News Backgrounder
Starting over at MAS
Malaysia Airlines new chief executive, Christoph Mueller, has told the carrier’s 20,000 staff a job cull has commenced - and at the highest levels - as the company faces a new start.
June 1st 2015
Wasting no time, Malaysia Airlines (MAS) chief executive and former pilot, Christoph Mueller, wrote to staff in his first week at his new desk said that 6,000 of them had no future at MAS and also negotiated an agreement to reduce the airline’s catering costs by up to 25%. Read More »
In his first interview since he took charge on May 1, Mueller said the new company that will emerge from troubled MAS will be like “a start-up”.
 |
| Christoph Mueller, MAS’s new CEO: everything will be new at MAS |
He told Reuters news agency in Kuala Lumpur “he was hired to run the new company entirely on a commercial terms” and that there was very little margin for error. “It is not a continuation of the old company in a new disguise. Everything is new,” he said.
Malaysian government investor, Khazanah, took MAS private last year in a restructuring estimated to cost US$1.65 billion. Auditing firm, PricewaterhouseCoopers Malaysia, will oversee the transfer of the airline’s liabilities and assets to a new airline, Malaysia Airlines, which will operate from September this year.
Mueller said it would take three years to bring the new airline’s costs into line with the industry norms in the region.
Mueller’s alacrity points to tumultuous times at MAS. His three-page memo to all staff - details were released by the National Union of Flight Attendants Malaysia – warned there would have to be massive cost cutting and as well as the 30% reduction in staff. He said MAS’s financial situation is more challenging than previously thought.
It will shrink in size as it tries to overcome a tarnished image within the travel industry and the public, he said. MAS has been badly hit in the last year by the double disasters of MH370 and MH17. Mueller has been set the task of overseeing a $1.7 billion turnaround.
In his memo, Mueller said parts of the organization seemed “depressed” and that “the airline is suffering from a heavily damaged brand reputation” in key markets, with many people avoiding the carrier because “they are frightened”.
He pointed out this year will be more challenging than anticipated because a strong U.S. dollar was hurting operations. As a result, MAS has not fully benefited from lower jet fuel prices. “We cannot turn the airline around by fixing the revenue side alone,” Mueller said.
“The contrary is the case. The reason for our precarious situation is mainly our uncompetitive cost levels. We share this problem with almost all legacy carriers around the world and new low-cost carriers are attacking us.’’
In order to grow, Mueller said “sometimes we have to retreat and regroup before growing again. That is the ultimate target. We want to grow again in the last phase of the restructuring”.
Mueller took the helm from Ahmad Jauhari Yahya. He will engineer the migration of MAS to a new company, MAS Bhd, which will take over the airline’s operations on September 1. Other points his memo made were that corporate procurement has to be on better terms and conditions in all areas of operations.
MAS has to be smaller in size and will outsource certain functions. Broken relationships between staff and management, unions and management, and even between departments are to be fixed, and there is a need to pay attention to details in service delivery, he said.
Mueller wrote that “since the new airline will be smaller, we simply do not have enough work for all of you”. Employees are to receive their termination and appointment letters at their home address early this month. Those who are asked to stay will receive new contract conditions benchmarked against competitors.
Mueller will certainly be facing a showdown with workers over the recovery plan. The flight attendants union has protested termination by mail is “obnoxious and arrogant” and complained its 3,500 members are stressed and worried. The union has written to the Malaysian prime minister, Najib Razak, and asked him to urge the airline to offer short and medium-term layoffs and salary cuts before a final termination exercise is carried out.
A new deal with Brahim’s Airline Catering (BAC) is the first of a number of anticipated renegotiations with suppliers and a critical element of the 12-point MAS Recovery Plan. In a joint statement, MAS and BAC said the new pricing methodology, coupled with new product offerings and menu structure will provide a 20%-25% reduction in catering costs compared with the previous catering contract. The deal is made up of two separate agreements covering “wide body aircraft” flights and “narrow body aircraft” flights, which is in line with international norms.
BAC is the exclusive in-flight caterer to MAS under a 25-year catering agreement that was due to expire in 2028 at Kuala Lumpur International Airport (KLIA) and Penang International Airport.
In a statement to the country’s stock exchange, BAC said it had no option but to sign the service level agreement (SLA) if it was to remain as MAS’s caterer and continue to be relevant as a global halal flight kitchen servicing 36 other international airlines at KLIA.
BAC can be compelled under the new MAS Act to continue supplies to MAS despite MAS withholding payments. BAC is prevented from filing legal action for unpaid receivables. This had caused severe cash flow problems at BAC and affected its ability to upstream dividends to to parent company, Brahim’s.
