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Malaysia Airlines had its unassuming start in the golden age of travel. A cooperative plan of the Ocean Steamship Company of Liverpool, the Straits Steamship of Singapore and Imperial Airways led to a proposal to the government of the Colonial Straits agreement to run an air service. The outcome was the incorporation of Malayan Airways Limited (MAL) on 12 October 1937. On 2 April 1947, MAL took to the skies with its first marketable flight as the national airline. The existence of BOAC also facilitated MAL's entry as a member of IATA. A year after the Independence of Malaya in 1957 and with the contribution of BOAC, QANTAS, the government of the Federation of Malaya, Singapore and the Territory of North Borneo, MAL was launched as a unrestricted limited company. Fuelled by a young along with dynamic team of visionaries, the domestic carrier turned into a global airline in less than a decade. With the creation of Malaysia in 1963, the airline changed its name to Malaysian Airlines Limited.
In 1965, with the severance of Singapore from Malaysia, MAL became a bi-national airline and was renamed Malaysia-Singapore Airlines (MSA). In 1966, the Governments of Malaysia and Singapore became the majority shareholders in the national carrier and Malaysia-Singapore Airlines (MSA). In 1971, the partnership involving Malaysia and Singapore was dissolved, and Malaysia Airlines Berhad was incorporated. With an authorized capital of RM100 million, the company made a final revision to its name in November 1971, and Malaysian Airline System Berhad (MAS) was born.
The year 1986 MAS offer the first flight service to the United States. By the end of 1987, MAS had well-known itself as an international carrier of choice, offering 34 domestic routes and 27 international destinations. MAS invested RM9.6 billion to develop its fleet of aircrafts in 1991.As of March 2001; MAS had a fleet of 95 aircrafts in its complex serving over 114 destinations. Today, Malaysia Airlines flies thousand of passengers daily to some 100 destinations worldwide. The airline holds a protracted record of service and most excellent practices, having received more than 100 awards in the last 10 years. The most prominent ones include being the first airline with the "World's Best Cabin Crew" by Skytrax UK repeatedly from 2001 until 2004, "5-star Airline" in 2005 and 2006, as well as No.1 for "cost-cutting appraise of economic class onboard 2006"
MAS ORGANIZATIONAL STRUCTURE/RESPONSIBILITIES
BOARD OF DIRECTORS
The Director decisions are very important in the case not just to do their mean roll that show there innovation to make right in the sensitive situation decision and future sight to reflect their motivate roll inside the MAS and influence existence. As well as MAS facing much of a problem or many of the challenges for their operations, for example see the impact the outbreak of the Severe Acute Respiratory Syndrome (SARS) in the region. And political uncertainty and terrorism in all parts of the world destabilizing factor in all aspects of life.
Otherwise, there was also a lot of frustration with the safety and security by one of the conditions imposed by the Government of the United States for the aviation industry, which added to the cost of doing business. Therefore, each case above, the Director decided to take the decision of the keeping continue to travel with maintaining the confidence to continue to take profitability. Moreover, the profit gains in 2004 was higher than the profits made since it was the inclusion of airlines in 1985 to Bursa Malaysia as a means to reflect the decision of the Director to make the shift decided to use to perform an operation on a large scale Unbundling assets in November 2002 and to develop strategies at a time put in the place to return to the forefront in the aviation industry.
In addition, it faced many challenge. Prior to 2006, a confluence of poor pricing, rising cost structure, poor operating performance and stewardship put MAS in financial crisis, was expected to report on the loss of RM1.7b FY06. Following this impasse and MAS was a revolution in itself in the framework of the Transition Plan Business (BTP1). By the Director and Chief Executive Officer (CEO) and a role in this matter and they have confidence in their decision-making is made up with a series of initiatives aimed at improving the yield. And they were very confident, to said MAS was able to free itself from the crisis of liquidity and profits, and turned into a profitable diamond carrier in less than 24 months. Then grown diamond recorded 6 / 4, respectively, of sustained profitability and its cash pile for RM5.2bn. With the United States economy on the brink of recession, and there are signs of weakness in demand for travel, especially in the long term. Administrator has therefore decided to focus additional efforts and resources to enhance the short and medium term. Compared with regional rivals, MAS has the upper hand in terms of size, the largest fleet of narrow body. Singapore Airlines and Cathay. As well as all the successful decision making in MAS that show the main role and the effect from director decision making to sustain MAS profitability. Under the new management, MAS has established a strong track record in turnaround, notably in yield enhancements and costs reduction. As such, there have been tremendous improvements in MAS' balance sheet and cash flows.
Finally, The MAS demands from their manger and director to give MAS high performance with motivation decision making in the right time to b e usefulness to apply to get more benefit. Thus, directors inside MAS looking to better future and more success with high confidence with right decision. And also that what MAS want from their directors to keep MAS sustain on the right way to continuous their success with more profitability. One of famous director given almost of their success he is Tan Sri Azizan bin Zainul Abidin, whose visionary leadership brought MAS to where we are now.
The Board Audit Committee ("BAC") functions as a Sub-Committee of the Main Board to review accounting policies, internal controls and annual accounts of the Company on behalf of the Board of Directors. In performing its function, the BAC reviewed the overall scope of both internal and external audits. It met with the Company's internal auditors and the statutory auditors to discuss the results of their respective examinations and their evaluation of the system of internal accounting controls of the Company. The BAC also reviewed the assistance given by the Company's officers to the auditors. The BAC reviewed the accounts of the Company and the consolidated accounts of the Group as well as the auditors' report thereon and recommended to the Board of Directors, the reappointment of the statutory auditors at the forthcoming Annual General Meeting of the company.
As we know auditor has important role in organization. Including both of internal and external auditor they have significant role to management organization. Internal auditing action is primarily aimed at at humanizingÂ internal control. Also it has some functions such as, Effectiveness and efficiency of operations. Reliability of financial statement and Compliance with rules and regulations. Even though Internal auditing professional standards require the function to monitor and evaluate the effectiveness of the organization'sÂ Risk managementÂ processes. That mean relates to how an organization sets objectives, then analyzes, and responds to those risks that could potentially impact its ability to realize its objectives. Through the globalization most of organization faced some challenges, so therefore manager's especially internal uditors suppose to have important role to make decision in organization. It's better for organization carry out to Effectiveness of internal audit especially in (MIS) because internal audit activities play an important part in the effective governance and risk and control framework of any organization.
Although audit committee should be able to monitor and review the effectiveness of internal audit function. It should provide feedback and guidance to internal audit to help it provide the assurance service the audit committee needs. Reviewing internal audit reports will help the audit committee assess the quality of internal audit's work during the course of the year. It may involve obtaining feedback from management, external auditors and other stakeholders. For this purpose the MAS Group has an established Internal Audit Department (IAD) that reports to the BAC. An approved Internal Audit Charter provides for the independence of the function in reviewing the Group's internal control system. The IAD also assists Senior Management in enhancing internal controls and ensuring the effectiveness of the internal control system.
Auditor also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall presentation of the financial statements. They believe that the auditor provides a reasonable basis for there opinion that says, The financial statements have been properly drawn up in accordance with the provisions of the Companies Act,1965 and applicable. Approved Accounting Standards in Malaysia so as to give a true and fair view the financial position of the Group and of the Company as at 31 March 2004.The results and the cash flows of the Group and of the Company for the year then ended.The matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements and The accounting and other records and the registers required by the Act to be kept by the Company and by its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.
In addressing MAS current plight, the objective has been to improve liquidity through better yield management, effective pricing, and fares structure, pre-planning of cash needs for committed aircraft deliveries and term liabilities repayment. In addition, it aims to initiate efforts to normalize its leverage and capital structure to bring MAS more in line with its competitors in the industry. MAS also strive to attain world-class standard in terms of operational productivity, service levels and costs. Its focus is on improving quality and efficiency, and putting a halt to all form of abuse within the organization.
MAS intends to reassess the effectiveness of its route network; both international and domestic. This involves reviewing the viability of the existing fare structure and routes; and the realigning and re-deploying of its aircraft capacity to markets that offer the greatest opportunities. Furthermore, MAS has instituted various improvement programs to raise efficiency and productivity levels to industry standards. Mutually beneficial cooperation, alliances and tactical arrangements are also being explored with interested airlines. MAS have also adopted programs, such as the 'Transformation Programme', that encourages the whole company to work together in building lasting relationships with customers.
FINANCIAL PERFORMANCE/ CRISES
Despite all the notable achievements and excellence in services, MAS faces major financial problems. By the year 2002, MAS struggled under a debt load of RM 9.2 billion. During the first half of 2001, losses nearly doubled in the first six months of 2001 with the Kuala Lumpur-based carrier reporting it was RM 772.79 million (USD$203.3 million) in the red. For the financial year ended 31 March, 2001, MAS reported a pre-tax loss of RM 1.303 billion. This was the fourth consecutive year MAS had been registering losses. In the financial year 2005, Malaysia Airline System (MAS) reported another loss of over RM1.3 billion. This announcement came at the same time as some of our regional competitors reported strong profits. The new environment will continue to hit MAS hard. The projections for MAS for 2006 look dismal. In fact, on its current business assumptions, course and speed, MAS will likely fail, running out of cash in April 2006, and reporting a RM1.7 billion loss for 2006.
The management team, and our staff, however, believes strongly in our ability to transform the business and, indeed, to go beyond expectations with hard work, radical changes and some tough decisions, MAS can certainly be a survivor and a winner. Since early December 2005, the management team has dedicated itself to the development of a plan that builds off the actions taken by the Board in 2005 to begin the turnaround. This turnaround plan will not only reverse the loss and return MAS to profitability, but also transform the company into a strong and vibrant institution-one that is capable of withstanding external shocks and aggressively tackling new opportunities. In the 2006 full year results, MAS have exceeded their RM1.1 billion BTP 1 improvement target. They made a loss after tax of RM136 million, which was a RM1.6 billion improvement over the RM1.7 billion base case loss for 2006. In addition, MAS improved their cash position and recovered fully from the cash crisis. For year-to-date September 2007, they made a net profit of RM610 million. This exceeded there BTP 1 target of RM50 million for 2007, and even their target of RM500 million profit for 2008. In fact, this is the highest profit in our 60-year history. There previous highest annual profit of RM460 million was recorded in 2004
COURSES OF THE (MAS) FINANCIAL CRISES
Mounting operational costs has been one of the factors that MAS had been plagued with. The higher operating charges were attributable mainly to the amortization of foreign exchange losses and the abnormal hike in fuel prices in the fourth quarter of 2000. The cold reality is that the airline industry is a tough business. Most markets eventually mature into intensely competitive arenas where very few players are able to earn consistent profits. Asian airlines have enjoyed a few years of excellent returns, reflecting relatively light competition, but the signs of deepening competition and worsening market conditions are now evident in Asia. Indeed, the following is true of the current environment for the airline industry: Recent trends are leading to the worst global crisis the industry has ever seen.
The Recent trends are leading to the worst global crisis the industry (MAS) has ever seen the collective impact of these forces is tremendous. Since 2001, the global airline industry has lost over USD36 billion. This is of the same order of magnitude as the sum of its profits over the last 50 years. The five main forces at work in the industry are as follows:
(1) There has been a slowing of global Revenue Passenger Kilometre (RPK) growth Airlines (and aircraft manufacturers) have traditionally based their forecasts on assumptions of relatively large ratios between RPK growth and GDP growth. For several decades, airline growth significantly outstripped economic growth. However, since the 1990s, airline growth in most parts of the world has become more closely aligned with the economic growth. Nearly all has come from the Low Cost Carrier (LCC) segment. Growth has masked many of the problems associated with rising factor costs. As growth slows, many previously buried problems have surfaced to add fuel to the fire.
(2) An increase in pricing transparency is leading to commoditization in few industries are buyers as empowered as they are in the airline industry. First of all, buyers have nearly perfect information. Online search engines and the Global Distribution System (GDS) display all possible options and prices for a market pair, with price emerging as the central determinant of display priority-for example, the order in which options are displayed on a computer screen. Second, as the industry has relied on year-on-year price decreases to fund growth, the proportion of discretionary traffic has increased
(3) Factor costs particularly fuel have increased Between mid 2002 and late 2005, fuel prices increased by over 168%.The increase in fuel prices alone has added nearly USD64 billion to the industry cost structure.
(4) Low cost competition is on the rise In nearly every market we now see low cost (or at least low fare) competitors hoping to stimulate demand by dumping large numbers of very low price seats in core markets. These airlines are attempting to generate new pools of discretionary traffic. Even though these airlines do not explicitly target the business passengers from which mainline carriers make their living, they create a devastating residual effect. When low cost carriers drop leisure fares, they also typically remove restrictions such as advance purchase requirements or minimum stay.
(5) There fore, the frequency and impact from global demand shocks is increasing The events of September 11, the SARS outbreak and the Gulf War have had devastating effects on the industry in some regions, for example, demand over the short term has fallen by more than 30%. While it is arguable whether such tragedies are increasing in frequency, it is clear that when they do happen, these events will have greater and greater impact on our industry especially as today and agility to react to demand shocks of up to 30% or more.
THE FACTORS THAT LEAD TO THE SUCCESS OF MAS
THE SUCCESS OF (MAS)
The success of MAS was the set up based on the turnaround framework plan and the business turnaround plan for three consecutive years whish are:
1. Flying to win customers we will reconfigure our network and our product portfolio to ensure that we have the tools and capabilities to be a top-tier player in each of the markets we serve, or we will leave.
2. Mastering operational excellence we will build a unique operating capability unmatched by our peers. This capability will be reflected not only in improved operational reliability, but also in higher productivity and greater precision in everything that we do.
3. Financing and aligning the business on P&L we will relentlessly increase profits with the support of a world-class Finance function that ensures true financial accountability, transparency and performance orientation in our business.
4. Unleashing talents and capabilities we are committed to our people. We
strongly believe that the MAS employees and managers have both the passion and talent to achieve whatever goals we set for ourselves. We will work together with our employees to ensure that they have a working environment
in which their talents can thrive.
5. Winning coalitions we know that we cannot achieve our goals alone. MAS needs the resolute support of the Government, its employees, managers, customers, suppliers, agents and investors. It is only with the support of these stakeholders that MAS can have the mandate it needs to make the changes that will ensure our long-term success.
This Business Turnaround Plan has been carefully sequenced over the next 3 years to deliver cash, profitability and growth in that order of intensity and focus. At the same time, we will continue to foster an environment that allows the talents of our people to be unleashed and to flourish. In 2006, we are already undertaking a series of measures to raise RM4 billion in cash through internal and external sources to tide us through our current cash crisis. We are also tackling the biggest immediate profitability challenge for MAS: low yield. MAS have award-winning products and services, a competitive cost base, and a load factor that is only slightly below average, but we are still losing money because our yields are lower than those of our competitors. In 2007, our plan will focus on improving efficiency and capabilities. In 2008, we will focus on new growth opportunities. They are dedicated to the creation of a company that will be a source of pride and admiration for its employees and indeed all its stakeholders. The MAS of tomorrow will maintain its five-star product, have a competitive cost structure in the region, be renowned as being one of the best places to work in Malaysia, have closed much of the revenue performance gap to our peers and will return to profitability in 2007.
HOW THE ABOVE SUCCESS WAS ACHIEVED IS THROUGH BUSINESS TURNAROUND PLAN.
In developing this plan, we built upon the Board's recent turnaround initiatives and we interviewed hundreds of employees, managers and customers to clarify our priorities, identify our constraints and understand what it will take to succeed. We also studied external case examples of airline turnarounds for insight into their key success factors. Learning from those discussions, they have designed a plan that is:
(1) Fast and decisive there employees will focus on clear P&L results, not just activities. There is no time for projects with long lead-times that only pay off years down the track. They build capabilities while we work, but we must focus on actions that will deliver quick and fast results. They also be expeditious in our decision making. In any turnaround, there will be tough, and sometimes painful, decisions to make. We are prepared to make those decisions quickly, with an adequate and reasonable level of analysis. In our review of failed airline turnarounds, it was procrastination, more than anything that got in the way of creating impact.
(2) Focused, there are, no doubt, hundreds of new and existing opportunities that MAS could exploit; however, we will focus on what will deliver results. We have also carefully sequenced the turnaround plan over the next 3 years to deliver cash, profitability and growth-in that order of intensity and focus. The initial initiatives will focus on quick, high-impact changes that drive immediate improvements in cash flow and yield with minimal investment. This focus reflects the fact that MAS is in a cash and P&L crisis. Simply put, we need to stabilize the patient before surgery. This will take up to 12 months through to the end of 2006.
(3) Fully supported by management. They are aligned as a management team, both among ourselves and with our stakeholders, as to the direction and implications of the plan and the risks we are taking. The plan will be clear and transparent to our employees and stakeholders. Every action must be led, guided and communicated in context of one of the plan's five thrusts.
(4) Consistent with GLC Transformation guidelines. The MAS Business Turnaround Plan has been developed using the GLC Transformation Manual as a guide. It takes into account the recommendations in the manual and adapts these for implementation in MAS in the context of the business turnaround. Our Business Turnaround Plan .The MAS Way is built on five main thrusts. Over the coming years you will see perhaps hundreds of actions, but the five thrusts will not change we will remain focused and structured in our actions. Below are the main actions for each of the five thrusts
CONCLUTION AND RECOMMENDATION
After looking at the company activities and the financial position they are trying to get high reputation. as management team that covers commercial customers, shareholders as swell as the Government, in satisfying customers through product reliability and hospitability. The strategy will aim to position MAS as a global carrier with presence in areas with growth potential and profitability customer confidence in the Airline will be maintained through it safe operations.