This article first appeared in The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

OVER the past 10 years, national carrier Malaysia Airlines Bhd took its eyes off investing in its business, including its fleet of aircraft, to focus on paring down debt to strengthen its balance sheet and returning to profitability. Just as it returned to profit in 2023, it is now paying the price for the delay in putting money into its business.

During its chequered journey, the once-publicly traded airline underwent a “hard reset” through privatisation and turned itself around after reaching a RM15 billion debt restructuring deal with its creditors and lessors when the Covid-19 pandemic hit the airline hard; it received a RM3.6 billion injection of capital.

In a turn of events, Malaysia Airlines now has issues with its jets. In recent months, the airline has been hit by multiple technical issues with its aircraft, causing cancelled or diverted flights and putting it once again in an unwanted spotlight.

Its network expansion has been significantly affected by its fleet of ageing planes. And even though it is sitting on RM4 billion in cash, it will not be able to ramp up its operations quickly by buying new jets as manufacturers such as Airbus and Boeing struggle to produce their planes fast enough to meet continued strong demand in the market and persistent supply chain snags.

Malaysia Airlines CEO Datuk Captain Izham Ismail says in an interview: “We could hardly survive before 2020. We didn’t have cash to even pay our staff their salary [back then]. I don’t want to blame my predecessors or the management before this, but it is what it is. Because of that, Malaysia Airlines [was not quick enough] to reinvest in new airplanes. We made [aircraft] orders very late. So, now, we are saddled with ageing planes.”

Izham, who is also group managing director of Malaysia Aviation Group Bhd (MAG), Malaysia Airlines’ parent company, took the helm in 2017 — near the tail end of the five-year MAS Recovery Plan launched by its shareholder Khazanah Nasional Bhd in 2014.

MAG swung to its first annual operating profit of RM556 million in 2022; in 2023, it logged its first net profit since the airline was privatised in 2014.

The airline group was scheduled to receive 17 new planes this year — 13 Boeing 737 MAXs and four Airbus A330neos. So far, it has received only four 737 MAXs. MAG was scheduled to receive four A330neos but it is now expected to receive three by year end, with the first due for delivery on Oct 29.

“So, what do I have to do? We have extended the [leases for our] 737NGs. That is why managing an ageing fleet is not easy. And for what it’s worth, the team is doing excellent work thus far trying to manage the ageing planes,” he says.

MAG’s current fleet comprises 42 737NGs, four 737s, 21 A330s and seven A350s. MAG also operates a fleet of 17 ATR 72-500s and 72-600s through Firefly and MASwings.

On Aug 24, MAG announced that it was reducing its network until December to stabilise its operations. The reduced network involves 18% of its capacity, comprising Malaysia Airlines, Firefly and Amal’s routes in Malaysia, Asean, North Asia, Australia, New Zealand, China, South Asia and the Middle East.

“Transformation is not overnight. It takes years of activities that I need to trigger. This is one more jigsaw puzzle that I needed to reset,” Izham says.

“We grabbed the bull by the horns. Malaysia Airlines will not hide behind the curtain. We will not cross the safety line at any cost. Malaysia Airlines is a safe company.”

The following are excerpts from the interview. 

The Edge: Why is Malaysia Airlines facing a series of flight delays and diversions of late?

Datuk Captain Izham Ismail: The chatter has gone out that Malaysia Airlines is what it is today because of our maintenance practices and shortage of resources. That’s not the case. Resources are only a small part of the equation.

The context here is that the global [aviation industry] has engine issues — an engine that is supposed to operate a total of 21,000 to 22,000 flight cycles, but is now failing at 18,000 cycles.

I don’t want to cross the line of safety at any time. After two incidents in Hyderabad and Dhaka [that saw our aircraft] turned back due to engine [issues], I said, ‘That’s it.’ [So,] I kept the cycles to 17,900. I said, ‘Any engine that reaches that [number of cycles] will stay on the ground.’ Even though it will impact our P&L, I don’t care. Safety is No 1, above everything else, at all costs, because Malaysia Airlines is a safe company.

Engines that were nearing 17,900 cycles, we sent it to the workshop. Previously, the turnaround time of an engine was 60 to 65 days [after being sent to the workshop]. Today, we have engines that have not come back to us after 100 days. So, do we continue to fly at full capacity and risk your [passengers’] life? I can’t do that.

That’s the engine issue. Then, there’s the supply chain issues. For example, of our total spare part inventory, 27% are rotables — items that, when they fail, will be sent back to the OEMs (original equipment manufacturers) for repairs, overhaul and quality assurance (QA) inspection. Rotables that had been put in an aircraft a week or two failed.

The irony is that the spare parts are retrieved from a pool of rotables used by all airlines all over the world that are in the [maintenance] programme. They [the OEMs] will take it, do the overhaul and put it into a pool. Now, who needs the part? [Let’s say] Malaysia Airlines needs it. They retrieve the part [from the pool] and send it to Malaysia.

So, these rotables that were coming back are failing. Recent related cases [due to failure of rotables] were the flights bound for Medina, Shanghai and Incheon, which had to turn back [to Kuala Lumpur International Airport].

Someone asked whether I was taking any action against the OEMs. We will, but it has to be in the confines of the SLA (service level agreement).

More on the supply chain issues: One big example is Boeing, which took advantage to reset itself during Covid-19. They let go of high gross income earners; then, they ramped up and [new] people came in. That’s why they had quality problems. That’s why the delay in airplanes coming out online.

Now, on Malaysia Airlines, specifically: [It has been] years of a chequered journey. We could hardly survive before 2020. We didn’t have cash to pay salaries ... Because of that, Malaysia Airlines [was not quick enough] to reinvest in new airplanes. We made [aircraft] orders very late. So, now, we are saddled with ageing planes. Is Malaysia Airlines’ maintenance programme haphazard? No!

The late delivery of our fleet — we were supposed to have 17 Boeing 737 MAXs this year, but how many do we have [today]? Four. So, what do I have to do? We have extended the [leases for our] 737NGs. That is why managing an ageing fleet is not easy. It’s really tough! And for whatever it’s worth, the team is doing an excellent job thus far trying to manage ageing fleet.

It was reported that Malaysia Airlines lost more than 60 staff from its maintenance, repair and overhaul (MRO) unit to SIA Engineering Co (SIAEC), an aircraft maintenance firm owned by Singapore Airlines Ltd. Can you elaborate?

Are Malaysia Airlines engineers being poached by SIAEC? The answer is yes. Is it a big number? The answer is no. (Because only 63, or 15%, of its 411 qualified aircraft engineers have left this year.)

Did we do nothing? No. We ramped up our training programme. Last year alone, we rolled out nearly 100 technicians and engineers into the market. That is also to ensure that we have succession planning for retirements. But people are leaving too fast. When the ecosystem becomes unstable with regard to compensation, is it sustainable for companies? This is what’s happening. He raises [salaries], you raise [salaries]; where is the ceiling? It will become unsustainable eventually. So, now, it goes against the spirit of FDI (foreign direct investment), which is to create new jobs and train new talents; not come here and poach, right?

Why are people pinching Malaysian Airlines’ workers — pilots, commercial team and engineers? It’s because Malaysia Airlines sets high standards.

So, you have engine issues, supply chain issues, an ageing fleet, late delivery of new planes, and resource [constraints]. For the last two weeks, [this matter] has been taken out of [context].

When the Civil Aviation Authority of Malaysia (CAAM) recently cut Malaysia Airlines’ air operator certificate (AOC) validity from three years to one year, was that a message to Malaysia Airlines alone? No. [It’s a message to] all other airlines to be careful, too, which is good.

The move would put more pressure on Malaysia Airlines because now you have to spend more time and resources doing AOC renewal every year.

When we came out of the MAS Recovery Plan (MRP), did you know that our AOC was only yearly until 2019? Because we were deemed as a new company. So, we’ve been there. We welcome it because, for you (CAAM) to give me an excellent rate to clear the AOC for one year, you track me every month, every week; so, I don’t have to rush for the audit. And we had just completed the IOSA (IATA Operational Safety Audit) in June and passed with flying colours! In fact, we did the tougher risk-based IOSA because I wanted to see the real picture. We had seven findings and they were closed within one month.

IASA (International Aviation Safety Assessment) did an audit on us in February: clear. FAA (US Federal Aviation Administration) in 1H2024: clear.

To the market, what happened wasn’t good because when your [AOC term gets] reduced from three years to one, the market thinks the airline must really be facing technical problems.

It is what it is. We are not going to sulk over a one-year AOC. We are moving on.

On Aug 24, MAG said it was reducing its network between now and December to execute corrective measures where needed.

Do airlines do capacity adjustment every time? They do, every three months. Sometimes, [the capacity adjustment is up to] 10%. For us, this [round] is the biggest. To be exact, [the network rationalisation involves] 18% of capacity, [not 20% as announced].

If I had wanted to navigate around the issue, I would not have reduced capacity, and I’d have continued to fly. We remain steadfast. Malaysia Airlines is a safe organisation. We will not cross the safety line at any cost. Now, the year-end projection before this was good; it was a beautiful number. But it will have some impact. I don’t know how bad.

Will the capacity reduction result in a loss for the carrier this year?

I would not comment on that because we’re looking at forward sales, refunds and many more moving parts. Of course, when the aircraft is grounded, in the OEM world, those who shout the loudest will get heard first. The OEMs are here. So, I need to spend money. It may hinder my P&L. But that is my last priority at the moment. I still have a comfortable cash position of more than RM4 billion. If I didn’t have that money, I would probably have tried to hide [the issues]. But I’m doing this with my eyes wide open.

Our OTP (on-time performance) has been sluggish. Because when our aircraft are grounded, we have no firebreaks [longer breaks in between flights to cover any delays in earlier back-to-back flights due to any issues, such as weather].

For example, I need to fly 10 airplanes for this network but I ground two of them. I want to keep the network. Is it possible? It can be done, with no firebreaks. When there’s no firebreak, the OTP gets hit.

Now, when I ground the planes, what’s the difference between me and other airlines? They have spare airplanes; I don’t. It goes back to the issue — I did not invest 10 years ago, right?

Are three months enough to address all the flight-disruption problems?

As we speak today, we have up to 15 airplanes on the ground at any one time.

There are three categories of maintenance: normal schedule maintenance, opportunity maintenance, and active parking — to rescue the OTPs and if there are any disruptions.

With the schedule that we put in place, which I [sit with the team to discuss] twice a week, you can see our OTP since Sept 2 averages 85%. So, things are moving [forward]. Prior to this, the OTP was 70%. At times it dropped below 70%.

On the global stage, an OTP of 80% is a good number. People say, ‘Malaysia Airlines is not well run; [it has the] wrong focus.’ Hey, where were you in the last three years? Since 2020, we have been holding the bull by its horn. We negotiated with creditors [under the debt restructuring in 2021]. [After Malaysia Airlines had terminated its catering agreement with Brahim’s Food Services Sdn Bhd, which was deemed lopsided, in 2023,] our F&B operation has been on a positive trajectory.

You have better OTP with the smaller network. The challenge is to maintain that when bringing back the 18% capacity.

It has to be in line with new deliveries. We have to put the capacity back in. Objectively, the mandate given to my team is that I want to start 2025 strongly, with everything in order.

Will you bring back the reduced capacity all at once or gradually?

We’ll start to put it back gradually by 1% or 2% each month from October [as operations stabilise]. So far, we have announced to all customers all the flight cancellations. They are given options to either cancel their bookings and get a refund or manage their own rebooking or accept the plans that we suggest to them.

We made the hard decision. I was expecting people to [ask for] refunds, and for the money to go back [to the customers]. If people are angry, they want refunds, right? Hardly 5% wanted refunds.

Are you saying that you were prepared to spend that amount of money if the passengers from the 13 affected routes asked for a refund, which would actually drag you into the red?

Yes, at all costs.

Is the target of repeating another profitable year in 2024 under pressure?

I have a forecast, but I dare not give you a hint because it’s still on rocky ground. But 87% of our [affected] passengers have been addressed.

There are other moving parts. Shortage of resources, what do we do? We contracted qualified and approved local companies with engineers to undertake maintenance [works]. So, we are spending more than budgeted.

But we are not sitting down and reacting; it has been planned. I don’t want to cross the line of safety … I can close my eyes and continue to fly [based on] the design of the engine [at] 21,000 cycles — exposing everybody else [to danger].

For Malaysia Airlines’ next phase of its narrowbody fleet replacement programme, has the request for proposals (RFPs) process launched earlier in 2024 closed?

The RFP has closed. We have completed the negotiations stage, but I can’t disclose [the decision]. MAG’s board of directors has to give me clearance first, and I still have to go through the governance process with Khazanah Nasional Bhd’s investment team. Then, Khazanah’s exco and board. Most likely, we can announce it by the end of October.

Why are the new Airbus A330neos that the airline was supposed to receive in September now being delivered next month?

The seat maker failed the IASA certification. Those economy seats have been used somewhere else, but we are the launch customer for the A330neos.

So, now, the new arrival date is Oct 29. It is planned to go into service in November. There’s no change in that.

What about the other four A330neos?

The next four will arrive between November and 1Q2025. We will finish the A330neo programme delivery by 2028.

What is the status of the airline exercising its option to purchase the 20 A330neo wide-body aircraft for expansion and the replacement of existing aircraft?

We still have time [to decide on the option] — until 2028. That’s part of the negotiations as well. MAG aspires to grow capacity by a 5% CAGR (compound annual growth rate) over the next five to 10 years. For Malaysia Airlines to grow to be competitive in the marketplace, we need more airplanes.

But the first 20 airplanes [we will receive] are mainly for replacements. The narrow-body, both the first batch of 25 planes and the second batch of minimum 25 planes, are part of replacements as well.

The A330neo option is a plan we’ve designed for up until 2042. There are too many moving parts, so we are not making a decision yet. Maybe next year there will be some indication.

How many Boeing 737 MAX aircraft are you expecting to receive this year?

We have received four, and they have committed another seven.

Are you interested in getting more A350s?

The ambition for 2035 is we need more A330s and A350s. But not at this time. People don’t understand how we are going to Paris. When the A330neo comes in, we are going to put it in Doha, pull out the A350 from that route and launch into Paris. The 350s will do Paris, Tokyo and London.

When you say 15 planes are grounded at any one time, what was the previous norm?

Based on previous schedules, there will be one Airbus A350 on the ground for maintenance, two Airbus A330s and four Boeing 737s. That is normal. What we are doing now is putting more planes on the ground for necessary checks. On certain days, it can be as many as 15. They stay on the ground for 48 to 72 hours. It’s not long.

Compared with Singapore Airlines and other Middle Eastern airlines, for example, have you narrowed the gap in terms of remuneration packages?

Of course. Engineers, specifically, [saw] four times [adjustment] over the last one year and a half. The entire organisation [saw one] last year, and [another] most recently in August. We have 12,000 employees today. I have to say we are on a par with the market, but there are pockets in the organisation still below market. We are addressing it in stages.

The remuneration philosophy in Malaysia Airlines is productivity-driven. From henceforth, you need to look at gross — [which takes into account] productivity, efficiency, incentives. That’s our philosophy. Some are earning more than pre-pandemic [after reducing base salary]. And we induce COLA (cost of living adjustment). A Big Mac costs RM20 in Malaysia and AED31 (RM36.60) in Dubai. You cannot compare the salaries from airlines [in two different countries]. The cost of living is different.

See also ‘Malaysia Airlines flies into a perfect storm’ — Page 55

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