This article first appeared in The Edge Malaysia Weekly on September 11, 2023 - September 17, 2023

THE government will not interfere in commercial decisions made by government-linked companies (GLCs), but their boards of directors and management must be held accountable for their actions, says Minister of Transport Anthony Loke Siew Fook.

The recent suspension of Malaysia Airports Holdings Bhd’s (MAHB) 25-year-old aerotrain service at Terminal 1 of the Kuala Lumpur International Airport (KLIA) as it undergoes replacement, as well as flight delays by Malaysia Airlines Bhd (MAB) due to a dispute between the national carrier and in-flight caterer Brahim’s Holdings Bhd (BHB), have spurred calls for government intervention to resolve the problems, where the disruptions have been described by some as a “national embarrassment”.

But Loke says the government does not plan to interfere in the GLCs’ decisions on commercial matters as it would set a dangerous precedent — that the government would intervene each time a dispute arises.

Relations between MAB, a wholly-owned subsidiary of Malaysia Aviation Group Bhd (MAG), and BHB had been strained for years after the national carrier ended its 25-year supply contract with BHB and slashed its catering bill by a quarter under the Malaysia Airlines Recovery Plan in 2015.

The situation worsened after the two sides were unable to reach a contract extension on Aug 31, with MAB announcing its decision to end its long-standing catering partnership with Brahim’s Food Services Sdn Bhd (BFS), although not without some backlash from passengers as in-flight dining issues emerged soon after the termination.

MAB holds a 30% stake in BFS, with the remaining 70% held by BHB through its 51% equity interest in Brahim’s Dewina Investment Holdings Sdn Bhd. The remaining 49% in Brahim’s Dewina Investment Holdings is held by Dewina Brahim’s Holdings Sdn Bhd — the private investment vehicle of BHB’s founder and executive chairman Datuk Seri Ibrahim Ahmad and his family.

Asked if the Ministry of Transport (MoT) will broker a peace deal between MAB and BHB, Loke says: “This is a commercial decision. The government cannot interfere every time there is a dispute between two private entities. This is purely a commercial matter and they have to settle it through commercial means,” he tells The Edge in an interview.

“We should not be seen as interfering and the government should also not send a wrong signal that certain quarters or companies can use political cables or approach government ministers to solve their problems. That should not be the case. So, we will leave it entirely to the two companies to sort things out. MAB has to take all the risks [of ending its contract extension with BFS and resorting to other catering service providers]. It has to prepare for this and a recovery plan must be in place.”

Sovereign wealth fund Khazanah Nasional Bhd is the largest shareholder of MAG, with an 83.58% stake; followed by Minister of Finance Inc-owned Turus Pesawat Sdn Bhd, with 12.94%; and Kumpulan Wang Persaraan (Diperbadankan) (KWAP), with 3.48%. Over at MAHB, Khazanah is also the largest shareholder with a 32.67% stake, while the Employees Provident Fund (EPF) has 10% equity interest and KWAP, a 6.7% stake.

“First of all, my principle is that when dealing with all the operators, we just give a general direction. But any decision ultimately is by the [company’s] board. I don’t interfere in the decision of the board. So, the board has to make a decision to the best of their knowledge and interest in the company,” says Loke.

“In the case of MAB and BHB, one of the members of the [MAG] board did share a few months ago what preparations they were undertaking to prepare for the eventuality, that is, MAG wants to take over the company (BFS). However, the terms were not agreeable and [BHB] was asking for a much higher price than what MAG was willing to pay.

“[Ultimately] this is a commercial decision. But I reminded MAB that they are a national airline. They carry the image of the country. Even though some disruptions are to be expected during this transition, they must quickly recover and ensure that the brand is not affected. MAB, of course, as a national and premium airline must ensure that their services remain good. That is their image. And the confidence of the passengers is very important.”

Loke believes communication with passengers is key for MAB during this transition. “They must communicate with passengers. Eventually, they must have some sort of programme to compensate the passengers for any shortcomings in terms of the food and services on board,” he says.

“The principle of any decision-making is that we can never be held to ransom. That is my general advice to them. As far as I am concerned, as a politician and the leader of a political party, my decision-making process and principle is that we should never be held to ransom by anyone.”

Last Tuesday, MAG group managing director Datuk Captain Izham Ismail told selected media that the contract terms with BFS were “lopsided”. “The negotiations started in November last year, but it was going nowhere. We couldn’t come [to an agreement], knowing the fact that BFS has a monopoly in the local in-flight catering market,” he said, adding that MAG’s management and board were fully aware of the implications that the decision to end its contract with BFS would have on its passengers. “[We went in with] eyes wide open.”

Facing severe flak from various quarters on the delay in fixing the aerotrain services at KLIA, Loke says: “As the Minister of Transport, I take a lot of heat on this issue. I have to be answerable to parliament. Of course I am the only person who can answer in parliament on this issue. And there are a lot of questions from the public on the aerotrain issue. My social media is flooded with complaints on the aerotrain every day.

“But I want to make it clear that the aerotrain is not a project under the MoT. The decision on the aerotrain and its project implementation is entirely MAHB’s,” he stresses.

Loke says the same principle of non-interference in commercial decisions applies to MAHB’s decision last month to terminate the RM742.95 million contract awarded to Pestech International Bhd to undertake the aerotrain replacement programme at KLIA. The airport operator had cited non-performance compromising significant project milestones and risking delays to deliver the project within the required deadline as its reasons.

“Before the MAHB board made the decision, its managing director (Datuk Seri Iskandar Mizal Mahmood) did brief me about what happened. And after the board made the decision, the MD informed me again. So I said, ‘My principle is that I will not interfere in the decision of the board. You can make your decision, but you must also be accountable [for the impacts] of your decision’,” he says.

“I told the MD that you have to be accountable. The board as well. Because whatever decision you make must ensure that the delivery of the project must be according to the schedule. I have given them a firm date because they promised me the first aerotrain must be operational by July 2024. So I said I will stick to that date. I don’t care which company they choose — whether they want to continue with the existing company or they want to appoint a new company, but the deadline cannot change.

“I told the MD, ‘If you change the deadline, you will be changed.’ Even though it is not within my powers to remove him. It is under Khazanah’s. I told him that he is the MD [of MAHB], so he is not only accountable to the board [but also the people] because this is an international airport and the gateway to the country. He must take all the necessary steps to ensure that the project will be delivered.”

The replacement project, involving nine aerotrains, will be fully funded by MAHB and take three years to complete, if delivered by March 2025.

Iskandar Mizal has been head of MAHB since October 2021, when he replaced Datuk Mohd Shukrie Mohd Salleh. It is worth pointing out that he is the third MD of the GLC in a span of three short years.

Apart from Iskandar Mizal, MAHB’s board members comprise its non-executive chairman Tan Sri Zainun Ali (former Federal Court judge); Datuk Zamzuri Abdul Aziz, as nominee director of Minister of Finance Inc; Datuk Amran Hafiz Affifudin, who is currently executive director and head of Malaysian investments at Khazanah; Rohaya Mohammad Yusof, who is chief investment officer at EPF; and independent directors Datuk Mohamad Husin (chairman of Urusan Teknologi Wawasan Sdn Bhd), Ramanathan Sathiamutty (adviser to the CEO at Celcom Axiata Bhd) and Cheryl Khor Hui Peng (former director of Deloitte Southeast Asia).

Critics contend that apart from the MD, MAHB’s current board members have no aviation experience, and point to the board’s past failure to respond quickly to various issues, including upgrades of the KLIA aerotrain, baggage handling system and ageing IT system and equipment.

Loke says that while the government does not intend to interfere, he is keeping a “close watch” on the aerotrain replacement programme that is currently underway.

“I closely follow the aerotrain issue, but the contract is between MAHB and a private entity. If this project were funded by the MoT development expenditure, then it would be a different story. But this is a project undertaken by MAHB and funded with MAHB’s internal funds and not with government funding. So I cannot interfere in terms of decision-making. Of course I know and I give my views, and of course I have to be answerable and explain to the public. But eventually any decision will be made by the board. And I am not on the board. We can only give our views.”

MAHB has come under fire periodically for issues such as baggage handling problems, technical glitches that led to flight delays, as well as cracks in the taxiway and ponding in Terminal 2 of KLIA. The airport’s ranking has also dropped five spots to No 67 on Skytrax’s World’s Top 100 Airports for 2023.

To this, Loke says: “Whatever decision and performance and non-performance of the airport reflect on the entire board and management of MAHB. That must be told straight to their faces. And I told the MD many, many times, this reflects not only on you, but also the entire management and the board. As the transport minister, I will take the heat and I am prepared to take the heat, but we have to ensure that we improve.

“My approach as a minister is not to put the blame on anyone. I don’t like to pinpoint any particular person. We are in this together. If you fail, it means I fail too. So I want you to succeed. I want you to excel and I want you to improve because eventually, that also reflects on my leadership as a minister.” 

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