Corporate official rubbishes Jentayu's aircraft leasing proposal

The proposal by Jentayu Danaraksa Sdn Bhd to acquire all aircraft from Penerbangan Malaysia Bhd (PMB) to set up its own aircraft leasing company and employ all the 6,000 staff expected to be made redundant under the restructuring plan to save Malaysia Airlines (MAS) does not make business sense, a group CEO said today.

Perbadanan Menteri Besar Kelantan (PMBK)'s Ahmad Zakie Ahmad Shariff said, even GE Capital Aviation Services, the world's largest aircraft and engine lessor and lender which owns over 1,600 aircraft, only employs about 500 staff.

"How can Jentayu accommodate the 6,000 staff to manage an operation of less than 150 aircraft? That is business nonsense. Isn't that also giving false hopes to these MAS staff?" he said in response to Jentayu's RM8.75 billion offer to buy PMB from Khazanah Nasional Bhd as its complementary proposal to Khazanah's 12-point restructuring plan.

Ahmad Zakie who is an economist pointed out that it was not a matter of retraining these staff because there would definitely be a mismatch between staff and core competencies required for an aircraft leasing business.

"It's two different worlds altogether. MAS is a customer-intensive business while aircraft leasing business requires a great amount of financial skills. Again, should this aircraft leasing business fail, wouldn't the government has to once again bail out its national assets?" he said.

Jentayu's plan for the new company (NewCo) to be set up to run MAS, Malaysia Airlines Bhd (MAB), is one of 28 proposals submitted to Khazanah since the announcement of MAS' privatisation and its delisting from this Wednesday.

He likened the sale and leaseback of aircraft under the Jentayu plan to removing both assets and liabilities off the books and merely a financial restructuring which might temporarily resolve balance sheet and cash flow

problems but not the core issue.

He said this was already done via the asset and liabilities restructurings in 2002 aimed at turning MAS into an "asset-light" airline but these were only a stop-gap measure while what the airline really needed was an overall "operational fixes" which were being done now.

Ahmad Zakie used the analogy of a patient with heart blockages to articulate his point -- taking the necessary pills or perhaps an angiogram or bypass will somewhat allow this patient a lease of life.

This is only temporary if the patient does not change his lifestyle, eating right with proper exercises. It requires a complete change in how a person "runs" his life or risk the danger of the plaque build-up in his coronary arteries once again, thus having to repeat the same "restructuring" process.

"The same is true of MAS, previously funds have been pumped in either via capital injections or the sales of its various assets to ‘pretty up’ its financials, with no structural changes, that is, the way it operates is status quo, so it is a matter of time before the same problem will recur," he added.

Leasing could lock in high future cost and if not done right, could force MAS to incur unreasonable cost to return its leased aircraft and in some cases, even acquiring them to avoid penalties.

"It's only delaying the inevitable, pushing the needed operational restructuring to a later time. It has been done before, and MAS has learnt this the hard way, how it hurts MAS now and in the future‎. Why would MAS want to do this again?"

Ahmad Zakie said leasing from one third party alone was risky and should never be done, adding that it was unreasonable to put all the eggs into one basket.

According to Ahmad Zakie, while the proposal may be worth considering based on the "sweetener" of the preferential rates accorded to MAS by a third party in buying over MAS planes; but at the end of the day, business is still business.

"With many airlines coming this way with Asean Open Skies policy coming soon, why would Jentayu lease to MAS at preferential rates when it could lease to the other airlines at market rate?

"How do you justify this to your shareholders or funders? Are you into airline leasing to do a business or is this a social responsibility?

"If Jentayu has the support of an international aircraft leasing firm and financial support of over US$2.5 billion as it claims, nothing is stopping them from creating a new aircraft leasing firm to service the airlines in Malaysia (MAS, AirAsia, Malindo) or even the Asean region. Why do they need PMB?" he said.

He said selling PMB, FireFly or even its maintenance, repair and overhaul (MRO) unit had never been part of Khazanah’s 12-point plan, and should MAS decide to sell its planes or any of its assets, the usual process would take place and it would be done in a transparent manner and not via direct negotiation.

"As a 100 percent owned subsidiary of Khazanah, the new MAS will have no problem raising funding for aircraft if it needs to. So far, Jentayu has not demonstrated any basis for it to be considered as a credible counterpart that can offer better than market rates.

"MAS' problem has always been about operational and not funding; we need to start treating MAS as a business entity if we want to see some profitability. MAS needed a complete organisational restructuring, which is provided via Khazanah’s 12-point plan, and not the usual piecemeal financial engineering solution as previously.

"What can Jentayu do to make things operationally better for MAS? Taking away its planes and then leasing them back will not address any of its operational issues," he said.