By Sharen Kaur
Published in NST on August 13, 2014
Published in NST on August 13, 2014
HIGH HOPES: Airline can save RM300m a year by ending contracts with suppliers, including Brahim’s
MALAYSIA Airlines (MAS) could save more than RM300 million a year should it terminate contracts with some of its suppliers, including inflight caterer Brahim’s Holdings Bhd.
According to company officials, the suppliers will be compensated based on their respective agreements with MAS, and that could work out to more than RM400 million in total.
However, the actual amount would depend on the compensation clause, if any, in the respective agreements, the officials said.
“If Brahim’s is causing MAS to bleed, then the contract should be cancelled. But food isn’t the only issue for MAS as it has to look at non-profitable routes. If MAS’ top management really wants to turn it around, this should be one of the issues it has to tackle. Otherwise, it will be an uphill task,” said an official.
MAS started a massive restructuring plan at the end of 2011 to reduce cost and return to profitability. But despite it, MAS lost RM4 billion in three years.
On average, food and beverage expenses made up between 1.5 and 1.8 per cent of MAS’ total operating costs, which amounted to RM14.2 billion for the year ended December 31 2012.
Khazanah Nasional Bhd, which owns 69.37 per cent of MAS, recently proposed to take the national carrier private with an offer of 27 sen per share to minority shareholders.
Upon completion of the RM1.4 billion exercise, Khazanah will become MAS’ sole shareholder, which would lead to a delisting by the end of this year.
MAS’ most expensive contract currently is with Brahim’s Airline Catering (BAC) Sdn Bhd to provide catering and related services at Kuala Lumpur International Airport and Penang International Airport.
BAC is 70 per cent-owned by Brahim’s via Brahim’s Sdn Bhd (BSB), previously known as Brahim’s-LSG Sky Chefs Holdings Sdn Bhd, and 30 per cent by MAS. It has a 25-year (2003-2028) catering contract valued at RM6.25 billion, or RM250 million a year.
Brahim’s has said that should the contract be terminated, it would seek compensation from MAS as mentioned in their agreement, which includes a fair value of 20 per cent premium.
The concession is worth about RM400 million. Based on the number of years left, coupled with the RM130 million that Brahim’s paid LSG Asia GmbH last year for its 49 per cent stake in BSB, the company would receive about RM320 million.
Mercury Securities head of research Edmund Tham thinks that the catering contract will continue as long as MAS is still in business.
“If MAS is declared bankrupt or bought by private companies, then I am not sure if the contract will stay,” he said.
In February, Wee Choo Keong, former member of parliament for Wangsa Maju, told Business Times that MAS should terminate the contract with Brahim’s to narrow its losses.
“The contract is just overpriced and squeezing MAS’ profit margin. Brahim’s would have to be compensated, but it would still be cheaper for MAS than to continue with the contract,” he said.
MALAYSIA Airlines (MAS) could save more than RM300 million a year should it terminate contracts with some of its suppliers, including inflight caterer Brahim’s Holdings Bhd.
According to company officials, the suppliers will be compensated based on their respective agreements with MAS, and that could work out to more than RM400 million in total.
However, the actual amount would depend on the compensation clause, if any, in the respective agreements, the officials said.
“If Brahim’s is causing MAS to bleed, then the contract should be cancelled. But food isn’t the only issue for MAS as it has to look at non-profitable routes. If MAS’ top management really wants to turn it around, this should be one of the issues it has to tackle. Otherwise, it will be an uphill task,” said an official.
MAS started a massive restructuring plan at the end of 2011 to reduce cost and return to profitability. But despite it, MAS lost RM4 billion in three years.
On average, food and beverage expenses made up between 1.5 and 1.8 per cent of MAS’ total operating costs, which amounted to RM14.2 billion for the year ended December 31 2012.
Khazanah Nasional Bhd, which owns 69.37 per cent of MAS, recently proposed to take the national carrier private with an offer of 27 sen per share to minority shareholders.
Upon completion of the RM1.4 billion exercise, Khazanah will become MAS’ sole shareholder, which would lead to a delisting by the end of this year.
MAS’ most expensive contract currently is with Brahim’s Airline Catering (BAC) Sdn Bhd to provide catering and related services at Kuala Lumpur International Airport and Penang International Airport.
BAC is 70 per cent-owned by Brahim’s via Brahim’s Sdn Bhd (BSB), previously known as Brahim’s-LSG Sky Chefs Holdings Sdn Bhd, and 30 per cent by MAS. It has a 25-year (2003-2028) catering contract valued at RM6.25 billion, or RM250 million a year.
Brahim’s has said that should the contract be terminated, it would seek compensation from MAS as mentioned in their agreement, which includes a fair value of 20 per cent premium.
The concession is worth about RM400 million. Based on the number of years left, coupled with the RM130 million that Brahim’s paid LSG Asia GmbH last year for its 49 per cent stake in BSB, the company would receive about RM320 million.
Mercury Securities head of research Edmund Tham thinks that the catering contract will continue as long as MAS is still in business.
“If MAS is declared bankrupt or bought by private companies, then I am not sure if the contract will stay,” he said.
In February, Wee Choo Keong, former member of parliament for Wangsa Maju, told Business Times that MAS should terminate the contract with Brahim’s to narrow its losses.
“The contract is just overpriced and squeezing MAS’ profit margin. Brahim’s would have to be compensated, but it would still be cheaper for MAS than to continue with the contract,” he said.
No comments:
Post a Comment