This article first appeared in The Edge Malaysia Weekly on August 28, 2023 - September 3, 2023

THE in-flight dining experience is an integral part of an airline’s services. But national carrier Malaysia Airlines Bhd (MAB) has been receiving complaints over the poor quality of its meals served in-flight. In seeking a solution, MAB has turned to its catering partner, which believes “you get what you pay for”.

In essence, this has been the spat between MAB and long-time in-flight catering partner Brahim’s Holdings Bhd (BHB) — which has intensified of late amid surging travel demand after more than two years of Covid-19-driven restrictions.

At the core of the dispute is BHB’s unhappiness that it got the raw end of a settlement deal with MAB’s controlling shareholder Khazanah Nasional Bhd under the Malaysia Airlines Recovery Plan in 2015, which saw the airline ending its 25-year supply contract with BHB and slashing its catering bill by 20% to 25%.

While the deal was deemed bad for BHB, it did help the then struggling airline to reduce costs and negotiate some of the most competitive rates for products and services to improve its competitiveness.  Still, discordant notes creep up occasionally in relations between the two parties, which share ownership in Brahim’s Food Services Sdn Bhd (BFS), in which MAB has a 30% stake and BHB a 70% controlling stake.

But the time has come for MAB to decide whether it wants to continue its partnership with BHB, buy out BHB’s controlling stake in BFS or forge its own path. The catering contract between MAB and BFS will come to an end on Aug 31.

New Straits Times reported last week that Deloitte Malaysia had valued the whole of BFS at RM162.8 million to RM184 million. A back-of-the-envelope calculation suggests that MAB would be forking out RM114 million to RM128.8 million for the 70% stake.

For one thing, MAB’s parent company Malaysia Aviation Group Bhd (MAG) has repaired and strengthened its balance sheet, following the completion of its debt restructuring in 2021 that saw a RM3.6 billion capital injection from Khazanah. MAG’s cash balance stood at RM4.6 billion at end-2022. The airline group also expects to become profitable this year on the back of the rising cost of airfares amid an upswing in travel demand that continues to hold strong.

At the same time,  BHB is reportedly ready to sell its 70% stake in BFS, which would help it regularise its financial condition, including the settlement of RM49.88 million in debt to OCBC Al-Amin Bank Bhd, which in part led to the delisting of the financially distressed company from Bursa Malaysia last year. BFS is the largest contributor to BHB’s top line, contributing about 90% to its total revenue.

The Edge reported in February that BHB and MAG had early this year held talks about the sale of BHB’s 70% stake in BFS to the national carrier. The talks fell through, however, as BHB’s asking price was deemed to be too high.

Filings with the Companies Commission of Malaysia show that BFS’ liabilities exceeded its assets by RM87.58 million as at Dec 31, 2021.

Its accumulated losses amounted to RM165.58 million in FY2021. While it saw net loss narrow to RM29.99 million in FY2021 from RM126.15 million in FY2020, revenue was down 64% year on year to RM26.94 million.

Critics argue that if MAG were to buy up the rest of BFS, it would only cause its own financial position to deteriorate, a position that took several business transformation plans and a reset to achieve. Furthermore, MAG would have to spend to bring BFS’ catering equipment up to date.

Critics also point out that MAB is not an expert in airline catering, even though MAB owns a 60% stake in MAS Awana Services Sdn Bhd, which caters in-flight meals for MASwings Sdn Bhd, MAB and foreign carriers in Kota Kinabalu, Sabah, and MAB’s airline lounges.

In an earlier interview, BHB executive chairman Datuk Seri Ibrahim Ahmad said building a new flight kitchen would easily cost RM200 million. “Then you have to put in staff, train them and get customers.”

It is understood that BFS’ closest competitor, Pos Aviation Sdn Bhd, a wholly-owned subsidiary of Pos Malaysia Bhd, has only about 15% of BFS’ total capacity at the 59,000 sq m flight kitchen at the Kuala Lumpur International Airport.

When contacted by The Edge, MAG declined to comment, saying it would issue a statement this week. 

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