MAS, the national airline of Malaysia, is technically bankrupt. The situation is beyond repair, because the damage is too great. Even with massive injections of new capital it cannot be rescued. In spite of government assurances that new management will restore the operation to profitability, there is no possible means to achieve this. The present debt level, combined with continuing losses, are beyond any reasonable expectation of a return to a solvent condition. Even should the airline achieve a breakeven condition by an heroic cost reduction program, the massive debt, combined with the burden of new aircraft purchases, represents a burden that is tantamount to a bankruptcy.

The government, in an effort to put a pretty face on the situation, refuses to admit defeat, and thus a policy of supporting the airline with public funds has been accepted, though the full amount of this burden is still unknown. A recent attempt to invigorate the flagging economy with a RM3 billion injection, must be weighed against the annual loss of well over RM1 billion from MAS alone. Such is the cost of pride, that only total collapse of the economy will force Malaysia to allow the national airline to join Philippine Airways on the list of failed and discontinued Southeast Asian airlines. Malaysia is politically committed to the do-all-or-die position of an inveterate gambler, who having had a run of bad luck, is forced to wager his life to continue his destructive habit. This is no way to run a national economy.

The airline turned a profit in the years prior to privitasation, and had a respectable net tangible asset value. The story of how this happy enterprise fell on hard times in just five short years is an instructive one, and is matched by a number of other corporate histories in Malaysia. It is important because it reflects what is wrong with the corporate world of Malaysia today, going far toward explaining why the KLCI has nowhere to go but down and out. One may well ask, "Where did all the money go?"

Any enterprise intended to operate for profit must generate sufficient current income to meet routine expenses. For an airline, the major variable costs are the salaries of pilots and crew for each flight, along with the necessary fuel and landing fees. Enough passenger tickets must be sold to make the flight a profitable one.

For a non-scheduled airline, ticket sales are not such a problem, because the plane can be held on the ground until enough seats are sold to make a profit on each flight. If the airline has low debt and minimal ground costs, competitively low fares can be offered to attract passengers. Virgin Air is a good example of a successful airline which started in this modest but efficient manner.

Passengers prefer a scheduled airline because it eliminates the uncertainty of takeoff date and time. Airlines often give incentives to passengers who book early, because it aids effective planning. But for scheduled airlines there is the obligation of making the flight even though many seats are empty. Thus the percentage of seats filled, on average, is an important consideration in the evaluation of an airline.

Overall, the airline industry has had many failures and relatively few successes. With a few notable exceptions, such as Singapore Air, flying large airplanes has tended to be more a source of national pride than a profit center. For the smaller countries the losses are subsidised by the taxpayers with tourism and development as justification. This is the case in Malaysia.

Malaysia's airline has had an unfortunate stint as a semi-privitised entity, during which the private operator used it more as a concubine than a wife. A small company with a short experience in chartering helicopters to the national oil company was given the national airline as a toy, and told to tinker with the till at will. But a scheduled airline is not a charter helicopter outfit, and the books soon reflected the lack of executive skill.

The helicopter outfit has as its primary asset a chairman with a close connection to the finance minister. The finance minister controlled the contracts for the national oil company, and the relationship between the oil company and the helicopter outfit was a cozy one.

The finance minister also controlled the national airline, and the temptation to transfer this as a bonus to the chairman of the helicopter company proved overwhelming. Financing was fully fortuitous, as the finance minister also controls the public purse, including not only Petronas, the oil company, but other state-owned enterprises as well, and more importantly, the public pension and trust funds.

The helicopter chairman was duly installed as chairman of the national airline, and as such, promptly proceeded to enter into contracts with the helicopter outfit. In his capacity as airline chairman he negotiated and signed long term contracts for major services and projects. As chairman of the helicopter outfit he signed the other side of the contracts. It is the perfect case of a willing buyer and a willing seller. He saw no conflict of interest, nor did the well-paid and accommodating directors who sat quietly complicant as members of the boards of directors of both companies, nor did the minister of finance, charged with a primary duty to oversee public interest.

New (and expensive) cargo facilities were built in the Middle East and in Germany. The helicopter outfit owned the facilities and provided support services. The national airline was contracted to pay for them. The terms were apparently favorable to both. The finance minister is a quiet man, with a pleasant and disarming charm. It is difficult to imagine him as the primary behind-the-scenes conspirator in the Anwar Ibrahim affair. Yet the testimony in the two trials named this small man as the big malefactor, along with Aziz Shamsuddin and Rahim Thamby Chik. Many feared to identify him, fearful of his wealth and vendictiveness.

The sweetheart arrangement between the two companies, Naluri and MAS, soon turned sour for both. The helicopter outfit ran afoul of high expectations and low executive talent. The national airline met increasing fuel costs, an enormous debt burden caused by none other than the finance minister himself, who, by pegging the national currency at an unfavorable exchange rate for the outstanding capital loans of the airline, made it impossible for the loans to be repaid.

The airline suffered from the same lack of executive talent as the helicopter outfit, which is easy to understand, as they were the same. Each year the losses have mounted, with no sign when the bleeding will stop. In the meantime, the finance minister was forced to intervene in order to forestall a total collapse. He decided to recover the shares given to the helicopter company, but now another problem, caused by the pegging of the exchange rate, popped up. The foreign loans became impossible to repay, and the operating losses had lowered the market value of the shares of both the airline company and the helicopter outfit. The shares were no longer able to act as collateral for the loans against them. There was an enormous loss, and neither the finance minister nor the dual chairman were prepared to accept this loss personally.

Many late night coffee sessions were required before a solution was found. The public would suffer the loss. The shares would be bought back at the original price to avoid acceptance of the loss. So the decision was made to use public funds to transfer the airline shares back to the finance ministry, allowing the original loans to be repaid. This was to benefit of the lenders (one may well ask who they are), otherwise faced with accepting a large non-performing loan or foreclosing on both Naluri and MAS. This would inevitably put both into bankruptcy.

In order to avoid this disaster, public funds were used (without approval), and the public was told that the loss was "only on paper," and recovery was "just a matter of time". It was known the airline had enormous losses not yet reported, and this fact was concealed until after the share re-purchase was announced. The public was not told the true condition of the airline, nor that recovery of the MAS share price is totally unrealistic under present circumstances. On the contrary, the NTA value, after newly proposed re-financing, will be around RM1.50, as opposed to the re-purchase at RM8.0.

The political repercussions for the finance minister, as well as his party, have been grave. He has resigned under a cloud, and the books of the ministry are now under careful audit to determine the full story of the transactions carried out during his tenure. That he, like the helicopter company chairman, was unable to perceive a basic conflict of interests, when signing contracts as both buyer and seller, is seen as a serious shortcoming by those whose funds he has handled. That he has become personally perhaps the wealthiest man in the country during his government tenure has aggravated the resentment.

The finance minister has been relieved of all public posts but one. He is to retain his legislative seat in Merbok. To some this seems a curiosity, until the situation of Fauzi in Beserah is recalled. The unpopularity of the Umno party is such that no by-election can be won. Thus the finance minister cannot be prosecuted for the time being, because this would cause his seat to be declared vacant, forcing a by-election.

Though the party-in-power talks much of democracy and the will of the majority, it is unwilling to bring these principles to the test. If the people of Beserah and Merbok were allowed to vote today, the claims by Umno for popular support would be shown to be fallacious. In order to prevent this further embarrassment, coming so soon on the tail of the defeat in Lunas, the finance minister must be allowed to retain his Merbok seat, while the claims of fellow seat-holder Fauzi in Beserah, against the information minister, must be satisfied by a resignation, else a Beserah by-election follows.

By a humourous irony, the same political climate which demands accounting from the finance minister, also provides him shelter from the revelations which are certain to come from an audit of the finance ministry books. What is found will certainly not be made public, for the moment, and only the most outrageous misdeeds will be publicised to fuel public demands for the finance minister's prosecution.

Instead, it is more likely he will be interminably vilified, and only later formally charged by the prosecutors. He will be allowed to remain free on bail while he is parboiled the public press. His great wealth will not protect him, nor will his career-oriented cronies be able to provide succor.

Meanwhile, public outrage mounts at the injust incarceration of the opposition officials, who are seen to be the men willing to stop the busloads of phantom voters at by-elections. The motivation is obvious to all. The puerile public justifications of Badawi, Mahathir and the IGP are transparently false. Their actions generate widespread contempt and hatred. They are seen as bad company for good and honest men and women. All who continue in support of them and these unjust ISA detentions are certain to one day feel the wrath of the Malaysian people.

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