Much has been said about MAS and the rumoured bailout of its major shareholder Tajudin Ramli, who held the controlling stake via Naluri. What was said about Tajudin has not been kind, although no one can verify or deny some of the allegations about corporate mismanagement and corruption within the group.

But let's look at the big picture and be open-minded about the entire issue. First, one has to admit that airline business is not an easy business, being both highly capital intensive and human intensive. MAS was not in heavy financial trouble before Tajudin took over, but we need to have a closer look at its operations, financials, the history and politics behind it before making any conclusions.

It is fairly obvious that MAS is not the first airline in the world to make losses. Even the US has its own list of airline failures which is not entirely due to difficult business conditions and competition but also include reasons like western-style corporate mismanagement and corruption. This led to a round of airline mergers and consolidation in the US and Canada in the late 1980s and early 1990s.

The second thing is to look at MAS' history going back to the periods during the break-up of Malaysian Singapore Airlines into MAS and SIA. Everybody including the Singaporeans would agree that SIA eventually got an incredibly good deal and ended up with the most lucrative international routes and leaving MAS with the unprofitable domestic network.

It is also important to note that Singapore at that time was the centre of the federal administration where the decision on the MAS-SIA break-up arrangement was made. By then SIA already had a leading position while MAS had to build its international route from scratch. Over the years MAS eventually managed to gain a respectable position with excellent customer service and a reasonably good international connection, but the domestic routes continue to make losses.

When Tajudin Ramli took over MAS in 1994 and implemented some organisational and management changes, MAS continued to make good returns for a couple of years. In fact, MAS' profitability improved significantly.

However, it did not last long and performance reversed in 1997 when the currency crisis began. The event was largely unexpected by the entire world, except George Soros perhaps. Even the economists from the World Bank did not expect the currency crisis to be so severe.

Following the Ringgit devaluation, MAS had to make provisions for currency losses amounting to more than RM500 million a year. Of course, analysts and industry experts, with the benefit of hindsight, recommended hedging instruments like the currency and interest rate swaps to insulate MAS from the currency devaluation. But the blame should not rest entirely on the management, especially at a time when hedging instruments were exceptionally expensive due to the uncertain currency market conditions and the resultant illiquid market. Furthermore, it was seen that MAS had a reasonable natural hedge position to neutralise the impact of the Ringgit devaluation given that not all of its revenues and earnings are in Ringgit.

But even this was not good enough. In 1999, MAS suffered a RM670 million pretax loss largely due to the currency devaluation. MAS is not the only one in the region as we have seen the downsizing of the other airlines, for example Garuda, Philippines Airlines and to a certain extent Thai Airways (although Thailand is well supported by its large tourism industry).

The new KLIA was opened in 1998 in time for the Commonwealth Games. MAS had no choice but to raise more debts to fund its move to the new airport. It spent more than RM1 billion for the new cargo handling centre, and had to move its entire operations from Subang to KLIA. But when the locals complain that they have to travel over 50 minutes to Sepang to take short domestic flights, MAS had to move part of its domestic operations back to Subang. It had to duplicate resources at both terminals and restructure its scheduling arrangement simply to ensure better service for the unprofitable domestic business.

In the year 2000, just when the economy started to recover and traffic figures started to show an improvement, the fuel price began its rally to reach its all-time high of US$48 per barrel in October 2000. Aviation analysts and industry experts are on the prowl again. This time they said MAS can do fuel hedging to fix its fuel cost.

Unfortunately they did not mention the fact that their fellow counterparts, or the so-called fuel industry experts, earlier estimated that fuel price may never go beyond US$30 per barrel in June 2000 as the Opec's decision to raise output should result in softer fuel price. Once again, they were wrong. MAS, having to rely on these foreign experts on their wise economic outlook and fuel price forecast, were fooled again, and it cost them more than RM1 billion in additional fuel cost.

With all these problems at hand, MAS had no other choice but to sell and lease back their aircraft. This is also known as an off-balance sheet item and it does not give the option to own the aircraft at the end of the lease period. Although it is a common practice for airlines to reduce its debt and interest burden by doing a sale and leaseback arrangement, the move continues to draw criticisms from the analysts and industry experts.

Then there is a problem with its loss-making domestic operations, largely seen as MAS' national service to the nation. Now that the government had decided that there will be no airfare increase, there is little hope for MAS to recover over RM360 million annual losses in its domestic operations. Critics can tell MAS to look into its operational efficiencies to improve the domestic operations. But when it has no control in the domestic pricing (the airfare), and volume as well as type of product (frequency and route network), there is nothing much MAS can do to improve profitability unless if it opts to compromise the safety of its passengers or quality of service.

And so the story continues. Poor financial performance then translates into low bonus for the staff and naturally staff morale will then be affected, resulting in unproductive practices. This will snowball into further losses for MAS.

Despite over RM300 million in losses in the first half of the financial year of 2001, a closer look into its financials will reveal that MAS is actually making a positive cash return on its investment. The returns, however, barely match its cost of financing. Most investors would call MAS a value destroyer due to its weak returns. Other critics attempted to compare MAS with other profitable airlines like SIA and Cathay Pacific. These airlines, however, do not have any domestic operations, and as mentioned earlier, it is good to take history into consideration when comparing MAS with SIA.

MAS has plenty of room for improvement but this cannot be done without external help, whether from the government or a foreign partner. With fresh funds and a firm alliance strategy, MAS can regain its past glory even with the current management. It is not fair to shift the blame entirely to Tajudin Ramli. He is not acting alone in the string of events leading to MAS' doom.