No automatic transfer of contracts from MAS to new entity, say MPs

Malaysia Airlines is undergoing a restructuring with a new company set to take over the operations from next July. – Reuters pic, December 2, 2014.The new company (NewCo) taking over from Malaysia Airlines (MAS) next July will not be burdened with existing contracts that had been signed between the ailing company and various parties, Bernama reported today

This was clarified by two Members of Parliament (MP) amid reports claiming that existing contracts will be transferred.

Anuar Manap, the MP for Sekijang, said such reports were completely untrue.

"I was in the Dewan Rakyat when the MAS Bill was debated last week and there have been claims that the existing contracts will be directly transferred to the NewCo on the same terms.

"This is completely untrue because the existing terms are only valid during the transition period pending new contractors being identified or the contracts being renegotiated," he said, according to Bernama.

Anuar added: "MAS wants to close the old chapter and leave behind the old culture or any unhealthy practices of the past. It is imperative for the NewCo, Malaysia Airlines Bhd (MAB), to start on a clean slate with new contracts and on positive terms.

"Renegotiating such a massive number of contracts would be very time-consuming and the MAS Act that was passed by the Dewan Rakyat, would ensure that existing suppliers of services to the airline would continue doing so uninterrupted."

He gave the example of the aircraft cleaning contract, which is under renegotiation currently, saying it would be a detriment to MAS if the contractor were to refuse to clean the planes during the transition period.

"In other words, because the contract is still valid, the MAS Act is akin to 'forcing' the supplier to extend similar services to MAB to ensure that daily operations are not disrupted, although on the old terms, but this is only for the interim period," he was quoted as saying by Bernama.

Anuar added that it would also be for the contractors' benefit to fully cooperate with the airline to expedite renegotiations so as to achieve a win-win outcome.

Meanwhile, Bernama also reported that Datuk Ahmad Fauzi Zahari, the MP for Setiawangsa, said that the Asean Open Sky Policy coming into force next year will see various airlines flying into Malaysia without any barrier.

"The existing contractors of MAS could value add by offering their services to other airlines on best practice terms," he said, adding that the contractors could also take a proactive stand without waiting for MAS to invite them to renegotiate their contracts given the limited transition time available.

"What's wrong with they themselves making new offers and terms for consideration by MAS. We actually don't have much time with only about eight months for MAB to begin operations."

"I would appeal to both sides to mutually shorten the transition period. Let's fast track the renegotiation process so that services can proceed without undue interruptions. Do not only look from the viewpoint of MAB alone so as to arrive at a clear business direction as the way forward," Ahmad Fauzi said, according to Bernama.

He also pointed out that the MAS Act was legislated to ensure that the transfer of the national carrier from the old to the new company was done in an orderly manner with minimal disruption to the airline's daily operations.

"I want to clarify statements made by certain quarters who claimed there are conflicting clauses in the Act during the interim period from the old to the new entity. What happens is that the powers of the Administrator appointed only applies to operating the old MAS.

"The Administrator is empowered to 'force' the suppliers to extend their services to the new MAS solely for the purpose of ensuring there's no daily service interruptions. If the new MAS already has new contractors in place, there is no longer any need to continue with the old ones," Bernama quoted Ahmad Fauzi as saying.

He added that there was no way the MPs would have approved the new MAS Act if it was business as usual without changes to existing contracts or without any reduction in the contract valuations as claimed in certain press reports.

According to Bernama, Khazanah Nasional Bhd, which owns about 70% of MAS, is now embarking on a massive restructuring to turn around the loss-making national carrier with a comprehensive review of approximately 5,000 contracts, with the emphasis on contracts that could provide significant opportunity for cost reduction and efficiency gains.

Khazanah is also revising guidelines for the airline when entering into new contracts and for contract renewals.

- TMI