MALAYSIAN AIRLINES – BAD

LUCK OR POOR GOVERNANCE?

Group 3 – GEMBA 09 - CGE

Ser Name Roll No

1. Dinesh S R ED21ONL005
2. Pameer Bhattacharjee ED21ONL011
3. Manish Singh ED21ONL044
4. Kundan Jha ED21ONL041
5. Rejeesh Tharamal EO21MEOL46
6. Amit Kumar ED21ONL045
 OVERVIEW

 Case Facts - Dinesh & Pameer

 Q1 - Risk Mgmt Issues - Manish & Amit

 Q2 - Crisis & Commn Mgmt Issues - Rejeesh & Kundan

Case Facts
 BACKGROUND
 Malaysia Airlines Berhad (MAB)
 Malaysia’s National Carrier
 Initially a Public – Private Entity (70:30)
- Govt Sovereign Wealth Fund – Khazanah National Berhad (KNB)
 Verge of Bankruptcy
 Twin Tragedies in 2014
 Flight 370 (Kuala Lumpur – Beijing) / disappeared / All 239 Causalities
 Flight 17 (Amsterdam – Kuala Lumpur) / shot down / all 298 Casualities

 Delisted in 2015. Now wholly owned by KNB.

 MALAYSIA AIRLINES – BRIEF
HISTORY
 Founded in 1947
 Primarily domestic / international services from Kuala Lumpur.
 Prior de-listing, 29 Subsidiaries & 05 Associate Companies.
 3 Airlines: Malaysia Airlines / Firefly – LCC / MASwings (Rural East Malaysia)
 Several Aviation Awards
 5 Star airline from Skytrax
 Asia’s Leading Airline from World Travel Awards
 However, loss making since early 2000’s – Fuel / airport / competition / Weakening Currency Malaysian
Ringitt (RM)
 1st Business Turnaround Plan – 2006
 Still, loss making since 2011.
 2014 – Delisted & Restructured. Full ownership – Khazanah
 Still losses & no hope of recovery.
 AIR TRAGEDY 1 – MH 370
 08 Mar 2014 – MH 370 disappeared.
 Sector: Kuala Lumpur – Beijing
 Casualties - 227 Passengers + 12 crew
 24 Mar 14 – 16 DAYS LATER – PM Najib Razak announced crash at Southern Indian Ocean
(??)
 But location of crash still not established.
 Absolute lack of info or clarity on cause / investigation efforts / details.
 Total lack of transparency from Malaysian Govt & Khazanah.
 Very poor Crisis / Commn / stake holder Mgmt.
 Largest & Costliest Multinational SAR op in Aviation history.
 Search span – 3 yrs / 26 countries involved / 120,000 Sq KM
 Search ended – May 18
 AIR TRAGEDY 1 – MH 370
FLIGHT PATH & SEARCH AREAS

Search areas
 AIR TRAGEDY 2 – MH 17

 17 Jul 14 – MH 17 shot down by pro-Russian Rebels over Eastern Ukraine.

 Sector: Amsterdam – Kuala Lumpur

 Casualties – 283 passengers + 15 crew

 Mere 4 months after MH 370 Tragedy.

 3 month prior “Airspace Safety Alert” over Southern Ukraine.

 But safety alert not applicable over Eastern Ukraine, the tragedy site.

 Led to Cancelled reservations / downhill reputation / loss of customer confidence

 200 cabin crew resigned citing safety risks & family pressures.
AIR TRAGEDY 2 – MH 17
FLIGHT PATH
 CRISIS MANAGEMENT
 Post MH 17 Tragedy, to recover, MAS resorted to:-
 Lowered fares
 Increased capacity
 Refund fares
 Overall 36% share price drop. Continued financial losses in 2014.
 MH 370 – Mgmt recd flak for Info void / 4 hrs to report aircraft loss / lack of transparency
 MH 17 – debate on why potential warzone was not avoided?
 Subsequently, 2nd Comprehensive MAS Recovery Plan formulated.
 31 Dec 14 – MAS de-listed. Khazanah sole shareholder of MAS.
 MAB (Malaysia Airlines Berhad) formed
 Migration of ops to MAB
 Fresh equity infusion
 Retrenchment of excess manpower (30% - 6000 staff laid off)
 Cutting ops costs / catering costs / supply contracts etc
 PLAN – KHAZANAH'S SOLE OWNERSHIP FOR
TURNAROUND ?
 Critics -
 Lack of access to Capital Injection
 Inability to manage tension with trade unions
 Political Motivation and interference
 Khazanah's View -
 Turnaround only possible without external interference
 Plan needed a Principal stakeholder with not only financial capacity but also social responsibility
 Lingering issues -
 Capital Injection was Insufficient
 Inability to make relations with Labour Unions
 Insufficient political will to create synergies
 Lack of expertise (Private Investors)
 Did not want to let go of control
 WHO'S IN CONTROL – PRINCIPAL / AGENT
TUSSLE
 Khazanah's became the sole shareholder with absolute control
 Even though reputed, industry experts were brought in to spear head restructure, adequate authority to
implement the same was not given
 Forward looking, strategic changes faced regular bottle neck
 There was a continuous Principal agent tussle with the road map for recove ry

 Déjà vu ?
 Past corporate governance issues resurfaced
 Not enough segregation of role and responsibility
 Corporate decisions dragged on – unsuccessful attempt of merger / SWAP with AIrAisa
 Political interference and lack of will
 CHANGES & ROAD AHEAD...
 Positive Initiatives post 2014
 Restructuring of Board
 Enhanced Corporate Governance measures
 Bringing in experts with core competencies and relevant experience
 Promoting Professionalism & Private sector expertise
 Road Ahead...
 Will need to promote transparency and initiate communication channels with public accountability sessions
 Possible Privatization or mobilizing outside investment 
 Adapting to the new normal post COVID-19
 Strategic placement of assets with new rescue plan
 Future Far from certain
Q1 – Risk Mgmt Issues
 THE IMPORTANCE OF RISK
MANAGEMENT

The process of recognizing, analyzing, and reacting to the various risk elements that are inherent
to the functioning of an organization is what is meant by the term "risk management.

 The practice of risk management is crucial because it equips businesses with the resources they need to properly identify and
respond to possible threats.
 Risk assessment and management is a company's strongest defense against unforeseen obstacles to growth and development
 A company's chances of success increase when it does a risk analysis and creates mechanisms to deal with identified
weaknesses.
 FOUR LINES OF DEFENCE:

 Systematic and Routine Controls : This stage covers day-to-day controls and periodic controls, such as
month- or year-end cut-off procedures, as well as quality control if it's a regular aspect of operations
 Analysis by management : It involves risk and compliance reviews, financial controls, and board
monitoring. It can also involve quality control evaluations in addition to day-to-day checks, such as one-
off checks of customer-complained items.
 Internal audit : The scope of internal audit affects its effectiveness. They may include operational
efficiency and effectiveness, asset protection, and report reliability. internal audit can focus on specific
risks, especially those that the first two levels of defence may not have fully countered
 External audit : External auditors aren't full-time workers; they are able to provide unbiased assurance.
Thus, they are regarded as autonomous. Since they are familiar with various businesses, external
auditors can provide a broader viewpoint in their work and recommendations.
 ROLE OF THE BOARD AND
MANAGEMENT IN RISK MANAGEMENT.

Risks are inevitable, but they can give you an edge over the competition. As long as the board is
aware of and responsibly addresses operational, strategic, political, and reputational risks, they
provide unique opportunities.

 #Role1 - Creating risk management rules and processes that are in line with the company's
overall strategy and level of comfort with risk

 #Role2 - Continuing with the execution of risk management policies and procedures by
management.

 #Role3 - Instill a sense of risk-adjustment consciousness in your company's culture..

 RISK MANAGEMENT

Disappearance of MH370
 Lack of compassion for the victims of this tragedy by management
 Management should invest in coordinated efforts in research and emergency responses

The downing of MH17

Decision to fly across a war-torn nation's airspace
 Flying route with heavy fight, border of Ukraine-Russia border
 Management decided to continue to use the route when British Airways and Qantas took detour
 Overlooked past events and were overconfident (US shooting down Iranian plane)
 RISK CONTROL MEASURES

Disappearance of MH370
 Investment in satellite-based plane tracking system to fill the voids in radar coverage
 To recover bodies before they are washed away, a search operation should be conducted right away.

The downing of MH17

 It appears that management did little to safeguard its aircraft against future crises of a similar size.
 Complete disrespect for the value of the human life was shown by flying over the conflict zone.
Q2 – Crisis & Communication Mgmt Issues
 CRISIS COMMUNICATION

Crisis Communication what went wrong with MH370 what is corrected with MH17
 Lack of transparency in MH370 case
• Information void and reporting of inaccurate and contradictory information by Malaysian authorities 
• Earlier stage the search for missing flight, there were very little information available and led to
confusion
• Malaysian officials struggled to keep up with question from journalists
• For the initial response itself it took 4 hours
• Government was not able to provide pertinent information about the missing flight even to the relatives
of missing aircraft’s victims.
 Timely handling of MH17 case
• MAS issued a public statement as soon as it confirmed that contact had been lost with the flight
• However, debate sparked on whether the airline could have avoided flying over eastern Ukraine amid
safety risks 
 CRISIS MANAGEMENT

 Impact on share price

 After 3 days when the MH370 search started the share price of MAS fell by 16% and hit to15.5 Sen on 19 May 2014
 Following Malaysian prime minister comment “ It might be too late to save MAS in its current form” share price
recorded low at that point of time.
 MH17 tragedy led further 13% fall in share price to 19.5 sen. 
 Overall, both the incident led to a share price fall of more than 36%
 As a recovery measure, lowered the fare and added flight capacity
 Announced refund of fares to customers postponing travel or cancelling tickets
 Before the incident MAS was making loss of U$1.3 Billion over the three years due to
• Fierce competition
• Increase in passenger cancellation
• Lower number of bookings
 CRISIS MANAGEMENT

 Public relations crisis management

 After two incident MAS succeeded in managing the families’ care
 MAS assisted the devastated family by providing around-the-clock support
 MAS managed to engage strong bond with family members and provided financial aid to families of the victim
 For managing the existing financial crisis, the sovereign wealth fund of Malaysia, Khazanah rolled out MAS recovery
plan to acquire all the MAS shares
 Mas Recovery Plan
• Delisted MAS from Bursa Malaysia and incorporated new company MAB
• Focused on adjustment of the cost structure and management of human capital
• Introduced new cost structure based on industry benchmarks
• Saved cost by renegotiation of supply contracts
• Reduced total number of suppliers from 4000 to 2000
• Established new catering contracts and reduced catering cost by 25%
• Decided to retrench 30% of staffs (reduction of 6000 out of 20,000)