Saturday, June 17, 2006

Should MAS cancel its Airbus 380 order?

Everyone knows Malaysia Airline System (MAS) has financial problems, which has been why it sold off its landmark MAS building. I wonder whether those South American paintings have been sold off yet?

I wasn’t surprised that MAS suffered the cash crisis. The airline has been abused in so many ways that it would have been a miracle to escape unscathed from its money problem.

There’s the alleged corruption of powerful people making MAS buy their equipment, securing its tenders but not delivering goods or services to specifications, etc.

The management has been pathetically poor performing and profligate in many ways. Some years ago, unprofitable routes were opened up everywhere without any concern for revenue consideration in the classic Malaysian attitude of “style mahu, kalah ta’apa”, with the inevitable humongous loss.

Then there have been just too many employees which in itself is not efficient. Ironically with the issue of MAS excessive staff, I have read at Jeff Ooi’s Screenshots the numerous complaints against an unresponsive MAS PR.

Passengers buggered around - which incidentally is not unusual with most airlines but in MAS case - were not responded to satisfactorily or just ignored - probably a sign of sheer arrogance in the belief that MAS was Teflon coated, at least within the domestic market.

Then there were pilots who ran off runways (Changi), hit passenger air bridges (Miri), got stuck in mud in India, hit a de-icing truck (Zurich), did not takeoff on time, etc. All those not only cause loss of operating revenue, less available aeroplanes to fly, increased insurance premiums but create a bad reputation for MAS.

To be fair to MAS, as the national airline, for years it had no choice but to operate and subsidise unprofitable domestic routes especially in Sabah and Sarawak, obviously at a constant loss. It had to play the role of a quasi public service airline.

This was the reason why the original Malaysian Airways and its successor Malaysian-Singapore Airlines (MSA) split up into MAS (initially an ominously named MAL) and SIA. The Singaporeans didn’t want to have anything to do with unprofitable Malaysian domestic routes. MAS has only recently divested itself of those routes to concentrate on the more profitable international flights.

Now MAS Employees Union (MASEU) has called on Penerbangan Malaysia Bhd to cancel its plans to buy the Airbus 380. The order for the aeroplane was made several years ago. Recently Airbus has announced a delay to the delivery due to electrical wiring problems.

MASEU said that although under the sale and purchase agreement Airbus will pay compensation for the late delivery, the matter has to be looked at from a wider perspective. MASEU gave several reasons why cancelling the order would enable savings to enhance MAS cash flow and be spent on the maintenance of its existing aircraft.

It’s not possible for laypeople like us to accurately say whether that would be a wise recommendation because we don’t have MAS operating data. But we need to be reminded of the fundamental fact that airlines are in the business of moving people around by air by the most economical means, for two reasons - to minimise cost and to maximise profits.

The Airbus 380 with its 500 plus seats would appear to support that. With one flight – thus, one set of crew, one load of fuel, one set of processing, and very very important, one approach into a modern airport where available slots at peak hours costs the world, that is if one can even get it - the Airbus 380 would provide the best returns.

This should be the case even with higher paid pilots and crew, higher fuel consumption per se - ‘per se’ in this case implies an A380 certainly burns more fuel and requires more cabin crew than a B747 if we chose to ignore the fact that it carries more passengers in only one flight with all the attendant savings I have mentioned above.

I wouldn't be surprised that the inevitable increased demand for airport landing and takeoff slots in the future will favour aircraft like the A380, for the simple reason that one of these brutes does the work of 2 B767 or 1.5 (as good as 2) B747's. Watch it when China's and India's airlines get steamed up as the two Asian giants utilise more of aviation the way the USA has had for the last several decades. Airports will be under more severe pressure of demand.

Having said that we don’t have MAS operating data, personally, I believe it would be short-sighted not to buy the A380. MAS would be left behind in the competition. Once an order is cancelled it would take several years after a new order to get a delivery. The modern version of the B737 has a long waiting list of around 8 years.

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