CORPORATE MAS or GOVERNMENT KPI? by Ameer Ali Mohamed

Corporate Malaysia was stunned by the surprise appointment of the 51-year-old (now former) Malaysia Airlines managing director/chief executive officer, Dato’ Seri Iris Jala @ Idris Jala as minister to oversee the implementation of the government’s key performance indicator (KPI) initiatives.

The main question on everyone’s mind is, has he been deployed to a position where he can deliver results? This is particularly relevant for someone who has been in the corporate world (with two large companies) since 1982 and whose political influence is unknown.

There are also questions on whether he has, since assuming the MD/CEO position in MAS on 1 Dec 2005 until 28 August 2009, taken the company out of turbulence to a stage where his successor can cruise comfortably.

Another equally important issue is MAS’ succession plan. There is no argument that one is in place: the main question is whether the plan is sufficiently mature at this point in time, given that Jala’s contract was extended just last year for three more years until 2011.

As expected, Jala’s appointment was greeted with positive responses from mainstream political and corporate figures. However, this is not the case for MAS staff and some advisors of institutional investors.

MAS Employees’ Union (MASEU) voiced its disappointment over Jala’s departure as MAS has not even completed half of its five-year Business Transformation Plan 2 (BTP2) that Jala initiated. The plan targets an annual profit of RM2b to RM3b by 2012. MASEU executive secretary Mustafar Maarof also questioned the frequent change of MAS’ CEO. There were three over the last 10 years.

Research houses were divided on the move. Some, such as OSK Research, ECM Libra, MIDF Investment and Credit Suisse, have issued an “underperform” or “sell” call on MAS. Credit Suisse considers Jala’s departure as a reinforcement of its negative view on the company;

MIDF Investment fears that a hastily appointed new CEO could hamper MAS’ return to stability and profitability; ECM Libra questions the ability of the current management team Jala left behind to guide MAS out of the woods, given the massive operating losses incurred in the first half of this year.

Jala was instrumental in turning around MAS from its worst ever loss in FY2005 to a record profit of RM851m two years later. However, economic conditions over the past year pushed MAS into another round of turbulence, evidenced by its performance in the last two quarters.

If not for derivative gains in the second quarter of 2009, the national carrier’s bottom line could have been more than half-a-billion ringgit in the red in 1H09.

MAS – Quarterly Performance

Source: MAS website

MAS – Net Profit before Derivative Gains

The ball is now at the feet of newly appointed MD/CEO Tengku Dato' Azmil Zahruddin bin Raja Abdul Aziz to prove the critics wrong, and that he can take MAS out of the turbulence in a matter of time.

Having joined MAS in August 2005 after running Penerbangan Malaysia Bhd as MD/CEO for more than one year, the 39-year-old chartered accountant partnered in Jala’s restructuring program for MAS. Now, he certainly needs a good caliber second man as Jala had enjoyed before.

As for Jala, will he be able to achieve his own KPI in his new position as a minister without portfolio in the Prime Minister’s Department, and chief executive of Performance Management and Delivery Unit? This is not so much a question of whether he is capable or otherwise. It is more a matter of having to deal with politicians instead of corporate men.

One also wonders why he does not report directly to the Prime Minister or his deputy, but rather, to another minister in the PM’s Department who also has a KPI to deliver.

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Article Contributed By Ameer Ali Mohamed. Ameer is Director, Financial Research of NextVIEW. He has a total of 20 years experience as a corporate journalist, investment analyst and fund manager, including as research head of two stockbroking firms and CEO/CIO of a funds management company.

Republished with permission. This article was published in the Just Say It column in Shares Investment (Malaysia edition) September 2009. You can get the latest copy of Shares Investment (Malaysia edition) at leading bookstores in Malaysia.