MAS and its perennial issue of moral hazard

By admin-s On Aug 4, 2014

Who in their mind would care whether MAS was run to the ground when their capital was never at risk?

Chua Tong Ka, FMT

News of resuscitating Malaysia Airlines (MAS) is back in circulation especially after the second tragedy in five months.

Various proposals, from corporate restructuring (whatever it means), privatisation, rebranding, nullifying existing contracts and getting rid of MAS’ employees union are being proposed and considered by those in the know.

But MAS was already in limbo way before MH370 and MH17.

I remember massive injections of working capital were made many times earlier, way before the two tragedies occurred. Of course, now with its reputation dented, the problems have become more acute.

We must all look at the problems in MAS objectively.

To me it is more than another ‘restructuring’ exercise, since we have done so many times over with no significant effect.

It is also more than privatisation or state-ownership. We have privatised the airline before but with disastrous consequences. We have since de-privatised it but with no significant improvement either.

SIA (Singapore Airlines) has been state-owned and state-controlled from day one but the airline has remained profitable.

Disentangling MAS’ unfair and lopsided contracts is another major consideration. But a more pertinent question is why MAS entered into these contracts in the first place?

If this fundamental question is not answered, there is no assurance that contracts entered into in the future will not fall into the same trap even though we have gotten rid of present ones.

The same goes with the employee’s union. The fundamental issue is whether employees’ demands are reasonable and within the industry’s norm – fair wages in exchange of services rendered. We must bear in mind that MAS is not the only airline having to contend with employees’ unions.

I don’t claim to know the answers to the problems in MAS, far from it in fact. But I do believe the proposals being tossed around cannot really solve the problems either.

In many ways, the problems in MAS are those associated with moral hazard and incompetency.

When the airline was state-owned, those entrusted to run it were never held accountable for their performance. It was like running a business using other people’s money, the essence of moral hazard.

When the airline was privatised under the Malaysian privatisation model, the risks and the responsibilities of running the airline were never transferred to the privatised entity.

The real mockery was when the airline was making money, the profits went to the privatised owners. However when the airline was in trouble, the government bailed it out, fully and completely.