Tuesday he is considering running in Malaysia's next election, due by 2004.

The long-time premier said he would consider another candidacy "in certain situations," to ensure the success of his coalition.

MAS, parent of Malaysia Airlines, is struggling under a debt load of 9.2 billion ringgit ($2.4 billion).

That has been compounded by the aftermath of September 11, a slowdown in tourism due to the economy and concern about tourist safety in Malaysia, Asia's second-largest Muslim country.

Nor Mohamed is expected to sell off some MAS assets, as well as slash jobs. Insiders say attempts at turning the airline around have gotten bogged down due to internal squabbling among directors and executives.

Safest year ever for Asian airlines

Though Malaysian Airlines isn't at risk of going under, it has serious long-term problems, experts say.

Nor Mohamed will work with CEO Mohamed Nor Mohamed Yusof to sell the company's catering division, its Kuala Lumpur headquarters and a large complex at KL's new international airport, the WSJ says.

He is expected to trim the company's 21,000 work force.

2001 was an extremely tough year for Asian airlines, like their counterparts in Europe and the United States. But, with no commercial-airline deaths in the air, it was also their safest.

Pilots at Hong Kong's Cathay Pacific airline begin working to rule on Wednesday, a move they suspended in October.