Ar2007 Mas

MH PROMISE
More than just an airline code. It is where everything comes from the heart. Where different cultures and needs are understood. And respect is not learnt from a training manual. It is us treating everyone like a guest in our home. And ensuring smooth journeys all the way. This is MH. Our Malaysian way of hospitality.
Contents
1 Notice of Annual General Meeting 2 Statement Accompanying the Notice of Annual General Meeting 3 Corporate Corporate Prole Corporate Information Group Structure Board of Directors Senior Management Statistical Highlights Chairmans Statement Managing Directors Statement Operational Review Going Forward 4 Governance Details of Board of Directors Meeting Audit Committee Report Statement of Internal Control Statement of Corporate Governance Statement of Corporate Social Responsibility List of Company Properties Analysis of Shareholdings 5 Financial Report 6 Key Corporate Events 7 Awards & Recognition 8 Proxy Form 75 77 82 86 102 107 110 120 238 242 243 12 13 15 16 24 30 40 46 54 68 6 9
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN THAT the Thirty Seventh Annual General Meeting of Malaysian Airline System Berhad will be held at the Auditorium, 1st Floor, South Wing, MAS Academy, No. 2 Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan on Monday, 23 June 2008 at 10.00 a.m. for the following purposes:AGENDA 1. To receive the Audited Financial Statements for the nancial year ended 31 December 2007 together with the Reports of Directors and Auditors thereon. 2. To approve the declaration of a rst and nal tax-exempt dividend of 2.5 sen per share in respect of the nancial year ended 31 December 2007. 3. To approve the Directors fees for the nancial year ended 31 December 2007. 4. To re-elect the following Directors retiring under Article 139 of the Companys Articles of Association, and who, being eligible, offer themselves for re-election:(i) Dato Sri Iris Jala @ Idris Jala (ii) Dato N. Sadasivan a/l N. N. Pillay (iii) Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim 5. To re-elect the following Director retiring under Article 137 of the Companys Articles of Association, and who, being eligible, offer himself for re-election:(i) Datuk Amar Wilson Baya Dandot 6. To re-appoint Messrs. Ernst & Young as Auditors of the Company until the conclusion of the next Annual General Meeting and to authorise the Directors to x their remuneration. SPECIAL BUSINESS 7. To consider and if thought t, to pass the following Ordinary Resolution:Authority to Allot and Issue Shares THAT subject to the Companies Act, 1965 (the Act), the Articles of Association of the Company, approval from the Bursa Malaysia Securities Berhad and other government or regulatory bodies, where such approval is necessary, full authority be and is hereby given to the Board of Directors pursuant to Section 132D of the Act, to issue shares in the capital of the Company at any time upon such terms and conditions and for such purposes as the Directors may in their discretion deem t, provided always that the aggregate number of shares to be issued shall not exceed 10% of the issued share capital of the Company and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company. 8. To transact any other ordinary business for which due notice has been given. Ordinary Resolution 10 Ordinary Resolution 9 Ordinary Resolution 7 Ordinary Resolution 8 Ordinary Resolution 4 Ordinary Resolution 5 Ordinary Resolution 6
Ordinary Resolution 1
MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)
NOTICE OF DIVIDEND ENTITLEMENT NOTICE IS ALSO HEREBY GIVEN that the rst and nal tax-exempt dividend of 2.5 sen per share in respect of the nancial year ended 31 December 2007 will be payable on 31 July 2008 to depositors who are registered in the Record of Depositors at the close of business on 11 July 2008, if approved by shareholders at the forthcoming Thirty Seventh Annual General Meeting on Monday, 23 June 2008. A depositor shall qualify for entitlement only in respect of:(a) Shares transferred into the Depositors Securities Account before 4.00 p.m. on 11 July 2008 in respect of ordinary transfers; and (b) Shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of the Bursa Malaysia Securities Berhad.
BY ORDER OF THE BOARD RIZANI BIN HASSAN (LS 05125) COMPANY SECRETARY 30 May 2008 Selangor Darul Ehsan
EXPLANATORY NOTES ON SPECIAL BUSINESS: Ordinary Resolution 9 Resolution pursuant to Section 132D, Companies Act, 1965. The proposed Ordinary Resolution 9, if passed, will empower the Directors to issue shares in the Company up to an amount not exceeding in total 10% of the issued share capital of the Company, subject to compliance with the relevant regulatory requirements. The approval is sought to avoid any delay and cost in convening a general meeting for such issuance of shares. This authority, unless revoked or varied by the Company at a general meeting, will expire at the next Annual General Meeting. 1. A member entitled to attend and vote at the Meeting is entitled to appoint more than two (2) proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 2. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or, if the appointer is a corporation, either under its seal or under the hand of an ofcer or attorney duly authorised.
3. A holder may appoint more than two (2) proxies to attend the Meeting. Where a member appoints two (2) or more proxies, he shall specify the proportion of his shareholding to be represented by each proxy. 4. The right of foreigners to vote in respect of their deposited securities is subject to Section 41(1)(e) and Section 41(2) of the Securities Industry (Central Depositories) Act, 1991 and the Securities Industry (Central Depositories) (Foreign Ownership) Regulations, 1996. The position of such depositors in this regard will be determined based on the General Meeting Record of Depositors. Such Depositors whose shares exceed the Companys foreign shareholding limit of 45% as at the date of the General Meeting Record of Depositors may attend the above Meeting but are not entitled to vote. Consequently, a proxy appointed by such depositor who is not entitled to vote will also not be entitled to vote at the above Meeting. 5. The instrument appointing a proxy must be deposited at Symphony Share Registrars Sdn. Bhd., Level 26 Menara Multi-Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than 48 hours before the time for holding the Meeting or at any adjournment thereof. 6. Shareholders attention is hereby drawn to the Listing Requirements of Bursa Malaysia Securities Berhad, which allows a member of the Company who is an authorised nominee as dened under the Securities Industry (Central Depositories) Act, 1991, to appoint at least one (1) proxy in respect of each securities account he holds with ordinary shares of the Company standing to the credit of the said securities account.
Statement Accompanying the Notice of Annual General Meeting
1. Further details of Directors who are standing for re-election or re-appointment as per Agenda 4 and 5 of the Notice of the 37th AGM respectively:A. Ordinary Resolution 4 Dato Sri Iris Jala @ Idris Jala (Non-Independent Executive Director) Dato Sri Idris Jala, aged 49, a Malaysian, is currently Managing Director/Chief Executive Ofcer of MAS, a position he currently holds since 1 December 2005. He is also a Member of the Board Safety & Security Committee. He holds a Bachelor of Social Science (Hons) in Development Studies/Management degree from University Sains Malaysia and a Master in Industrial Relations from University of Warwick, United Kingdom. Prior to MAS, he was attached to Shell MDS (Malaysia) Sdn. Bhd. as Managing Director and Executive Director of Shell Malaysia Ltd., Gas & Power from 2003 to 2005. He joined Sarawak Shell Berhad in 1982 as Industrial Relations Ofcer and later promoted to Head Staff Development in 1987. In 1989, he was appointed Human Resource Advisor, Shell International, Holland and Head Human Resource Planning of Sarawak Shell Berhad. From 1995 to 1997, he was appointed Business Reengineering Manager, Retail Area Manager, Senior Manager, National Retail Sales of Shell Malaysia Ltd. In 1998, he was promoted as Chairman/Managing Director (LPG) of Shell Sri Lanka. He was then transferred to London as Vice President Business Development Consultancy in 2000 and Vice President Retail Marketing, SRI of Shell Int. Pet. Co., United Kingdom a year later. B. Ordinary Resolution 5 Dato N. Sadasivan a/l N. N. Pillay (Independent Non-Executive Deputy Chairman) Dato N. Sadasivan, aged 68, a Malaysian, joined the Board of Directors of MAS on 1 December 2001. He was appointed Independent Non-Executive Deputy Chairman on 20 July 2004. He is the Chairman of the Board Tender Committee and member of the Board Audit Committee, Nomination Committee and Remuneration Committee. He holds a Bachelor of Arts (Hons) degree in Economics from University of Malaya. He started his early career as an economist with the Economic Development Board Singapore until 1967. He subsequently served in various capacities with the Malaysian Industrial Development Authority (MIDA) until 1995. His last position with MIDA was as its Director-General. Upon his retirement, he set up a consultancy rm, SKA Management Consultants Sdn. Bhd. where he is the Executive Chairman. He currently sits on the Board of Bank Negara Malaysia and is a Director of Chemical Company of Malaysia Berhad, Petronas Gas Berhad, Leader Universal Holdings Berhad, APM Automotive Holdings Berhad, Malaysian Industrial Development Finance Berhad and Yeo Hiap Seng (Malaysia) Berhad. C. Ordinary Resolution 6 Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim (Independent Non-Executive Director) Datuk Haji Yusoff, aged 58, a Malaysian, is an Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 23 January 2006. He is a member of the Board Audit Committee.
Statement Accompanying the Notice of Annual General Meeting
He holds a Bachelor of Economics from University of Adelaide, Australia. He began his career in Sabahs Public Services as Assistant Director, Economic Planning Unit in 1979. He was appointed District Ofcer, Beaufort, Sabah in 1982. From 1984 to 1994, he held various positions within the Chief Ministers Department and the Ministry of Industrial Development, Sabah. He then joined the Ministry of Finance, Sabah as Under Secretary (Budget). He is currently the Permanent Secretary, Minister of Finance, Sabah. He sits on the Board of Saham Sabah Berhad. D. Ordinary Resolution 7 Datuk Amar Wilson Baya Dandot (Independent Non-Executive Director) Datuk Amar Wilson, aged 56, a Malaysian, is an Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 11 January 2008. He is a member of the Board Safety & Security Committee. He holds a Bachelor of Economics from University of Western Australia and a Master degree in Development Economics from University of Sussex, United Kingdom. He also attended a Senior Executive Fellows Programme at JFK School of Government, Harvard University. He rst joined Sarawak State Government Ofce as the Assistant Secretary of Agriculture Sector State Planning Unit in 1973. He was an Economist of the International Pepper Community, Jakarta in 1977 to 1983, and later as Principal Assistant Secretary in the State Planning Unit in 1983. In 1990, he was appointed as Deputy Director/Principal Assistant Director, State Planning Unit, Sarawak. He later assumed the position of Director, State Planning Unit in 1995 and Deputy State Secretary (Planning & Development) in 2000. He was then promoted as Deputy State Secretary (Human Resource) and was subsequently appointed as Deputy State Secretary (Administration, Security & Protocol) at the Chief Minister Department. In 2007, he was appointed Sarawak State Secretary, a position he held until today. He sits on the Board of Employees Provident Fund and Sarawak Energy Berhad.
Notes: i. None of the Directors has any family relationship with any Director/major shareholder of MAS, nor has any conict of interest with MAS. ii. None of the Directors has been convicted for any offences (other than trafc offences if any) within the past ten years.
2. The above Directors direct interests in the securities of the Company as at 5 May 2008:Direct Interest No. of Issued Shares % of Issued Shares 755,358* Nil Nil Nil 0.045* Nil Nil Nil
Name of Directors
Dato Sri Iris Jala @ Idris Jala Dato N. Sadasivan a/l N. N. Pillay Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Datuk Amar Wilson Baya Dandot
*MAS ESOS Scheme (negligible as less than 0.1%)
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Corporate
Corporate Prole
Malaysia Airlines, (www.malaysiaairlines.com) the national carrier of Malaysia, is recognised as one of Asias largest, ying more than 42,000 passengers to over 100 destinations across 6 continents everyday. Currently operating over 100 aircraft, Malaysia Airlines eet is dominated by Boeing 737s, 747s and 777s. After years of nancial uncertainty, the national carrier has turned the corner and is working steadily to reignite the brands relationship with customers and other stakeholders. At the beginning of 2006, its Business Turnaround Plan (BTP 1) was implemented to restore the company to nancial health and transform the airline into a strong and vibrant institution, while maintaining its reputation for excellence in efciency and customer service. With a clear mission to become a protable airline, the national carrier pursued a business turnaround strategy which promised to cut losses from RM1.7 billion (full year) to RM620 million in 2006, achieve a prot of RM50 million in 2007 and a record prot of RM500 million in 2008, a feat that many thought was impossible. A number of revenue/yield, network, productivity and cost reduction initiatives were implemented, and the company reported its rst net prot in 3Q06, only 6 months after the introduction of the BTP 1. In recognition of its remarkable turnaround efforts in 2006, the Centre of Asia Pacic Aviation (CAPA) presented Malaysia Airlines with the Airline Turnaround of the Year 2006 award. The achievement was also recognised as the worlds best airline turnaround story in 2007, with Malaysia Airlines being awarded the Phoenix award by Penton Medias Air Transport World. Despite the many challenges, Malaysia Airlines has remained an award-winning airline. In January 2008, the national carrier was again awarded the 5-Star Airline award by Skytrax UK, and it is one of only 6 airlines in the world recognised as 5-Star. Malaysia Airlines cabin crew is acknowledged as the worlds best and was recently awarded the Worlds Best Cabin Staff, 2007 by Skytrax. On 25th February 2008, the company reported its 6th consecutive quarter of net prots, reporting a full year 2007 net prot of RM851 million, the airlines highest prot ever recorded in its 60-year history. This achievement is also signicantly ahead of the original RM50 million target for FY2007 and marks a complete turnaround of its business. Malaysia Airlines also announced its Business Transformation Plan (BTP 2) in January 2008 which builds on the Business Turnaround Plan. The aim is to transform the Malaysian national airline into a Five Star Value Carrier, one that delivers the highest quality of products and services at affordable prices, without compromising safety or quality, and achieve prots of RM1.5 billion by the year 2012.
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Corporate Information
Board of Directors Dato Dr. Mohd Munir bin Abdul Majid Chairman, Non-Independent Non-Executive Director Dato N. Sadasivan a/l N. N. Pillay Deputy Chairman, Independent Non-Executive Director Dato Sri Iris Jala @ Idris Jala Manging Director/Chief Executive Ofcer, Non-Independent Executive Director Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz Executive Director/Chief Financial Ofcer, Non-Independent Executive Director Keong Choon Keat Independent Non-Executive Director Dato Mohamed Azman bin Yahya Non-Independent Non-Executive Director Martin Gilbert Barrow Independent Non-Executive Director Datuk Seri Panglima Mohd. Annuar bin Zaini Independent Non-Executive Director Dato Zaharaah binti Shaari Non-Independent Non-Executive Director Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah Non-Independent Non-Executive Director Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Independent Non-Executive Director Datuk Amar Wilson Baya Dandot Independent Non-Executive Director Abdul Rahman bin Abdul Ghani Alternate Director to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Dato Puteh Rukiah binti Abd. Majid Alternate Director to Dato Dr. Wan Abdul Aziz bin Wan Abdullah Datuk Haji Mohamad Morshidi bin Abdul Ghani Alternate Director to Datuk Amar Wilson Baya Dandot
Company Secretary Rizani bin Hassan (LS 05125) Registered Ofce 3rd Floor, Administration Building 1 MAS Complex A Sultan Abdul Aziz Shah Airport 47200 Subang Selangor Darul Ehsan, Malaysia Tel: 603 7840 4550 Fax: 603 7840 3932 www.malaysiaairlines.com Auditors Messrs. Ernst & Young (AF 0039) Chartered Accountants Level 23A, Menara Milenium Jalan Damanlela Pusat Bandar Damansara Damansara Heights 50490 Kuala Lumpur Malaysia Tel: 603 7495 8000 Fax: 603 2095 9076 main 603 2095 9078 audit Share Registrar Symphony Share Registrars Sdn. Bhd. Level 26, Menara Multi-Purpose Capital Square, Jalan Munshi Abdullah 50100 Kuala Lumpur Malaysia Tel: 603 2721 2222 Fax: 603 2721 2530/1
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Corporate Information
Investor Relations Song Eu Jin Communications Division Ground Floor, Administration Building 1 MAS Complex A Sultan Abdul Aziz Shah Airport 47200 Subang Selangor Darul Ehsan, Malaysia Tel: 603 7840 3882 Fax: 603 7847 3805 investors@mas.com.my Stock Exchange Listing Main Board of Bursa Malaysia Securities Berhad (Listed since 16 December 1985) (Stock code: 3786) Solicitors Messrs. Lee Hishammuddin and Allen & Gledhill Advocates & Solicitors Level 16, Menara Asia Life No. 189 Jalan Tun Razak 50400 Kuala Lumpur Malaysia Tel: 603 2161 2330 Fax: 603 2161 3933
Principal Bankers Citibank Berhad 45th Floor, Menara Citibank 165 Jalan Ampang 50450 Kuala Lumpur Malayan Banking Berhad Menara Maybank 100 Jalan Tun Perak 50050 Kuala Lumpur CIMB Bank Berhad 5th Floor, Bangunan CIMB Jalan Semantan Damansara Heights 50490 Kuala Lumpur
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Group Structure
MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W) 80% 51% 100% 100% 100% 100% 100% 100% 60% 100% 100% 100% 100% 100% 100% Abacus Distribution Systems (Malaysia) Sdn. Bhd. (180535-T) Aerokleen Services Sdn. Bhd. (277266-X) FlyFirey Sdn. Bhd.* (346606-K) MASkargo Logistics Sdn. Bhd. (68121-P) Malaysia Airlines Capital (L) Limited (LL01132) Malaysia Airlines Cargo Sdn. Bhd. (318815-M) MAS Academy Sdn. Bhd. (317184-W) Syarikat Pengangkutan Senai Sdn. Bhd. (39752-P) MAS Catering (Sarawak) Sdn. Bhd. (372384-D) MAS Golden Boutiques Sdn. Bhd. (317182-T) MAS Golden Holidays Sdn. Bhd. (317144-A) MASWings Sdn. Bhd. (formerly known as Absolute Competence Sdn. Bhd.) (773841-A) MAS Aerotechnologies Sdn. Bhd. (317185-K) Malaysian Aerospace Engineering Sdn. Bhd. (775412-D) Macnet CCN (M) Sdn. Bhd. (318626-W) (under Members Voluntarily Winding Up)
INVESTMENT IN ASSOCIATES 49% 30% 49% 30% 30% 23.53% 20% Aerone Meat Sdn. Bhd. (425749-M) GE Engine Services Malaysia Sdn. Bhd. (423679-X) Hamilton Sundstrand Customer Support Centre (M) Sdn. Bhd. (301833-D) Honeywell Aerospace Services (M) Sdn. Bhd. (465037-M) LSG Sky Chefs-Brahims Sdn. Bhd. (317281-X) Pan Asia Pacic Aviation Services Limited (470740) Taj Madras Flight Kitchen Limited (30706 State Code 18)
* FlyFirey Sdn. Bhd. owns 100% equity in FlyFirey Holiday Sdn. Bhd. (780113-P) (formerly known as Khidmat Stabil Sdn. Bhd.)
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Board of Directors
DATO DR. MOHD MUNIR BIN ABDUL MAJID

Non-Independent Non-Executive Chairman
Dato Dr. Mohd Munir bin Abdul Majid, aged 60, a Malaysian, joined the Board of Directors of MAS on 1 June 2004. He was appointed Non-Independent Non-Executive Chairman on 1 August 2004. He serves as Chairman of the Nomination Committee. He obtained a Bachelor of Science (Economics) degree from the London School of Economics and Political Science (LSE) in 1971 and went on to earn a Ph.D in International Relations in 1978. During his years in London, he taught at the Department of International Relations in LSE and worked as a research analyst at Daiwa Europe NV. Upon his return to Malaysia in 1978, Dato Dr. Mohd Munir joined the News Straits Time Press as leader writer, ending his service there as Group Editor in 1986. He took on the appointment of Chief Executive Ofcer of a merchant bank, Pertanian Baring Sanwa, (which was renamed Commerce International Merchant Bankers Berhad), later becoming its Executive Chairman. He was the rst and founding Chairman of the Securities Commission where he served from 1993 to 1999. He has served on various governmental boards and committees, such as Malaysian Industrial Development Authority (MIDA), Bursa Malaysia Securities Berhad (formerly known as The Kuala Lumpur Stock Exchange), Foreign Investment Committee (FIC), as well as various private sector companies and organizations such as Kuala Lumpur Options and Financial Futures Exchange (KLOFFE), Council of the Association of Merchants Malaysia, Malaysian International Chamber of Commerce and Industry. He is also the founder President of the Kuala Lumpur Business Club and was appointed by the Malaysian Institute of Management to be a member of its Court of Fellows in May 2004. In December 2005, he was made an Honorary Fellow of the London School of Economics and Political Science. He is President of the Alumni Association of Malaysia. He presently sits on the Advisory Board for Securities Market Regulation of the Toronto Centre for Leadership in Financial Market Regulation. He is a member of the International Institute for Strategic Studies (IISS) in London. He was the Senior Independent Non-Executive Director of Telekom Malaysia Berhad (2000 2004), the Chairman of Celcom (Malaysia) Berhad and Technology Resources Industries Berhad (2002 2004). He currently sits on the Board of Saujana Resorts (Malaysia) Berhad and Green Rubber Group Limited. He has attended 11 out of 11 Board Meetings held during the nancial year under review.
DATO N. SADASIVAN A/L N. N. PILLAY

Independent Non-Executive Deputy Chairman
Dato N. Sadasivan, aged 68, a Malaysian, joined the Board of Directors of MAS on 1 December 2001. He was appointed Independent Non-Executive Deputy Chairman on 20 July 2004. He is the Chairman of the Board Tender Committee and member of the Board Audit Committee, Nomination Committee and Remuneration Committee. He holds a Bachelor of Arts (Hons) degree in Economics from University of Malaya. He started his early career as an economist with the Economic Development Board Singapore until 1967. He subsequently served in various capacities with the Malaysian Industrial Development Authority (MIDA) until 1995. His last position with MIDA was as its Director-General. Upon his retirement, he set up a consultancy rm, SKA Management Consultants Sdn. Bhd. where he is the Executive Chairman. He currently sits on the Board of Bank Negara Malaysia and is a Director of Chemical Company of Malaysia Berhad, Petronas Gas Berhad, Leader Universal Holdings Berhad, APM Automotive Holdings Berhad, Malaysian Industrial Development Finance Berhad and Yeo Hiap Seng (Malaysia) Berhad. He attended 9 of 11 Board Meetings held during the nancial year under review.
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Board of Directors
DATO SRI IRIS JALA @ IDRIS JALA

Non-Independent Managing Director/Chief Executive Ofcer
Dato Sri Idris Jala, aged 49, a Malaysian, is currently Managing Director/Chief Executive Ofcer of MAS, a position he currently held since 1 December 2005. He is also a Member of the Board Safety & Security Committee. He holds a Bachelor of Social Science (Hons) in Development Studies/Management degree from University Sains Malaysia and a Master in Industrial Relations from University of Warwick, United Kingdom. Prior to MAS, he was attached to Shell MDS (Malaysia) Sdn. Bhd. as Managing Director and Executive Director of Shell Malaysia Ltd., Gas & Power from 2003 to 2005. He joined Sarawak Shell Berhad in 1982 as Industrial Relations Ofcer and later promoted to Head Staff Development in 1987. In 1989, he was appointed Human Resource Advisor, Shell International, Holland and Head Human Resource Planning of Sarawak Shell Berhad. From 1995 to 1997, he was appointed Business Reengineering Manager, Retail Area Manager, Senior Manager, National Retail Sales of Shell Malaysia Ltd. In 1998, he was promoted as Chairman/Managing Director (LPG) of Shell Sri Lanka. He was then transferred to London as Vice President Business Development Consultancy in 2000 and Vice President Retail Marketing, SRI of Shell Int. Pet. Co., United Kingdom a year later. He does not hold any directorship in other public companies. He has attended 11 out of 11 Board Meetings for the year under review.
TENGKU DATO AZMIL ZAHRUDDIN BIN RAJA ABDUL AZIZ

Non-Independent Executive Director/Chief Financial Ofcer
Tengku Dato Azmil, aged 37, a Malaysian, was rst appointed to the Board of Directors of MAS on 23 August 2004 and subsequently as Executive Director on 23 August 2005 and Chief Financial Ofcer on 1 February 2006. He is a member of the Board Tender Committee and Board Safety & Security Committee. He holds a double rst class degree in Economics from the University of Cambridge. He is a Chartered Accountant and an associate member of the Malaysian Institute of Accountants and the Institute of Chartered Accountants in England and Wales. He is also an associate of the Association of Corporate Treasurers, United Kingdom. Upon graduating, he was attached to the Audit and Business Advisory Services Division, PricewaterhouseCoopers in London and Hong Kong specializing in banking and capital markets. In 2002, he took up the position of Chief Financial Ofcer in Penerbangan Malaysia Berhad, and subsequently as its Managing Director/ Chief Executive Ofcer in 2004. He does not hold any directorship in other public companies. He sits on the Investment Panel of Retirement Fund Incorporated, also known as Kumpulan Wang Persaraan (Diperbadankan) or KWAP. He has attended 11 out of 11 Board Meetings during the nancial year under review.
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KEONG CHOON KEAT

Independent Non-Executive Director
Mr. Keong Choon Keat, aged 63, a Malaysian, is an Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 16 April 2001. He serves as Chairman of Board Audit Committee and is a member of the Nomination Committee, Remuneration Committee and ESOS Committee. He is a member of the Malaysian Institute of Accountants and Malaysian Institute of Certied Public Accountants. He is also a Fellow Member of the Institute of Chartered Accountants in England and Wales. He was attached to Bristol Myers & Company Ltd. in England as an Accountant in 1968. He then joined Malaysian Tobacco Company Berhad as an accountant in 1969. From 1974 to 1999, he was attached to UMW Holdings Group, where he held various management positions from General Manager to Director Group Accounts before being promoted to the position of Executive Director in 1988. Upon retirement in 1999, he joined DBM (Malaysia) Sdn. Bhd. as an Accredited Consultant. He currently sits on the Board of JT International Berhad, Pacicmas Berhad, Chin Teck Plantations Berhad, Negri Sembilan Oil Palms Berhad, Crest Builder Holdings Berhad and The Pacic Insurance Berhad. He has attended 10 out of 11 Board Meetings during the nancial year under review.
DATO MOHAMED AZMAN BIN YAHYA

Non-Independent Non-Executive Director
Dato Azman, aged 44, a Malaysian, is a Non-Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 1 December 2001. He serves as Chairman of the Remuneration Committee and a member of the Nomination Committee and ESOS Committee. He holds a First Class Honours degree in Economics from the London School of Economics and Political Science (LSE) and is a member of the Institute of Chartered Accountants in England and Wales, the Malaysian Institute of Accountants and a Fellow of Malaysian Institute of Banks. His career appointments include auditing with KPMG in London, nance with Island & Peninsular Group and investment banking with Amanah Merchant Bank. In 1998, he was appointed by the Government of Malaysia to set-up and head Danaharta Nasional Berhad and subsequently became its Chairman until 2003. He was also the Chairman of the Corporate Debt Restructuring Committee, which was set up by Bank Negara Malaysia until its closure in 2002. He is currently the Group Chief Executive and a Board member of Symphony House Berhad, a listed outsourcing group and is the Executive Chairman of the Bolton Berhad, a listed property group. Outside his professional engagements, Dato Azman is active in public service. He sits on the boards of a number of Government Linked Corporations namely Khazanah Nasional Berhad, the investment arm of the Malaysian Government, PLUS Expressways Berhad and Pharmaniaga Berhad. He also serves as a member of the Bursa Malaysia Securities Market Consultative Panel, the National Council for Scientic Research & Development, the National Innovation Council and the Special Taskforce to facilitate Business (PEMUDAH). He is also a Director of Scomi Group Berhad, Kuala Lumpur Business Club and the Chairman of the Motorsports Commission of Malaysia. He has attended 10 out of 11 Board Meetings for the nancial year under review.
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Board of Directors
MARTIN GILBERT BARROW

Mr. Barrow, aged 64, a British citizen, is an Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 29 August 2001. He serves as Chairman of the Board Safety & Security Committee. He obtained Oxford and Cambridge Examination A Levels in Science and Mathematics and subsequently attended courses in Finance and Marketing. He joined Jardine Matheson, Hong Kong in 1965. From 1975 to 1980, he was transferred to Japan as Managing Director of the Groups operations in Japan. He was promoted to the position of President of the Groups afliate, Olayan Saudi Holding Company in Saudi Arabia in 1980. He returned to Hong Kong as Regional Managing Director of the Groups operation in Hong Kong and China in 1983 and was appointed Director of Jardine Matheson Limited at its Group Head Ofce in 1989. He was also active in public service and was appointed by the Governor of Hong Kong as Member of the Legislative Council from 1988 to 1995. Other public-related positions he had held included being a member of Hong Kongs Aviation Advisory Board, Member of the New Airports Steering Group, Chairman of the Hong Kong Tourist Association and Chairman of the Business Advisory Group Committee on Deregulation. He retired from Jardine Matheson in June, 2001. He does not hold any directorship in other public companies in Malaysia. He has attended 9 out of 11 Board Meetings held during the nancial year under review.
DATUK SERI PANGLIMA MOHD. ANNUAR BIN ZAINI

Datuk Seri Panglima Mohd Annuar, aged 57, a Malaysian, is an Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 2 February 2005. He is a member of the Board Tender Committee. He holds a Bachelor of Arts with honours in Economics from University Kebangsaan Malaysia and a Master of Arts in Law & Diplomacy from the Fletcher School of Law & Diplomacy, Tufts University, United States of America. He began his career in the government service as an Administrative and Diplomatic Ofcer in 1977. He served the Malaysian Government at various ministries and departments and was the Senior Private Secretary to the Minister of Home Affairs from 1981 to 1986. From 1991 to 1993, he was the Principal Assistant Director of the Perak State Economic Planning Unit. In 1993, he was appointed General Manager of The Perak Foundation, a position he held until 1999 before he chose to take an optional retirement from the government service. He has been appointed the Chairman of Malaysian National News Agency (BERNAMA) since February 2004. Also in February 2004, HRH The Sultan of Perak consented his appointment as Member of the Council of Elders to HRH Sultan of Perak. He is a Distinguished Fellow to Institute of Strategic and International Studies (ISIS) Malaysia, Fellow to Institut Sosial Malaysia and Member of the Advisory Board of the Public Complaints Bureau of the Prime Ministers department. He is a member of the Board of Directors of University Malaya and Chairman of the University Malaya Specialist Centre. Since August 2007, he has been appointed the Special Advisor to the Prime Minister on Northern Corridor Economic Region (NCER) and in December 2007, he is appointed as Adjunct Professor of NCER Research Centre, Universiti Utara Malaysia. He currently sits on the Board of Berjaya Corporation Berhad, Dijaya Corporation Berhad, Linkedua (Malaysia) Berhad, and other subsidiaries of Berjaya Corporation Berhad and a few private limited companies. He is also the Group Corporate Advisor of TSH Resources Berhad and Multi Media Synergy Corporation Sdn Bhd. He has attended 7 out of 11 Board Meetings for the nancial year under review.
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DATO ZAHARAAH BINTI SHAARI

Non-Independent Non-Executive
Dato Zaharaah, aged 59, a Malaysian, is a Non-Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 1 October 1999. She is a member of the Board Audit Committee. She holds a Bachelor of Arts (Hons) degree from the University of Malaya and a Masters of Science in Transport Planning and Management from the Polytechnic of Central London, United Kingdom. She began her working career with the Ministry of Transport as Assistant Secretary, Civil Aviation Division in 1971 and later as Principal Assistant Secretary in the Civil Aviation Development, Air Transport and International Affairs Division in 1974. She was promoted to Director of the Air Transport and International Affairs Division and subsequently to the post of Under Secretary of Aviation in the Ministry of Transport. In 1989, she was appointed as Deputy Director of Budget in the Ministry of Finance and subsequently as Director of Budget in 1996 before assuming the position of Secretary General to the Ministry of Transport from June 1999 to July 2005. She is currently the Special Transport Advisor to the Ministry of Transport. She also sits on the Board of Malaysia Airport Holdings Berhad. She has attended 6 out of 11 Board Meetings for the nancial year under review.
DATO SRI DR. WAN ABDUL AZIZ BIN WAN ABDULLAH

Non-Independent Non-Executive Director
Dato Sri Dr. Wan Abdul Aziz, aged 56, a Malaysian, is a Non-Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 20 March 2007. He holds a Bachelor of Economics (Honours) degree in Applied Economics from University of Malaya and a Master of Philosophy in Development Studies from the Institute of Development Studies, University of Sussex, United Kingdom. Dato Sri Dr. Wan Abdul Aziz went on to earn a Ph.D in Economics from the School of Business and Economic Studies, University of Leeds, United Kingdom. In 2004, he attended the Advanced Management Program at Harvard Business School, Harvard University. He began his career in the Administrative and Diplomatic Service as Assistant Director of the Economic Planning Unit in the Prime Ministers Department in 1975. He was later promoted to the position of Senior Assistant Director, Macro-economics in 1984, Senior Assistant Director, Human Resource Section and Director, Energy Section in 1988. In the same year, he was seconded to the World Bank Group in Washington DC, USA, representing Brunei Darussalam, Fiji, Indonesia, Laos PDR, Malaysia, Mynmar, Nepal, Singapore, Thailand, Tonga and Vietnam as Alternate Executive Director. He then served the Ministry of Finance as Deputy Secretary in the Economics and International Division in 2001. He later returned to the Economic Planning Unit in the Prime Ministers Department as Deputy Director General, Macro Planning Division in 2004. In 2005, he was appointed Deputy Secretary General of Treasury (Policy), Federal Treasury in the Ministry of Finance. He is currently the Secretary General of Treasury in the Ministry of Finance. He sits on the Board of Federal Land Development Authority (FELDA), Kumpulan Wang Amanah Persaraan (KWAP), Malaysia International Shipping Corporation Berhad (MISC), Inland Revenue Board, Petroliam Nasional Berhad, Multimedia Development Corporation Sdn. Bhd. (MDec), Pengurusan Aset Air Berhad, Syarikat Bekalan Air Selangor Sdn. Bhd. (SYABAS), Pelaburan Hartanah Bumiputera Berhad, Cyberview Sdn. Bhd. and Bank Negara Malaysia. He also represents Ministry of Finance as Member of PEMUDAH, Iskandar Malaysia and Regional Corridor Development Authority (RECODA), Sarawak. He attended 5 out of 8 Board Meetings during the nancial year under review since his appointment to the Board of Directors of MAS.
20
Board of Directors
DATUK HAJI YUSOFF @ HUNTER BIN DATUK HAJI MOHAMED KASIM

Datuk Haji Yusoff, aged 58, a Malaysian, is an Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 23 January 2006. He is a member of the Board Audit Committee. He holds a Bachelor of Economics from University of Adelaide, Australia. He began his career in Sabahs Public Services as Assistant Director, Economic Planning Unit in 1979. He was appointed District Ofcer, Beaufort, Sabah in 1982. From 1984 to 1994, he held various positions within the Chief Ministers Department and the Ministry of Industrial Development, Sabah. He then joined the Ministry of Finance, Sabah as Under Secretary (Budget). He is currently the Permanent Secretary, Minister of Finance, Sabah. He sits on the Board of Saham Sabah Berhad. He has attended 6 out of 11 Board Meetings during the nancial year under review.
DATUK AMAR WILSON BAYA DANDOT

Datuk Amar Wilson, aged 56, a Malaysian, is an Independent Non-Executive Director and was appointed to the Board of Directors of MAS on 11 January 2008. He is a member of the Board Safety & Security Committee. He holds a Bachelor of Economics from University of Western Australia and a Masters degree in Development Economics from University of Sussex, United Kingdom. He also attended a Senior Executive Fellows Programme at JFK School of Government, Harvard University. He rst joined Sarawak State Government Ofce as the Assistant Secretary of Agriculture Sector State Planning Unit in 1973. He was an Economist of the International Pepper Community, Jakarta in 1977 to 1983, and later as Principal Assistant Secretary in the State Planning Unit in 1983. In 1990, he was appointed as Deputy Director/Principal Assistant Director, State Planning Unit, Sarawak. He later assumed the position of Director, State Planning Unit in 1995 and Deputy State Secretary (Planning & Development) in 2000. He was then promoted as Deputy State Secretary (Human Resource) and was subsequently appointed as Deputy State Secretary (Administration, Security & Protocol) at the Chief Minister Department. In 2007, he was appointed Sarawak State Secretary, a position he held until today. He sits on the Board of Employees Provident Fund and Sarawak Energy Berhad.
21
ABDUL RAHMAN BIN ABDUL GHANI

Alternate Director to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim
Encik Abdul Rahman, aged 57, a Malaysian, was appointed as Alternate Director to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim on 23 January 2006. He graduated with a Bachelor of Arts degree from the University of Queensland, Australia. He began his career in civil service as Penolong Penguasa Kastam at the Royal Customs and Excise Department in 1977. He then served in various senior positions in the State Civil Service, including statutory bodies and agencies for over 24 years. He was the Government Printer at Sabah Government Printing Department before assuming his current position of Chief Executive Ofcer, Warisan Harta Sabah Sdn. Bhd., a wholly owned investment holding company of the State Government of Sabah in 2000. He also sits on the Board of Borneo Housing Mortgage Finance Berhad. He has attended 3 out of 10 Board Meetings held during the nancial year under review since his appointment as Alternate Director to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim.
DATO PUTEH RUKIAH BINTI ABD MAJID

Alternate Director to Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah
Dato Puteh Rukiah, aged 55, a Malaysian, was appointed as Alternate Director to Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah on 16 August 2007. She holds a Bachelor of Economics degree from University Malaya and a Master of Economics from Western Michigan University, USA. She has held various posts in the Government since 1976 and her various appointments included being the Deputy Under Secretary, Minister of Finance (Incorporated), Privatisation and Public Enterprise Division in 2000 and subsequently, until 2006, served as Under Secretary, Investment and Privatisation Division, Ministry of Finance (Incorporated). Currently she is the Deputy Secretary General (Systems and Controls), Ministry of Finance. She sits on the Boards of Tenaga Nasional Berhad, Perbadanan Usahawan Nasional Berhad, Pengurusan Aset Air Berhad, Penerbangan Malaysia Berhad and Pelaburan Hartanah Bumiputera Berhad. She attended 2 out of 5 Board Meetings during the nancial year under review since her appointment as Alternate Director to Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah.
22
Board of Directors
DATUK HAJI MOHAMAD MORSHIDI BIN ABDUL GHANI

Alternate Director to Datuk Amar Wilson Baya Dandot
Datuk Haji Mohamad Morshidi, aged 51, a Malaysian, was appointed as Alternate Director to Datuk Amar Wilson Baya Dandot on 11 January 2008. He holds a Bachelor of Economics degree from University Kebangsaan Malaysia and a Master of Science in Human Resource Administration from University of Scranton, Pennsylvania, USA. He started his career as Management Executive with Petronas in 1980. He was appointed Director of Kuching North City Hall from 1988 to 1998. He then went on to hold the senior positions in the Chief Ministers Department that included Director, Human Resource Management and Director, Human Resource Development and Quality from 1998 to 2001. He was later appointed as Permanent Secretary in the Ministry of Social Development and Urbanisation in 2001. He was the Director in the State Planning Unit in the Chief Ministers Department before assuming his current position as Deputy State Secretary of Sarawak on 1 July 2006. He does not hold any directorship in other public companies. He attended 1 out of 11 Board Meetings during the nancial year under review on behalf of Datuk Amar Wilson Baya Dandot.
Notes: 1. 2. None of the Directors has any family relationship with any Director/major shareholder of MAS, nor has any conict of interest with MAS. None of the Directors has been convicted for any offences (other than trafc offences if any) within the past ten years.
23
Senior Management
15
10
14
12
11
16
13
24
Senior Management
1 2 3 4 5 6 7 8
Dato Sri Iris Jala @ Idris Jala Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz Dato Abdul Rashid Khan bin Abdul Rahim Khan Dato Tajuden bin Abu Bakar Dato Captain Mohd Nawawi bin Awang Indira Nair Mohd Azha bin Abdul Jalil Effendi bin Abdul Rahman
9 10 11 12 13 14 15 16
Shahari bin Sulaiman Dr Amin Khan Mohd Roslan bin Ismail Eddy Leong Chin Tung Dato Bernard Francis Captain Dr Ooi Teong Siew Raja Azura binti Raja Mahayuddin Rizani Bin Hassan
25
Dato Sri Iris Jala @ Idris Jala Managing Director/Chief Executive Ofcer Dato Sri Idris, aged 49, holds a Bachelor degree from Universiti Sains Malaysia and a Masters degree from Warwick University, United Kingdom. He joined MAS in December 2005 as the Managing Director/CEO and steered the airline out of its nancial crisis via its Business Turnaround Plan. From a full-year loss of RM1.3 billion in 2005, Idris managed to turnaround the company and achieved a record full year prot of RM851 million in 2007. Idris also sits on the Board of Tourism Malaysia and on the IATA Board of Governors. Prior to joining MAS, he held various key positions in the Shell group of companies, including Managing Director of Shell MDS, Vice President of Shell Gas & Power (Malaysia), Vice President, Retail Marketing & Business Development Consultancy (Shell International, London) and Managing Director of Shell Sri Lanka.
Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz Executive Director/Chief Financial Ofcer Tengku Dato Azmil, aged 37, holds a double rst class degree in Economics from the University of Cambridge. He is a Chartered Accountant and an associate member of the Malaysian Institute of Accountants and the Institute of Chartered Accountants in England and Wales. He is also an Associate of the Association of Corporate Treasurers, United Kingdom. Upon graduating, he was attached to the Audit and Business Advisory Services Division, PricewaterhouseCoopers in London and Hong Kong specialising in banking and capital markets. In 2002, he took up the position of Chief Financial Ofcer in Penerbangan Malaysia Berhad (PMB), and subsequently as its Managing Director/Chief Executive Ofcer in 2004. On 23 August 2005, he joined MAS on a full time basis, relinquishing his position at PMB.
Dato Abdul Rashid Khan bin Abdul Rahim Khan Commercial Director Dato Rashid Khan, is the Commercial Director of Malaysia Airlines, managing the functions of Network and Revenue Management and Sales, Distribution and Marketing. He has been with Malaysia Airlines for more than 35 years, having held various positions in the national airlines home base as well as in Saudi Arabia, USA, Thailand and Germany. He currently serves senior roles in the industrys most prominent and inuential organisations including Chairman of Board of Airline Representatives (BAR) Malaysia; Pacic Asia Travel Association (PATA), Malaysia Chapter; ASEANTA and member of the National Tourism Committee Malaysia, and has previously served in an advisory capacity in the Tourism Committees of the Malaysian states of Sabah, Sarawak and Penang. He is a member of Harvard Business School Alumni Club of Malaysia and the Asian Institute of Management.
Dato Tajuden bin Abu Bakar Director of Operations Dato Tajuden, 56, is a licensed aircraft engineer and holds a Master of Science degree in Engineering Business Management from the University of Warwick. He joined MAS in 1976 and has held several positions in the technical and operations areas, including the Vice President of Engineering & Maintenance (1999), Senior General Manager of Technical & Ground Operations (2001) and Senior General Manager of Operations Control in 2006 before taking over as Director of Operations in 2007. Dato Tajuden represents Malaysia Airlines in the Technical Committee of the Asia Pacic Airlines Association (AAPA), the International Federation of Airworthiness (IFA), and in the Board of Directors of Pan Asia Pacic Aviation Services Pte, Hong Kong. He also serves as the Chairman of the Board of GE Engine Services (Malaysia) Sdn Bhd, Hamilton Sundstrand CSC (Malaysia) Sdn Bhd Aerokleen Services Sdn Bhd, and MAS Catering Sarawak Sdn Bhd.
26
Senior Management
Dato Captain Mohd Nawawi bin Awang Senior General Manager, External Relations Dato Captain Nawawi, an airline pilot by profession, is a member of the Chartered Institute of Logistics and Transport (CILT) and holds a Master of Business Administration from the University of Strathclyde, Scotland. He joined MAS in 1975 after 5 years of service with the Royal Malaysian Air Force. Throughout the years, he has progressed through several senior positions in the airline, including the role of Senior General Manager of Flight Operations prior to being appointed to his current position. Dato Nawawi has also represented MAS in a number of industry-level committees, including at the IATA Operations Committee from 2001 to 2004 and currently heads the External Relations division, proactively engaging with its stakeholders, namely government ministries and agencies, state governments, members of parliaments, suppliers and business partners. He also leads the airlines commitment towards Project PINTAR, a GLC-concerted effort in nurturing human capital, which is part of the airlines Corporate Social Responsibility initiatives.
Indira Nair Senior General Manager, Communications Indira Nair, aged 52, held a regional role at Ogilvy Public Relations Worldwide as Chief Talent Ofcer, Asia Pacic, prior to joining Malaysia Airlines in February 2006. Indira drove the talent agenda for the network, focusing on recruitment, training and development, internal communications and knowledge management. She has also worked with a number of networks including Edelman Worldwide, Burson-Marstellar and MDK Consultants, as well as the Berjaya Group. Her experiences range from leading integrated communications campaigns to turning around agency operations and developing/running regional training programmes.
Mohd Azha bin Abdul Jalil Senior General Manager, Finance Mohd Azha Abdul Jalil, aged 41, graduated with Bachelor Degree in Accounting (High Distinction) from Indiana University, Bloomington, USA. He joined MAS in July 2007. Prior to joining MAS, he held eight different positions in Shell group of companies within a span of 17 years. The assignments included as General Finance Manager of Shell MDS Malaysia, Senior Analyst (Business Performance & Strategy) at Shell International London, Finance Manager (Commercial) of Shell Malaysia Trading Berhad and several other nance positions at Sarawak Shell Berhad. He started his career with KPMG Peat Marwick.
Effendi bin Abdul Rahman Senior General Manager, Human Resources Effendi bin Abdul Rahman, aged 52, holds a Bachelor degree in Computing Science from Imperial College London and Masters in Business Administration from Ohio University, USA. He was appointed Senior General Manager, Human Resources in April 2006 and has instituted many changes in the airlines human resource operations and strategy since, including the organisation-wide implementation of the Performance Management System. Before joining MAS, he was the Human Resource Director in Dutch Lady Milk Industries Berhad. Prior to Dutch Lady, Effendi held a similar role at Texas Instruments. Effendi also has extensive business related experience in other management roles at other organizations such as Northern Waste Industries, Proton and Time Telecommunications.
27
Shahari bin Sulaiman Managing Director, MASkargo Shahari Sulaiman, aged 45, graduated from the University of Southern California with a BSc in Aerospace Engineering in 1985. He subsequently joined Malaysia Airlines and had served 15 years in various technical capacities in Engineering Division. In early 2001, he was brought into MASkargo as a Senior Management team member to turn around the company and has held various key positions over the last 7 years. He was appointed to the current position in September 2007.
10 Dr Amin Khan Senior General Manager, Transition Management Department and Managing Director, MASWings Dr Amin Khan, graduated from the Craneld School of Management, UK, with an MBA and PhD in Management. He is a licensed aircraft engineer and a certied Six Sigma Black belt holder. He has held various key positions in the Company, namely in Engineering, Internal Audit, Network Planning and Revenue Management, HR (Training and Development) and Sales. Prior to his appointment to his current position, he was the Regional Manager of the China region. He currently leads the development and implementation of the Passenger Services System including eCommerce to bring the Company to best of breed and achieve breakthrough results in simplifying the passenger travel experience. He also heads MASWings, the new subsidiary airline that provides rural air services in East Malaysia. 11 Mohd Roslan bin Ismail Senior General Manager, Engineering & Maintenance and Managing Director, MAS Aerospace Engineering Mohd Roslan bin Ismail, aged 53, graduated with a Master of Science (MSc), (Transport Planning) from Universiti Teknologi Malaysia (UTM), Skudai, Johor in 1996 and holds a Malaysian DCA Aircraft Maintenance Engineers License. He started his career in Malaysia Airlines as a Licensed Aircraft Maintenance Engineer and has more than 28 years of working experience in the Engineering Division. He is currently a member of the Board of Directors of Malaysian Institute of Aviation Technology (MIAT), Honeywell Aerospace Services (M) Sdn Bhd, GE Engine Services Malaysia Sdn Bhd (GEESM) and Hamilton Sundstrand CSC (M) Sdn Bhd. He is also the Managing Director of Malaysian Aerospace Engineering Sdn Bhd, a wholly owned subsidiary of Malaysia Airline. 12 Eddy Leong Chin Tung Managing Director, Firey Eddy Leong Chin Tung, aged 35, graduated with a Bachelor of Business in Accounting from the RMIT University of Melbourne, Australia and is also a member of the Institute of Chartered Accountants in Australia as well as the Malaysian Institute of Accountants. Prior to joining MAS in 2003, Eddy Leong was in the Audit & Business Advisory and Business & Risk Consulting units in Arthur Andersen (which merged with Ernst & Young in 2002) from 1997 to 2003. He has held various key positions within Malaysia Airlines including Project Director of MAS Hotel & Boutiques Sdn Bhd, Head of Project Management Department, Assistant General Manager for Airport & Inight Operations (Quality Assurance), and Assistant General Manager, Turnaround Management Ofce until 2007. Currently, Eddy Leong holds the position of Managing Director of FlyFirey Sdn Bhd, the low-cost community airline subsidiary of MAS.
28
Senior Management
13 Dato Bernard Francis Senior General Manager, Network & Revenue Management Dato Bernard Francis, aged 38, holds Bachelor degree from Universiti Kebangsaan Malaysia and Masters in Business Administration (International Business) from Universiti Malaya. He was appointed Senior General Manager, Network, Revenue Management and Distribution in December 2005 and played a pivotal role in the rationalisation of both the International and Domestic networks, instituted many structural changes to Revenue Management Optimisation since, including Fare Class Realignment and Fare Distributions. Prior to joining MAS, he was the Regional Director, Route Revenue and Distribution with responsibilities covering AirAsia Malaysia, Thai AirAsia and Indonesia AirAsia. His past experience with YTL Group includes Project Financing and Mergers and Acquisitions related to energy, cement, property, hotels and information technology. 14 Captain Dr Ooi Teong Siew General Manager, Corporate Safety, Security, Health, Environment Captain Dr Ooi, aged 54, joined Malaysia Airlines as a cadet pilot in 1972. He became Captain at the age of 25 and has held various key management pilot positions for the last 25 years. He holds a Masters of Business Administration from the University of Bath and a Doctor of Business Administration from the University of Newcastle. He has been lecturing for the last 12 years in corporate strategy and change management in post graduate programmes for the Malaysia Institute of Management twinning programs with the RMIT University of Melbourne. 15 Raja Azura binti Raja Mahayuddin Chief Internal Auditor Raja Azura binti Raja Mahayuddin, aged 35, graduated with a Bachelor of Accounting (Hons) from Universiti Utara Malaysia. She is a Chartered Accountant (CA), Certied Internal Auditor (CIA) and has obtained the Certication in Control Self Assessment (CCSA). She is also the Chairman of Whistleblower Independent Committee since the roll-out of the programme in 2006. Prior to the appointment to her current position in March 2005, she assisted the organisation in establishing the Organisation & Methods Department. She has been actively involved with the International Association of Airline Internal Auditors (IAAIA) as a member of the Executive Committee and has recently been appointed as the Chairperson of the IAAIA for the nancial year of 2008. Before joining Malaysia Airlines, she served Arthur Andersen & Co for 4 years. 16 Rizani bin Hassan Company Secretary Rizani bin Hassan, graduated from MARA Institute of Technology in 1986 with a Diploma In Law and thereafter, with an Advanced Diploma In Law, he went on to do his post graduate courses and graduated with a Post Graduate Diploma in Syariah Law and Practice and Masters In Comparative Law from the International Islamic University in 1992 and 1994 respectively. He was a Legal Ofcer with a Government statutory body from 1987 to 1990 before he left the service to join a law rm as an advocate and solicitor. He joined MAS on 15 July 1994 as a Legal Corporate Counsel and thereafter as General Counsel until 2002 when he was transferred to Group Secretarial Practice as the Group Company Secretary.
29
Ten Years Statictical Review of the Group
TEN YEARS STATISTICAL REVIEW OF THE GROUP
31-Dec 2007
31-Dec 2006
31-Dec 2005^
2004 2005#
Financial * Total Revenue Total Expenditure Taxation Prot/(Loss) after Tax And Exceptional Item Shareholders Funds Prot/(Loss) as a % of Revenue Return on Shareholders Funds Earnings/(Loss) Per Share Production Network Size Time Flown Distance Flown Available Capacity Available Passenger Capacity Trafc Passenger Carried Passenger Carried Passenger Load Factor Cargo Carried Mail Carried Overall Load Carried Overall Load Factor
(RM000) (RM000) (RM000) (RM000) (RM000) (%) (%) (sen)
15,288,640 14,460,299 (29,590) 852,743 3,934,893 5.6 21.7 58.05
13,407,240 13,641,880 (60,618) (133,737) 1,873,425 (1.0) (7.1) (10.90)
9,181,338 10,434,634 (18,657) (1,251,603) 2,009,857 (13.6) (62.3) (100.20)
11,364,309 11,046,764 (35,707) 326,079 3,318,732 2.9 9.8 26.0
(KM) (Hours) (000 KM) (000 TKM) (000 Seat KM)
421,075 356,295 239,699 9,579,101 56,227,787
525,784 381,134 249,925 9,525,623 58,923,735
505,376 314,087 207,117 7,716,059 49,785,977
504,051 411,134 265,050 10,299,867 64,115,190
(000) (000 Pax KM) (%) (000 TKM) (000 TKM) (000 TKM) (%)
14,213 40,162,186 71.4 2,621,597 4,721 6,305,358 65.8
15,466 41,099,612 69.8 2,593,332 4,309 6,359,430 66.8
13,852 35,604,763 71.5 1,948,761 2,131 5,205,283 67.5
17,536 44,226,090 69.0 2,686,783 3,004 6,728,547 65.3
Staff Employee Strength (At 31 Dec/31 March) Revenue Per Employee (RM000) Available Capacity Per Employee (TKM) Load Carried Per Employee (TKM)
19,423 787 493,183 324,634
19,596 688 486,100 324,527
22,835 402 337,905 227,952
22,513 505 457,508 298,874
* As per Audited Financial Statements for the nancial year under review ^ For 9 months ended 31 December 2005 as a result of change in nancial year end to 31 December # Financial year under review from 1 April to 31 March
30
Ten Years Statistical Review of the Group
2003 2004#
2002 2003#
2001 2002#
2000 2001#
1999 2000#
1998 1999#
8,780,820 8,591,157 (117,543) 461,143 3,023,984 5.3 15.2 36.8
8,864,385 8,872,391 (5,017) 336,531 2,562,841 3.8 13.1 38.7
8,695,150 9,569,435 (14,898) (835,562) 1,215,290 (9.6) (68.8) (108.5)
9,712,097 10,336,829 26,683 (417,428) 1,252,148 (4.3) (33.3) (54.2)
8,288,273 9,566,041 18,813 (258,574) 3,222,276 (3.1) (8.0) (33.6)
7,536,510 8,647,874 26,961 (700,051) 3,496,250 (9.3) (20.0) (90.9)
445,263 352,540 227,865 8,413,110 55,692,377
439,547 357,328 228,762 7,977,845 54,265,627
453,720 340,741 201,189 7,823,943 52,594,942
488,243 349,352 191,668 8,054,870 51,237,536
366,578 330,205 200,223 7,531,473 48,905,537
361,203 306,949 189,754 6,649,146 45,442,28
15,375 37,658,910 67.6 2,184,226 2,840 5,628,573 66.9
16,325 37,652,955 69.4 2,071,271 2,054 5,496,735 68.9
15,734 34,708,514 66.0 1,759,209 2,014 5,149,942 65.8
16,745 38,312,570 74.8 1,837,426 1,830 5,379,101 66.8
15,371 34,930,136 71.4 1,664,600 2,828 4,853,377 64.5
13,709 30,592,900 67.3 1,477,403 2,006 4,246,894 63.9
20,789 422 404,690 270,748
21,916 429 364,019 250,809
21,438 406 364,957 240,225
21,518 451 374,332 249,981
21,587 384 348,889 224,829
23,076 327 288,141 184,039
31
Performance Highlights
31-Dec 2007
31-Dec 2006
Change %
GROUP Financial Total Revenue Total Expenditure Prot after Tax Shareholders Funds Earnings Per Share Dividend Per Share Cash Flow Per Share Operating Statistics Available Tonne Kilometres Load Tonne Kilometres Overall Load Factor Available Seat Kilometres Passenger Kilometres Flown Passenger Load Factor Staff and Productivity Employee Strength Available Tonne Kilometres Per Employee Load Tonne Kilometres Per Employee
RM RM RM RM
Million Million Million Million Sen Sen RM
15,288.6 14,460.3 852.7 3,934.9 58.1 0.0 1.42
13,407.2 13,641.9 (133.7) 1,873.4 (9.8) 0.0 (0.11)
14.0 6.0 (737.8) 110.0 (692.9) (1,390.9)
Million Million % Million Million %
9,579.1 6,305.4 65.8 56,227.8 40,162.2 71.4
9,525.6 6,359.4 66.8 58,923.7 41,099.6 69.8
0.6 (0.9) (1.4) (4.6) (2.3) 2.4
19,423 493,183 324,634
19,596 486,100 324,527
(0.9) 1.5 0.0
COMPANY Operating Statistics Available Tonne Kilometres Load Tonne Kilometres Overall Load Factor Available Seat Kilometres Passenger Kilometres Flown Passenger Load Factor Aircraft Utilisation (Average) Staff and Productivity Employee Strength Available Tonne Kilometres Per Employee Load Tonne Kilometres Per Employee
Million Million % Million Million % Hours Per Day
7,494.6 5,066.2 67.6 56,104.3 40,096.0 71.5 11.5
7,674.8 5,229.1 68.1 58,923.7 41,099.6 69.8 10.8
(2.3) (3.1) (0.8) (4.8) (2.4) 2.5 6.5
17,991 416,575 281,598
18,641 411,717 280,516
(3.5) 1.2 0.4
32
Expenditure
31-Dec 2007 RM Mil GROUP Staff Costs Depreciation Fuel and Oil Handling and landing costs Hire of aircraft and equipment Finance charges Commission and incentives Others 2,125.2 344.6 4,915.8 1,796.3 2,119.4 46.9 524.3 2,587.8 14,460.3 0.0 14,460.3
31-Dec 2006 RM Mil 2,006.8 315.9 5,014.3 2,175.9 2,451.0 32.9 726.3 2,030.4 14,753.5 (1,111.6) 13,641.9
Change
% 5.9 9.1 (2.0) (17.4) (13.5) 42.6 (27.8) 27.5 (2.0) (100.0) 6.0
Less: Allocation of costs of domestic operations to PMB
COMPANY Staff Costs Depreciation Fuel and Oil Handling and landing costs Hire of aircraft and equipment Finance charges Commission and incentives Others
2,001.1 302.4 4,271.2 1,557.3 1,686.2 46.8 511.6 2,265.7 12,642.3 0.0 12,642.3
1,872.2 264.3 4,426.7 1,926.7 2,015.4 32.8 712.1 1,765.9 13,016.1 (1,111.6) 11,904.5
6.9 14.4 (3.5) (19.2) (16.3) 42.7 (28.2) 28.3 (2.9) (100.0) 6.2
Less: Allocation of costs of domestic operations to PMB
%
40. 0 35. 0 30. 0 25. 0 20. 0
14. 7 34. 0
Group Expenditure
34. 0
31-Dec 2007 31-Dec 2006
16. 6 13. 6 14. 7 12. 4 14. 7
17. 9 13. 8
15. 0 10. 0 5. 0 0. 0
2. 4 2. 2 0. 3 0. 2
3. 6
4. 9
Depreciatio n
Hire of aircraft and equipment
Commissio n and incentive s
Financ e charges
Handling and landing costs
Staf f Costs
Fuel and Oil
Others
33
Analysis of Airline Operations (including freighter)

BY GEORAPHICAL ROUTE REGION
31-Dec 2007 RM Mil Route Revenue Malaysia Asia Europe and Middle East Australia and New Zealand Africa and South America Orient and North America 1,343.9 2,840.6 2,111.2 1,763.3 249.9 2,929.4 11,238.3
31-Dec 2006 RM Mil 540.1 1,654.2 3,400.1 1,676.6 275.3 2,705.3 10,251.6
Change
% 100.0 71.7 (37.9) 5.2 (9.2) 8.3 9.6
Passenger Load Factor (%) Malaysia Asia Europe and Middle East Australia and New Zealand Africa and South America Orient and North America
66.5 66.6 76.4 79.9 73.2 69.3 71.4
69.7 62.7 73.0 72.4 74.6 67.2 69.8
(4.6) 6.2 4.7 10.4 (1.9) 3.1 2.3
Overall Load Factor (%) Malaysia Asia Europe and Middle East Australia and New Zealand Africa and South America Orient and North America
62.3 67.1 68.9 67.8 53.7 62.5 65.8
66.5 64.2 68.6 64.0 63.0 67.3 66.8
(6.3) 4.6 0.4 6.0 (14.8) (7.1) (1.5)
%
35.0 30.0
Revenue Composition by Route

33.2
31-Dec 2007 31-Dec 2006
25.3 25.0 20.0 16.1 15.0 10.0 5.3 5.0 2.2 2.7 12.0 18.8 15.7 16.4
26.1 26.4
0.0
Malaysia Asia Europe and Middle East Australia and New Zealand Africa and South Orient and North America America
34
Revenue Composition
BY CATEGORY
31-Dec 2007 RM Mil GROUP Passenger and Excess Baggage Cargo and Mail Airport Services Charters Others 9,434.3 1,804.0 354.9 139.3 3,556.1 15,288.6 0.0 15,288.6
31-Dec 2006 RM Mil 9,028.4 1,905.2 253.7 121.2 2,991.4 14,299.9 (892.7) 13,407.2
Change
% 4.5 (5.3) 39.9 14.9 (18.9) 6.9 (100.0) 14.0
Less: Trafc revenue of domestic operations to PMB
COMPANY Passenger and Excess Baggage Cargo and Mail Airport Services Charters Others
9,409.6 959.2 413.9 116.3 2,614.0 13,513.0 0.0 13,513.0
9,028.4 1,010.9 283.1 90.6 2,071.1 12,484.1 (892.7) 11,591.4
4.2 (5.1) 46.2 28.4 26.2 8.2 (100.0) 16.6
Less: Trafc revenue of domestic operations to PMB
%
70.0 61.7 60.0 50.0 40.0 30.0 20.0
63.1
Revenue Composition by Category
31-Dec-2007 31-Dec-2006
23.3
20.9
11.8 13.3 10.0 2.3 0.0 Passenger and Excess Baggage Cargo and Mail Airport Services Charters Others 1.8 0.9 0.8
35
Group Financial Highlights
RM
2.0
Cash Flow Per Share
1.5
1.4 1.1
1.5 1.3
1.0
0.9 0.6 0.5
0.5
(0.1)
-
(0.4) 0.0
(0.5)
31-Dec07
31-Dec- 31-Dec06 05
04/05
03/04
02/03
01/02
00/01
99/00
98/99
sen
100 58.1 50
Earnings/(Losses) per Share
26.0 (9.8) 0
36.8
38.7
-50
(33.6)
-100
(100.2) (108.5)
(90.9)
-150 (173.2) -200 31-Dec- 31-Dec- 31-Dec07 06 05 04/05 03/04 02/03 01/02 00/01 99/00 98/99
36
Group Financial Highlights
RM
3.00
Net Tangible Assets per Share

2.65
2.50
2.30
2.41 2.04 1.98 1.74 1.60 1.68
2.00
1.44
1.50
1.00
0.89
0.50
31-Dec- 31-Dec- 31-Dec07 06 05 04/05 03/04 02/03 01/02 00/01 99/00 98/99
sen
3.00
Dividends per Share

2.5
2.50
2.0
2.00
2.0
1.50
1.00
0.50
31-Dec- 31-Dec- 31-Dec07 06 05 04/05 03/04 02/03 01/02 00/01 99/00 98/99
37
Corporate Charts
Overall Capacity and Demand

Million 12,000 10,300
Revenue Tonne Kilometres Available Tonne Kilometres
9,579
10,000
9,526
8,413
7,978
7,716
7,824
8,055
6,729
8,000 6,305 6,359
7,531
5,629
5,497
5,205
4,853
6,000
5,150
5,379
4,000
2,000
0
31-Dec-07 31-Dec-06 31-Dec-05 2004/2005 2003/2004 2002/2003 2001/2002 2000/2001 1999/2000 1998/1999
Passenger Capacity and Demand

Million
Revenue Passenger Kilometres Available Seat Kilometres
70,000
56,228 58,924
64,115
55,692
52,595
49,786
51,238
60,000
54,266
48,906
4,030
1998/1999
40,162
41,100
50,000
44,226
37,659
35,605
37,653
38,313
40,000
34,709
34,930
30,000
20,000
10,000
0
31-Dec-07 31-Dec-06 31-Dec-05 2004/2005 2003/2004 2002/2003 2001/2002 2000/2001 1999/2000
FLEET STATUS
No. of Aircraft in Malaysia Airlines Operation as at 31 December 2007 B747-400P B747-400/200F B777-200 A330-300 A330-200 B737-400/800 F50 DHC6 Total 13 6 17 11 3 37 10 5 102 No. of Aircraft in Malaysia Airlines Operation as at 31 December 2006 17 7 17 11 5 40 0 0 97
38
30,593
45,442
6,649
Corporate Charts
% 70.0
Overall Load Factor

67.5 66.9 68.9 66.8 66.8
68.0
65.8
66.0
65.3
65.8
64.0
60.0
58.0
56.0
31-Dec-07 31-Dec-06 31-Dec-05 2004/2005 2003/2004 2002/2003 2001/2002 2000/2001 1999/2000 1998/1999
Million Tonne Kilometres
Cargo Carried
2,593 2,690
3,000
2,622
2,187
2,500
1,949
2,071
1,759
1,665
2,000
1,837
1,500
1,000
500
0
31-Dec-07 31-Dec-06 31-Dec-05 2004/2005 2003/2004 2002/2003 2001/2002 2000/2001 1999/2000 1998/1999
1,477
60.6
62.0
64.4
39
Chairmans Statement
40
Chairmans Statement
Dear Shareholders, It gives me great pleasure to report that for the nancial year 2007, Malaysia Airlines recorded a prot of RM851 million, the highest prot in its 60 year history. This is a signicant achievement because just two years ago, Malaysia Airlines faced its worst nancial crisis ever, with losses of RM1.26 billion recorded for the 9-month nancial year of 2005. The 2007 prot of RM851 million thus represents a swing of over RM2.1 billion from the losses. In fact, had our losses in 2005 of been annualised to RM1.7 billion, on a like-for-like basis, we would have recorded an even more amazing improvement of RM2.6 billion.
I am proud to inform you that these improvements were achieved through real enhancement in operations, rather than as a result of any nancial restructuring or extraordinary one-off gains. Over the last two years, our passenger yields improved a phenomenal 32%. From recording one of the lowest yields in the industry of 20.5 sen/RPK in 2005, today I am pleased to note that while we are still marginally below our peers, we have substantially closed the yield gap to record a yield of 27.0 sen/RPK. Similarly, we have also made signicant improvements in the way we manage our costs over the last two years. In 2006, we managed to cut our operating expenses by more than RM600
Prot is driven by operational improvement (not one-off gains)
RM RM 1.3b
2005 losses
851m
2007 Profit
RM 2.1b
Operational Improvement
RM 320m
One-off loss For E&M provision
RM 375m
One-off gain Sale of aircraft and buildings
1
41
million* in spite of higher fuel costs. We have continued with our austerity measures in 2007, as we further reduced our operational expenses by more than RM700 million*. This is a feat that we are extremely proud of, especially given the high fuel cost environment that we currently operate in. These improvements do not end here, beyond 2008, we plan to reduce our expenses by a further RM1 billion. This reduction, when fully realised, will represent a cut of 7% to our existing expense bill. Hence, as a result of these accomplishments, in February 2008, we announced that Malaysia Airlines turnaround programme which was launched in 2006, under the stewardship of the CEO, Dato Sri Idris Jala, and his management team, had been accomplished. This turnaround was achieved one year ahead of its original target, as outlined in the Business Turnaround Plan (BTP 1). This achievement has not been missed by the aviation industry. Malaysia Airlines has been recognised for its turnaround with the Phoenix Award from Penton Medias Air Transport World magazine, one of the leading magazines in the aviation industry, in recognition of the life-changing transformation that Malaysia Airlines went through. This award is the second MAS received in recognition of its business improvements after the Airline Turnaround of the Year award in 2006 by the Centre of Asia Pacic Aviation (CAPA). In the midst of all these accomplishments, Malaysia Airlines remains committed to ensuring that it offers the best possible ying experience to its customers. Despite reducing costs and going through the challenges of the business turnaround over the past 2 years, we have successfully delivered on our promise to offer award-winning products and services to our customers. In February 2008, Malaysia Airlines was again accorded the 5-Star rating by Skytrax, thus successfully retaining its position as one of only six airlines in the world to be awarded such status. Malaysia Airlines cabin crew was also recognised as the Worlds Best Cabin Staff in 2007 by Skytrax for their exemplary quality of services, warmth and hospitality. Having also won the Asias Leading Business Class Airline award and been recognised as one of the Top 30 Most Valuable Brands in Malaysia in 2007, Malaysia Airlines is poised to continue delivering award-winning products and services to its customers. Safety remains of paramount importance to Malaysia Airlines too, as the airline is committed to the adoption and maintenance of the highest standards of safety, quality and security with due care for the environment. Every aspect of its business decisions will be conducted with a Safety First policy and in accordance with all legal requirements and industry best practice. Malaysia Airlines has successfully hit all safety milestone targets, including the implementation of the Corporate Safety Management System in 2007 and passing the rigorous IATA Operational Safety Audit.
* excluding domestic costs and one-off increases in engineering provisions.
42
Chairmans Statement
GLC Transformation & Project PINTAR

We are proud to have achieved the KPIs set under the Government-Linked Companies Transformation (GLCT) Programme in both 2006 and 2007. In year 2007 specically, Malaysia Airlines prot of RM851 million exceeded the KPI targets set under the GLCT programme, on top of exceeding the target set for cash surplus, with almost RM5.3 billion in our cash balances as at the end of 2007. Malaysia Airlines also exceeded the target set for on-time performance (OTP), as we maintained our above industry average OTP level, at an average of 84% in 2007. For the year 2008, we continue to set aggressive nancial and operational targets in our KPI Scorecard that we aspire to achieve and exceed with the same determination and discipline that have seen us through the rst phase of our turnaround.
Project PINTAR
Malaysia Airlines also participates in Project PINTAR, a joint community project by Government-Linked Companies (GLCs), in support of the Governments efforts to reduce the economic imbalance in Malaysia. As of April 2008, Malaysia Airlines has adopted a total of 13 schools under the programme in various economic regions across the country and shall continue with our efforts under the PINTAR programme. (Please refer to the Corporate Social Responsibility section of this annual report for more information on MAS commitment towards Project PINTAR).
Industry Outlook
While we may have completed the turnaround a year earlier than anticipated, the airline is not resting on its laurels. The aviation industry in Asia Pacic has and continues to come under increasing competitive pressures as a result of increased liberalisation in the industry, and new competition will emerge in the markets we operate. Besides this, based on data from Boeing and Airbus, the two largest passenger aircraft manufacturers, over the next few years, supply will outstrip demand. In Asia Pacic, India and the Middle East alone, an estimated 400 new aircraft were commissioned in 2007, and more than 800 are expected to enter into service in 2008 and 2009. This is an increase of approximately 30% over the number of existing aircraft in the market previously. Yet the market is only expected to grow at an annual rate of 5-6%. To top it all, today, the world is
AIRCRAFT CAPACITY PRESSURE Asia Pacic, India, Middle East
43
witnessing the highest fuel prices mankind has seen. Indeed, since 2005, jet fuel prices have escalated from a low of US$60 per barrel to a high of US$145 per barrel in early 2008. All these factors contribute to an environment where only the strongest airlines will survive. In fact, in the earlier part of 2008, we have witnessed the announcement of 5 airlines closing their businesses: Adam Air in Indonesia, Oasis Airline in Hong Kong, SkyBus, ATA and Aloha Airlines in the United States; and we believe more will follow.
Moving Forward
In view of the looming industry-wide challenges and gloomy outlook of the global economy, we recognise the need to shift our focus from the success of our turnaround to securing our future success. In February 2008, we announced our Business Transformation Plan 2, a business plan that outlines the strategies that we will pursue in transforming ourselves over the next 5 years to emerge as the Worlds Five Star Value Carrier, and as a leading player in the global aviation industry. The key to achieving this vision is to further reduce our structural costs, which will then allow us to offer more competitive fares and in turn spur our passenger and revenue growth. With sustainable revenue growth in hand, we will then be able to build on our network to chart our path towards greater success. To complement this vision, we have, over the past 2 years, also strengthened our balance sheet. A strong balance sheet will be the catalyst for us to not only survive the expected turbulence over the next few years, but also seize opportunities that might arise when other weaker airlines fail. However, we can only capitalise on these opportunities if we are able to act fast, and have the necessary resources on hand to act when they arise. Therefore, while management is cognizant of the need to reward shareholders for their investments in Malaysia Airlines (with a larger dividend payment), we must also preserve some cash so that we may not only survive but ourish to emerge as a leading airline in this part of the world when the global economy recovers. It is imperative to not lose sight of the better things that we can achieve, if we remain disciplined and focused. With a clear mission to be the Worlds Five Star Value Carrier, boosted by a healthy balance sheet, and supported by a strong management and workforce, we shall achieve our vision in time.
44
Chairmans Statement
Acknowledgement
On behalf of the Board of Directors of Malaysia Airlines, I would like to take this opportunity to congratulate Dato Sri Idris Jala, his management team and our 19,000-strong workforce for the tremendous accomplishments that the company has achieved over the past two years. The sheer determination and dedication of the management team have inspired the employees to work doubly hard and remain committed in driving the company towards the remarkable achievements of the last couple of years. Together, we shall move forward to attain even greater success. I would also like to extend the Boards appreciation to the Government, regulators, shareholders, customers, business partners and our supporters for their faith in our turnaround. We look forward to your unrelenting support as we pursue the next phase of our Business Transformation Plan, towards becoming the Worlds Five Star Value Carrier.
Dato Dr Mohd Munir bin Abdul Majid Chairman Malaysia Airlines 29th April 2008
45
Managing Directors Statement
46
AT BASE CAMP For the nancial year 2007, despite the enormity of the challenge, Malaysia Airlines recorded the highest prot in its corporate history. Its net prot after tax was RM851 million. This is a signicant improvement for Malaysia Airlines, but we believe that we have only just arrived at base camp.
The last 2 years has been a journey of discovery for many at Malaysia Airlines. In 2005, we recorded losses of RM1.3 billion and was faced with the prospect of near bankruptcy. My management team and I were committed to turn around the airline, and we achieved this in 2007, despite excruciating external factors such as high fuel costs and intense competitive pressures. Throughout this journey, we were able to institute improvements by harnessing the strength and energy of untapped talent within Malaysia Airlines. We chose to take on the Game of the Impossible and we persevered. Today, we have weathered the storm, partially and we are better equipped to take on the next phase of our journey and transform Malaysia Airlines. New challenges loom ahead of us. The single largest challenge we will face, going forward, is overcapacity. Industry estimates indicate that approximately 400 plus new aircraft have hit the skies in Asia Pacic, India and Middle East in 2007. Another 400 plus is expected in 2008. This phenomenon of unbridled growth will intensify competition in the market, and erode our yield and prot margins. Coupled with the liberalisation of ASEAN skies and rising oil prices, MAS will inevitably hit a wall and fail badly. We know that we do not have a choice. We must transform. And we must transform, quickly, to survive and succeed.
47
FROM TURNAROUND TO TRANSFORMATION - FIVE STAR VALUE CARRIER

Our Business Transformation Plan (BTP2), a master blueprint outlining how Malaysia Airlines will transform itself over the next 5 years into a Five Star Value Carrier, was released in February 2008. A new phase has begun, and it represents the most challenging yet this is the real mountain that we will need to scale. Our undivided attention and focus must now shift to secure sustainable protability for the future. Malaysia Airlines has to transform into a Five Star Value Carrier i.e. an airline that provides 5-Star products and services at affordable prices. To chart our path onwards and upwards, we will need to remain focused on ve bold steps which make up the Virtuous Cycle of Protable Growth: Step 1 - 5 Star: We must maintain high quality products and services offered (5-Star) and these have to be constantly matched to the specic needs of our customers; Step 2 - Lower Costs: We must reduce our structural and operational costs, without compromising on safety and security; Step 3 - Competitive Fares: With a lower cost base, we will be able to offer low and competitive fares to our customers, and still be able to make a prot; Step 4 Get more customers, more revenue: With high quality products and services at low/competitive fares, more passengers will choose to y on Malaysia Airlines. This will translate into more revenue; Step 5 - Grow network, build capacity: With more revenue and prot, we can invest in growing our network and building our capacity. We will open up more routes and acquire more planes. This will lead us to sustainable, protable growth.
The Virtuous
Cycle of Profitable Growth

Profitable Growth
Grow network, build capacity
Competitive fares
5 Star
Get more customers, more revenue Lower cost
The process repeats in an upward spiral.
48
The term Five Star Value Carrier conjures an imagery of an airline that comes rst to mind when customers seek quality air travel. Our target customers are those who want excellent service and quality, and their reasons for ying with us will revolve around convenient connectivity, great in-ight service, seat comfort and more. At the same time, we will place emphasis on delivering value for money, offering highly competitively priced tickets in all classes. Hence, our new strategy for transformation calls for a 2-pronged approach continue to improve the quality of our products/services and reduce our costs in order to offer low/competitive fares. Our goal, with the transformation into a true Five Star Value Carrier, will be to ensure that our products products, er eet and supporting network are in the same league as premium airlines across the globe, which is supported by a cost structure and operational discipline that will allow us to match the best fares that LCCs have to offer. To differentiate ourselves in a highly competitive market, we will deliver Malaysian Hospitality. MH builds on our Malaysian heritage of treating our passengers in the same manner that we treat guests in our homes. Our aim is to make every journey our customers have with us, seamless and delightful, at every touch point - from the time they purchase the ticket, to when they check in and board the plane, their inight experience, and even after they disembark. A systemwide MH campaign, encompassing soft and hard initiatives, was implemented and tracked with rigor throughout 2007. Soft initiatives involved rallying staff to garner buy-in and understanding, while the 500 plus hard initiatives were aimed at improving physical product and service offerings. Delivering Malaysian Hospitality, hassle free, all the way captures the essence of what we seek to do with our FSVC strategy sincere, quality service that make our customers feel welcome, delivering what they need, when they need it, at low/competitive fares.
49
Malaysian Hospitality
Our Philosophy
Treat Everyone as a Guest in Your Own Home Personality
Our Personality
NATURAL
SPONTANEOUS
DETERMINED
WILLING
A new Passenger Services System (PSS) was launched in 2006 to offer our passengers a more convenient, efcient and hassle free traveling experience. The PSS programme has been instrumental in reducing costs and has increased efciency and ensured time savings for our customers.
Hassle Free, All the Way
Purchase Pre-embarkation
Through PSS, our current reservations system will be streamlined and replaced with a platform that meets industry standards and requirements. Ticketing will also become increasingly efcient as Malaysia Airlines moves away from traditional paper tickets to Embarkation Inflight Disembarkation electronic tickets (eTickets). This is in line with the International Air Transport Association (IATA) requirement that all airlines have to be 100% eTicket capable by 31 May 2008. The elimination of material costs and back-end processes will help us save approximately RM19 per ticket sold. For added convenience, passengers can now take advantage of our web check-in and kiosk check-in facilities to save valuable time and forgo unnecessary hassles. PSS also enhances our revenue integrity by ensuring every booking produces an actual passenger upon departure. Every reservation created or updated will undergo a series of cyclic checks to verify its authenticity. Cases such as ctitious names and multiple bookings on a single ight will be easily detected and removed, enhancing security and savings for the company.
ESTABLISHING THE PILLARS OF SUSTAINABLE, PROFITABLE GROWTH

As competition intensies in the Asian market, prot margins will erode very quickly. Against this backdrop, we will need a solid foundation for protable growth, and that cannot happen unless we cut costs radically. Our target is to reduce our systemwide unit cost (CASK) by 20% i.e. from the current 17.5 sen/ASK down to 14 sen/ASK. This will enable us to achieve a breakeven load factor of 60%-65%. With this in place Malaysia Airlines will be able to grow its network. A systemwide structural cost containment programme was launched in 2007. It comprises 2 core programmes - Project Delta and the Procurement Revamp Programme. By instituting structural cost savings, we will move closer to realising our ambition of becoming a FSVC. This will also ensure that the airline is more resilient to
50
external competition and demand shocks, and is able to offer low/competitive fares on an ongoing basis. Cost containment is NOT about shortchanging our customers, cutting corners or compromising on safety and quality. It is about transforming our business and ensuring cost savings in areas that will allow us room to grow by providing service elements that reect the 5-Star status we want to be known for. In line with industry practice, Malaysia Airlines has introduced a zero commission strategy for all appointed agents in Malaysia, effective January 2008. Travel agents now operate on a service-oriented business model with customers being charged a service fee. Customers who wish to purchase directly from Malaysia Airlines may opt to purchase their tickets through the convenience of our improved Internet Booking Facilities (IBF). Customers can purchase tickets conveniently from the comfort of their homes or through IBF kiosks which are stationed at all Malaysia Airlines ticketing ofces in Malaysia. This means that customers will not have to incur the standard Global Distribution System (GDS) fee for purchases made via travel agents. We aim to achieve internet sales of up to 50%-60% by 2010. This will give us substantial savings on GDS costs which currently translates to approximately 2.5%-3.0% of the airlines total costs. Nonetheless, travel agents will continue to remain important partners for Malaysia Airlines as they provide value-added services such as complex itinerary planning, group travel, hotel bookings and car rental. Oil prices have reached record levels and have strained the nancial performance of all airlines. To mitigate the impact of the volatile fuel market, at Malaysia Airlines, we are taking the following measures: 1. 2. 3. 4. 5. Review fuel hedging portfolio. Recover part of the costs through increased fuel surcharges. Implement IATAs best practices on fuel efciency. Optimise usage of Flight Planning Flight Following (FPFF) System. Review fares and implement smarter, sharper inventory control.
Some of the fuel saving initiatives implemented to-date include the removal of crew bunks and optimising water uplift systems. Malaysia Airlines will continue to conserve fuel and maximise savings by selecting closer alternate airports, improve its accuracy of Zero Fuel Weight (ZFW) and minimise the usage of Ancillary Power Units (APU) by switching to alternate power supplies. The most effective way to contain cost is to master operational excellence. We have to be increasingly efcient and alert on how we manage our resources. Our FSVC strategy will transform the current cost structure with complex services into an aggressively stripped down cost structure with zero tolerance for non value added costs. This means each service related cost will have to be scrutinised and value tested against what customers will pay for. Examples of items that customers are not willing to pay for include inefcient usage of
51
assets, wastage in work processes and products/ services that are not perceived as value add by most customers. In forging ahead, we will tap into our best and most effective resources the employees of Malaysia Airlines. They are our most important asset. We will need to unleash talent and develop leadership qualities in everyone. This, we believe, will be the greatest source of protability. Our employees and managers have consistently shown passion, energy and drive. The new strategy will introduce fundamental changes to our working environment and layering this on the existing passion and drive will ensure that our people succeed at various levels. Malaysia Airlines will also actively pursue new opportunities that will complement our existing business. Firey offers affordability and convenience to value focused and discerning passengers. MASWings serves the rural areas in Sabah and Sarawak and provides crucial feeder trafc into Malaysia Airlines global network. The newly formed Malaysian Aerospace Engineering (MAE) which aims to tap the huge potential of the global MRO market. In addition, there are a number of projects which explore new business opportunities and break new ground. These projects are currently strictly condential as they are in developmental stage. Once the ideas have been tested for commercial viability and have passed reality checks, we will announce them.
AIM FOR THE BEST, ASSUME THE WORST

The concept behind our Business Transformation Plan is aiming and planning for the best, assuming the worst. In aiming and planning for the best, Malaysia Airlines will target record prots. In assuming the worst, Malaysia Airlines will need to transform into a FSVC. Malaysia Airlines has to build a ship that can weather the storm of challenges that lie ahead of us. Our vision will be guided by our primary obligation to the government and our stakeholders and this is to be a consistently protable airline. Everything that we do must be designed to achieve that objective. The company must strive to deliver top tier nancial returns and contribute to the nations economic prosperity. Based on a series of focused key business activities, our aspiration in the plan is to achieve RM400-550
5 Year P&L Targets

(Figures in RM)
Optimistic RM 2 3bn
Base case RM 1.5bn RM 851m
2007
2008
2009
2010
2011
2012
Pessimistic
* Yield drop ~5% yoy * Minimal seat factor drop
- RM 650m - RM1bn or more
Worst case
* Yield drop >5% yoy * Seat factor drop 5-6% yoy 6
52
million (on target), RM551-650 million (exceeding) and RM651-1000+ million (outstanding) in 2008. If we aim for the best and stretch our limits, we can achieve an annual prot of RM1.5 billion by 2012. This is after factoring in problems such as overcapacity, air trafc liberalisation and rising fuel costs. There is a high probability that these problems may prove to be less severe than anticipated, and against this scenario, Malaysia Airlines can achieve an even higher prot - between RM2 and RM3 billion per annum. Over the past 2 years, we have managed to outperform our announced targets and Malaysia Airlines has every intention to continue to meet and exceed the targets set forth in our KPI Scorecard.
THE KEY TO OUR FUTURE DISCIPLINE OF ACTION

We 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 Malaysia Airlines of tomorrow will maintain its 5-Star product, have the lowest 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 vis a vis our peers and will return to protability in 2008. I am convinced that with decisive action, Malaysia Airlines will be a success and emerge as a winner. Our transformation journey towards becoming the Worlds Five Star Value Carrier is challenging and exciting. Executing the plan successfully will require leadership, teamwork and relentless passion from everyone to pursue this vision. It will require all of us here at Malaysia Airlines to be focused, fast, decisive and responsive. FSVC is our path to long term survival and success. Our ability to deliver this FSVC strategy is the cornerstone to grow Malaysia Airlines into a global champion. The company is now in a great position and fully capable of doing this. With the full support of everyone management, employees and all our stakeholders - we will stride condently into a bold, new future for Malaysia Airlines and for Malaysia.
Staircase to 2012
Base NIAT: RM1.5bn Optimistic NIAT: RM2-3bn
550-700 476
200 100-200 RM million
Baseline NIAT: RM700m to RM1bn
Maintain 5-Star Products & Services (MH Campaign, PSS)
Project MOSAIC
Procurement Revamp
eTicketing
70-100
Reduction in Distribution Cost
Dato Sri Iris Jala @ Idris Jala Managing Director Malaysia Airlines 29th April 2008
MASkargo, Firefly, MRO, strategic partnership, etc

9
Project Omega & Alpha
200-300
Project Delta
53
Operational Review
Following the encouraging performance in year 2006, when Malaysia Airlines recorded a loss of only RM136 million against a Business Turnaround Plan (BTP 1) targeted loss of RM620 million, the airline continued with its radical measures and initiatives lined out in BTP 1. The plan, which was formulated in line with the Government-Linked Companies Transformation Programme spearheaded by Khazanah Nasional, was initially formulated as a 3-year plan in 3 different, consecutive phases: Financial Survival (2006), Prot Generation (2007) and Protable Growth (2008 and beyond). After successfully completing Phase One of the plan, Malaysia Airlines swiftly moved into Phase Two, i.e. Prot Generation in the year 2007. Building on the foundations set in the year 2006, a number of initiatives were identied and implemented throughout the year.
What is next?
2006
2007
2008 & Beyond
Financial Survival
Profit Generation
Profitable growth
After just two years of implementing the BTP 1, Malaysia Airlines convincingly returned to the black with a record prot of RM851 million, its highest prots in its 60-year corporate history. The BTP 1 achieved its targets one year ahead of schedule.
54
Operational Review
THE MAS WAY

FLYING TO WIN CUSTOMERS
Project Omega
Project Omega, a continuity of the Route Protability Project (RPP) and Revenue Enhancement Project (REP) implemented in 2006, was launched in early 2007. The Project aims to radically improve the companys revenue management practices by enhancing the pricing of fares to optimise passenger yield and maximise operating revenues for MAS. Prior to the implementation of these revenue/protability enhancement projects, the airlines sales teams in Malaysia and all over the world had absolute control over pricing of tickets, and there was limited coordination by the Revenue Management team at the head ofce. As a consequence, sales teams were more inclined towards increasing sales and load factors, as opposed to maximising yields, that in turn depressed group revenues. To address this fundamental problem, in the year 2007, the entire revenue function was placed directly under the Revenue Management team at the head ofce, which took total control of all ticket pricing decisions and now manages a centralised ticket inventory pool, and embarked on Project Omega the same year. Under Project Omega, Malaysia Airlines pricing structure was revitalised through the Fare Class Realignment (FCR), fare structures (and rules) development and fare publishing initiatives, which have signicantly helped the airlines pricing practices and fare distribution, leading to higher passenger yields. Through the FCR and fare structures development exercises, the overall fare system has been restructured, resulting in a consistent pricing structure across the entire airline network that is both competitive and responsive to the market. As a result, the yields (measured by Revenues/Revenue Passenger Kilometer) continuously increased throughout 2007, chalking up an impressive 32% increase since December 2005.
Yield improved to an all-new high

Yield* RRPK (sen/RPK) 26.3 25.9 18.9 18.5 16.8 20.5 15.6 15.5 14.8 RASK* (sen/ASK)
Increased by 4.5 sen/ASK
27.0
Increased by 6.5 sen/RPK
23.6 22.6 22.7
24.2
26.1
(32% increase)
19.3
18.3
16.5
FY 2005 Q1 2006 Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
(30% increase)
*YTD Cumulative figures
55
Project Alpha
Project Alpha complements Project Omega to unleash the full potential of the foundation laid by the latter, i.e. the realigned fares and seat inventories available in the system, and sought to increase the sale of the seat inventories. The key rationale behind this project was to enable MAS to increase its load factors simultaneously with its yields.
REP, RPP, Project Omega and Project Alpha: Increasing yield + load factor
Sen/RPK
72.0% 71.5% 71.0% 70.5% 70.0% 69.5% 69.0% 68.5% 68.0% 67.5% 67.0% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 28 27 26 25 24 23 22 21 20
Cumulative Yield (sen/RPK)
Load Factor
Initiated in 2007, Project Alpha is aimed at creating Big Swing business propositions across MAS sales and distribution channels. The expected incremental revenue from this project was RM633 million. Other levers under Project Alpha include the drive to expand Enrich membership to a targeted 3 million members by end 2008 and dynamic corporate account acquisition through the Corporate Signature Program where a more targeted sales approach for the programme was introduced in 2007, and is currently still underway, to increase the number of major corporate accounts.
Network and Hub & Spoke Strategy

The Company continued with the network rationalisation programme which began under BTP1 in 2006. During the year, efforts to rehabilitate poor performing routes intensied. However, despite these efforts, operations into Zurich and Nagoya were suspended in January 2008. Flight frequencies into London, Xiamen and Cebu were reduced to prevent further prot dilution in 2007. At the same time, we increased frequencies to Rome, Madras, Bangalore, and Male/Colombo to serve these markets more optimally. 2 new destinations were introduced, Macau in November 2007 and Yogyakarta in February 2008. We continued to align our network strategy to optimise on peak season demand in selected markets by deploying additional scheduled ights into Middle East and Australian points of Adelaide, Brisbane and Perth during the year. In late 2008, the induction of a new aircraft type, the long range narrow body aircraft and the rst phase of the ASEAN Open Skies Roadmap beginning December 2007 are expected to bring some signicant shift to our network planning. 56
Operational Review
Codeshare Partners
In 2007, MH continued to expand its codeshare cooperation to build on the BTP lever of Winning Coalition to fortify MAS global network. New codeshare arrangements were sealed with Alitalia, South African Airways and China Southern Airlines. These 3 partnerships allowed MAS to provide extensive access to key untapped/potential markets by connecting on the partners network into Southern & Central Europe, South Africa and its neighbouring region as well as into domestic China respectively. Specically, through its collaboration with China Southern Airlines, MAS passengers have the option to connect into 90 destinations from Guangzhou and 38 destinations from Beijing. In addition to these new code shares, MAS also deepened existing codeshare cooperation with several partners; i.e. Royal Dutch Airlines and All Nippon Airways including codesharing on domestic Malaysia sectors. Moving forward in year 2008, MAS intends to develop cooperation with airline partners in other regions i.e. India (Jet Airways), Middle East (Turkish Airlines and EgyptAir). As an extension of its hub and spoke strategy, MAS will also embark on developing multi-modal cooperation with train/rail partners in Europe to feed/defeed trafc into secondary and tertiary destinations for greater market reach.
Network Restructuring Spoke Network Project MOSAIC Malaysia Airlines Hub and
Between 2006-2007, we have expanded our hub-and-spoke network

Legend -------- - Operated by Malaysia Airlines -------- - Operated by Alitalia (Codeshare agreement signed on 5 April 2007) -------- - Operated by South African Airways (Codeshare agreement signed on 29 March 2007) -------- - Operated by Virgin Blue -------- - Operated by BMI -------- - Operated by China Southern Airlines -------- - Operated by Gulf Air to 90 destinations from Guangzhou -------- - Operated by KLM and 38 destinations from Beijing --------- - Operated by Air Mauritus (Codeshare agreement signed on --------- - Operated by All Nippon Airways 26 November 2007) --------- - Operated by Qatar Airways --------- - Operated by Garuda Indonesia --------- - Operated by Sri Lankan Airlines --------- - Operated by Cathay Pacific Airways
Tashkent Beijing Inchon Seoul Kansai
Bergen
Stavenger Aberdeen Sandefjord Glasgow Edinburgh Gothenburg Copenhagen Belfast Teesside Leeds Amsterdam Dublin Manchester
Brussels
Oslo
Stockholm Helsinki
Geneva Barcelona Madrid
London Frankfurt Vienna Milan Munich Rome
Turkey (Aspiration)
Athens
Tokyo
Nagoya
India (Aspiration)
Bahrain Doha Muscat Yangon Bangkok Phuket Langkawi Penang Medan Hanoi Siem Reap Phnom Penh Ho Chi Minh
Guangzhou Hong Kong
Fukuoka Shanghai
Manila Cebu Kota Kinabalu
Colombo
KUALA LUMPUR
Singapore Kuching
Dar es Salaam TANZANIA Maputo MOZAMBIQUE Mauritius Gaborone, BOTSWANA Durban Maseru, LESOTHO Port Elizabeth East London
Jakarta Surabaya Denpasar Darwin Broome Cairns Townsville Hamilton Island Mackay Rockhampton Fraser Coast Sunshine Coast
Harare, ZIMBABWE Victoria Falls, ZIMBABWE Windhoek, NAMIBIA
Johannesburg Perth
Brisbane
Adelaide
Sydney
Canberra
Gold Coast Ballina Byron Coffs Coast Newcastle
Melbourne
Launceston Hobart
57
MH Campaign
Throughout 2007, various initiatives were rolled out as part of the new MAS Customer Value Proposition (CVP) augmented on the premise of meeting customer core expectations and yet stoically anchored on the fundamental cost benet principles. Taking the cue from the success of the Route Protability Projects labs, cross functional teams were formed to run various CVP labs. Amongst them were the FTB (Fix Top Breakage) improvement programmes formed to tackle issues such as On Time Performance & Delay Handling, Delay & Cancellation Reduction, IFE & Seat Serviceability, Inight Food & Beverage and Cabin Serviceability. A total of 10 Route CVP labs were conducted to deliberate CVP issues at route level. Specic workshops were also conducted for critical breakages by using real cases that had occurred as case studies to model improvement initiatives. A total of 495 CVP initiatives were undertaken of which 84% have been closed by December 2007. Some of the product and service initiatives that were implemented were the A330-300 cabin refresh programmes involving the re-upholstering of seats and introduction of the Portable Media Player to Business Class passengers and the inight meal box on economy class on regional short-haul ights. The MH - Malaysian Hospitality, hassle-free all the way programme was rst launched internally in 2007 through an MH Juara concept to ensure consistent yet quality delivery of product and services at all customer touch points. MHI$ Scheme was a reward and recognition scheme introduced to reward staff who showed Malaysian Hospitality behaviors in the organization. This served to motivate and ensure the spirit of MH is kept alive. Anugerah MH is also an initiative incorporated in the MHI$ Scheme to celebrate staff who were selected as MH Stars in the annual Malam MH event. A Customer Awareness Week was also introduced in the Company to consistently spread the MH CVP awareness amongst the masses. Other key CVP initiatives undertaken in 2007 include the review of overbooking policy to achieve a balance between prot maximisation and customer comfort. Recognition of our premium guests such as our Enrich members through a personal touch programme and targeted offers will also form part of the MH Campaign in 2008. Besides the standard English and Bahasa Malaysia communication, MAS also plans to introduce onboard communication of safety briengs and welcoming address in the local languages at the points of embarkation. Such measures are part of MAS customer-centric stance to ensure that our guests of diverse cultures and language capabilities are adequately informed and at the same time experience the welcoming spirit of Malaysian Hospitality.
58
Operational Review
MASTERING OPERATIONAL EXCELLENCE Airport Operations

In the year 2007, the Airport Operations (AO) division stepped up on its activities to support and contribute positively to the companys turnaround efforts. The year began with the introduction of the SITA Departure Control System (SITA DCS) under the Passenger Service System (PSS) programme, which enables Malaysia Airlines to be fully eTicket-capable as required by the International Air Transport Association (IATA) and also allows passengers to check in for their ights via the Internet or via the numerous Common User Self Service (CUSS) kiosks located at the KLIA main terminal. The airline went live with the new system in KLIA on 2nd July 2007, 10 months ahead of the IATA deadline, and progressively moved into eTicketing for its passengers, as well as for passengers of its interline partners. AO also successfully reduced the incidence of mishandled baggage to only 3.24 bags per thousand bags in December 07. In comparison, based on the US Department of Transportations 2007 statistics, the incidence of mishandled baggage in the USA was 7.03 per thousand bags. Similarly, based on an Association of European Airlines (AEA) consumer report in 2007, the average number of mishandled bags for its member airlines in Europe was a signicant 16.6 bags per thousand handled baggage. Among the initiatives that contributed to the successful reduction in mishandled bags was the implementation of both the CCTV and Tag-less monitoring projects. In addition, AO also implemented the Hot Transfer initiative where every bag is x-rayed in compliance with IATAs requirements for the security and safety of passengers and aircraft. As part of its efforts to increase revenues, AO managed to expand its ground handling business by securing new contracts with three new airlines, namely Egypt Air, GMG Airlines and Hong Kong Express, in addition to MAS sister airlines, Firey and MASWings, in 2007.
59
Inight Services
Inight Services (IFS) embarked on a number of initiatives with a 3-fold focus on improving the quality standards of food & beverage and inight entertainment; establishing structured audit and quality assurance processes to minimise operational breakages; and improving cabin crews performance in line with the increased sophistication in products and services delivery. Among the major initiatives launched by Inight Services during the year were the Meal Box, Meal Optimisation, Heat Sealed Meals, Redesigning of Caterers Contracts and Crew Rationalisation programmes, with the aim of increasing operational efciency and process simplication. The Meal Box went on trial on 1 October 2007 for domestic and ASEAN sectors ranging from 1 to 3 hours in ight time. The Meal Box concept has not only simplied the meal process, but savings are also expected from the reduction in galley weight, less usage of rotables and equipment, less handling and the reduction in crew complement. The Meal Optimisation programme was implemented in August 2007 following extensive studies to nd an optimal balance between popularity of meals among passengers and the cost of meals, for each sector. New menus were subsequently introduced, resulting in higher customer ratings at reduced costs. Effective April 2007, the Heat Sealed Meals rst went on trial on the European sectors, following which, new menus were developed in collaboration with suppliers. The Heat Sealed Meals have since been introduced in the United Kingdom and Japan. The redesigning of caterers contract programme was introduced in 2007 in which improvements were made to the process of menu development and price negotiation. Two Caterers Day were held and a total of 13 contracts were re-evaluated. Caterers were given guidelines on the Companys expectations and given more autonomy in proposing menu at optimal costs, which resulted in more exible menu options and joint cost savings/avoidance. In the year 2007, the uniform of the Inight Supervisor was changed to a more professional look that distinguishes them from the rest of the crew, for easy identication by passengers. In addition, new training modules were developed during the year giving more emphasis to leadership, problem solving and communication skills. A crew Rationalisation exercise was also implemented following the simplication of processes and improvement in products. As a result of various and continuous improvement exercises by IFS, 2007 closed with numerous accolades for Malaysia Airlines inight services: 5 Star Airline Awards 2007 - Skytrax Worlds Best Cabin Staff 2007 Skytrax Best Airline Cabin Service Worldwide 2007 - Smart Travel Asia 2nd Best Economy Class Service 2007 - Skytrax 3rd Best Economy Catering 2007 - Skytrax 4th Best First Class 2007 - Skytrax 4th Best Business Class 2007 - Skytrax
60
Operational Review
Engineering
For the past 3 years the performance of Engineering and Maintenance (E&M) in terms of doing third party work has been very encouraging, as revenue has tripled. In 2007, Engineering & Maintenance (E&M) registered a total revenue of RM325 million compared to RM218 million in 2006. This is 65% more than the targeted revenue that E&M had hoped to surpass in 2007, which was RM196 million. RM307 million from the total revenue was contributed from the vast expansion of the third party work. Third party work can be considered as a backbone to the achievement for E&M in 2007. Engineering Breakthrough Program (EBP), which was implemented in July 2006 and aimed at introducing fundamental improvement in all areas, is also showing improvements and some of the initiatives have been successfully completed.
Malaysian Aerospace Engineering

In 2007, MAS set up a subsidiary company, Malaysian Aerospace Engineering Sdn Bhd (MAE), with its own management team and P&L responsibility to tap into the huge potential of the global MRO market. E&M hopes to achieve a stretch revenue of more than RM400 million in 2008 and is optimistic of seeing more revenue from third party Maintenance, Repair and Overhaul (MRO) jobs for the nancial year ending December 2008. In addition, MAE is targeting to grow its 3rd party work from 30% to 50% by 2010. On 19 December 2007, Qantas signed a joint venture agreement with MAE to establish a JV company to provide airframe maintenance services in Malaysia. The on-going initiatives together with the commitment of the management and staff will transform MAE into a protable organisation by giving satisfactory and valued product and services to its customers which will enable MAE to spread its wings globally.
61
FINANCING AND ALIGNING TO THE P&L

The P&L remains the focal point of all the thrusts under the BTP 1 framework. To support the BTP 1 initiatives and build a world-class nance function, measures have been to improve the timeliness and quality of its nancial reporting as well as its forecasting and budgeting processes. The Finance Division is shifting its resources towards value-added accounting and nance functions as it gradually and successfully introduce effective solutions for transactional nance activities.
Strengthening the Balance Sheet

The company balance sheet further improved as at end 2007 with an increased cash balance position following the successful completion of cash generation initiatives. The company ended the year with a record and healthy RM5.3 billion cash balance, a RM3.8 billion increase from end 2006. The cash, net of all the borrowing, was RM4.8 billion. The increase was driven by normal operating, disposal of non-core assets, sale & leaseback, and nancing activities through Right issue and RCPS. Redeemable Preference Shares (RPS) The company successfully secured a term loan facility of up to RM500 million and issued RPS to the nancial institution. The issuance of the RPS provides MAS with the option to service the term loan through payment of non-cumulative tax exempt dividend on the RPS or through the payment of interest subject to prevailing laws and regulations. The proceeds were used to prepay a more expensive loan arrangement. Right Issue and Redeemable Convertible Preference Shares (RCPS) The Rights issue and RCPS exercise was successfully executed and oversubscribed. A total of RM1,546 million net proceeds were raised through the exercise. Disposal of non-core assets The disposal of 4 overseas and 5 local non-core properties generated both additional cash and protability. Sale and Leaseback of aircraft The sale and leaseback of 17 aircraft was completed in July 2007 with substantial gains. The exercise is consistent with the companys exit strategy on the B737-400 eet and was executed at a time when the aircraft market value was at its near peak of the aviation industry cycle. The strong cash position boosted the companys nancial strength in the anticipation of an increasingly challenging business environment as well as position itself for the transformation phase of Protable Growth. Treasury Risk Management Committee (TRMC) continues to manage fuel risk. MAS hedging policy remains unchanged, which is that of competitive hedging, where the hedging activities focus on bringing the fuel risk within the range similar to its competitive peers in the industry. The marginal fuel cost increase in 2007 when compared to 2006, albeit the signicant oil price escalation, is testimony to the successful execution of the hedging programme.
62
Operational Review
Streamlined Business Process

The outsourcing of the Revenue Accounting System (RAPID), which processes the sales of tickets, was successfully completed in February 2007. The outcome was a more accurate and faster nancial closing and improved staff productivity. Employing a new technology and highly skilled staff, the outsourced company executed the same tasks with a third of staff as opposed to the pre-outsourcing service model. Efciency in credit collection was also improved with the gradual introduction of electronic payments for government accounts. The initiative is a joint MAS-Government agency collaboration work to increase productivity by leveraging on technology.
Business Plan Process

A balanced budgeting approach was introduced, integrating a strategic top-down approach with sufcient bottom-up validation process. This process carries sufcient challenge process to incorporate various revenue enhancements and cost reduction initiatives into the business plan. Management is also beneted from the analysis of various scenarios of business assumptions. The collation process of the data was also improved with the roll out of a single depository and collection system, replacing the disjointed and laborious spreadsheet collation process. As part of strengthening the companys investment decision and cash utilisation planning, a Project Expenditure Committee (PEC) was formed in mid 2007. The council, which is made up of top management, scrutinised all capital investment proposals for its economic viability, strategic t and realistic assumptions.
Segmental P&L and Management Report

As part of promoting P&L transparency, inter-departmental cost charging and concept of internal prot centre initiatives were introduced during the year. Two phases of inter-departmental costs (such as utilisation of ofce space, medical, depreciation of assets) were completed. A Maintenance Repair Overhaul (MRO) prot centre at company level was rst introduced in September 2007. The Management Board report format was reviewed and the outcome was a more concise report format which focuses on major key performance indicators (KPIs), tracking of major initiatives and highlighting signicant events. Going forward, there will be a consolidation of nance ofces for Group Finance staff. The Finance Talent Management Forum will promote for healthy inter-departmental job rotation. Financing of aircraft purchases and capital management are set to be the key deliverables. Benchmarking exercise with peers in industry will be carried out to establish what is appropriate for MAS with respect to nancing strategy and capital management.
63
UNLEASHING TALENTS AND CAPABILITIES

At the end of 2007, the group had 19,423 employees. Human capital enhancement will continue to remain our key focus in order to support the BTP 2. We recognise the importance of creating a working environment that continues to foster passion, energy and drive if we want to successfully achieve the BTP 2 desired results. In order to perpetuate the institutionalisation of performance driven culture within the organisation, several initiatives have been undertaken to improve the Performance Management System that was introduced in 2006. This includes more staff and union engagement and continuous improvement to the performance appraisal processes. In May 2007, MAS also introduced the ESOS (Employee Share Option Scheme) as a key component of the People thrust of the Business Turnaround Plan (BTP) and in line with GLC Transformation programme on Intensifying Performance Management (commonly known as the Blue Book). It is part of the overall framework that we are putting in place at Malaysia Airlines, aimed at building a high performance culture by rewarding different levels of staff who have registered strong annual appraisals. In light of the exceptional nancial performance in 2007, the company announced bonuses across the board for all eligible staff, which has not been done for many years. Besides the bonus payment which was paid in April 2008, in line with the corporate nancial targets and as agreed in the companys collective agreements with its unions, the company also announced pay increases ranging from 8.5% to 10.5%. This pay increase was made effective from 31 December 2007. As part of fostering organic growth of capable leaders within the organisation, the company remains committed in continuously building up its talent management programmes. During the year, we have rolled out the international postings programme, intended to provide a structured job exposures for identied talents. In addition, more employees have been sent to attend leadership development and aviation knowledge enhancement programmes. The company has also carried out a manpower lab in June 2007. The objective of the lab is to review the manpower level of the organisation and benchmark against industry leaders. The outcome of the manpower lab has facilitated the development of manpower strategy with a view of achieving manpower level that drives higher productivity. We are also cognizant of the fact that we need to have robust internal HR capabilities to facilitate these initiatives. Through the HR revamp programme, we have developed plans to mitigate gaps in the HR division. Key initiatives implemented include engagement of HR expertise to review and implement improvement to HR basic functions, and injection of new capabilities into the HR division.
64
Operational Review
WINNING COALITIONS
The fth thrust of the BTP is to seek the support of the airlines stakeholders - its customers, employees, investors and the government for its turnaround programme. In 2006, the entire communication process was revamped, with major changes made in the communication of information to the companys stakeholders. The company has also put in place a structured media communications strategy to ensure a more accurate, timely and concise delivery of key messages to the public. Internally, new communication channels have been established to ensure that employees receive regular, timely and accurate information about the progress of the BTP. Townhall meetings, in-house bulletins and the company intranet were used to communicate the companys goals and vision. Externally, emphasis has been given to improving relations with investors and the media. The company provided regular updates on its performance and the progress of its BTP to analysts, shareholders and media representatives. These initiatives have helped to impart a better understanding of the companys problems, the measures it is taking to overcome them, and the improvements that are being achieved. To support BTP cost-saving initiatives, a moratorium on corporate advertising and sponsorship was imposed. Spending was conned to tactical advertising and promotional activities which had a direct impact on sales. Participation in the Malaysia Airlines Travel Fair, MATTA Travel Fair and International Supersaver campaigns during the year proved to be strong ticket-selling events. An External Relations department was also set up to implement initiatives relating to other key stakeholders and business partners. The objective is to ensure that national and community needs are met while enabling the company to operate productively. With this in mind, the company has taken on a more pro-active approach to engaging with key government ministries and agencies, and building rapport with business partners and suppliers. To that effect, in 2006 and 2007, the company entered into several partnership agreements with new code-share partners. In addition, a Suppliers Forum was organised for the rst time in February 2007 to update Suppliers on the progress of the companys turnaround plan and to address business issues. The interactive session was well received and further enhanced relationships with our suppliers.
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SUBSIDIARIES MASkargo Consolidating its Business

MASkargos core activities are sales and marketing of cargo space on both Malaysia Airlines passenger ights and MASkargo freighters. It also manages a well-equipped Advanced Cargo Centre (ACC) which is able to handle 750,000 tonnes of cargo per annum. MASkargo also provides charter and other cargo related services for third parties. The year in retrospect saw MASkargo weathering the storm and consolidating its position and maintaining its protability by continuously undertaking several revenue enhancement and cost cutting measures. Some of which include introducing new products such as the i-Secure, evaluating new destinations such as Tashkent and stopping unprotable freighter routes such as Kansai. These initiatives had a positive impact on its earnings. In its quest to form winning coalitions, MASkargo has obtained the Preferred Carrier status from several global logistics provider. These partnerships have created a platform to signicantly enhance the business volume and further strengthen the cooperation between the airline and the logistics provider in all areas of air cargo supply chain. In addition, MASkargo has also expanded its interline agreements with major airlines like KLM, Uzbekistan Airway and ANA. The activities undertaken during the year has substantially increased revenue and tonnage as compared to previous years. During the year, MASkargo undertook several measures to enhance its operational excellence including improvement of cargo handling procedures, meeting the minimum performance standards, minimising mishandling gures and the reduction of pilferages through the installation of CCTVs. Cargo mishandling rate has been at it lowest level since the opening of the ACC in 1998. To date, MASkargo has achieved ISO 9001, ISO 14001 and OHSAS 18001 certications. MASkargo also won the 2006/2007 Productivity Award under the Open Category for Services by Malaysia Productivity Corporation (MPC). The award was given based on two criteria - Qualitative and Quantitative assessment of which MASkargo performed very well in each area. The management is also focused on increasing the value of human capital by training and enhancing staff skills to be able to take on greater areas of responsibilities. Incentive programmes such as Employee of the Month and C-Star Programme are examples of management initiative to motivate and reward outstanding employees. MASkargo ended the nancial year achieving a prot before tax of RM131 mil from RM179 mil last year. Total cargo revenue dropped by 2% to RM2.69 billion from RM2.75 billion in 2006. Total cargo throughput at KLIA decreased to 646,500 tonnes from 658,000 tonnes as compared to the previous year. The contraction in protability was mainly attributed to the global slowdown in airfreight, competition from other modes of transportation and external factors such as fuel cost hike. MASkargo was selected to host the Air Cargo Forum, the largest air cargo industry gathering in the world in 2008 after winning the bid against Singapore, Abu Dhabi, Osaka and Melbourne. The event will be held in Kuala Lumpur from 4 to 6 November 2008 and is expected to be attended by some 5,000 senior executives from various airlines, freight forwarders, shippers, airport management, ground handling agents, trucking companies, technology and equipment providers and the media.
66
Operational Review
Firey
On 14 March 2007, the airline secured regulatory approval to launch Firey, Malaysias rst community airline. This new airline is a wholly-owned subsidiary of Malaysia Airlines and is registered as FlyFirey Sdn Bhd (formerly known as Kelas Services Sdn Bhd). Firey commenced operations with 2 Fokker 50 aircraft from its Penang base on 3 April 2008 to 4 domestic (Langkawi, Kota Bahru, Kuala Terengganu and Kuantan) and 2 regional (Phuket and Koh Samui) destinations. During the year, the Government of Malaysia has approved Firey to operate a total of 32 domestic and 41 regional routes from 4 hubs namely Penang, Subang (Kuala Lumpur), Johor Bahru and Kota Kinabalu. Firey has since added an additional Fokker 50 to its eet in December 2007 to operate 4 domestic destinations (Penang, Langkawi, Kota Bahru and Kuala Terengganu) from Subang. To support its expansion plan, Malaysia Airlines has placed orders for 10 rm and 10 option ATR72-500 aircraft with Avions De Transport Regional, GIE for lease to Firey. The ATR aircraft will delivered progressively in 2008 (5 rm), 2009 (5 rm), 2010 (6 options) and 2011 (4 options).
MASWings
MASWings, Malaysias rst commuter airline was ofcially launched on 1 October 2007. Serving a network of 22 destinations with 660 weekly ights, MASWings caters to the air travel needs of Sabah and Sarawaks traveling population by providing affordable fares and convenient ight schedules within the two states in the Malaysian Borneo. As a wholly owned subsidiary of Malaysia Airlines, MASWings is able to provide Sabah and Sarawak with greater connectivity to the global network already serviced by the national carrier, with full interlining capacity. Currently equipped with a eet of 7 Fokker 50 and 5 Twin Otter aircrafts, the airline will be upgrading its services with the introduction of the new environmentally conscious ATR aircrafts. The order of 10 ATR72-500 aircraft will be delivered progressively in 2008, 2009 and 2010. With strong values in corporate social responsibility, MASWings is regularly engaged in community service projects and green initiatives for the protection of the environment. Not only the airline provides a vital and reliable air transport link to the people of Sabah and Sarawak, it is also committed to reviving eco-tourism in both states, which is one of the major sources of income for the two states.
67
Going Forward
OVERVIEW
The BTP 1 successfully charted the route that Malaysia Airlines had to pursue to bring itself out of the nancial crisis it had faced as recent as two years ago. With hard work, radical changes and tough decisions, Malaysia Airlines achieved astounding operational improvements that allowed the airline to convincingly regain its protability in the year 2007, while maintaining the highest quality of products and services for its customers. However, the advanced success of the BTP 1 does not mean that the work is done. The aviation industry has never been undemanding, and over the past year, has proven to be even more challenging than ever before. With crude oil prices spiking at more than USD100 per barrel, jet fuel prices escalated to a high of USD140 per barrel in early 2008, increasing the pressure on every airlines protability. The anticipated aircraft overcapacity only surmounts to the pressure. Based on industry estimates, more than 400 new aircraft have hit the skies of Asia-Pacic, India and Middle East in 2007, and more than 400 more are expected in 2008. This phenomenon of unbridled growth will intensify competition in the market, and erode airlines yield and prot margins. Coupled with the liberalisation of ASEAN skies and rising oil prices, MAS needs to shift its focus to securing its future success. In February 2008, Malaysia Airlines announced its Business Transformation Plan 2 (BTP 2), a business plan that outlines the strategies that Malaysia Airlines will pursue in conquering the industry-wide challenges and transforming itself over the next 5 years to emerge as the Worlds Five Star Value Carrier, and as a leading player in the global aviation industry. The plan, also guided by the Government-Linked Companies Transformation (GLCT) programme, will continue to build on the 5 key thrusts of The MAS Way, which had served as the guiding principles for the BTP 1. In addition, the strategies set out in the plan hinge on the 5 bold steps of the Virtuous Cycle of Protable Growth.
The Virtuous
Cycle of Profitable Growth

Profitable Growth
Grow network, build capacity
Competitive fares
5 Star
Get more customers, more revenue Lower cost
68
Going Forward
STEP 1: MAINTAIN 5-STAR PRODUCTS AND SERVICES MH Campaign

Malaysia Airlines has always been renowned for its award-winning products and services, and the airline is cognizant of the importance of maintaining the highest quality of these products and services for it to build a brand that is globally-recognised, one that would be able to attract a premium and build a loyal following amongst its customers. It is along this notion that in the year 2007, Malaysia Airlines launched the MH Campaign, internally. This campaign, designed to revitalise its Customer Value Proposition (CVP), aims to make customers journey with Malaysia Airlines seamless and delightful, from the point of ticket purchase, all the way to the point of disembarkation. It is imperative that Malaysia Airlines not only win awards and accolades for the excellent services onboard its aircrafts, but every other service and product on the ground must conform to the same standard of excellence. Almost 500 initiatives were launched during the year-long campaign, which cut across all customer touchpoints to improve the airlines products and service offerings. In 2008, MAS will embark on more initiatives to build the Malaysian Hospitality brand. Amongst the planned projects which we will undertake in 2008 are:CVP Route Labs Reviews will be undertaken which includes service audits and workshops to ensure issues raised are resolved. Project SLAM (SLA Management) will be an initiative to improve MH service delivery at MAS stations to ensure consistency amongst service providers, and Malaysian Hospitality spirit is embraced with South Asia region as a pilot project. Project DHEX (Delay Handling Excellence) is a new MH project designed to further intensify efforts to enhance delay handling in the organization to a new level of service excellence. Reducing the long queue length at Kuala Lumpur International Airport especially during peak hours, festive and holiday seasons will be an area of focus too in 2008. Project Starlight (Maintaining World Best Cabin Crew Awards) is a key initiative to ensure MAS maintains its ranking as Skytrax Worlds Best Cabin Crew Award and maintain lead position especially with the fast improving standards by other airlines. Catering Projects focusing on taste instead of overall F&B to signicantly improve quality of taste attribute ex-station to improve taste attribute of IIS ratings. MH Showtime Alert and MH Magic Moments will be additional initiatives that will be embarked upon to ensure the highest service delivery quality is rendered to our passenger. MH Showtime Alert is a triggering mechanism put in place to notify relevant operating departments to ensure and improve special handling services to MAS passengers through the pivotal MH and hassle free approach. MH Magic Moments is to ensure extra efforts are taken by MAS staff at relevant operating departments to share and celebrate the festive spirit with our valued passengers during key festivities to make each festival more alive and meaningful.
69
Passenger Services System To complement the Malaysian Hospitality experience for its customers, Malaysia Airlines rolled out its all-new Passenger Services System in 2007 in partnership with SITA. The programme, supported by the eCommerce platform and divided into the 5 following streams, allows the airline to offer a series of solutions to make travelling faster, easier and more efcient, including eBooking, eTicketing and eCheck-In: Reservations The current reservations system will be replaced with a more efcient platform that meets industry standards and requirements. Ticketing MAS will move away from traditional paper tickets to electronic tickets (eTickets) before May 2008, in line with IATA requirement that all airlines be 100% eTicket capable by 31 May 2008. With the elimination of material costs and back-end processes, we will realise savings of approximately RM19 per ticket sold. Departure Control The Departure Control stream complements Ticketing by offering a number of new options to passengers. In addition to supporting the industry standard eTicketing processes, we will introduce Web Check-In and Kiosk Check-In facilities (dened by IATA as Common Use Self-Service) for passengers. Revenue Integrity This stream of the programme ensures that every booking produces an actual passenger upon departure. Revenue leakage occurs for many reasons and often because of fraudulent practices by various parties. Every reservation created or updated will undergo a series of cyclic checks to verify its authenticity. Cases such as ctitious names and multiple bookings on a single ight will be removed early on in the booking cycle. Fare Management Improvement in the Fare Management system will enable the airline to distribute fares more efciently around the world and improve pricing decisions.
STEP 2: REDUCE STRUCTURAL AND OPERATIONAL COSTS Project Delta

In October 2007, Malaysia Airlines embarked on what was to be known as Project Delta, another programme that aims to radically reduce structural costs in the airline, and focuses on Operations and Engineering & Maintenance (E&M). Over 66 initiatives were identied across both divisions, with an ambitious target of RM476 million in potential savings to be achieved. Among the initiatives identied include more comprehensive fuel conservation practices, reduction of wastage arising from excess meal uplifts and more effective procurement practices.
E&M Breakthrough Programme

As part of Project Delta, the E&M Breakthrough Programme was further rened with the prime focus of turning the airlines E&M division into the preferred Maintenance, Repair & Overhaul (MRO) centre in the region within the next 5 years. Under the programme, E&M will introduce fundamental improvements in all areas and can contribute a potential RM141 million per annum to the airlines P&L by embarking on the following:
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Going Forward
Enhance and streamline core E&M processes, embrace lean manufacturing principles and upgrade existing systems Enhance planning capability to enhance stability of the check package and reduce turnaround time for MAS and third party aircraft Improve spares planning, ordering, stocking and issuance to maximise aircraft dispatch reliability and hangar turnaround time Optimise the use of xed assets i.e. hangars and workshops in Subang and KLIA, to ensure maximum return on investment Improve manpower productivity level at all hangars, workshops and support shops so that the additional workforce capacity can be released on MH aircraft maintenance or be reassigned to deliver the increased third party maintenance work Develop and implement manpower plan, comprehensive training schedules and skill matrices to meet long term, mid term and short term demand for manpower for MH and third party aircraft maintenance Strengthen business practices, sales capabilities and enhance marketing efforts to attract and retain customers globally
Procurement Revamp Programme

In February 2007, Malaysia Airlines launched a procurement project to reduce its procurement costs in support of BTP 1, spearheaded by its Strategic Procurement department. To ensure the success of the project, the teams involved not only looked into reducing the prices of goods and services procured, but more importantly into reducing the Total Cost of Ownership, including how to reduce consumption and improve internal efciencies. Furthermore, the initiatives were cross-functional with involvement from all departments to ensure a more holistic and sustainable approach to reducing cost. The initial focus of the project was mainly on fuel, inight services and gound handling and initiatives included annualised savings of more than RM15 million on fuel by identifying closer alternate airports and saving a further RM12 million a year by using Ground Power Units (GPUs) instead of Auxiliary Power Units (APUs). Encouraged by the initial success of the project, the Strategic Procurement continued to identify further areas of potential savings in year 2008 and beyond. The launch of the Red Book by the Putrajaya Committee for GLCT provided the catalyst for a complete revamp of the procurement practices at Malaysia Airlines with the key objective to reduce TCO, improve procurement efciency and create a stable, yet competitive supply base.
Reduction in Distribution Cost

Malaysia Airlines will continue to leverage on the infrastructure and solutions put in place under the Passenger Services System initiative to build its online presence and drive business through the direct channels. Coupled with the improvements in the Internet Booking Engine and Enterprise Payment Gateway, we have enhanced the functionalities and capabilities of our website making it more user-intuitive and robust. Malaysia Airlines is looking to grow our online business substantially in 2008, and this will go a long way to reduce our cost per transaction and distribution costs, whilst at the same time making it more convenient for our customers to y with us.
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STEP 3: OFFER COMPETITIVE FARES

Once the airline has managed to reduce its structural and operational costs as outlined in the preceding steps, the airline will be in a much better position to offer competitive fares, and match fares offered by its competitors in a systematic and intelligent manner. The foundations set by the Revenue Enhancement Project, Route Protability Project and consequently Project Omega, will provide Malaysia Airlines with the means to offer competitive fares at the right time on the right route/sector to the right customer segment. It is possible to offer a combination of high and low fares on any given route, and still increase yields. A number of factors contribute to this - seasonality, point of sales, when the passengers make the booking, relative load factor of individual routes (high or low demand routes), etc.
Everyday Low Fares

The airline recently launched Everyday Low Fares (ELF) which offers competitive fares daily for Malaysian and ASEAN destinations. ELF is meant to create new demand, and to encourage people who are not planning to travel, to do so. ELF will also boost domestic tourism, counter ination and encourage better planning amongst travelers. Malaysia Airlines has allocated up to 30% of its seats for ELF. This 30% represents seats which would have otherwise gone unsold and wasted once the ight departs. The airline has studied its passenger booking prole closely; today most passengers only book their seats on ight within 30 days from their date of departure. Hence, with the stringent terms and conditions of the ELF such as book early, book online and no refunds, selling these unsold seats will have a positive impact on Malaysia Airlines P&L. This is a win-win situation for all; Malaysia Airlines customers enjoy low fares and 5-Star services while the empty seats do not go to waste. The marginal increase in fuel and food cost is sufciently covered by the minimal surcharges imposed. Malaysia Airlines is the rst full service airline to do this in a big way. If it succeeds, it will redene the rules in the travel industry.
STEP 4: GET MORE PASSENGERS AND INCREASE LOAD FACTORS Project MOSAIC
Throughout the years 2005-2007, MAS aggressively pursued a hub-and-spoke strategy for its network that allowed the airline to expand its network through code sharing partnerships with a number of airlines throughout the world. The hub-and-spoke network emulates the benets of joining an alliance in terms of passenger connectivity. To extract the maximum value from these partnerships, Malaysia Airlines embarked on Project MOSAIC at the end of 2007. Project MOSAIC will form one of the key business activities in 2008, and revolves around improving the network and incremental growth through interlining and codeshare arrangements. To deliver this benet, Project MOSAIC, synonymous to MAS Overall Strategic Alliance Integration Concept was launched in December 2007. Project MOSAIC adopts a multi pronged approach to enhance revenue and yields of interline business by adopting industry best practices, where possible. Project Mosaic will also review existing codeshare cooperation and explore new partnership opportunities. Project MOSAIC is targeted to achieve incremental revenue of RM70-RM100 million annually from 2008 onwards towards supporting MAS objective of protable and sustainable growth.
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Going Forward
Project Shifting the Stars

Project Shifting the Stars was launched in March 2008 with the aims of improving the protability of some of our key poor performing routes for each region; and delivering on incremental revenue of about RM300 million for 2008. The project is the culmination of all the previous commercial projects (RPP, REP, Omega, Alpha and MOSAIC) whereby the experience and knowledge gained are being unleashed in targeted and intense cross-functional labs to resolve the key issues and structural problems affecting these routes. Through a deep and thorough understanding of the DNA of each route, these lab teams have been able to surface key ndings and holistic solutions to turnaround the performance of these routes. These solutions are premised on the optimisation of the trade-offs between yield and seat factor, to achieve higher overall route revenue and protability. The initiatives and actions identied through these labs are anchored on delivering the identied P&L benets and are followed-up with rigorous tracking and monitoring to ensure achievement of results in 2008 and beyond.
Resilience Curve
Yield
(sen/RPK)
*Include fuel surcharge and admin fee
Project Omega Project MOSAIC
30 29 28 27 26 25 24 23 22 21 20 68 69 70 71 72 2006
Yield : 24.2 SF : 69.7% Op Profit: -RM303m Net Profit: -RM136m
2007 Jan-Sep
Yield : 26.4 SF : 71.4% Op Profit : +RM615m Net Profit: +RM610m
Project Alpha
*Breakeven line
2005
Yield : 20.5 SF : 71.8% Op Profit : - RM1.1b Net Profit: - RM1.3b
RASK = CASK (17.5 sen/ASK)
Seat Factor (%) 73
STEP 5: GROW NETWORK AND BUILD CAPACITY

On 31 March 2008, Malaysia Airlines announced that it has placed a rm order for 35 Boeing 737-800 airplanes with a further 20 aircraft of the same model placed on options. These aircrafts are scheduled for delivery from 2010 onwards. On the same day, we also announced that we would take delivery of 6 Airbus Industries A380 aircrafts in 2011. Together with the planned announcement of the widebody eet replacement plan, expected to be announced later this year, these new aircraft orders will form the backbone of our eet going forward. The aircrafts ordered would not only allow Malaysia Airlines to have the most up-to date aircrafts in the air when it is delivered, but also ensure that we are well positioned with the correct equipment to capitalise on future growth opportunities.
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Governance
Details of Board of Directors Meeting
Date of Meeting
15 January 2007
Time of Meeting
8.30 a.m
Nature of Meeting
Board of Directors Meeting [No. 01-07]
Venue
Board Room, 3rd Floor, Administration Building 1, MAS Complex A, Sultan Abdul Aziz Shah Airport, 47200 Subang Selangor Darul Ehsan
16 February 2007
9.00 a.m
Special Board of Directors Meeting [No. 02-07]
26 February 2007
9.30 a.m
23 April 2007
2.00 p.m
Meranti 1, Ground Floor, MAS Academy, No. 2, Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya Selangor Darul Ehsan
28 May 2007
10.00 a.m
31 July 2007
3.30 p.m
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Details of Board of Directors Meeting
Date of Meeting 27 August 2007
Time of Meeting 9.30 a.m
Nature of Meeting Board of Directors Meeting [No. 07-07]
Venue Board Room, 3rd Floor, Administration Building 1, MAS Complex A, Sultan Abdul Aziz Shah Airport, 47200 Subang Selangor Darul Ehsan
14 September 2007
9.30 a.m
22 October 2007
9.30 a.m
Conference Room 1, Ground Floor, Flight Management Building, KLIA, 64000 Sepang Selangor Darul Ehsan
26 November 2007
9.30 a.m
15 December 2007
9.30 a.m
Zamrud 1, Saujana Resort, Off Jalan Sultan Abdul Aziz Shah, Airport Highway, 47200 Subang Selangor Darul Ehsan
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Audit Committees Report
The Board Audit Committee (BAC) of Malaysian Airline System Berhad (MAS or the Company) is pleased to present the Audit Committee Report for the nancial year ended 31 December 2007. A. Establishment and Composition of BAC In accordance to the Malaysian Code of Corporate Governance (MCCG) and para 15.10 of Bursa Malaysia Securities Berhad (BMSB) Listing Requirements (LR), the following members continue to reprise their roles and responsibility in BAC. Name of Directors Keong Choon Keat (Chairman) Dato N. Sadasivan a/l N.N. Pillay Dato Zaharaah binti Shaari Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Directorship Independent Non-Executive Director Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director
On 1 March 2007, Tan Sri Izzuddin bin Dali resigned as member of BAC. On 9 January 2008, subsequent to nancial year end, Dato Sri Wan Abdul Aziz bin Wan Abdullah was appointed to the BAC. The BAC was appointed amongst MAS Board of Directors (Board) and fullls the following LR/MCCG: Comprise not fewer than three (3) members Majority are independent directors All members are non-executive directors At least one should be a member of an accounting association No alternate director appointed as a member of audit committee. Appointment to the BAC is referred to the Nomination Committee, prior to approval by the Board. The Board then shall ensure that the composition of the BAC meets the independence and experience requirements set out by LR/MCCG. The term of ofce of a member of the BAC shall be three (3) years, after which he or she may be re-nominated and appointed by the Board. The Board shall review the performance of the BAC and its members at least once every three (3) years. The Chairman of the BAC was elected by members of BAC and is a member of the Malaysian Institute of Accountants. The proles of the Chairman and BAC members are set out on pages 16 to 23 in the Annual Report. B. Quorum of BAC Quorum shall comprise at least two (2) members, majority are independent directors.
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C. Meetings of the BAC The BAC shall meet at least four (4) times annually, or more frequently as circumstances dictate. The Committee held eight (8) meetings during the nancial year, and the attendance record of each member is as follows: Name of Directors Keong Choon Keat Dato N. Sadasivan a/l N.N. Pillay Tan Sri Izzuddin bin Dali Dato Zaharaah binti Shaari Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Attended 8/8 8/8 0/2 5/8 0/8
Note: The rst gure above denotes the number of meetings attended while the second gure denotes the number held. The number of meetings held refers to the applicable meetings for each Director and varies based on their dates of appointment.
Representatives of Senior Management, Chief Internal Auditor and External Auditors representatives attend the meetings as and when appropriate. Minutes of each meeting are kept and distributed to each member of the BAC as well as to the other members of the Board. The Chairman of the BAC makes a report on each meeting to the Board. D. Objectives The principal objectives of the BAC is to assist the Board in discharging its statuary duties and responsibilities relating to accounting and reporting practices of the holding company and each of its subsidiaries. In addition, the BAC shall: evaluate the quality of the audits performed by the internal and external auditors; provide assurance that the nancial information presented by management is relevant, reliable and timely; oversee compliance with relevant laws and regulations and observance of a proper code of conduct; and determine and review the quality, adequacy and effectiveness of the Groups system of internal control. The BAC was established in 1992 with written terms of reference approved by Board which deals with BAC authority and duties. This terms of reference was periodically reviewed. i. Authority The BAC shall, in accordance with procedures determined by the Board and at the expense of the Company, investigate any activity within its terms of reference. have full and unlimited/unrestricted access to all information and documents/resources required to perform its duties. obtain independent professional advice or other advice and to secure the attendance of external parties with relevant experience and expertise if it deems necessary. convene meetings with the external auditors, internal auditors or both, without the attendance of other directors and employees if deemed necessary. However, at least twice a year the BAC shall meet with the external auditors without any executive board member present. make relevant reports when necessary to the relevant authorities if a breach of the LR has occurred.
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ii. Duties and Responsibilities The Audit and Business Advisory Department (ABA) shall report directly to the BAC on all matters within its scope of activities. The duties and responsibilities of the BAC are to undertake the following and report accordingly to the Board: Review the audit plan and audit reports, including the evaluation of the internal control system with the external auditors; Review the quality of the external auditors and to make recommendations on their appointment, termination and remuneration. In any resignation/termination any letter/representations by the external auditors would be reported to the Board and BMSB; Review the liaison between the external auditors, Management and the Board, and the assistance given by Management to the external auditors; Review the quarterly reporting to BMSB and year-end annual nancial statements before submission to the Board, focusing on: major accounting policy changes signicant audit issues in relation to the estimates and judgemental areas signicant and unusual events compliance with accounting standards and other legal requirements; In relation to the audit function: Assess the adequacy of the scope, functions, competency and resources of the internal audit function and ensure that internal auditors have the necessary authority to carry out its work; Review the internal audit programme processes and results of the audit and assess whether appropriate actions have been taken on the recommendations of the internal auditors; Review any appraisal or assessment of the performance of the internal audit function; and Review the performance of senior staff members of internal audit functions and approve their appointment or termination. Monitor any related party transactions that may arise within the Group and to report, if any, transactions that may arise within the Group and any related party outside the Group that are not based on arms-length terms and are disadvantageous to the Group; Review the process and allocation of options pursuant to the Employees Share Option Scheme (ESOS) at the end of each nancial year as being in compliance with the terms and conditions under the ESOS scheme. Review any related party transaction and conict of interest situation that may arise within the Group including any transaction, procedure or cause of conduct that may raise questions of management integrity.
E. Activities in the Financial Year The activities of the BAC during the nancial year 2007 were as follows: i. Risks and Controls Reviewed the progress of the risk management functions and its on-going activities for identifying, evaluating, monitoring and managing risks; and Reviewed the adequacy and effectiveness of the system of internal controls through the evaluation of results of work performed by internal and external auditors, committees as well as through discussion with Management and representation by Management.
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ii. Internal Audit Approved the audit plan, scope and budget for the nancial year; Reviewed the results of internal auditors work and monitor the implementation of management action plans in addressing and resolving issues; Reviewed the adequacy of resources and the competencies of staff within the ABA to execute the plan; and Reviewed the performance of the ABA and recommend improvements.
iii. External Audit Approved the external auditors terms of engagement, audit plan and scope for the nancial year; Reviewed the results and issues arising from their audit of the nancial year and the resolution of issues highlighted in their report to the BAC and Management response; and Made recommendations to the Board on the appointment and remuneration of the external auditors.
iv. Financial Reporting Reviewed and deliberated on the Quarterly Financial Announcements and Annual Financial Statements to BMSB and recommend them for approval by the Board.
v. Related Party Transactions Reviewed related party transactions for compliance with the LR of BMSB and the adequacy of the review procedures for related party transactions.
vi. ESOS Reviewed and veried that the allocation options granted under ESOS during the nancial year were in accordance to the required provisions set out under the Companys Scheme.
F. Internal Audit Function The internal audit function is performed by the ABA of MAS Group that reports to the BAC. The function has an approved Charter that provides for its independence in evaluating and report on the adequacy, integrity and effectiveness of the overall internal control system, risk management and corporate governance in the MAS Group using a systematic and disciplined approach. The ABA adopts established auditing standards and performs periodic self-assessment against applicable guidelines to maintain its prociency and ensure due professional care. In 2007, ABA has adopted the COSO based audit methodology in aligning itself to the internal control framework that has been rolled out companywide. The Chief Internal Auditor is a Chartered Accountant, Certied Internal Auditor and has obtained a Certication on Control Self Assessment. Additionally, MAS is a Corporate Member of Institute of Internal Auditors.
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The risk based audit plan approved by the BAC is developed to cover key commercial, operational and nancial activities that are signicant to the overall performance of the MAS Group. The prioritisation of audit assignments is based on the results from the risk management exercise, past audit results and discussions with Senior Management. Key processes in the MAS Group are clustered into audit universes that have been aligned to the MAS ve key thrusts (the MAS Way) against the following objectives: Revenue enhancement and protection Operational effectiveness and efciency, including cost containment Assets and services management, including effectiveness of management assurance functions Human resource management Financial reporting integrity; and Information system management
Internal audit activities covering all the above objectives are undertaken for both passenger and cargo businesses at Corporate Headquarters, Station Systemwide and MAS Subsidiaries. The ABA also conducts special audits on an ad-hoc basis based on specic requests either from the Board, BAC, Senior Management or arising from the Whistle Blower Program. The BAC receives regular reports from the Chief Internal Auditor on the results of activities performed. The ABA continuously monitors the execution of the audit recommendations, external and internal through periodic follow up. In May 2007, the Management Audit Action Committee headed by the Managing Director has been established to ensure effective implementation of recommendations and action items arising from the audit work performed. During this nancial year, the ABA undertook 70 audit assignments and 9 special projects assignments. The BAC reviews and approves the ABAs annual budget to ensure that the function is adequately resourced with competent and procient internal auditors. As at 31 December 2007, the ABA had 32 internal auditors of various mix of expertise and experiences with approximately 45,600 available man-hours per annum. During the year, the ABA also outsourced certain types of work to international audit and other rms where ABA clearly benet from their expertise and involvement. The total expenditure incurred by the ABA for the nancial year 2007 is approximately RM4.8 million.
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Statement On Internal Control
INTRODUCTION Malaysian Code of Corporate Governance (MCCG) requires the Board of Directors (Board) to maintain a sound system of internal control to safeguard shareholders investments and the Groups assets. Pursuant to para 15.27(b) of Bursa Malaysia Securities Berhad Listing Requirements and Statement on Internal Control: Guidance for Directors of Public Listed Companies, the Board is pleased to present the Statement on Internal Control which outlines the nature and scope of internal control of the Group during the nancial year under review. RESPONSIBILITY The overall responsibility for the Malaysian Airline System Berhads (MAS) group-wide system of internal control resides with the Board. The Board is committed to maintain a sound system of internal control in order to safeguard shareholders investments and Groups assets. The system of internal control comprises, amongst others: governance, risk management, nancial, organisational, operational and compliance controls. Such a system is designed to manage an acceptable and tolerable level of the Groups risk rather than eliminate the risk of failure to achieve business objectives. As such, the Groups system of internal control can only provide reasonable but not absolute assurance against occurrence of any material misstatement or loss. The Board acknowledges the importance of a sound internal control system which requires consistent review of its effectiveness, adequacy as well as its integrity. Concerted effort from all business units are needed to full such requirements. Management is responsible for implementing the Boards policies on risks management and internal controls. All employees have a responsibility towards maintaining a sound internal control system as part of their accountability in achieving the Groups overall objectives. INTERNAL CONTROL PROCESSES Both the Board and Management of MAS continue to strive towards enhancing and implementing the internal control system to manage those risks that could affect the Groups growth and nancial viability. Accordingly, continuous efforts are made to improve the policies, processes and structure relating to internal control, and ensure that the people tasked with the responsibilities are qualied and trained. This continual improvement enhances Managements ability to monitor the existing risks and by taking into consideration the changes in the risk prole of the industry and the Group, helps to anticipate and manage potential risks. The key elements in MAS internal control systems are as follows: Board assumes responsibilities which facilitate the discharge of Boards stewardship through adoption of strategic plan for the Group, oversee the conduct of the Groups business and review the adequacy and integrity of the internal control systems and compliance to applicable regulations. The Board also reviews the operational and nancial performance of the Group. The scope of this review covers any signicant internal control issues identied in the monthly performance reports.
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Statement of Internal Control
Board Audit Committee (BAC), majority of which comprises independent non-executive directors duly executes their duties as dened in the MCCG. BAC regularly reviews, on behalf of the Board, internal control issues reported by the Audit and Business Advisory Department (ABA) and external auditors, including any signicant internal control issues affecting the nancial statements. BAC also reviews the adequacy of scope, functions and resources of ABA and appraises the performance of ABA. A comprehensive organisation structure, which aligns to business and operations requirements and led by Division Heads with dened responsibility, accountability and delegation of authority, is in place. Internal audit functions are carried out by ABA which performs systematic reviews of key processes on high-risk areas and assesses the effectiveness of internal controls. ABA reports to BAC on recommendations for improvement which are also deliberated at the Senior Management level. Periodic follow-up reviews are conducted to monitor the status of internal control issues raised. A worldwide recognised internal control framework (COSO based auditing) was adopted in 2007 to strengthen the assurance function. It provides a structured audit framework that enhances value reporting to stakeholders which includes an Internal Control Performance Scorecard on the auditees describing the state of internal control on particular areas. Management Committee Meetings chaired by the Managing Director are conducted on a regular basis to monitor business performance and discuss other related issues. Management Audit Action Committee (MAAC) headed by the Managing Director which comprises certain Management Committee members was established in May 2007. MAAC is mandated by BAC to ensure the implementation of actions highlighted in BAC meetings. It focuses on closure of audit action items and ensures appropriate actions are taken on the recommendations made. Business Council Meetings attended by General Managers and above are conducted periodically to discuss results, performance, initiatives and issues encountered. It is also a forum to cascade strategic plans and directives of the Group. Quarterly Extended Leadership Team sessions are conducted for the Senior Management team as an avenue for sharing of operational and Business Turnaround results, performance and issues. Business Plan and Budget are reviewed and approved by the Board on an annual basis. It is an integrated business plan that is driven by commercial objectives and translated into operational budget. There is continuous enhancement of the planning and budgeting processes through a rened assignment of a single driver that aligns with the prot and loss of the Group. Budgets are monitored by each business unit and forms part of the units key performance indicator. Policy guidelines and authority limits are imposed in respect of day-to-day operations in a form of Corporate Approving Authority Manual (CAAM), Station Approving Authority Manual (SAAM) and Systemwide Station Internal Control Manual (SSICM). These policies complement each other in dening authority and accountability for key decision making areas. These policies are continuously reviewed to align with organisational and industry changes.
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Policies and procedures with embedded internal controls are documented in a series of Standard Operating Manuals. Custodianship of these manuals is bestowed upon the Risk and Policy Advisory Services (RPAS) Department. Manuals are regularly reviewed to ensure that more aligned, standardised and comprehensive procedures are in place. RPAS assists Management to establish and review corporate policies, when necessary, to improve the Groups corporate governance prole. RPAS also conducts regular briengs to various levels of employees on key policies and procedures, including those relating to authorisation, accountability, monitoring and reconciliation processes. Key manuals at corporate level that are in place as a source of reference are periodically reviewed and subject to adherence by the employees. Updated versions of the key corporate policies are maintained and made available via the Groups intranet. Commend & Reprimand Program (CaRP) continues to serve as a consequent management tool to discipline the organization, reiterate the importance of complying with Groups policies and procedures and to deal with unethical practices. Whistle Blower Program (WBP) is in place to provide an internal mechanism for employees to raise their concerns about malpractices, irregularities and negligence affecting MAS without fear of adverse repercussions and with condentiality protection. Whistle Blower Independent Committee (WIC) chaired by the Chief Internal Auditor is responsible to review and monitor concerns channelled through WBP. Investigations and reviews are carried out by the appointed action parties, tabled to the WIC and subsequently reported to the Managing Director periodically. Appropriate actions are taken based on the strengths and merits of the ndings. Internal Control Enhancement (ICE) Program was launched in April 2007 to increase awareness amongst business units on the importance of effective internal controls. A series of initiatives were conducted to improve the internal controls including implementation of COSO based auditing and self reporting audit process which is complemented by CaRP and WBP. Managements tools for enhancing self-assurance comprise 16 internal quality assurance (QA) functions undertaken by various divisions such as RPAS, IT Governance, Financial Compliance, Service Quality Unit, Engineering & Maintenance QA, Airport Operations QA and others Continuous enhancement of Performance Measurement System which is applicable for all employees. Regular training, workshop and awareness programmes for employees are conducted to emphasise the importance of governance, risk management and internal controls.
RISK MANAGEMENT The Enterprisewide Risk Management (EWRM) Framework serves to manage and control signicant risk exposures inherent in the Groups business operations. The policy, framework and guidelines will enable management to apply a systematic approach in identifying and assessing the relevant risks and that the necessary controls and mitigation are in place. The EWRM Policy and Guidelines are reviewed by the Board periodically to ensure the objectives, applicability, roles, responsibilities and accountabilities for managing risks within MAS are consistent with the Group business objectives. RPAS will assist the Board and Management in the development and recommendation of suitable policies and strategies to manage these risks.
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Statement of Internal Control
A detailed implementation of the EWRM framework has been applied throughout MAS since 2005, whereby a consistent methodology and approach was used group-wide. During the year under review, the corporate and divisional risk proles were reviewed on a half-yearly basis to coincide with the integrated business planning cycle to ensure that key risks identied are addressed. Risks at the company level were highlighted at the Management Committee level and consolidated for review by the BAC and the Board. Quarterly reviews were conducted by the Risk Advisory Services (RAS) unit and half-yearly reports distributed to the respective risk owners. As planned, the Divisional/Departmental Risk Managers (DRM) continue to full their roles as key coordinators of the risk proling sessions, expanding their scope to co-facilitate the risk reviews as the DRMs and risk management activities matures in the organisation. The Group has also conducted risk awareness sessions for all regional ofces worldwide and 5 regional risk assessment workshops to communicate the importance of managing risks and to embed risk management systemwide. A website is also maintained in addition to regular updates on risk management information in the Group newsletter to increase and sustain the level of risk awareness. As a further enhancement to internal risk control processes, the corporate Code of Ethics (CoE) was introduced in January 2007 and is applicable to all employees and the Companys representatives including agents, consultants, vendors, independent contractors and suppliers of the Group. Reports on non-compliance can be channeled through the existing disciplinary processes or the WBP. A brieng was also conducted during the Suppliers Forum in February 2007 to increase awareness amongst the Groups business partners. In view of the wide range of laws and regulations with which the Group is expected to comply, Group Legal Practice conducted brieng sessions to help the business units in gaining awareness of applicable legislations and to stay within the regulatory framework under which they operate, such as briengs on Anti-Competition Laws. Going forward, the Group shall continue to conduct risk awareness sessions and workshops at regional ofces and corporate head ofce levels to inculcate risk management practices within its business processes and activities. Management control through policies and guidelines will be constantly reviewed and updated to close operational gaps between existing and new business processes. To increase awareness amongst employees and our partners, the CoE has been incorporated as a training module in the Groups induction and management development programs. DESIGN OF INTERNAL CONTROL SYSTEM MAS internal control system does not apply to its associated companies, which fall within the control of their majority shareholders. Nonetheless, the interests of MAS are served through its representative on the Board of the respective associated companies and through the review of management accounts received. These provide MAS Board with performance-related information to enable timely decisions with regards to the Groups investments in such companies. The Board conrms that the system of internal control, with the key elements highlighted above, is in place during the nancial year. The system is subject to regular reviews by the Board.
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Statement of Corporate Governance
Malaysian Airline System Berhad (Malaysia Airlines or MAS or the Company) has, apart from adhering to the principles and best practices of the Malaysian Code on Corporate Governance (revised 2007) (the Code), also abided by the Guidelines to Enhance Board Effectiveness set by the Putrajaya Committee on GLC High Performance (PCG). The Board of Directors (Board) of MAS strives to maintain a sound level of corporate governance in the Group. They have been unequivocal in their commitment to ensure that the highest standards of corporate culture are practised throughout the Group, both locally and worldwide in the interest of shareholders and stakeholders. A Whistle Blowing Program was established in February 2006 to provide an internal mechanism for employees to raise their concerns responsibly about malpractices, irregularities and negligence affecting MAS, without any fear of adverse repercussions. An appropriately managed whistle blowing system functions as an internal control mechanism allowing for effective actions to be taken and to provide preventive measures in order to ensure that the integrity of the Company is maintained. A re-compilation of the existing Corporate Approving Authority Manual (CAAM) for ease of reference and compliance was made. The CAAM is continuously being reviewed to keep up with organisational and industry changes. The Station Approving Authority Manual (SAAM) and the Systemwide Station Internal Control Manual (SSICM) complement the CAAM in dening the authority and the accountability for business activities at the stations. As a pivotal internal control mechanism, the CAAM will promote greater managerial discipline, accountability and transparency in the performance of the identied operational and management decision-making activities. MAS continues to review the initiatives that were identied under the Government Linked Companies Transformation Programme throughout the year. During the year, the Board had adopted the Board Charter as recommended by the Green Book to ensure that all the members of the Board are aware of their duciary duties and responsibilities as directors and the various legislations and regulations affecting their conduct and that the highest standards of corporate governance are applied in all their dealings in respect, and on behalf of the Company. The Board is pleased to outline below the manner in which MAS has strengthened its application of the principles and the adoption of corporate governance best practices laid down in the Code. Best practices over and above the recommendations contained in the Code adopted by the Group are those recommended by PCG and other global standards which the Board has considered to be suitable for the Group.
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THE BOARD OF DIRECTORS

ROLES AND RESPONSIBILITIES OF THE BOARD First and foremost, the Board is responsible for determining the Companys long-term direction, business objectives and strategy. The Board, in discharging its duties, ensures that the Company has adequate resources to meet its objectives and that it maintains an effective safety and risk management system. The Board is mindful in monitoring the Companys performance and ensuring that it acts ethically and meets its responsibilities to shareholders and other stakeholders. Apart from the above responsibilities, the Board adopted a formal schedule to decide on matters requiring approval covering long-term strategy and objectives, capital and operating plans, major investments and disposals, funding and dividend, and annual nancial statements. BOARD BALANCE, STRUCTURE AND COMPOSITION Board structure and composition is the foundation of board effectiveness. The Board is led by a Chairman with strong leadership and management skills to lead and manage discussions among Directors with differing backgrounds. In 2007, the Board comprises the following 12 members which complied with the requirement on Independent Directors of the Listing Requirements (LR) of Bursa Malaysia Securities Berhad (BMSB):Category Non-Independent and Non-Executive Chairman Executive Directors Non-Independent and Non-Executive Directors Independent and Non-Executive Directors Number 1 2 3 6
A brief prole of each Director appears on pages 16 to 23 of this annual report. There is a clear division of responsibilities between the Chairman of the Board and the Managing Director. The requirement of the Code for a balanced board is fullled with Independent Directors constituting more than one-third of the Board. The presence of Independent Directors assures an additional element of balance to the Board as they provide unbiased and independent views, advice and judgement to all Board deliberations. The Non-Executive Directors provide a mix of related industry-specic knowledge as well as broad government, business and commercial experience. All Non-Executive Directors do not participate in the day-to-day management of the Company and are free from any relationship that could interfere with their ability to exercise independent judgement and act in the best interests of the Company and its shareholders. In situations where it would be inappropriate for concerns to be dealt with by the Chairman or the Managing Director, such concerns would be conveyed to the Deputy Chairman who is also the Senior Independent Non-Executive Director. The Board believes that its present structure and composition satisfactorily reect the investments of its shareholders and is able to provide clear and effective leadership to the Group.
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BOARD MEETINGS AND SUPPLY OF INFORMATION TO THE BOARD Board meetings for the ensuing nancial year are scheduled in advance before the end of each nancial year so as to enable Directors to plan ahead and t the years Board meetings into their respective schedules. Board meetings are conducted in accordance with a structured agenda. The agenda for each Board meeting and papers relating to the agenda items are forwarded to all Directors before the Board meeting. This is to facilitate the Board to peruse the board papers and review the issues to be deliberated at the Board meeting well ahead of the meeting date to enable directors to make informed decisions. In the event that any of the Directors has an interest in proposals considered by the Board, the Director concerned will make a written disclosure to that effect at the Board meeting. The interested Director will thereupon abstain from deliberations and decisions of the Board on the subject proposal. Minutes of each Board meeting are circulated to all Directors for their perusal prior to conrmation of the minutes before the commencement of the following Board meeting. The Directors may request for clarication or raise comments on the minutes prior to the conrmation of the minutes. The Board has full and unrestricted access to all information within the Group, individually or collectively, and has direct access to the advice and services of the Company Secretary. The Directors are regularly updated and advised by the Company Secretary on new statutory and regulatory requirements, and the impact and implication to the Company and Directors in carrying out their duciary duties and responsibilities. The Company Secretary organises and attends all Board meetings and ensures that accurate and proper records of the proceedings of Board meetings and resolutions passed are recorded and kept in the statutory register at the registered ofce of MAS. The Directors are free, at the Companys expense, to seek independent professional advice should they consider it necessary, in furtherance of their duties. The Board has established an agreed procedure for Directors to take independent professional advice. A total of 11 Board meetings were held during year 2007 and the Board attendance record is as follows: Directors Dato Dr. Mohd. Munir bin Abdul Majid Chairman Dato N. Sadasivan a/l N. N. Pillay Deputy Chairman Dato Sri Iris Jala @ Idris Jala Managing Director Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz Executive Director Keong Choon Keat Martin Gilbert Barrow Dato Mohamed Azman bin Yahya Meeting Attendance 11/11
9/11
11/11
11/11
10/11 9/11 10/11
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Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah [Appointed on 20 March 2007] Dato Puteh Rukiah binti Abdul Majid [Alternate Director to Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah] [Appointed on 16 August 2007] Datuk Seri Panglima Mohd. Annuar bin Zaini Dato Zaharaah binti Shaari Datuk Haji Yusoff @ Hunter bin Datuk Mohamed Kasim Abdul Rahman bin Abdul Ghani [Alternate Director to Datuk Haji Yusoff @ Hunter bin Mohamed Kasim] Tan Sri Izzuddin bin Dali [Resigned on 1 March 2007] Tan Sri Datuk Amar Hj Abdul Aziz bin Husain [Resigned on 31 December 2007] Datuk Haji Mohamad Morshidi bin Abdul Ghani [Alternate Director to Tan Sri Datuk Amar Hj Abdul Aziz bin Husain] [Ceased on 31 December 2007]
5/8
2/5
7/11 6/11 6/11 3/10
0/3
5/11
1/11
Note: The rst gure above denotes the number of meetings attended while the second gure denotes the number held. The number of meetings held refers to the applicable meetings for each Director and varies based on their dates of appointment. The attendance record of the Alternate Directors must be read in concurrence with the attendance record of the Principal Director.
APPOINTMENT OF BOARD MEMBERS Nomination to the Board of MAS is made either by the Special Shareholder in accordance with Article 5(2) or by the Board pursuant to Article 136 of the Companys Articles of Association. The Nomination and Remuneration Committees scrutinises the sourcing and nomination of suitable candidates for appointment as Director in MAS and its subsidiary companies. These Committees will ensure the selection of Board members with the right skill set, expertise and industry knowledge thus strengthening the composition of the Board and contributing signicantly to the effectiveness of the Board. DIRECTORS TRAINING All Directors have attended and successfully completed the Mandatory Accreditation Programme mandated by BMSB. During the nancial year, one of the Directors had attended the Malaysian Directors Academy (MINDA) Program for Building High Performance Director organised by Khazanah Nasional Berhad in collaboration with The International Institute for Management Development (IMD). All the Directors have attended various conferences and seminars organised by external organisers which assisted them in the discharge of their duties.
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RE-ELECTION OF DIRECTORS Pursuant to the LR of BMSB and the Companys Articles of Association, all Directors are subject to re-election by rotation once at least every three (3) years and a re-election of Directors shall take place at each Annual General Meeting. Executive Directors are also ranked for re-election by rotation. The purpose of such re-election is to ensure that shareholders have a regular opportunity to reassess the composition of the Board. The Directors standing for re-election are set out in the Statement accompanying the Notice of Annual General Meeting. DIRECTORS REMUNERATION The remuneration of the Executive and Non-Executive Directors is reviewed against market practices. The Executive Directors remuneration consists of basic salary, other emoluments and other customary benets as appropriate to a senior management member. Salary reviews take into account market rates and the performance of the individual and the Group. The Executive Directors are not paid the Directors fees nor are they entitled to receive any meeting allowance for the Board and Board Committee meetings they attend. The Non-Executive Directors remuneration is based on standard xed fees and allowances that reect their number of meetings attended during the year. Details of the total remuneration during the nancial year disclosed by category are as follows: Salaries & Other Emoluments RM000 Executive Directors Non-Executive Directors Total 3,085 754 3,839
Benets RM000 25 25
Total RM000 3,110 754 3,864
The number of Directors of the Company whose total remuneration during the nancial year fall within the following bands is as follows:No. of Directors Executive Directors: RM900,001 to RM950,000 RM950,001 to RM1,000,000 Non-Executive Directors: Below RM50,000 RM50,001 to RM100,000 RM150,001 to RM200,000
1 1
9 3 1
The Board has chosen not to disclose the remuneration of Directors on an individual basis, as suggested by the Code, as the Board believes that such information will not add signicantly to the understanding and evaluation of the Groups standards of corporate governance.
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BOARD COMMITTEES The Board delegates certain responsibilities to Board committees with specied terms of reference and responsibilities. The Chairmen of various committees report the outcome of the committee meetings to the Board and the minutes of the committee meetings are circulated to the Board for their information. Where the committees have no authority to make decisions on matters reserved for the Board, recommendations would be highlighted in their respective reports for the Boards endorsement. These committees are the: 1. 2. 3. 4. 5. 6. Board Audit Committee Nomination Committee Remuneration Committee Board Safety and Security Committee Board Tender Committee ESOS Committee
1. Board Audit Committee (BAC) A full BAC report enumerating its membership, its terms of reference and its activities during the year, appears on pages 77 to 81 of this Annual Report. The Chairman of the BAC reports the outcome of its meetings to the Board and such reports are incorporated as part of the agenda of the Board meetings. 2. Nomination Committee (NC) Membership as at 31 December 2007 Chairman: Dato Dr. Mohd. Munir bin Abdul Majid Members: Dato N. Sadasivan a/l N. N. Pillay Dato Mohamed Azman bin Yahya Tan Sri Datuk Amar Hj Abdul Aziz bin Hj Husain Keong Choon Keat Objective : To assist the Board in their responsibilities in nominating new nominees to the Board. The NC shall also assess the performance of the Directors on an on-going basis. Duties and Responsibilities : To recommend to the Board, candidates for all directorships to be lled by the Shareholders or the Board. To consider, in making its recommendations, candidates for directorship proposed by the Managing Director/Chief Executive Ofcer and, within the bounds of practicability, by any other senior executive or any Director or Shareholder. To recommend to the Board the nominees to ll the seats on Board Committees. To assess the effectiveness of the Board as a whole and each individual Directors/committees of the Board. To act in line with the directions of the Board. To review and approve the appointment of senior management. To consider and examine such other matters as the NC considers appropriate.
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Authority : The NC, in accordance with a procedure or process to be determined by the Board and at the expense of the Company, a) shall annually review the required mix of skills and experience and other qualities, including core competencies which non-executive and executive directors should have. shall assess on annual basis, the effectiveness of the Board as a whole, the committees of the Board and the contribution of each individual Director. shall be entitled to the services of a Company Secretary who must ensure that all appointments are properly made, that all necessary information is obtained from Directors, both for the Companys own records and for the purposes of meeting statutory obligations, as well as obligations arising from the LR of the BMSB or other regulatory requirements.
b)
c)
Meeting Attendance : The NC met twice to deliberate and recommend to the Board on the nomination of Directors and their alternates. 3. Remuneration Committee (RC) Membership as at 31 December 2007:Chairman: Dato Mohamed Azman bin Yahya Members: Keong Choon Keat Dato N. Sadasivan a/l N. N. Pillay Objective : To assist the Board in their responsibilities in assessing the remuneration packages of the directors reecting the responsibilities and commitment undertaken. Duties and Responsibilities : To review and assess the remuneration packages of the directors and senior management in all forms, with independent professional advice, if necessary. To ensure the levels of remuneration be sufciently attractive and be able to retain directors needed to run the Company successfully. To structure the component parts of remuneration so as to link rewards to corporate and individual performance and to assess the needs of the Company for talent at Board level at a particular time. To recommend to the Board the remuneration packages of the directors. To act in line with the directions of the Board; and To consider and examine such other matters as the RC considers appropriate. Authority : The RC, in accordance with a formal and transparent procedure or process or policy on directors remuneration packages to be determined and established by the Board and at the expense of the Company; a) b) review, access and recommend to the Board the remuneration packages of the directors. shall be entitled to the services of the Company Secretary who must ensure that all decisions made on the remuneration packages of the directors be properly recorded and minuted in the minutes book.
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Meeting Attendance : The RC met twice (2) to deliberate and recommend to the Board on the remuneration of Directors and their alternates. 4. Board Safety and Security Committee (BSSC) Membership as at 31 December 2007 Chairman: Martin Gilbert Barrow Members: Dato Sri Iris Jala @ Idris Jala Tan Sri Datuk Amar Hj Abdul Aziz bin Hj Husain Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz George Synder, Senior Technical Consultant Other members of the BSSC included relevant Senior Management. Objective : To provide assurance to the Board that the Company is complying fully with its safety responsibilities under the Air Operators Certicate (AOC), and to provide the Board with an assessment of risk to the Company arising from its management of safety and security. This includes an assessment of the reputation exposure from associated operations such as code shares, sub-contracted operations under other AOCs, and subsidiaries holding their own regulatory approvals. Currently these comprise Firey and MASWings but may in the future include other operating divisions. The BSSC on behalf of the Board has endorsed the Safety Management System (SMS) of the Company, and agrees with its programme to safeguard the safety and security of its operations. It endorses the principles of openness, and encourages continuous improvement. Role and Scope : Reviews the overall safety and security performance of operations under the MAS AOC, by considering signicant operational incidents, and trends. Considers the effectiveness of controls by reviewing:(a) Results of audits, inspections and investigations (b) Signicant quality lapses. (c) Process conformance (d) Status of corrective and preventive actions (e) Follow up actions from previous management reviews (f) Regulatory violations and concessions Reviews occurrence reports as well as trend analyses and ensure that corrective actions are taken in a timely manner; Periodically reviews the Safety and Security performance of Firey and MASWings. Consider relevant incidents to other operators, paying particular attention to those with whom MAS has contractual relationships Reviews recommendations for management system improvement. Regularly briefed on changes in regulatory policy or civil aviation legislation. Monitor safety management processes in ight operations, engineering, security, cargo and ground operations, and ensures that these are in line with the Groups quality standards;
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Encourages good communication between the various departments with regards to the above processes so that any problem areas are quickly highlighted and corrective actions taken; and Ensures that contingency planning and crisis management procedures are in place. Meeting Attendance : The BSSC met four (4) times in 2007 to address and resolve issues that may affect the safety and security of the Groups operations. The Chairman of BSSC and the General Manager of Corporate Safety, Security, Health and Environment report the outcome of its meetings to the Board and such reports are incorporated as part of the agendas of the Board meetings and the minutes of each Board Safety and Security Committee meeting are distributed to all Board members. 5. Board Tender Committee (BTC) Membership as at 31 December 2007 Chairman: Dato N. Sadasivan a/l N. N. Pillay Member: Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz Datuk Seri Panglima Mohd. Annuar bin Zaini Other members of the BTC included relevant Senior Management. Objective : To assist the Board, in its capacity to approve tenders with contract value of RM5 million and above. Duties, Responsibilities and Authority: To deliberate on and approve tenders with contract value of RM5 million and above. Such tenders shall rst be endorsed by the Tender Committee prior to the deliberation of tenders at BTC. Make other decisions if required to affect the contract between MAS and the appointed contractors/suppliers. To act in line with the directions of the Board. To consider and examine such other matters as the BTC considers appropriate. In the event a BTC meeting cannot be held to deliberate an urgent tender, approval of resolution by circulation will be done. Such circularised resolution and approval would then be conrmed at the next available BTC meeting. Meeting Attendance : The BTC met nine (9) times in 2007 to deliberate and approve tenders with contract value of RM5 million and above. BTC would designate an authorised personnel to execute the Letter of Award or/and agreement upon such approval. 6. ESOS Committee Membership as at 31 December 2007 Chairman: Dato Mohamed Azman bin Yahya Members: Keong Choon Keat Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz
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Other members of the ESOS Committee included relevant Senior Management. Objective : to implement and administer the MAS ESOS in accordance with the by-laws as approved by the shareholders of the Company; to determine participation eligibility, option offers and share allocations; and to attend to such other matters as may be required. Duties and Responsibilities : responsible for the ESOS plan design and amendments; assume responsibility for administrative oversight of the plan including reviewing ESOS procedures and ensuring they are adhered to properly; deliberate and decide on areas such as:o participation and eligibility o number of new shares granted o criteria and method of allocation o termination to decide on the tenure of plan; and responsible for all other areas of the ESOS, including, but not limited to, the areas specied under the ESOS By-Laws. Authority: The MAS ESOS shall be administered by the ESOS Committee. The ESOS Committee shall be vested with such powers and duties as are conferred upon it by the Board of MAS to administer the Scheme in such manner it shall in its discretion deem t. The ESOS Committee may, for the purpose of administering the Scheme, do all acts and things and enter into any transactions, agreements, deeds, documents or arrangements, and make rules, regulations or impose terms and conditions or delegate part of its power relating to the Scheme which the ESOS Committee may in its discretion consider to be necessary or desirable for giving full effect to the Scheme. Any liberty or power which may be exercised or any determination which may be made hereunder by the ESOS Committee may be exercised at the ESOS Committees discretion. The decision of the ESOS Committee shall be nal and binding. Meeting Attendance : The ESOS met thrice (3) in 2007 to deliberate and administer the MAS ESOS. SHAREHOLDERS The Company communicates regularly and proactively with shareholders and investors to ensure that they are kept appropriately informed of major developments within the Group on a timely basis. Relationship and Communication with Shareholders and Investors It is customary for the Group to brief the investors, analysts and the media immediately after the Groups quarterly nancial results are publicly announced. The Managing Director and Senior Management are present at these briengs to clarify issues raised by the investors, analysts and members of the media. It is also the Groups practice
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to hold special briengs with investors, analysts and the media with regard to any special development relating to the Group, after the necessary approvals have been obtained and, where applicable, the prescribed announcements to BMSB have been made. In addition, the Managing Director holds briengs for institutional investors as and when required. To develop a long-term relationship with shareholders and institutional investors, the Investor Relations Department, enables the maintenance of an open channel of communication between MAS and its shareholders and institutional investors. Towards this end, a dedicated e-mail address (investors@mas.com.my) has been set up, to which shareholders can direct their queries. Annual General Meeting (AGM) The AGM is an important forum for communication and dialogue with shareholders. Notice of the AGM and the Annual Report are sent out to shareholders at least 21 days before the date of the meeting. The Annual Report provides detailed and comprehensive information on the Groups business and activities to help shareholders make informed decisions on their investment in MAS. Shareholders may also access the Groups website (www.malaysiaairlines.com) for more information. During the AGM, the Board takes the opportunity to present a comprehensive review of the progress and performance of the Group. This review is supported by visual and graphical presentation of key points and nancial gures. The shareholders are given both the opportunity and the time to seek clarications or raise questions on the agenda items of the general meetings, where the Board would respond with the appropriate answers. To enable shareholders to gain full understanding and evaluate the issues involved, explanatory statements are provided to them on items of special business that may be included in the Notice of Meeting. At the AGM, shareholders have direct access to Board members who are on hand to answer their questions, either on a specic resolution or on the Company generally. While the Company endeavours to provide as much information as possible to its shareholders and stakeholders, it is aware of the legal and regulatory framework governing the release of material and sensitive information and accordingly works within such restrictions to attain a balance between providing timely and accurate information which is not misleading to its shareholders and stakeholders. ACCOUNTABILITY AND AUDIT Financial Reporting The Board is mindful to provide and present a balanced and fair assessment of the Groups nancial performance and prospects through its annual nancial statements, quarterly results and Annual Report to both BMSB and shareholders. The BAC assists the Board to scrutinise information to ensure adequate disclosures are made in such reports and the overall quality of the Group nancial reporting is maintained.
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Statement of Directors Responsibility in relation to the Financial Statements In the preparation of the Financial Statements as set out on pages 132 to 236 of this Annual Report, the Directors are of the view that: The Group has used appropriate accounting policies that were consistently applied; Reasonable and prudent judgements and estimates were made; and All applicable MASB approved accounting standards in Malaysia have been followed. The Directors are responsible for ensuring that the Company maintains accounting records, which disclose with reasonable accuracy the nancial position of the Company and the Group, and that the Financial Statements comply with the Companies Act, 1965. The Statement of Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 128 of this Annual Report. Internal Control The Board acknowledges its overall responsibility for maintaining a sound system of internal control to safeguard shareholders investment and the Groups assets. In compliance with the LR of BMSB under paragraph 15.27(b) and guided by the Statement of Internal Control: Guidance for Directors of Public Listed Companies, the report on the Groups internal control is presented in the Statement on Internal Control on pages 82 to 85 of this Annual Report. Relationship with Auditor The Board has, through the BAC, established and maintained a formal, transparent and appropriate relationship with the Groups auditors. The authority, roles and responsibilities of the BAC are presented in the Audit Committee Report set out on pages 77 to 81 of this Annual Report. The Group has always maintained a close and transparent relationship with its auditors in seeking professional advice and ensuring compliance with the relevant accounting standards. This Statement is made in accordance with the resolution of the Board of Directors dated 30 April 2008. Additional Compliance Statement In compliance with the LR of BMSB under paragraph 9.25, the Board is also pleased to provide disclosure on the following information:1. Imposition of Sanctions/Penalties:There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or Management by the relevant regulatory bodies during the nancial year. 2. Material Contracts:Save as disclosed below, there are no other material contracts entered into or subsisting by the Company or its subsidiaries, involving directors and major shareholders interests during the nancial year:(i) Supplemental Agreement dated 28 May 2002 between the Company and Aircraft Business Malaysia Sdn. Bhd. (ABM), a wholly-owned subsidiary of Penerbangan Malaysia Berhad (PMB), to amend certain clauses stated in the Master Aircraft Purchase Agreement dated 5 February 2002 between the aforesaid parties.
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(ii) Eight (8) Operating Lease Agreements, one (1) of which is dated 6 June 2002 and seven (7) of which are dated 28 May 2002 between the Company and Aircraft Business Malaysia Sdn. Bhd. (ABM), a wholly-owned subsidiary of Penerbangan Malaysia Berhad (PMB), in relation to the lease of the eight (8) aircraft for a lease period not exceeding 12 years. (iii) Eight (8) Supplemental Agreements dated 30 July 2002 between the Company and Aircraft Business Malaysia Sdn. Bhd. (ABM), a wholly-owned subsidiary of Penerbangan Malaysia Berhad (PMB), to amend the terms of rental rate/formula stated in the Operating Lease Agreements between the aforesaid parties referred to in paragraph (ii) above. (iv) Several Agreements dated 30 July 2002 between the Company and Penerbangan Malaysia Berhad (PMB) such as: (a) Widespread Asset Unbundling (WAU) Agreement which describes the general structure of the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Common Terms Agreement, the Governance Agreement and the Aircraft and Engines Purchase Agreement. (b) Agreement for Aircraft and Finance Agreements Unbundling which sets out the terms and arrangements under which PMB and Malaysia Airlines must make payments to each other, in relation to the aircraft assets which are subject to nance leases, loan agreements or operating leases entered into by Malaysia Airlines. Encumbered Aircraft Assets and certain payments which Malaysia Airlines receives in respect of its aircraft assets, and in relation to specically identied liabilities of Malaysia Airlines which are unbundled. This agreement provides PMB with an option to purchase the Encumbered Aircraft Assets becoming unencumbered to Malaysia Airlines, upon which such aircraft will be leased back to Malaysia Airlines on the same terms as the leaseback agreements for Unencumbered Aircraft Assets referred to under paragraph 2(iv)(c). (c) Aircraft and Engines Purchase Agreement which sets out the terms and arrangements under which Malaysia Airlines agrees to sell and transfer title to twenty four (24) aircraft and eight (8) spare engines owned by Malaysia Airlines (Unencumbered Aircraft Assets), to PMB, in consideration of PMBs obligation to pay Malaysia Airlines certain payments under the Agreement For Aircraft and Finance Agreements Unbundling. The signing of the leaseback agreements for the Unencumbered Aircraft Assets is a condition precedent to the Proposed WAU. Common Terms Agreement which sets out the common terms, conditions and provisions that are incorporated by reference into each of the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Governance Agreement and the WAU Agreement. Included in this agreement is a description of events of default which apply to the said agreements. Governance Agreement which constitutes an agreement between Malaysia Airlines, as the Asset Operator and PMB, Aircraft Business Malaysia Sdn Bhd. and Assets Global Network Sdn. Bhd. (Asset Owners) to comply with the corporate and contractual governance code in relation to the conduct between Malaysia Airlines and the Assets Owners on matter referred to in the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Governance Agreement, the Aircraft and Engines Purchase Agreement and the WAU Agreement.
(d)
(e)
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(v)
Supplemental Agreement dated 11 October 2002 between Malaysia Airlines and PMB, to amend certain provisions of the Agreement for Aircraft and Finance Agreements Unbundling and the Agreement for Domestic Business Unbundling.
(vi) Supplemental Agreement dated 11 October 2002 between Malaysia Airlines and PMB, to amend certain provisions of the Aircraft and Engines Purchase Agreement. (vii) The Lease Agreement dated 6 November 2002 between Malaysia Airlines and PMB in relation to the lease of twenty four (24) aircraft sold by Malaysia Airlines to PMB under the Aircraft and Engines Purchase Agreement, for a period which expires on 30 September 2005 or such other later date agreed by the parties. (viii) The Lease Agreement dated 6 November 2002 between Malaysia Airlines and PMB in relation to the lease of eight (8) spare engines sold by Malaysia Airlines to PMB under the Aircraft and Engines Purchase Agreement, for a period which expires on 30 September 2005 or such other later date agreed by the parties. (ix) The Lease Agreement dated 12 November 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2(iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties. (x) The Lease Agreement dated 20 November 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2(iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(xi) The Lease Agreement dated 3 December 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2(iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties. (xii) The Lease Agreement dated 13 December 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2(iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties. (xiii) The Lease Agreement dated 20 December 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2(iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties. (xiv) The Lease Agreement dated 8 January 2003 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2(iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
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(xv) The Lease Agreement dated 24 January 2003 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2(iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties. (xvi) Sub-Lease Agreement (in respect of KLIA Buildings) dated 26 March 2003 between Malaysia Airlines and Assets Global Network Sdn. Bhd. (AGN), a wholly-owned subsidiary of the Minister of Finance, Incorporated in relation to the sub-lease of the land and the buildings and infrastructure as therein dened for fty seven (57) years at a yearly rent payable by Malaysia Airlines to AGN in accordance with the Rent Schedule appended to the Sub-Lease Agreement. (xvii) Aircraft Procurement and Lease Agreement dated 21 November 2003 in respect of the procurement of six (6) new Airbus 380-800 aircraft by Penerbangan Malaysia Berhad for subsequent lease to Malaysia Airlines as operator between Penerbangan Malaysia Berhad and Malaysia Airlines. (xviii) Aircraft Operating Lease Agreement of one (1) Boeing B777-200ER Aircraft bearing Manufacturers Serial Number 28421 Malaysian Registration Mark 9M-MRP, dated 29 November 2004 between Penerbangan Malaysia Berhad (Lessor) and Malaysia Airlines (Lessee). (xix) Aircraft Operating Lease Agreement of one (1) Boeing B777-200ER Aircraft bearing Manufacturers Serial Number 28422 Malaysian Registration Mark 9M-MRQ, dated 13 December 2004 between Penerbangan Malaysia Berhad (Lessor) and Malaysia Airlines (Lessee). (xx) Purchase Agreement Assignment and Novation of two (2) Boeing Model 747-4H6 under Purchase Agreement No. 1390 dated 17 June 2005 between Malaysia Airlines as Assignor and Penerbangan Malaysia Berhad as Purchaser. (xxi) Aircraft Sub-Lease Agreement of one (1) Boeing B747-4H6 Aircraft bearing Manufacturers Serial Number 28434 Malaysian Registration Mark 9M-MPR, dated 20 March 2006 between Penerbangan Malaysia Berhad (Lessor) and Malaysia Airlines (Lessee). (xxii) General Terms Agreement dated 29 March 2006 together with Side Letter Agreement Number One, Side Letter Agreement Number Two and Side Letter Agreement Number Three between Rolls-Royce, Penerbangan Malaysia Berhad and Malaysia Airlines. (xxiii) Aircraft Sub-Lease Agreement of one (1) Boeing B747-4H6 Aircraft bearing Manufacturers Serial Number 29902 Malaysian Registration Mark 9M-MPS, dated 30 May 2006 between Penerbangan Malaysia Berhad (Lessor) and Malaysia Airlines (Lessee). 3. Utilisation of Proceeds from Corporate Proposal During the nancial year 2007, part of the proceeds from the Companys rights issue of ordinary shares and
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redeemable convertible preference shares were utilized to repay part of the Companys revolving credit facility and to nance acquisition of new aircraft, passenger services system, new hangar facility and additional working capital purposes. 4. Non-audit fees The amount of non-audit fees paid and payable to the external auditors by the Group for the nancial year ended 31 December 2007 is RM420,000. 5. Revaluation Policy on Landed Properties Revaluation of landed properties will only be undertaken by the Company upon the approval of the Board of Directors of the Company or should there be an intended sale or the market values were materially changed. 6. Prot Guarantee The Company did not give any prot guarantee during the nancial year. 7. Share Buyback There was no share buyback scheme undertaken by the Company. 8. Options, Warrants or Convertible Securities The Company has not issued any options, warrants or convertible securities during the nancial year 2007 other than the granting of options under the MAS Employees Share Option Scheme as disclosed in Note 26 to the Financial Statements. 9. American Depository Receipt (ADR) or Global Depository receipt (GDR) Programme (as at 31 December 2007) The Company did not sponsor any ADR or GDR programme during the nancial year. 10. Variation in Results There was no variance of 10% or more in the results in the unaudited quarterly result and the audited nancial statement.
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Statement of Corporate Social Responsibility
CORPORATE SOCIAL RESPONSIBILITY STATEMENT In the year 2007, whilst concentrating all efforts to achieve its nancial targets, Malaysia Airlines continued to play its part as a responsible corporate citizen towards its employees, the community, the environment and its stakeholders. The Community Project PINTAR Malaysia Airlines participates in Project PINTAR which is a joint community project by Government-Linked Companies (GLCs), in support of the Governments efforts to reduce the economic imbalance in Malaysia. The word PINTAR is an acronym for Promoting Intelligence, Nurturing Talents and Advocating Responsibility. Its Malay tagline, Melentur Buluh Biarlah Dari Rebungnya symbolises the intent and purpose of this project to help educate and develop school children at the early stage of their education. In fact, Project PINTAR aims to provide assistance to the schools to improve the academic standards especially of the underprivileged children. It is hoped that this project complements the efforts of the teaching staff in all the adopted schools in guiding students to excel in education which is an important determining factor in Malaysias quest towards becoming a developed nation by the year 2020.
Pintar Logo
In early 2007, Malaysia Airlines started its involvement in Project PINTAR by adopting two schools in Pulau Pinang, namely Sekolah Kebangsaan Permatang Damar Laut in Batu Maung with 700 students and Sekolah Menengah Kebangsaan Raja Tun Uda in Bayan Baru with 1,650 students. A total of 24 Government-Linked Companies also participated in this pilot project in Pulau Pinang by adopting more than 50 schools. Through the project, Malaysia Airlines is committed for the next three years to facilitate several initiatives to raise students motivation to learn and to ensure a conducive learning environment for these students. The project is fully supported by the Chairman and employees of the airline, who have all given their commitment in lending a hand in the programmes initiatives. These initiatives are tailored to help the children in the schools through engagement, with not only the teaching staff but also with the parents/guardians, local community groups and leaders. The initiatives include: Motivational talks Tuition packages Leadership courses Provision of school uniforms for needy students Provision of reference books for school library Provision of computers to schools resource centre
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Apart from the above, Malaysia Airlines employees have also engaged with the students in other activities like: Gotong Royong sessions in the schools Career talks by ofcials from Malaysia Airlines Playing the role of mentors for academically weak students Arranging visits to Malaysia Airlines operational areas and prominent tourist spots during school holidays Summer camps coordinated by Malaysia Airlines Sports club
In addition, the airline also offered complimentary air tickets to motivate Top Students and Outstanding Teachers who have contributed to the overall academic excellence of these needy children. The airline is indeed very encouraged by the academic progress of the students in these adopted schools. The overall achievement for the academic year 2007 for MAS adopted schools has improved by 10% in UPSR results for Sekolah Kebangsaan Permatang Damar Laut and by 15% in PMR results for Sekolah Menengah Kebangsaan Raja Tun Uda. In January 2008, the airline adopted Sekolah Kebangsaan Sanglang in Perlis and will continue to expand its Project PINTAR adoption to cover needy schools in the various Economic Regions announced by the Malaysian government. Through this expanded coverage, Malaysia Airlines reafrms its partnership and commitment to support the Governments many initiatives in reducing the economic imbalance in the society. Project PINTAR is a testament of Malaysia Airlines commitment towards its corporate responsibility and rm commitment to meaningful initiatives that will bring about changes in the lives of the needy, not only towards poverty eradication, but also in uplifting the academic excellence of the future generation in the country. MASWings As the national carrier, we have a social responsibility to provide air services especially to those living in isolated locations. Malaysia Airlines subsidiary, MASWings which began its services in October 2007, provides a vital and reliable transport and communication link to the people of Sabah and Sarawak. MASWings is committed to reviving eco-tourism in both Sabah and Sarawak, which is also one of the major sources of income for the two states. Being a subsidiary of Malaysia Airlines, MASWings takes advantage of its link with Malaysias national carrier to provide Sabah and Sarawak with greater connectivity to the global network already serviced by Malaysia Airlines. Whilst reviving the tourism industry in Sabah and Sarawak, MASWings is equally committed on its social responsibility towards the local community. The community outreach started with the launch of Wings for Children, a programme dedicated to serving the physical and emotional needs of children from the rural communities, when the airline commenced operation in October 2007. Other community-related initiatives Oth Throughout the year 2007, the airline also undertook various structured, as Thr well as ad-hoc community-related initiatives to enhance its relations in the we community. Among others, the airline renewed its partnership with MERCY co
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Malaysia for the third year running, providing MERCY Malaysia with special fares and excess luggage allowances for deployment of volunteers to disaster-hit areas. When oods hit parts of Peninsular Malaysia at the end of 2007, Malaysia Airlines and MASkargo again rushed to lend a hand to the ood victims by dispatching 3-tonnes of ood relief items to Pahang, Johor and Kelantan. The items were donated by employees of Malaysia Airlines through a 10-day campaign between the months of November and December 2007. Malaysia Airlines also contributed cash to the three states to purchase essential items and handover the aids to relevant ood relief centres. In line with the values inculcated within Malaysia Airliness new Customer Value Proposition (CVP) i.e. MH is Malaysian Hospitality, the airline also stepped up its efforts in spreading its warm hospitality during the Chinese New Year (CNY) celebrations in early 2008. Instead of spending resources on CNY messages in the media and festive projects, these funds were channeled into giving back to the community. Teams in Subang, Kota Kinabalu, Kuching, Penang, Kuantan and Johor Baharu all chipped in by visiting homes for the poor, unfortunate, disabled and aged in their respective areas, bringing festive goodies, cheers and warm smiles into the homes. The Environment Although air transport accounts for only 2% of the global carbon dioxide (CO2) emission and a possible 3% in 2050 with the industry growth, it contributes to the most critical global challenges of our time - climate change. Aviation emission impacts climate change mainly due to: o Carbon dioxide emission from burning of fossil fuel o Other effects of the upper atmosphere in relation to the emission of other green house gases Hence, Malaysia Airlines is committed to improve its environmental performance and reduce the adverse impacts of its activities on the local and global environment. The following are a number of on-going and proposed initiatives that the airline will implement: ICAO carbon emission trading scheme Malaysia Airline fully supports the International Civil Aviation Organization (ICAO) recommended Balance Approach and the IATA strategies for minimizing the carbon footprint of the industry, and supports the ICAO carbon emission trading scheme in preference to any direct environment tax. Voluntary carbon offset schemes will soon be offered to our customers as a way to reduce the environmental impact of their travel. Contributions from this scheme will be used for a nature conservation programme or to support other environment-related schemes such as the solar power programme. Fuel efciency Fossil fuel is vital in our daily business, and unfortunately is a source of CO2. Malaysia Airlines is committed to increase its fuel efciency program in the air and on the ground. Improvements in both areas are monitored to increase their efciencies. Among the initiatives implemented in this area include the optimisation the uplift of water, meals and even fuel itself; removal of crew bunks from short- to medium-haul aircraft and increased usage of ground power units as opposed to auxiliary power units.
104
Malaysia Airlines has also identied key hubs and is currently working with strategic partners to improve our network. The hub and spoke system will be a key factor besides code sharing and better route planning. Newer fuel efcient and environmentally friendly aircrafts are also being studied to replace our current eet. Minimise waste reduction and encourage recycling Waste reduction and management both on ground and in aircraft cabins are areas of focus in our environmental plan. It is our objective to reduce waste per passenger, reduce waste at source and encourage recycling to minimise dependency of landlls and maximise conservation of natural resources. On top of that, energy and water consumptions are monitored and measured and improvement initiatives are being reviewed for continuous improvement. To ensure the success of these initiatives, employees awareness will be vital. Our subsidiary, MASWings has also positioned itself as an environmentally conscious airline through the progressive introduction of promotional items produced with recycled materials. In moving away from using conventional cardboard or plastic boxes for inight meals, MASWings will be introducing fully disposable, environmentally friendly meal boxes made from palm bers. Minimise noise emission Noise is an environmental issue surrounding the airport vicinity. The main source of noise generates from aircraft take-off and landing besides the secondary source from ground transportation and facility. Malaysia Airlines is committed to ensuring its contribution towards noise reduction by complying with current regulatory requirements in the air and on ground. In terms of aircraft used, new technology developments have been successful in producing not only more efcient aircraft, but also aircraft that emit less noise. In fact, newer aircraft are 50% quieter than aircraft built 10 years ago. Research initiatives target a further 50% reduction by 2020. Fleet Renewal Programme On 30 March 2008, Malaysia Airlines announced the acquisition of up to 55 Boeing 737-800 narrow body aircraft as part of its eet renewal programme. One of the major considerations of the choice of the aircraft is its fuel efciency (the B737-800 burns approximately 15% less fuel compared to its predecessors) and its compliance with ICAOs strictest noise standards. These factors not only contribute to Malaysia Airlines conscious efforts towards reducing its operational costs, but more importantly helps in the airlines quest to being more environmental-friendly. As Malaysia Airlines reviews its wide body eet renewal plans, it will be certain to include the environmental factors into its consideration. Both MASWings and Firey, subsidiaries of Malaysia Airlines, also announced their respective eet renewal programme in 2007. Both airlines currently operate eets of turbo-propeller Fokker-50 and Twin Otter aircraft, which consume less fuel and emits less noise compared to jet aircraft. To replace these turbo-propellers, both airlines announced the purchase of ATR72-500 aircraft, an aircraft that has been tagged a Green Aircraft due to its low carbon emissions and noise levels. As these new aircraft are delivered in 2008 onwards, both airlines are set to serve its passengers more efciently while playing their parts towards the environment.
105
Statement of Corporate Social Responsiblity
Responsible Eco-Tourism MASWings places a lot of emphasis on collaborating with its travel and tourism partners on initiatives that support the environment. The airline is regularly engaged with Sabah Tourism Board and Sarawak Tourism Board to promote locations in Sabah and Sarawak which are home to a multitude of conservation efforts, which include Tabin Wildlife Reserve, Mulu World Heritage National Park, Sepilok Orang Utan Rehabilitation Centre, and the Danum Valley Conservation Area.
The Workplace Malaysia Airlines is also committed towards providing a quality, safe and equitable working environment for its 19,000-strong employee base through a number of employee-related initiatives were implemented throughout 2007. In terms of employee engagement, employees are provided a number of channels for them to engage and communicate with senior management to share their views, concerns and ideas to improve the company and/or their respective divisions. Townhall sessions are conducted twice annually where the companys progress and future plans are shared with employees in the spirit of transparency. Employees who are unable to attend these sessions are kept abreast of company developments through periodic briengs by divisional/departmental heads. Other channels include the company intranet, dedicated emails to Malaysia Airlines leaders, Berita MH (in-house bulletin), and UVoice (internal electronic memo). Malaysia Airlines has also embarked on a Human Resource Transformation programme to ensure it provides 5-Star services to its employees. The programme encapsulates initiatives which will lay the necessary foundation towards transforming Malaysia Airlines into one of the best places to work in, not only in Malaysia, but in the world. These initiatives include the Performance Management System, Job Grading and Salary Structure, Talent Management, Human Capital Relations and HR Process Improvement. In terms of safety, Malaysia Airlines is committed to the adoption and maintenance of the highest standards of safety, quality and security with due care for the environment. These are crucial elements for the airline to be a successful and sustainable business entity. Every aspect of its business decisions will be conducted with a Safety First policy and in accordance with all legal requirements and industry best practice. To that effect, its Corporate Safety, Security, Health and Environment (CSSHE) division has been entrusted to ensure that employees are made aware of and adhere to the safety and security policies and guidelines through various on-going initiatives including the implementation of the Corporate Safety Policy Manual. On top of that, the CSSHE division also issues a monthly Safety First! bulletin to employees to increase awareness towards safety and security in the workplace. All Stakeholders Malaysia Airlines is taking the rst steps in its journey towards developing a CSR framework. We will learn, and learn from others, on business practices, priorities and decisions that are mutually benecial to our stakeholders, shareholders, employees, the community and the environment.
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List of Company Properties
LIST OF COMPANY PROPERTIES AS AT 31 DECEMBER 2007 Location Description Tenure Approximate Area (sq feet) Approximate Net Book Value Age as at 31.12.2007 (years) (RM) 9 36 0 272,359,072
State of Selangor
32 ofce and workshop buildings forming MAS ofce complex at Sultan Abdul Aziz Shah Airport, 47200 Subang and 1 Pedestrian Bridge Industrial land at PT 44562 Mkm Sg Buloh, 47200 Subang Hangar 6 nalisation of tenancy agreement with MAB
`Occupation of federal land pending formalisation of a lease
Land 4,617,360 Built up 2,284,309
Leasehold 99 years expiring 2102
10.972 acres
15,820,268
10 yrs - subject to
Built up 41,058 sqm 1
264,451,507
State of Penang
13 units of shoplots A1.04-A1.07 & A1.11-A1.14 Level 1; A4.05- A4.08 & B114.03 Level 4, Kompleks KOMTAR, Jalan Penang, George Town, 10000 Pulau Pinang 8 buildings at Penang International Airport, 11900 Bayan Lepas, Penang
Built up 8,690
31
1,072,083
Monthly tenancy pending renwal of tenance by MAB wef 1 August 2006 Freehold
Built up 331,154
38
28,881,767
State of Perak
4 shoplots Lot G-01and 1-06, 1-07 & 1-08, Bangunan Sri Kinta, Jalan Sultan Idris Shah, 30000 Ipoh Vacant Land Lot 51, Taman Bukit Kayangan, 49000 Bukit Fraser 2 units condominium at K67 & B16 Pine Resort 49000 Bukit Fraser
Built up 4,102
27
212,168
State of Pahang
Land 52,816
27
40,524
Built up 5,226
22
129,688 138,071
State of 1 engineering workshop at Terengganu Sultan Mahmud Airport, 21300 Kuala Terengganu
Monthly tenancy pending renewal of tenance by MAB wef 1 August 2006
Built up 4,500
23
107
Location Description
Tenure
Approximate Area (sq feet)
Approximate Net Book Value Age as at 31.12.2007 (years) (RM) 16 119,374
State of Kedah
1 engineering building at Sultan Abdul Halim Airport, 06200 Alor Setar Ofce lot No 74, Kompleks Alor Setar, Jalan Lebuhraya Darul Aman, 05100 Alor Setar 1 cargo store at Langkawi International Airport, 07100 Padang Matsirat, Langkawi 1 engineering workshop at Sultan Ismail Airport, Senai, 81250 Johor Baharu 1 cargo building at Sultan Ismail Airport, Senai, 81250 Johor Baharu
Monthly tenancy pending renwal of tenance by MAB wef 1 August 2006 Leasehold 99 years expiring 2088
Land 2,065 Built up 5,950
Built up - 3,210
18
348,292
Monthly tenancy pending renwal of tenance by MAB wef 1 August 2006 Tenancy commencing 1 November 2005 and expiring 31 October 2008 Tenancy commencing 1 November 2005 and expiring 31 October 2008 Leasehold 99 years expiring 2086
Built up 1,632
13
Land 16,000
16
421,857
Built up 10,911
15
State of 5 units condominium at Sembilan A-6-10, 1-7-5, 1-5-3, A-5-5, A-4-2, Tanjung Tuan Resort, Batu 5, Jalan Pantai, 71050, Port Dickson, Negeri Sembilan State of Kelantan Ofce lots Ground Floor, Wisma Yakin, Jalan Gajah Mati, 15050 Kota Bharu Hangar & Cargo and Administration buildings at Kota Kinabalu International Airport, 88100 Kota Kinabalu
Built up 5,657
20
524,551
Built up 4,350
18
473,416
State of Sabah
Engineering & Cargo: Leasehold expiring 2044 Built up 118,207 Administration Building: Monthly tenancy pending renewal by MAB wef 1 October 2006 Land - 82,204 Built up - 3,587
Engineering & Cargo: Land 152,460
18
5,918,384
Administration Building: Land 16,000 Built up 31,104 Leasehold 999 years expiring 2904
27
1,488,963
Residential building on Lot , CL105241807 di KM 2.5 Jalan Datuk Abu Bakar Titingan, 91000, Tawau
16
382,303 142,064
108
List of Company Properties
Location Description
Tenure
Approximate Area (sq feet)
Approximate Net Book Value Age as at 31.12.2007 (years) (RM) 23 864,803
2 Ofce Lots, G030 & G038 Grd oor Kompleks Karamunsing, Jalan Tuaran/ Selatan, 88400, Kota Kinabalu 1 Hangar /Cargo building at Tawau Airport, 91000, Tawau wef 30 November 2006 10 State of Sarawak Catering and workshop building at Kuching International Airport, 93250, Kuching 1 Cargo Warehouse / Engineering Building at Miri Airport, 98000, Miri Cargo/Engineering Building at Bintulu Airport, Jalan Bintulu, 97000, Bintulu 1 Cargo / Engineering building at Sibu Airport, 23km Sibu/Durin Road, 96000 Sibu 11 Singapura Ofce lots #2-01 to #02-11, Level 2, 190, Clemenceau Avenue No 0209-11, Singapore Shopping Centre, 239924 Singapore 12 England 7 Storey Ofce building at No 247-249, Cromwell Road, London SW59GA 1 unit apartment at Unit C703A, Roman Gardens, No 18 Huixin West Street, Chaoyang District, Beijing, 100029 1 unit apartment at Unit C1403A, Roman Gardens, No 18, Huixin West Street, Chaoyang District, Beijing, 100029
Built up - 3,614 expiring 2983
Leasehold 999 years
Monthly tenancy pending renwal of tenance by MAB
Built up 16,625
2,444,929
Monthly tenancy pending renwal of tenance by MAB wef 1 August 2006
18 26
675,588
Monthly tenancy pending renwal of tenance by MAB wef 1 August 2006 Monthly tenancy pending renwal of tenance by MAB wef 1 January 2007 Monthly tenancy pending renwal of tenance by MAB wef 1 August 2006
22
791,174
Land 52,474
2,296,056
14
975,270
Built up 7,061
28
1,974,516
Freehold Built up 24,169
Land 29,977
12
28,498,167
13 China
Built up 1,669
11
345,731
Built up 1,669
11
381,987
109
Analysis of Shareholdings
STATEMENT OF SHAREHOLDINGS AS AT 5 MAY 2008 Share Capital Our authorised, issued and fully paid-up share capital as at 5 May 2008 are as follows:Authorised Share Capital : RM10,041,900,001
Divided into :9,000,000,000 Ordinary Shares of RM1/- each; 1 Special Rights Redeemable Preference Share of RM1/-; 100,000,000,000 Redeemable Convertible Preference Shares of RM0.01 each; 1,000,000 Redeemable Preference Shares of RM0.10 each; and 418,000,000 Redeemable Convertible Preference Shares of RM0.10 each. Issued and Fully Paid-up Capital Class of Shares : RM1,712,766,666.50 : 1,670,991,820 Ordinary Shares of RM1.00 each; 1 Special Rights Redeemable Preference Share of RM1.00 each; 500 Redeemable Preference Shares of RM0.10 each; and 417,747,955 Redeemable Convertible Preference Shares of RM0.10 each : One vote per Ordinary Share. The Special Share has no voting right other than those referred to in note 31(a) of the nancial statements.
Voting Rights
110
STATEMENT OF SHAREHOLDINGS AS AT 5 MAY 2008 (CONTD.) Changes in our Share Capital The changes in our issued and paid-up share capital since the date of incorporation up to 5 May 2008 are as follows:Date of allotment No. of shares allotted Par value Consideration/ Type of issue Total issued and paid-up share capital RM Subscribers shares Cash Cash Cash Cash Cash Cash Cash Cash Cash Bonus issue on the basis of 3 new shares for every 1 share Special Share-Issued to MoF for cash Public issue at RM1.80 per share Rights issue on the basis of 1 new share for every 1 share at RM5.00 per share Private placement at RM8.00 per share 2 5,000,002 17,500,002 26,000,002 40,000,002 42,167,984 64,167,982 66,583,991 69,000,000 70,000,000
RM 03.04.71 02.08.71 13.09.71 08.11.71 18.02.72 18.10.72 22.11.72 28.12.76 29.07.77 09.04.79 2 5,000,000 12,500,000 8,500,000 14,000,000 2,167,982 21,999,998 2,416,009 2,416,009 1,000,000 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
12.09.85
210,000,000
1.00
280,000,000
12.09.85
1.00
280,000,001
21.11.85
70,000,000
1.00
350,000,001
13.11.92
350,000,000
1.00
700,000,001
22.05.96
70,000,000
1.00
770,000,001
111
STATEMENT OF SHAREHOLDINGS AS AT 5 MAY 2008 (CONTD.) Changes in our Share Capital (Contd.) Date of allotment No. of shares allotted Par value Consideration/ Type of issue Total issued and paid-up share capital RM
RM RCPS - Issued at RM1.00 each to Intelek Perkasa Berhad for cash In satisfaction of the surplus of the liabilities unbundled by MAS to PMB over the total aggregate value of the aircraft assets to be unbundled by MAS to PMB at RM3.85 per share RCPS - Redeemed
11.09.01
800,000,000
0.01
778,000,001
15.01.03 11.09.06
483,243,865 (800,000,000)
1.00 0.01
1,261,243,866 1,253,243,866
31.01.07
500
RPS - Issued at RM1.00 0.10 each to CIMB Bank Berhad Rights issue on the basis of 1 new share for every 1 share at RM2.70 per share Rights issue on the basis of 1 new share for every 1 share at RM2.70 per share
1,253,243,916
05.11.07
417,747,955
1.00
1,670,991,871
05.11.07
417,747,955
0.10
1,712,766,666.50
112
LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 5 MAY 2008 In accordance with the Register of Depository, the list of thirty largest shareholders of the Company is as follows:ORDINARY SHARE No 1 2 3 4 Name PENERBANGAN MALAYSIA BERHAD KHAZANAH NASIONAL BERHAD EMPLOYEES PROVIDENT FUND BOARD AMANAH RAYA NOMINEES (TEMPATAN) SDN BHD <SKIM AMANAH SAHAM BUMIPUTERA> CIMSEC NOMINEES (TEMPATAN) SDN BHD <KHAZANAH NASIONAL BERHAD (MAS ESOS POOL)> STATE FINANCIAL SECRETARY SARAWAK WARISAN HARTA SABAH SDN BHD HSBC NOMINEES (ASING) SDN BHD <EXEMPT AN FOR MORGAN STANLEY & CO. INTERNATIONAL PLC (IPB CLIENT ACCT)> ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD <PHEIM ASSET MANAGEMENT SDN BHD FOR EMPLOYEES PROVIDENT FUND> AMANAH RAYA NOMINEES (TEMPATAN) SDN BHD <SEKIM AMANAH SAHAM NASIONAL> CARTABAN NOMINEES (ASING) SDN BHD <INVESTORS BANK AND TRUST COMPANY FOR ISHARES, INC.> CITIGROUP NOMINEES (ASING) SDN BHD <EXEMPT AN FOR AMERICAN INTERNATIONAL ASSURANCE COMPANY LIMITED> CITIGROUP NOMINEES (TEMPATAN) SDN BHD <ING INSURANCE BERHAD (INV-IL PAR)> LOW POH WENG CARTABAN NOMINEES (ASING) SDN BHD <GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE LTD FOR GOVERNMENT OF SINGAPORE (C)> HSBC NOMINEES (ASING) SDN BHD <BBH AND CO BOSTON FOR VANGUARD EMERGING MARKETS STOCK INDEX FUND> No of Shares 868,957,232 239,522,656 192,766,393 % 52.00 14.33 11.54
89,184,367
5.34
50,129,755 45,333,333 40,056,000
3.00 2.71 2.40
6 7 8
10,000,000
0.60
8,223,033
0.49
10
4,786,667
0.29
11
4,399,200
0.26
12
4,225,334
0.25
13
4,225,000 3,080,000
0.25 0.18
14 15
2,713,233
0.16
16
2,681,900
0.16
113
LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 5 MAY 2008 (CONTD.) ORDINARY SHARE (CONTD.) No 17 Name CITIGROUP NOMINEES (ASING) SDN BHD <CB LDN FOR STICHTING PENSIOENFONDS ZORG EN WELZIJN> CARTABAN NOMINEES (ASING) SDN BHD <SSBT FUND H61P FOR DYNAMIC FAR EAST VALUE FUND> CITIGROUP NOMINEES (ASING) SDN BHD <EXEMPT AN FOR MELLON BANK (MELLON)> CARTABAN NOMINEES (TEMPATAN) SDN BHD <MIDF AMANAH ASSET NOMINEES (TEMPATAN) SDN BHD FOR EMPLOYEES PROVIDENT FUND BOARD (JF404)> HSBC NOMINEES (ASING) SDN BHD <EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (U.A.E)> HSBC NOMINEES (ASING) SDN BHD <EXEMPT AN FOR J.P. MORGAN BANK (IRELAND) PUBLIC LIMITED COMPANY> CARTABAN NOMINEES (ASING) SDN BHD <INVESTORS BANK AND TRUST COMPANY FOR MSCI EQUITY INDEX FUND B MALAYSIA (BARCLAYS G INV)> SBB NOMINEES (TEMPATAN) SDN BHD <PERTUBUHAN KESELAMATAN SOSIAL> CARTABAN NOMINEES (ASING) SDN BHD <STATE STREET LONDON FUND MATF FOR MARATHON NEW GLOBAL FUND PLC> HSBC NOMINEES (ASING) SDN BHD <BBH AND CO BOSTON FOR VANGUARD GLOBAL EQUITY FUND> CARTABAN NOMINEES (ASING) SDN BHD <SSBT FUND MATA FOR GLOBAL EQUITY FUND (MARATHON GBL FD)> CARTABAN NOMINEES (ASING) SDN BHD <GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE LTD FOR MONETARY AUTHORITY OF SINGAPORE (H)> HSBC NOMINEES (ASING) SDN BHD <EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (AUSTRALIA)> UNIVERSAL TRUSTEE (MALAYSIA) BERHAD <AMB UNIT TRUST FUND> No of Shares %
2,470,400
0.15
18
2,464,000
0.15
19
2,293,429
0.14
20
2,009,467
0.12
21
1,888,969
0.11
22
1,774,200
0.11
23
1,201,124
0.07
24
1,192,900
0.07
25
1,148,000
0.07
26
1,127,133
0.07
27
1,112,833
0.07
28
1,086,700
0.07
29
1,071,231
0.06
30
1,047,067
0.06
114
LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 5 MAY 2008 (CONTD.) REDEEMABLE CONVERTIBLE PREFERENCE SHARE OF RM0.10 EACH No 1 2 3 Name KHAZANAH NASIONAL BERHAD EMPLOYEES PROVIDENT FUND BOARD AMANAH RAYA NOMINEES (TEMPATAN) SDN BHD <SKIM AMANAH SAHAM BUMIPUTERA> WARISAN HARTA SABAH SDN BHD LOW POH WENG JF APEX NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR TEO KWEE HOCK (MARGIN)> KE-ZAN NOMINEES (ASING) SDN BHD <KIM ENG SECURITIES PTE. LTD. FOR CYL INVESTMENTS LIMITED TAN YUE WEI KURNIA INSURANCE (MALAYSIA) BERHAD JF APEX NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR TEO SIEW LAI (MARGIN)> ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD <PHEIM ASSET MANAGEMENT SDN BHD FOR EMPLOYEES PROVIDENT FUND> CITIGROUP NOMIEES (TEMPATAN) SDN BHD <ING INSURANCE BERHAD (INV-IL PAR)> MAYBAN NOMIEES (TEMPATAN) SDN BHD <MAYBAN TRUSTEES BERHAD FOR MAAKL VALUE FUND (950290)> AMANAH RAYA NOMINEES (TEMPATAN) SDN BHD <SEKIM AMANAH SAHAM NASIONAL> INTER-PACIFIC EQUITY NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR ANG CHOON MENG (AA0036)> TOH EAN HAI RHB CAPITAL NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR OH KIM SUN (CEB)> CITIGROUP NOMIEES (ASING) SDN BHD <EXEMPT AN FOR MELLON BANK (MELLON)> No of Shares 289,652,500 48,026,298 % 69.34 11.50
19,316,467 10,014,000 5,116,900
4.62 2.40 1.22
4 5 6
3,140,900
0.75
2,424,000 2,220,000 1,620,000
0.58 0.53 0.39
8 9 10
1,555,700
0.37
11
1,493,033
0.36
12
1,364,200
0.33
13
1,320,300
0.32
14
1,196,667
0.29
15
848,700 747,700
0.20 0.18
16 17
560,500
0.13
18
516,529
0.12
115
LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 5 MAY 2008 (CONTD.) REDEEMABLE CONVERTIBLE PREFERENCE SHARE OF RM0.10 EACH (CONTD.) No 19 20 Name TI TEOW CHOO CIMSEC NOMINEES (TEMPATAN) SDN BHD <CIMB FOR CHAI KIM SIN> HSBC NOMINEES (TEMPATAN) SDN BHD <HSBC (M) TRUSTEE BHD FOR MAAKL GROWTH FUND (4074)> CHAI KIM SIN INTER-PACIFIC EQUITY NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR LEE SEE KWAN (AL0089)> CHEW GUAT LOOI LEE TEK LIM HSBC NOMINEES (TEMPATAN) SDN BHD <NOMURA ASSET MANAGEMENT MALAYSIA FOR EMPLOYEES PROVIDENT FUND> SU AN LEE WONG KOK SIN WONG KEK CHONG WONG KOOK CHEE No of Shares 461,800 % 0.11
429,800
0.10
21
405,000 380,000
0.10 0.09
22 23
370,100 320,000 270,000
0.09 0.08 0.06
24 25 26
268,467 255,300 240,000 240,000 230,000
0.06 0.06 0.06 0.06 0.06
27 28 29 30
116
ANALYSIS OF SHAREHOLDINGS AS AT 5 MAY 2008 ORDINARY SHARE CATEGORY Less than 100 100 to 1,000 1,001 to 10,000 10,001 to 100,000 100,001 to less than 5% of issued shares 5% and above of issued shares TOTAL SHAREHOLDERS 109 3,076 6,088 749 148 4 10,174 % 1.07 30.24 59.84 7.36 1.45 0.04 100.00 SHAREHOLDINGS 2,014 2,728,474 19,219,479 21,102,219 237,508,986 1,390,430,648 1,670,991,820 % 0.00 0.16 1.15 1.26 14.22 83.21 100.00
REDEEMABLE CONVERTIBLE PREFERENCE SHARE OF RM0.10 EACH CATEGORY Less than 100 100 to 1,000 1,001 to 10,000 10,001 to 100,000 100,001 to less than 5% of issued shares 5% and above of issued shares TOTAL SHAREHOLDERS 25 2,723 1,330 261 83 2 4,424 % 0.57 61.55 30.06 5.90 1.88 0.04 100.00 SHAREHOLDINGS 1,249 1,721,250 4,124,530 8,384,170 65,837,958 337,678,798 417,747,955 % 0.00 0.41 0.99 2.01 15.76 80.83 100.00
117
LIST OF SUBSTANTIAL SHAREHOLDERS (5% AND ABOVE) AS AT 5 MAY 2008 In accordance with the Register of Depository, the list of substantial shareholders (5% and above) of the Company is as follows:ORDINARY SHARE Share Held Direct Indirect 868,957,232 239,522,656 192,766,393 * 50,129,755 ** 10,337,900 Percentage (%) Direct Indirect 52.00 14.33 11.54 3.00 0.62
No. 1. 2. 3. 4.
Name Penerbangan Malaysia Berhad Khazanah Nasional Berhad Employees Provident Fund Board Amanah Raya Nominees (Tempatan) Sdn Bhd Skim Amanah Saham Bumiputera
89,184,367
5.34
REDEEMABLE CONVERTIBLE PREFERENCE SHARE OF RM0.10 EACH Share Held Direct Indirect 289,652,500 48,026,298 * 1,972,267 Percentage (%) Direct Indirect 69.34 11.50 0.47
No. 1. 2.
Name Khazanah Nasional Berhad Employees Provident Fund Board
*Khazanah Nasional Berhad (Khazanah) is deemed to have indirect interest by virtue of MAS Shares held by CIMSEC Nominees (Tempatan) Sdn Bhd on behalf of Khazanah under Section 6A of the Companies Act, 1965 (CA 1965) **Employees Provident Fund Board (EPF) is deemed to have indirect interest by virtue of MAS Shares managed by other portfolio managers on behalf of EPF under Section 6A of the CA 1965.
118
DIRECTORS DIRECT AND DEEMED INTERESTS IN THE COMPANY AS AT 5 MAY 2008 In accordance with the Register of Directors Shareholdings, the directors direct and deemed interests in shares in the Company are as follows :-
NO
NAMES
NO. OF SHARES Direct Indirect 755,358 604,066 -
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
DATO DR. MOHD. MUNIR BIN ABDUL MAJID DATO N. SADASIVAN A/L N. N. PILLAY DATO SRI IRIS JALA @ IDRIS JALA TENGKU DATO AZMIL ZAHRUDDIN BIN RAJA ABDUL AZIZ KEONG CHOON KEAT DATO MOHAMED AZMAN BIN YAHYA MARTIN GILBERT BARROW DATUK SERI PANGLIMA MOHD. ANNUAR BIN ZAINI DATO ZAHARAAH BINTI SHAARI DATUK HAJI YUSOFF @ HUNTER BIN DATUK HAJI MOHAMED KASIM DATO SRI DR. WAN ABDUL AZIZ BIN WAN ABDULLAH DATUK AMAR WILSON BAYA DANDOT ABDUL RAHMAN BIN ABDUL GHANI DATO PUTEH RUKIAH BINTI ABD MAJID DATUK HAJI MOHAMAD MORSHIDI BIN ABDUL GHANI
0.045 0.036 -
119
Financial Report
120
Contents
Directors Report Statement by Directors and Statutory Declaration Report of the Auditors Income Statements Balance Sheets Statements of Changes in Equity Cash Flow Statements Notes to the Financial Statements 122 128 130 132 134 136 138 142
Directors Report
DIRECTORS REPORT The directors present their report together with the audited nancial statements of the Group and of the Company for the nancial year ended 31 December 2007. PRINCIPAL ACTIVITIES The Company is principally engaged in the business of air transportation and the provision of related services. The principal activities of the subsidiaries are described in Note 17 to the nancial statements. There were no signicant changes in the nature of these activities during the nancial year, other than those indicated in Note 17 to the nancial statements. RESULTS Group RM000 Prot from continuing operations Prot from discontinued operations Prot for the year Attributable to: Equity holders of the Company Minority interests 811,321 41,422 852,743 Company RM000 880,083 880,083
851,418 1,325 852,743
880,083 880,083
There were no material transfers to or from reserves or provisions during the nancial year other than as disclosed in the nancial statements. In the opinion of the directors, the results of the operations of the Group and of the Company during the nancial year were not substantially affected by any item, transaction or event of a material and unusual nature, other than the effects arising from the changes in accounting policies due to the adoption of the new and revised Financial Reporting Standards (FRS) on the Groups and the Companys nancial statements as disclosed in Note 2.2(b) to the nancial statements.
122
Directors Report
DIVIDENDS No dividend was paid during the nancial year. The directors recommend a rst and nal tax exempt dividend of 2.50 sen (2006: Nil) on 1,670,991,820 number of shares amounting to RM41,774,796 for shareholders approval at the forthcoming Annual General Meeting in respect of the nancial year ended 31 December 2007. The nancial statements for the current nancial year do not reect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained earnings in the nancial year ending 31 December 2008. DIRECTORS The directors of the Company in ofce since the date of the last report and at the date of this report are: Dato Dr. Mohd. Munir bin Abdul Majid Dato N. Sadasivan a/l N.N. Pillay Datuk Seri Panglima Mohd. Annuar bin Zaini Dato Mohamed Azman bin Yahya Dato Zaharaah binti Shaari Dato Sri Iris Jala @ Idris Jala Keong Choon Keat Martin Gilbert Barrow Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah Datuk Amar Wilson Baya Dandot Abdul Rahman bin Abdul Ghani (Alternate to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim) Dato Puteh Rukiah binti Abd Majid (Alternate to Dato Sri Dr. Wan Abdul Aziz bin Wan Abdullah) Datuk Haji Mohamad Morshidi bin Abdul Ghani (Alternate to Datuk Amar Wilson Baya Dandot) (Alternate to Tan Sri Datuk Amar Haji Abdul Aziz bin Haji Husain) Tan Sri Izzuddin bin Dali Tan Sri Datuk Amar Haji Abdul Aziz bin Haji Husain
(appointed on 20 March 2007) (appointed on 11 January 2008)
(appointed on 16 August 2007) (appointed on 11 January 2008) (resigned on 31 December 2007) (resigned on 1 March 2007) (resigned on 31 December 2007)
123
In accordance with Article 137 of the Companys Articles of Association, Datuk Amar Wilson Baya Dandot, who was appointed during the year, retires at the forthcoming Annual General Meeting and being eligible, offers himself for election. In accordance with Article 139 of the Companys Articles of Association, Dato N. Sadasivan a/l N. N. Pillay, Dato Sri Iris Jala @ Idris Jala and Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election. DIRECTORS BENEFITS Neither at the end of the nancial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benets by means of the acquisition of shares in or debentures of the Company or any other body corporate, other than those arising from the share options granted under the Employee Share Options Scheme. Since the end of the previous nancial year, no director has received or become entitled to receive a benet (other than benets included in the aggregate amount of emoluments received or due and receivable by the directors as disclosed in Note 9 to the nancial statements) by reason of a contract made by the Company or a related corporation with any director or with a rm of which the director is a member, or with a company in which the director has a substantial nancial interest. DIRECTORS INTEREST According to the register of directors shareholdings, the interest of directors in ofce at the end of the nancial year in options over shares in the Company during the nancial year were as follows: Number of Options over Ordinary Shares 1.1.2007 Granted Exercised 31.12.2007 The Company Dato Sri Iris Jala @ Idris Jala Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz 755,358 604,066 755,358 604,066
None of the other directors in ofce at the end of the nancial year had any interest in shares in the Company or its related corporation during the nancial year.
124
Directors Report
ISSUE OF SHARES During the nancial year, the Company: (a) increased its authorised share capital from RM10,000,100,000 to RM10,041,900,000 through the creation of 418,000,000 redeemable convertible preference shares of RM0.10 each; (b) increased its issued and paid-up share capital from RM1,253,243,865 to RM1,670,991,820 by way of issuance of 417,747,955 ordinary shares of RM1.00 each (Rights Shares) at an issue price of RM2.70 per share for working capital and restructuring efforts purposes identied in the Business Turnaround Plan; (c) issued 417,747,955 redeemable convertible preference shares of RM0.10 each at an issue price of RM1.00 per share in conjunction with the issuance of Rights Shares; and (d) issued 500 redeemable preference shares of RM0.10 each at an issue price of RM1.00 per share to CIMB Bank Berhad for working capital purposes. EMPLOYEE SHARE OPTION SCHEME The Malaysian Airline System Berhad (MAS) Employee Share Options Scheme (ESOS) is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 23 April 2007. The ESOS was launched on 21 May 2007 and is to be in force for a period of 5 years from the effective date. The salient features and other terms of the ESOS are disclosed in Note 26 to the nancial statements. The Company has been granted exemption by the Companies Commission of Malaysia from having to disclose the names of the option holders, other than directors, who have been granted options to subscribe for less than 350,000 ordinary shares of RM1 each. The names of option holders granted options to subscribe for 350,000 or more ordinary shares of RM1 each during the nancial year are as follows: Grant Date Expiry Date Exercise Price RM 5.09 5.09 5.09 5.09 <--------Number of Share Options---------> 1.1.2007 Granted Exercised 31.12.2007
Name
Dato Sri Iris Jala @ Idris Jala Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz Dato Abdul Rashid Khan bin Abdul Rahim Khan Dato Ong Jyh Jong*
29.6.2007 29.6.2007 29.6.2007 29.6.2007
31.12.2011 31.12.2001 31.12.2011 31.8.2008
- 755,358 - 604,066 - 452,773 - 377,679
755,358 604,066 452,773 377,679
The share options granted to Dato Ong Jyh Jong, whose contract of employment with the Company ended on 31 August 2007, will expire on 31 August 2008.
125
OTHER STATUTORY INFORMATION (a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps: (i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satised themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) the amount written off for bad debts or the amount of the provision for doubtful debts in the nancial statements of the Group and of the Company inadequate to any substantial extent; and (ii) the values attributed to the current assets in the nancial statements of the Group and of the Company misleading. (c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or nancial statements of the Group and of the Company which would render any amount stated in the nancial statements misleading. (e) As at the date of this report, there does not exist: (i) any charge on the assets of the Group or of the Company which has arisen since the end of the nancial year which secures the liabilities of any other person; or (ii) any contingent liability of the Group or of the Company which has arisen since the end of the nancial year. (f) In the opinion of the directors: (i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the nancial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and (ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the nancial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the nancial year in which this report is made.
126
Directors Report
SIGNIFICANT EVENTS Details of the signicant events are disclosed in Note 42 to the nancial statements. AUDITORS The auditors, Ernst & Young, have expressed their willingness to continue in ofce. Signed on behalf of the Board in accordance with a resolution of the directors dated 25 February 2008.
Dato Dr. Mohd. Munir bin Abdul Majid
Dato Sri Iris Jala @ Idris Jala
127
Statement by Directors and Statutory Declaration
STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 We, Dato Dr. Mohd. Munir bin Abdul Majid and Dato Sri Iris Jala @ Idris Jala, being two of the directors of Malaysian Airline System Berhad, do hereby state that, in the opinion of the directors, the accompanying nancial statements set out on pages 132 to 236 are drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards in Malaysia so as to give a true and fair view of the nancial position of the Group and of the Company as at 31 December 2007 and of the results and the cash ows of the Group and of the Company for the year then ended. Signed on behalf of the Board in accordance with a resolution of the directors dated 25 February 2008.
Dato Dr. Mohd. Munir bin Abdul Majid
Dato Sri Iris Jala @ Idris Jala
128
Statement by Directors and Statutory Declaration
STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz, being the director primarily responsible for the nancial management of Malaysian Airline System Berhad, do solemnly and sincerely declare that the accompanying nancial statements set out on pages 132 to 236 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.
Subscribed and solemnly declared by the abovenamed Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz at Kuala Lumpur in J AYA Wilayah Persekutuan on UH
SU
Tengku Dato Azmil Zahruddin bin Raja Abdul Aziz
PA
PE
Before me,
No: W259 Nama: AHMAD B. LAYA
MAA
LAYSIA
LOT 5.28-5.30, TINGKAT-5 WISMA CENTRAL JALAN AMPANG 50450 KUALA LUMPUR
129
Report of the Auditors
REPORT OF THE AUDITORS TO THE MEMBERS OF MALAYSIAN AIRLINE SYSTEM BERHAD (INCORPORATED IN MALAYSIA) We have audited the nancial statements set out on pages 132 to 236. These nancial statements are the responsibility of the Companys directors. It is our responsibility to form an independent opinion, based on our audit, on the nancial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with applicable Approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the nancial statements. An audit also includes assessing the accounting principles used and signicant estimates made by the directors, as well as evaluating the overall presentation of the nancial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the nancial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards in Malaysia so as to give a true and fair view of: (i) the nancial position of the Group and of the Company as at 31 December 2007 and of the results and the cash ows of the Group and of the Company for the year then ended; and (ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the nancial statements; and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by its subsidiaries have been properly kept in accordance with the provisions of the Act.
130
Report of the Auditors
REPORT OF THE AUDITORS TO THE MEMBERS OF MALAYSIAN AIRLINE SYSTEM BERHAD (INCORPORATED IN MALAYSIA) (CONTD.) We are satised that the nancial statements of the subsidiaries that have been consolidated with the nancial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated nancial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors reports on the nancial statements of the subsidiaries were not subject to any qualication material to the consolidated nancial statements and did not include any comment required to be made under Section 174(3) of the Act.
Ernst & Young AF: 0039 Chartered Accountants
See Huey Beng No. 1495/03/09(J) Partner
Kuala Lumpur, Malaysia 25 February 2008
131
Income Statements
INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 Group Note Continuing Operations Operating revenue Operating expenditure Other operating income Residual value sharing on sale of aircraft by Penerbangan Malaysia Berhad Gain on sale of properties Prot/(loss) from operations Finance costs Compensation for domestic rationalisation Domestic rationalisation expenses and redundancy expenses Share of results of associated companies Prot/(loss) before taxation Taxation Prot/(loss) for the year from continuing operations 2007 RM000 14,686,130 (14,413,413) 288,242 2006 RM000 12,978,044 (13,608,981) 310,216 Company 2007 2006 RM000 RM000 12,901,143 (12,595,523) 297,549 11,185,426 (11,871,665) 286,958
4 5 6 7 10
209,333 104,935 875,227 (46,886) -
35,629 83,351 (201,741) (32,899) 650,000
209,333 104,935 917,437 (46,841) -
35,629 83,351 (280,301) (32,847) 650,000
11
12,570 840,911 (29,590) 811,321
(517,803) 27,789 (74,654) (60,618) (135,272)
870,596 9,487 880,083
(517,803) (180,951) (7,426) (188,377)
12
Discontinued Operations Prot for the year from discontinued operations Prot/(loss) for the year Attributable to: Equity holders of the Company Minority interests
13
41,422 852,743
1,535 (133,737)
880,083
(188,377)
851,418 1,325 852,743
(136,432) 2,695 (133,737)
880,083 880,083
(188,377) (188,377)
The accompanying notes form an integral part of the nancial statements.
132
Income Statements
INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (CONTD.) Group Note Earning/(loss) per share attributable to equity holders of the Company (sen) Basic, for prot/(loss) from continuing operations Basic, for prot from discontinued operations Basic, for prot/(loss) for the year Diluted, for prot from continuing operations Diluted, for prot from discontinued operations Diluted, for prot for the year 2007 RM000 2006 RM000 Company 2007 2006 RM000 RM000
14 14 14
55.2 2.8 58.0
(9.9) 0.1 (9.8)
14 14 14
51.6 2.6 54.2
(9.9) 0.1 (9.8)
133
Balance Sheets
BALANCE SHEETS AS AT 31 DECEMBER 2007 Group Note NON-CURRENT ASSETS Aircraft, property, plant and equipment Prepaid lease payments on land Investments in subsidiaries Investments in associates Other investments Intangible assets Other receivables Deferred tax assets 2007 RM000 2006 RM000 2007 RM000 Company 2006 RM000
15 16 17 18 19 20 22 33
2,060,879 17,613 58,447 66,325 103,162 316,255 4,007 2,626,688
2,411,537 91,824 67,461 102,701 80,362 425,270 41,828 3,220,983
2,002,251 15,861 35,149 81,274 66,325 85,849 316,255 2,602,964
2,031,340 16,416 42,547 81,274 102,701 70,281 425,270 2,769,829
CURRENT ASSETS Inventories Trade and other receivables Cash and bank balances Non-current assets held for sale
21 22 23 24
365,266 1,799,781 5,259,338 7,424,385 2,740 7,427,125
385,769 1,823,784 1,584,699 3,794,252 10,647 3,804,899
358,097 1,767,783 5,218,289 7,344,169 2,704 7,346,873
376,303 2,037,984 1,548,434 3,962,721 10,647 3,973,368
CURRENT LIABILITIES Sales in advance of carriage Trade and other payables Provisions Borrowings Taxation
25 27 28 29
1,563,394 2,998,223 681,828 4 ,432 5,247,877 2,179,248 4,805,936
1,202,060 2,515,703 347,714 1,050,000 20,457 5,135,934 (1,331,035) 1,889,948
1,563,394 3,008,416 669,963 4,231 5,246,004 2,100,869 4,703,833
1,202,060 2,369,084 347,714 1,050,000 20,311 4,989,169 (1,015,801) 1,754,028
NET CURRENT ASSETS/(LIABILITIES)
134
Balance Sheets
BALANCE SHEETS AS AT 31 DECEMBER 2007 (CONTD.) Group Note 2007 RM000 2006 RM000 2007 RM000 Company 2006 RM000
FINANCED BY: Equity attributable to equity holders of the Company: Share capital Reserves Minority interests Total equity
31
1,670,992 2,263,901 3,934,893 11,056 3,945,949
1,253,244 620,181 1,873,425 15,246 1,888,671
1,670,992 2,173,169 3,844,161 3,844,161
1,253,244 500,784 1,754,028 1,754,028
NON-CURRENT LIABILITIES Borrowings Deferred tax liabilities
29 33
859,672 315 4,805,936
1,277 1,889,948
859,672 4,703,833
1,754,028
135
Statements of Changes in Equity
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007
Attributable to equity holders of the Company <-------------------Non-Distributable-------------------> Share Capital RM000 (Note 31) Share Premium RM000 (Note 32(a)) Equity Component of RCPS RM000 (Note 32(b)) Share Option Reserve RM000 (Note 32(c))
Note Group At 1 January 2006 As previously stated Prior year adjustment At 1 January 2006 (restated) Net loss for the year Dividends At 31 December 2006 At 1 January 2007 Net prot for the year Dividends Grant of ESOS Rights Issue: - Issue of ordinary shares - Rights expenses RCPS: - Issue of RCPS At 31 December 2007 Company At 1 January 2006 Net loss for the year At 31 December 2006 At 1 January 2007 Net prot for the year Grant of ESOS Rights Issue: - Issue of ordinary shares - Rights expenses RCPS: - Issue of RCPS At 31 December 2007
34
1,253,244 1,253,244 1,253,244 1,253,244 417,748 -
3,301,164 3,301,164 3,301,164 3,301,164 710,172 (3,826) 4,007,510
58,076 58,076
27,880 27,880
26
30 1,670,992
1,253,244 1,253,244 1,253,244 417,748 30 1,670,992
3,301,164 3,301,164 3,301,164 710,172 (3,826) 4,007,510
58,076 58,076
27,880 27,880
26
136
Statements of Changes in Equity
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 (CONTD.) Minority interests Total Equity
Attributable to equity holders of the Company <---------------Distributable---------------> General Reserve RM000 (Note 32(d)) Accumulated Losses RM000 Total Reserves RM000
Total RM000
RM000
RM000
501,530 501,530 501,530 501,530 501,530
(3,033,324) (12,757) (3,046,081) (136,432) (3,182,513) (3,182,513) 851,418 (2,331,095)
769,370 (12,757) 756,613 (136,432) 620,181 620,181 851,418 27,880 710,172 (3,826) 58,076 2,263,901
2,022,614 (12,757) 2,009,857 (136,432) 1,873,425 1,873,425 851,418 27,880 1,127,920 (3,826) 58,076 3,934,893
13,152 13,152 2,695 (601) 15,246 15,246 1,325 (5,515) 11,056
2,035,766 (12,757) 2,023,009 (133,737) (601) 1,888,671 1,888,671 852,743 (5,515) 27,880 1,127,920 (3,826) 58,076 3,945,949
500,000 500,000 500,000 500,000
(3,112,003) (188,377) (3,300,380) (3,300,380) 880,083 (2,420,297)
689,161 (188,377) 500,784 500,784 880,083 27,880 710,172 (3,826) 58,076 2,173,169
1,942,405 (188,377) 1,754,028 1,754,028 880,083 27,880 1,127,920 (3,826) 58,076 3,844,161
137
Cash Flow Statements
CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 Group Note CASH FLOWS FROM OPERATING ACTIVITIES Prot/(loss) before taxation from: Continuing operations Discontinued operations Adjustments for: Provision for aircraft maintenance and overhaul costs Aircraft, property, plant and equipment: - depreciation - gain on disposal, net - (writeback of)/ provision for impairment losses, net of reversal - written off, net Losses incurred due to delay in delivery of A380 Gain on disposal of non-current assets held for sale Provision for inventories obsolescence, net Amortisation of prepaid lease payments on land Provision for/(writeback of) doubtful debts, net of reversal: - subsidiaries - others Gain on disposal of a subsidiary Writeback of unavailed credits on sales in advance of carriage Amortisation of intangible assets 2007 RM000 2006 RM000 2007 RM000 Company 2006 RM000
840,911 43,218
(74,654) 1,562
870,596 -
(180,951) -
28 6 6
633,754 344,610 (53,917)
570,974 315,913 (84,357)
621,889 302,376 (53,888)
570,974 264,329 (84,314)
6 6 6 6 6 6
(2,101) 22,503 58,385 (52,840) 26,672 582
14,864 3,659 21,501 1,467
(2,101) 22,503 58,385 (52,840) 26,672 173
14,864 1,935 20,247 521
6 6 6 3 6
99,226 (36,145) (252,193) 13,206
42,920 (168,323) 2,231
(20,798) (5,404) (9,386) (252,193) 10,693
(112,159) 42,744 (168,323) 1,573
138
CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (CONTD.) Group Note CASH FLOWS FROM OPERATING ACTIVITIES (CONTD) Discount on redemption of Redeemable Preference Shares in an associate Grant of ESOS Share of results of associated companies Unrealised foreign exchange (gain)/loss Interest income Dividend income Interest expense Operating prot before working capital changes (Increase)/decrease in inventories Decrease/(increase) in trade and other receivables Decrease in amount owing to holding company Increase/(decrease) in sales in advance of carriage Increase/(decrease) in trade and other payables Decrease in provisions Cash generated from/(used in) operating activities Interest paid Taxes paid Net cash generated from/(used in) operating activities 2007 RM000 2006 RM000 Company 2007 2006 RM000 RM000
6 8
3,229 27,880 (12,570)
(27,789) 36,941 (47,323) (32,364) 32,847 610,069 47,450 (124,990) (9,444) (102,775) (109,158) (403,618) (92,466) (37,524) (11,095) (141,085)
3,229 26,278 (6,096) (105,710) (55,590) 46,841 1,425,629 (5,847) (446) (171) 613,526 632,488 (299,640) 2,365,539 (39,825) (6,591) 2,319,123
36,941 (46,695) (34,234) 32,847 360,299 48,807 (1,957) (9,444) (102,775) (13,834) (403,618) (122,522) (37,524) (8,688) (168,734)
6 6 6 7
(6,096) (106,050) (21,691) 46,841 1,617,414 (5,180) 15,873 (171) 613,526 477,342 (299,640) 2,419,164 (39,825) (8,753) 2,370,586
28
139
CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (CONTD.) Group Note CASH FLOWS FROM INVESTING ACTIVITIES Purchase of aircraft, property, plant and equipment Purchase of intangible assets Net cash inow from disposal of a subsidiary Proceeds from disposal of: - aircraft, property, plant and equipment - non-current assets held for sale Proceeds from disposal of other investments Interest received Dividend received Net cash generated from/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Rights Issue Expenses incurred on issuance of Rights share exercise Proceeds from RCPS Repayment of short term borrowings Proceeds from short term borrowings Proceeds from long term borrowings Dividend paid to minority shareholders in subsidiaries Net cash generated from nancing activities 2007 RM000 2006 RM000 2007 RM000 Company 2006 RM000
15 20 13
(411,303) (36,006) 372,190
(717,873) (57,279) -
(405,879) (26,261) 386,263
(704,231) (46,540) -
72,944 151,732 33,173 91,720 43,276 317,726
176,581 14,356 48,123 33,068 (503,024)
72,892 151,732 33,173 91,380 55,590 358,890
176,537 14,356 47,494 34,234 (478,150)
1,127,920 (3,826) 417,748 (1,050,000) 500,000
(550,000) 1,600,000 -
1,127,920 (3,826) 417,748 (1,050,000) 500,000
(550,000) 1,600,000 -
(5,515) 986,327
(601) 1,049,399
991,842
1,050,000
140
CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (CONTD.) Group Note NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR CASH AND CASH EQUIVALENTS COMPRISE: Cash on hand and at banks Short term deposits Cash and cash equivalents 2007 RM000 3,674,639 1,584,699 5,259,338 2006 RM000 405,290 1,179,409 1,584,699 2007 RM000 3,669,855 1,548,434 5,218,289 Company 2006 RM000 403,116 1,145,318 1,548,434
23 23
1,350,767 3,908,571 5,259,338
202,810 1,381,889 1,584,699
1,325,143 3,893,146 5,218,289
191,003 1,357,431 1,548,434
141
Notes to Financial Statements
NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2007 1. CORPORATE INFORMATION The Company is principally engaged in the business of air transportation and the provision of related services. The principal activities of the subsidiaries are described in Note 17. There were no signicant changes in the nature of these activities during the nancial year, other than those indicated in Note 17 to the nancial statements. The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Board of Bursa Malaysia Securities Berhad. The registered ofce of the Company is located at 3rd oor, Administration Building 1, MAS Complex A, Sultan Abdul Aziz Shah Airport, 47200 Subang, Selangor Darul Ehsan. The immediate and ultimate holding companies are Penerbangan Malaysia Berhad (PMB) and Khazanah Nasional Berhad (KNB) respectively, both of which are incorporated in Malaysia. The nancial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 25 February 2008. 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis Of Preparation The nancial statements of the Group and of the Company have been prepared under the historical cost convention unless otherwise indicated in the accounting policies below and comply with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards (FRSs) in Malaysia. At the beginning of the current nancial year, the Group and the Company had adopted new and revised FRSs which are mandatory for nancial periods beginning on or after 1 January 2007 as described fully in Note 2.2. 2.2 Changes In Accounting Policies And Effects Arising From Adoption Of New And Revised FRSs On 1 January 2007, the Group and the Company adopted the following FRSs which are mandatory for nancial periods beginning on or after 1 January 2007: FRS 117 Leases FRS 124 Related Party Disclosures The MASB has also issued FRS 6: Exploration for and Evaluation of Mineral Resources and Amendment to FRS 1192004: Employee Benets - Actuarial Gains and Losses, Group Plans and Disclosures which will be effective for annual periods beginning on or after 1 January 2007. These FRSs are, however, not applicable to the Group or the Company.
142
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.2 Changes In Accounting Policies And Effects Arising From Adoption Of New And Revised FRSs (Contd.) At the date of authorisation of these nancial statements, the following new and revised FRS, amendment to FRS and Interpretations were issued but not yet effective and have not been applied by the Group and the Company:
FRS, Amendment to FRS and Interpretations FRS 139: Financial Instruments: Recognition and Measurement FRS 107: Cash Flow Statements FRS 111: Construction Contracts FRS 112: Income Taxes FRS 118: Revenue FRS 120: Accounting for Government Grants and Disclosure of Government Assistance FRS 134: Interim Financial Reporting FRS 137: Provisions, Contingent Liabilities and Contingent Assets Amendment to FRS 121: The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation IC Interpretation 1: Changes in Existing Decommissioning, Restoration and Similar Liabilities IC Interpretation 2: Members Shares in Co-operative Entities and Similar Instruments IC Interpretation 5: Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IC Interpretation 6: Liabilities arising from Participating in a Specic Market - Waste Electrical and Electrical Equipment IC Interpretation 7: Applying the Restatement Approach under FRS 1292004 - Financial Reporting in Hyperinationary Economies IC Interpretation 8: Scope of FRS 2
Effective for nancial periods beginning on or after Deferred July 2007 July 2007 July 2007 July 2007 July 2007
1 1 1 1 1
1 July 2007 1 July 2007 1 July 2007 1 July 2007 1 July 2007 1 July 2007
1 July 2007 1 July 2007 1 July 2007
The above new and revised FRS, amendment to FRS and Interpretations are expected to have no signicant impact on the nancial statements of the Group and the Company upon their initial application.
143
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.2 Changes In Accounting Policies And Effects Arising From Adoption Of New And Revised FRSs (Contd.) The Group and the Company are exempted from disclosing the possible impact, if any, to the nancial statements upon the initial application of FRS 139. The adoption of revised FRS 124 give rise to additional disclosures but did not result in signicant changes to the accounting policies of the Group. The principal changes in accounting polices and effects resulting from the adoption of FRS 117: Leases are discussed below. (a) FRS 117: Leases Prior to 1 January 2007, leasehold land and buildings were classied under aircraft, property, plant and equipment and were stated at cost less accumulated depreciation and impairment losses. The adoption of the revised FRS 117 has resulted in a change in the accounting policy relating to the classication of leases of land and buildings. Leases of land and buildings are classied as operating or nance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purpose of lease classication. Leasehold land held for own use is now classied as operating lease and where necessary, the minimum lease payments or the up-front payments made are allocated between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payment represents prepaid lease payments and are amortised on a straight-line basis over the lease term. The Group has applied the change in accounting policy in respect of leasehold land in accordance with the transitional provisions of FRS 117. The reclassication of leasehold land from aircraft, property, plant and equipment to prepaid lease payments on land has been accounted for retrospectively in the balance sheets. At 1 January 2006, the total unamortised amounts of leasehold land are retained as the surrogate carrying amount of prepaid lease payments on land as allowed by the transitional provision. The effects on the balance sheets as at 31 December 2007 and 31 December 2006 are set out in Note 2.2(b) and (c) respectively. However, the adoption of the revised FRS 117 has no effect on the income statements. (b) Summary of effects of adopting FRS 117 on the current years nancial statements The following table provides estimates of the extent to which each of the line items in the balance sheets for the nancial year ended 31 December 2007 is higher or lower than it would have been had the previous policies been applied in the current nancial year. Effects of FRS 117 on balance sheets as at 31 December 2007 Increase/(decrease) Group RM000 (17,613) 17,613 Company RM000 (15,861) 15,861
Aircraft, property, plant and equipment Prepaid lease payments on land
144
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.2 Changes In Accounting Policies And Effects Arising From Adoption Of New And Revised FRSs (Contd.)
(c)
Restatement of comparatives The following comparative amounts have been restated as a result of adopting the new and revised FRSs.
Effects of FRS 117 on balance sheets as at 31 December 2006 Previously stated RM000 2,496,764 Increase/ (decrease) RM000 (91,824) 91,824
Description of Change Group Aircraft, property, plant and equipment* Prepaid lease payments on land Company Aircraft, property, plant and equipment* Prepaid lease payments on land
Restated RM000 2,404,940 91,824
2,041,159 -
(16,416) 16,416
2,024,743 16,416
* The restated gure is prior to reclassication to conform with current years presentation as disclosed in Note 43.
2.3 Signicant Accounting Estimates And Judgements Estimates, assumptions concerning the future and judgements are made in the preparation of the nancial statements. They affect the application of the Groups accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an ongoing basis and are based on experience and other relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
145
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.3 Signicant Accounting Estimates And Judgements (Contd.)
(a)
Critical Judgements Made in Applying Accounting Policies The following are judgements made by management while applying the Groups accounting policies that have the most signicant effect on the amount recognised in the nancial statements. (i) Contingent Liabilities - Litigations As disclosed in Note 39 to the nancial statements, the Group has several pending litigations with various parties as at the current nancial year end. The Board of Directors, after due consultation with the Groups solicitors, assess the merits of each case, and make the necessary provision for liabilities in the nancial statements if their crystallisation are deemed as probable. (ii) Operating Lease Commitments The Group entered into commercial lease arrangements with its immediate holding company and other third parties with regards to passenger aircraft and freighters. The Group has determined that it does not retain all the signicant risks and rewards of ownership of these assets and hence, the aircraft and freighters do not form part of the aircraft, property, plant and equipment of the Group.
(b)
Key Sources of Estimation Uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a signicant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next nancial year are discussed below. (i) Impairment of Intangible Assets - Landing Slots The Group determines whether the landing slots which have indenite useful lives, are tested for impairment either annually or on a more frequent interval, depending on events or changes in circumstances that indicate the carrying value may be impaired. This requires an estimation of the value in use of the cash generating units (CGU) to which the landing slots belong. In assessing value in use, the management is required to make an estimate of the expected future cash ows from the CGU and also to chose a suitable discount rate in order to calculate to their present value of those cash ows. The details are as disclosed in Note 20. (ii) Provisions for Aircraft Related Direct Operating Expenses The operation of air transportation services inevitably involve the making of various provisions on direct expenses, such as fuel, ground handling charges, landing and parking charges, inight meals, computer reservation systems booking fees and information technology related expenses. The estimates and associated assumptions used are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making provisions about carrying values of liabilities as at the nancial year end.
146
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.3 Signicant Accounting Estimates And Judgements (Contd.) (b) Key Sources of Estimation Uncertainty (Contd.)
(iii) Deferred Tax Assets Deferred tax assets are recognised for all unused tax losses and unabsorbed capital allowances to the extent that it is probable that taxable prot will be available against which the losses and capital allowances can be utilised. Signicant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable prots together with future tax planning strategies. The details are as disclosed in Note 33. (iv) Depreciation of Aircraft, Property, Plant and Equipment The cost of aircraft, aircraft modications/retrots, spare engines, property and equipment are depreciated on a straight line basis over the assets useful lives up to its residual value. Management reviews the residual values, useful lives and depreciation method at the end of each nancial year end and ensures consistency with previous estimates and patterns of consumptions of the economic benets that embodies the items in these assets. Changes in useful lives and residual values of these assets may result in revision of future depreciation charges. (v) Provision for Aircraft Maintenance and Overhaul Costs The Company is obligated to carry out heavy duty maintenance check on the airframe, engines, landing gears and auxiliary power units, being part of the return conditions of its leased aircraft under contract. Provision for heavy duty maintenance cost is made progressively in the nancial statements based on the number of ight hours or cycles. In arriving at the provision, assumptions are made on the estimated condition of the asset at the time of check, the material and overhead costs to be incurred, and the timing of which the check is to be carried out. These assumptions are formed based on past experience, and are regularly reviewed to ensure they approximate to the actual. Any revision in assumptions and estimations that causes a material effect to the provision would be adjusted prospectively in the nancial statements. (vi) Aircraft and Engines Lease Charges The Company leased a majority of its aircraft as well as certain engines from its immediate holding company and other third parties. Certain leases of aircraft and engines from the immediate holding company have expired and negotiations are currently underway to determine the new charges. Notwithstanding the on-going negotiation, the Company has made accruals for these lease charges based on estimated market rates for similar type of aircraft and engines.
147
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (a) Revenue Recognition Revenue is recognised when it is probable that the economic benets associated with the transaction will ow to the enterprise and the revenue can be measured reliably. (i) Revenue from Services Passenger ticket and cargo airway bill sales including the related administration fees and various surcharges are recognised as revenue, net of discount, in the income statement when the transportation services are rendered. The value of unutilised tickets is included in current liabilities as sales in advance of carriage. Ticket, other service fees and surcharges that remain unutilised after 18 months subsequent to their respective date of issue are recognised in the income statement as unavailed credits on sales in advance of carriage. Revenue from other services such as airport handling and engineering services, are recognised in the income statement when services are rendered. (ii) Catering, Charter and Other Revenue Catering, charter and other revenue are recognised, net of discount, upon completion of services rendered. (iii) Revenue from Hotel Operations Revenue from room rental and other hotel services are recognised on an accrual basis. Revenue from sale of food and beverage are recognised based on their invoiced value of goods sold. (iv) Dividend Income Dividend income is recognised when the Groups rights to receive payment are established. (v) Rental Income Rental income is recognised on an accrual basis over the term of lease. (vi) Interest Income Interest income is recognised on an accrual basis using the effective interest method. (vii) Disposal of Assets The gain or loss on the disposal of assets is recognised at the date the signicant risks and rewards of ownership of the asset passes to the buyer, usually when the buyer takes delivery of the asset.
148
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.) (b) Subsidiaries and Basis of Consolidation (i) Subsidiaries Subsidiaries are entities over which the Group has the ability to control the nancial and operating policies so as to obtain benets from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity. In the Companys separate nancial statements, investments in subsidiaries are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in the income statement. (ii) Basis of Consolidation The consolidated nancial statements comprise the nancial statements of the Company and its subsidiaries as at the balance sheet date. The nancial statements of the subsidiaries are prepared for the same reporting date as the Company. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated nancial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated nancial statements for like transactions and events in similar circumstances. Acquisitions of subsidiaries are accounted for using the purchase method. The purchase method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition. Any excess of the cost of the acquisition over the Groups interest in the net fair value of the identiable assets, liabilities and contingent liabilities represents goodwill. Any excess of the Groups interest in the net fair value of the identiable assets, liabilities and contingent liabilities over the cost of acquisition, commonly known as negative goodwill, is recognised immediately in the income statement. Minority interests represent the portion of prot or loss and net assets in subsidiaries not held by the Group. It is measured at the minorities share of the fair value of the subsidiaries identiable assets and liabilities at the acquisition date and the minorities share of changes in the subsidiaries equity since then.
149
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.) (c) Associates
Associates are entities in which the Group has signicant inuence and that is neither a subsidiary nor an interest in a joint venture. Signicant inuence is the power to participate in the nancial and operating policy decisions of the investee but not in control or joint control over those policies. Investments in associates are accounted for in the consolidated nancial statements using the equity method of accounting. Under the equity method, the investment in associate is carried in the consolidated balance sheet at cost adjusted for postacquisition changes in the Groups share of net assets of the associate. The Groups share of the net prot or loss of the associate is recognised in the consolidated income statement. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes. In applying the equity method, unrealised gains and losses on transactions between the Group and the associate are eliminated to the extent of the Groups interest in the associate. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Groups net investment in the associate. The associate is equity accounted for from the date the Group obtains signicant inuence until the date the Group ceases to have signicant inuence over the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. Any excess of the Groups share of the net fair value of the associates identiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Groups share of the associates prot or loss in the period in which the investment is acquired. When the Groups share of losses in an associate equals or exceeds its interest in the associate, including any long-term interests that, in substance, form part of the Groups net investment in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The most recent available nancial statements of the associates are used by the Group in applying the equity method. Where the dates of the nancial statements used are not coterminous with those of the Group, the share of results is arrived at from the last audited nancial statements available and management nancial statements to the end of the accounting period. Uniform accounting policies are adopted for like transactions and events in similar circumstances. In the Companys separate nancial statements, investments in associates are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in income statement.
150
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.) (d) Aircraft, Property, Plant and Equipment and Depreciation
All items of aircraft, property, plant and equipment are initially recorded at cost. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benets associated with the item will ow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other epairs and maintenance are charged to the income statement during the nancial period in which they are incurred. Subsequent to recognition, aircraft, property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation of aircraft, aircraft modications/retrots, spare engines, property and equipment is provided for on a straight line basis to write off the cost of each asset up to its residual value over the estimated useful life at the following annual rates: (i) Fokker 50 is depreciated over a period of 10 years. (ii) Aircraft modications/retrots are depreciated over 7 years or the remaining lease period of the aircraft to which they relate, whichever is the shorter. (iii) Spare engines are depreciated over their estimated useful commercial lives,which range from 7 to 15 years, having regard to their planned withdrawal from services. (iv) Maintenance and overhaul costs incurred on spare engines owned by the Group are depreciated over a period of 4 years. (v) Repairable and rotable aircraft spares are depreciated over 7 to 15 years or the remaining lease period of the aircraft to which they relate, whichever is the shorter. (vi) Freehold land is not depreciated. Buildings are depreciated over periods ranging from 5 to 40 years. Certain leasehold land and buildings of the Company were revalued by the directors in 1985 based on a valuation report dated 15 November 1984 prepared by the Government Valuers using the Open Market Value basis. The directors have not adopted a policy of regular revaluations of these assets and no later valuation has been recorded. As permitted under the transitional provisions of International Accounting Standard No. 16 (Revised): Property, Plant and Equipment adopted by the Malaysian Accounting Standards Board, these assets continue to be stated at their 1985 valuation less accumulated depreciation and accumulated impairment losses. (vii) Hotel property comprises land and hotel buildings, including the integral plant and machinery. The hotel property is depreciated over 50 years. Other signicant parts of the hotel property have been identied and depreciated separately over their estimated useful lives of between 3 to 10 years.
151
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.) (d) Aircraft, Property, Plant and Equipment and Depreciation (Contd.) (viii) Operating equipment, ofce equipment and motor vehicles are depreciated over periods ranging from 2 to 10 years. (ix) Progress payments on aircraft, simulators and properties under construction are stated at cost and are not depreciated until the respective assets are ready for their intended use.
The residual values, useful lives and depreciation method are reviewed at each nancial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benets embodied in the items of aircraft, property, plant and equipment. An asset is derecognised upon disposal or when no future economic benets are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in the income statement and the unutilised portion of the revaluation surplus on that item is taken directly to retained earnings. (e) Intangible Assets Intangible assets comprise software costs and aircraft landing slots at airports. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either nite or indenite. Intangible assets with nite lives such as software costs, are amortised on a straight-line basis over the estimated economic useful lives of not more than 10 years and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a nite useful life are reviewed at least at each balance sheet date. Intangible assets with indenite useful lives such as aircraft landing slots, are not amortised but tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the CGU level. The useful life of an intangible asset with an indenite life is also reviewed annually to determine whether the useful life assessment continues to be supportable.
152
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.) (f) Foreign Currencies
(i)
Functional and Presentation Currency The individual nancial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated nancial statements are presented in Ringgit Malaysia (RM), which is also the Companys functional currency.
(ii)
Foreign Currency Transactions Transactions in foreign currencies are initially recorded in RM at exchange rates ruling at the transaction dates. At each balance sheet date, monetary items denominated in foreign currencies are translated into RM at exchange rates ruling at that date unless hedged by forward foreign exchange derivatives, in which case the rates specied in such derivatives are used. Nonmonetary items initially denominated in foreign currencies, which are carried at historical cost are translated using the historical rate as of the date of acquisition and nonmonetary items which are carried at fair value are translated using the exchange rate that existed when the fair value was determined. All exchange differences are taken to the income statement.
(iii) Foreign Entities Financial statements of foreign associated companies that have a functional currency different from the presentation currency of the consolidated nancial statements are translated at yearend exchange rates with respect to the assets and liabilities, and at average exchange rates for the year, which approximate the exchange rates at the dates of the transactions, with respect to the income statement. All resulting translation differences are taken to equity. (g) Inventories
Inventories comprising consumable aircraft spares, catering and general stores are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
153
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.)
(h)
Leases Leases of land and buildings are classied as operating or nance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classication. All leases that do not transfer substantially all the risks and rewards are classied as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. In the case of a lease of land and buildings, the minimum lease payments or the upfront payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payment represents prepaid lease payments and are amortised on a straightline basis over the lease term.
(i)
Income Tax Income tax on the income statement for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable prot for the year and is measured using the tax rates that have been enacted at the balance sheet date. Deferred tax is provided for, using the liability method. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable prot will be available against which these can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting prot nor taxable prot. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised as income or expenses and included in the income statement for the period, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or negative goodwill.
154
2.
(j)
Employee Benets (i) Short Term Benets Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Dened Contribution Plans Dened contribution plans are post-employment benet plans under which the Group pays xed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufcient assets to pay all employee benets relating to employee services in the current and preceding nancial years. Such contributions are recognised as an expense in the income statement as incurred. As required by law, companies in Malaysia make such contributions to the Employees Provident Fund (EPF). Some of the Groups foreign operations also make contributions to their respective countrys statutory pension schemes. Retirement plans for employees of overseas stations are accrued for in accordance with the provisions of those foreign countries retirement scheme and are charged to the income statement in the period to which they relate. (iii) Share-based Compensation The MAS ESOS, an equity-settled, share-based compensation plan, allows the Groups employees to acquire ordinary shares of the Company. The total fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in the share option reserve within equity over the vesting period and taking into account the probability that the options will vest. The fair value of share options is measured at grant date, taking into account, if any, the market vesting conditions upon which the options were granted but excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable on the vesting date. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable on the vesting date. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognised in the share option reserve until the option is exercised, upon which it will be transferred to share capital and share premium, or until the option expires, upon which it will be transferred directly to retained earnings. The proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.
155
2.
(k)
Provisions for Liabilities Provisions for liabilities are recognised when the Group has a present obligation as a result of a past event and it is probable that an outow of resources embodying economic benets will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reect the current best estimate. Where the effect of time value of money is material, provisions are discounted using a current pre-tax rate that reects, where appropriate, the risks specic to the liability. Where discounting is used, the increase in the provision due to passage of time is recognised as nance cost.
(l)
Aircraft Maintenance and Overhaul Costs
Where the Group is required to return the aircraft held under operating lease with adherence to certain maintenance conditions contained in the lease agreements, provision is made during the lease term. This provision is based on the present value of the expected future costs of maintenance of airframes, engines, landing gears, auxiliary power units and life-limiting parts, calculated by reference to the number of hours own in accordance with the contractual terms. Other maintenance costs are recognised on an incurred basis, except for engine maintenance costs covered by power-by-the-hour third party maintenance agreements, whereby expenses are accrued on the basis of hours own in accordance with the contractual terms as there is a transfer of risk and legal obligation to the third party maintenance provider. (m) Frequent Flyer Programme The Company operates its own frequent yer programme named Enrich which awards members based on accumulated mileage. The Company accrues for the liability under the programme and recognises in the income statement the amount equal to the mileage earned multiplied by the applicable rates. Upon redemption by members or expiration of the mileage awards, the accrual is reduced accordingly. n) Borrowing Costs Borrowing costs are recognised in the income statement in the period in which they are incurred.
156
2.
(o)
Financial Instruments Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instrument. Financial instruments are classied as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends and gains and losses relating to a nancial instrument classied as a liability, are reported as expense or income Distributions to holders of nancial instruments classied as equity are recognised directly in equity Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. (i) Cash and Cash Equivalents For the purpose of the cash ow statements, cash and cash equivalents include cash on hand and at banks, deposit at call and short term highly liquid investments which have an insignicant risk of changes in value, net of outstanding bank overdrafts. (ii) Other Non-current Investments Non-current investments other than investments in subsidiaries and associates are stated at cost less impairment losses. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is recognised in the income statement. (iii) Trade and Other Receivables Trade and other receivables are carried at anticipated realisable values. Bad debts are written off when identied. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date. (iv) Trade and Other Payables Trade and other payables are stated at the fair value of the consideration to be paid in the future for goods and services received. (v) Interest Bearing Loans and Borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. (vi) Equity Instruments Ordinary shares are classied as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided.
157
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.) (o) Financial Instruments (Contd.) (vii) Derivative Financial Instruments The Groups policy on the use of derivative nancial instruments is not for speculative purposes but to use these instruments to hedge against specic exposures. The Group enters into foreign exchange derivatives to cover a portion of future capital, revenue and operating payments in a variety of currencies in order to manage its foreign currency risk. The Group also enters into fuel derivatives to manage its fuel price risk, and interest rate derivatives to manage its operating lease rental payments for aircraft. Derivative nancial instruments are not recognised in the nancial statements. Gains or losses arising from these derivatives are recognised upon maturity in the income statement as realised exchange differences, component of fuel costs and lease rental payments respectively. (viii) Redeemable Convertible Preference Shares (RCPS) The RCPS are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated by discounting the future contractual cash ows at the prevailing market interest rate available to| the Company. The difference between the proceeds of issue of the RCPS and the fair value assigned to the liability component, representing the conversion option is accounted in the shareholders equity. The liability component is subsequently stated at amortised cost using the effective interest rate method until extinguished on conversion or redemption whilst the value of the equity component is not adjusted in subsequent periods except on exercise and conversion to ordinary shares. Under the effective interest rate method, the dividend expense on the liability component is calculated by applying the prevailing market interest rate. The difference between this amount and the dividend paid is added to the carrying value of the RCPS. (p) Impairment of Non-Financial Assets The carrying amounts of assets, other than inventories, deferred tax assets and noncurrent assets (or disposal groups) held for sale, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated to determine the amount of impairment loss. For intangible assets that have an indenite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date or more frequently when indicators of impairment are identied.
158
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2.4 Summary Of Signicant Accounting Policies (Contd.) (p) Impairment of Non-Financial Assets (Contd.) For the purpose of impairment testing of these assets, the recoverable amount is determined on an individual asset basis unless the asset does not generate cash ows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the CGU to which the asset belongs. An assets recoverable amount is the higher of an assets or CGUs fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash ows are discounted to their present value using a pre-tax discount rate that reects current market assessments of the time value of money and the risks specic to the current market assessments of the time value of money and the risks specic to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. An impairment loss is recognised in the income statement in the period in which it arises. An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognised. The carrying amount of an asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase. (q) Non-current Assets (or Disposal Groups) Held for Sale and Discontinued Operation Non-current assets (or disposal groups) are classied as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary. Immediately before classication as held for sale, the measurement of the non-current assets (or all the assets and liabilities in a disposal group) is brought up-todate in accordance with applicable FRSs. Then, on initial classication as held for sale, non-current assets or disposal groups (other than investment properties, deferred tax assets, employee benets assets and nancial assets) are measured in accordance with FRS 5 that is at the lower of carrying amount and fair value less costs to sell. Any differences are included in the income statement. A component of the Group is classied as a discontinued operation when the criteria to be classied as held for sale have been met or it has been disposed and such a component represents a separate major line of business or geographical area of operations, is part of a single co-ordinated major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
159
3.
OPERATING REVENUE Group 2007 RM000 Trafc revenue: Scheduled services - passenger and baggage - cargo and mail Non-scheduled services Fuel surcharge Insurance surcharge Security surcharge Administration fees Unavailed credits 2006 RM000 Company 2007 2006 RM000 RM000
9,351,987 1,800,484 11,152,471 85,807 11,238,278 1,783,373 171,533 130,801 230,466 252,193 13,806,644
8,985,200 1,902,352 10,887,552 45,979 10,933,531 1,520,498 194,122 124,091 169,002 168,323 13,109,567
9,327,374 955,711 10,283,085 85,807 10,368,892 1,235,584 170,046 226,926 252,193 12,253,641
8,985,200 1,008,094 9,993,294 45,979 10,039,273 994,989 194,122 169,002 168,323 11,565,709
Other revenue: Lease of aircraft and engines Airport handling and engineering services Catering and cleaning services Intercompany engineering services Charter services Others*
11,506 341,869 12,985 139,286 373,840 14,686,130
13,127 238,861 14,854 121,225 373,068 13,870,702
11,506 341,869 12,985 58,998 116,266 105,878 12,901,143
13,127 238,861 14,854 21,897 90,587 133,049 12,078,084
Less: Trafc revenue related to domestic operations to PMB (Note 10)
14,686,130
(892,658) 12,978,044
12,901,143
(892,658) 11,185,426
* Included herein revenues from the provision of computerised reservation services, coach transportation, trucking and warehousing services, retailing of goods, terminal charges, tour and travel related activities.
160
4.
RESIDUAL VALUE SHARING ON SALE OF AIRCRAFT BY PENERBANGAN MALAYSIA BERHAD (PMB) Group and Company 2007 2006 RM000 RM000 Share of gain on disposal of aircraft by immediate holding company, PMB 209,333 35,629
In accordance with the Agreement for Aircraft and Finance Agreements Unbundling entered into with PMB, the Company is entitled to an 80% share of the gain on disposal of certain aircraft unbundled to PMB as disclosed in Note 40.
5.
GAIN ON SALE OF PROPERTIES Several local and overseas properties were disposed off during the nancial year resulting in a gain on disposal of RM104.9 million (2006: RM83.4 million) to the Group and to the Company.
161
6.
PROFIT/(LOSS) FROM OPERATIONS The following amounts have been included at arriving at prot/(loss) from operations: Group 2007 RM000 Fuel and oil Employee benets expenses (Note 8) Handling, enroute charges, catering and other related costs Hire of aircraft, operating plant and equipment Aircraft maintenance and overhaul Landing, parking and other related costs Aircraft, property, plant and equipment: - depreciation (Note 15) - (writeback of)/provision for impairment losses, net of reversal - (gain)/loss on disposal, net - written off, net (Note 15) Losses incurred due to delay in delivery of A380 Gain on disposal of non-current assets held for sale Sales commission and incentives Foreign exchange (gain)/losses: - realised - unrealised Advertising and promotions Computerised reservation system booking fees Rental of land and buildings Provision for inventories obsolescence, net Provision for /(writeback of) doubtful debts, net: - subsidiaries - others Amortisation of prepaid lease payments on land (Note 16) Amortisation of intangible assets (Note 20) 4,915,837 2,125,205 1,496,941 2,119,412 1,435,681 299,406 344,610 (2,101) (53,917) 22,503 58,385 (52,840) 524,299 71,578 (6,096) 64,504 180,579 158,587 26,672 99,226 582 13,206 2006 RM000 5,014,336 2,006,808 1,764,035 2,450,988 845,272 411,885 315,913 14,864 (84,357) 3,659 726,280 5,528 36,941 100,927 161,933 155,970 21,501 42,920 1,467 2,231 Company 2007 2006 RM000 RM000 4,271,208 2,001,066 1,297,417 1,686,213 1,435,681 259,930 302,376 (2,101) (53,888) 22,503 58,385 (52,840) 511,592 71,525 (6,096) 57,439 180,478 156,540 26,672 (20,798) (5,404) 173 10,693 4,426,653 1,872,210 1,544,366 2,015,447 820,169 382,317 264,329 14,864 (84,314) 1,935 712,075 5,513 36,941 93,481 161,933 154,001 20,247 (112,159) 42,744 521 1,573
162
6.
PROFIT/(LOSS) FROM OPERATIONS (CONTD.) Group 2007 RM000 Other engineering expenses Hull and legal liability insurance Directors remuneration (Note 9) Auditors remuneration: - audit fees - other professional fees Discount on redemption of Redeemable Preference Shares in an associate Interest income - third parties Gain on disposal of a subsidiary Rental income Dividend income - subsidiaries - associated companies - unquoted shares 35,174 59,880 3,839 797 484 2006 RM000 28,206 98,172 1,785 753 643 2007 RM000 35,174 59,880 3,839 528 392 Company 2006 RM000 28,206 98,172 1,785 505 578
3,229 (106,050) (36,145) (74,340) (21,691)
(47,323) (82,906) (32,364)
3,229 (105,710) ( 9,386) (45,205) (10,906) (22,993) (21,691)
(46,695) (51,972) (1,165) (705) (32,364)
Included in prot/(loss) from operations of the Group and of the Company are the operating inventories used of RM220,503,000 and RM193,935,000 (2006: RM272,218,000 and RM242,273,000) respectively. Also included in loss from operations of the Group and Company in the prior year were the allocation of operational costs related to domestic operations to PMB (Note 10) amounting RM1,111,636,000 and RM1,111,636,000 respectively.
7.
FINANCE COSTS Group 2007 RM000 Interest expense on borrowings Other nance costs 46,841 45 46,886 2006 RM000 32,847 52 32,899 2007 RM000 46,841 46,841 Company 2006 RM000 32,847 32,847
163
8.
EMPLOYEE BENEFITS EXPENSE Group 2007 RM000 Salaries and wages Contribution to dened contribution plan Social security contributions Share options granted under ESOS (Note 26) (Writeback of)/provision for short term accumulating compensated absences Other staff related expenses Total (Note 6) 1,352,852 245,066 8,612 27,880 2006 RM000 1,259,074 143,817 9,327 2007 RM000 1,262,599 235,950 7,863 26,278 Company 2006 RM000 1,154,955 132,581 8,481 -
(70,921) 561,716 2,125,205
41,736 552,854 2,006,808
(70,921) 539,297 2,001,066
40,521 535,672 1,872,210
Included in employee benets expense of the Group and of the Company are executive directors and non- executive directors remuneration of RM3,085,000 (2006: RM1,389,000) and RM754,000 (2006: RM396,000) respectively, as further disclosed in Note 9.
9.
DIRECTORS REMUNERATION Group and Company 2007 2006 RM000 RM000 Executive directors remuneration: Salaries and other emoluments Bonus Dened contribution plan Share options granted under ESOS Non-executive directors remuneration: Fees Other allowances 1,196 395 267 1,227 3,085 530 224 754 3,839 25 3,864 1,128 60 201 1,389 246 150 396 1,785 22 1,807
Total directors remuneration (Note 6) Estimated money value of benets-in-kind Total directors remuneration including benets-in-kind
164
9.
DIRECTORS REMUNERATION (CONTD.) The number of directors of the Company whose total remuneration during the nancial year fell within the following bands is as follows: Number of Directors 2007 2006 Executive directors: RM650,001 to RM700,000 RM900,001 to RM950,000 RM950,001 to RM1,000,000 RM1,000,001 to RM1,050,000 Non-executive directors: Below RM50,000 RM50,001 to RM100,000 RM100,001 to RM150,000 RM150,001 to RM200,000 1 1 1 1
9 3 1
9 1 -
10.
COMPENSATION FOR DOMESTIC RATIONALISATION On 28 July 2006, the Company entered into a Termination Agreement with PMB, for the termination of the Agreement for Domestic Business Unbundling (ADBU) in line with the rationalisation of the domestic airline sector announced by the Government. As provided by the agreement, PMB paid the Company RM650 million as a full and nal compensation as a result of the termination of the ADBU and agreed to pay the Company for losses incurred by the Company for disposals of assets relating to the domestic business, if any, of up to RM200 million. Hence, with effect from 1 August 2006, the Company has taken over the income statement of domestic airline sector. All arrangements under ADBU have ceased including cashow arrangements between the Company and PMB.
11.
DOMESTIC RATIONALISATION EXPENSES AND REDUNDANCY EXPENSES Group and Company 2007 2006 RM000 RM000 Domestic rationalisation expenses Redundancy expenses 497,039 20,764 517,803
Domestic rationalisation expenses are in respect of Mutual Seperation Scheme (MSS) expenses, a voluntary seperation scheme for MAS permanent staff. Redundancy expenses are in respect of expenses incurred for the closure of certain stations locally and overseas.
165
12.
TAXATION Group 2007 RM000 Continuing Operations Current income tax: Malaysian income tax Foreign tax 2006 RM000 Company 2007 2006 RM000 RM000
3,727 7,392 11,119
2,067 7,758 9,825
7,392 7,392
7,758 7,758
Overprovision in prior years: Malaysian income tax Foreign tax
(1,509) (16,879) (7,269)
(332) 9,493
(16,879) (9,487)
(332) 7,426
Group 2007 RM000 Deferred taxation (Note 33): Relating to origination and reversal of temporary differences Relating to changes in tax rates Underprovision in prior years Total income tax expense from continuing operations Discontinued Operations Current income tax: Malaysian income tax (Note 13) Total income tax expense 2006 RM000 2007 RM000
Company 2006 RM000
32,425 1,343 3,091 36,859 29,590
51,125 51,125 60,618
(9,487)
7,426
1,796 31,386
27 60,645
(9,487)
7,426
166
12.
TAXATION (CONTD.) There is no provision for Malaysian taxation for the Company in the current nancial year as the Company has been granted an extension of the tax exemption status by the Ministry of Finance on its chargeable income in respect of all sources of income. The extension is valid for a period of ten years from year of assessment 2006 up to year of assessment 2015. As at 31 December 2007, the Company has tax exempt income account of approximately RM10,362,968,000 (2006: RM9,366,914,000) available for payments of tax exempt dividends subject to agreement with the Inland Revenue Board. Domestic current income tax is calculated at the Malaysian statutory tax rate of 27% (2006: 28%) of the estimated assessable prot for the year. The domestic statutory tax rate will be reduced to 26% from the current years rate of 27%, effective year of assessment 2008 and to 25% in subsequent years of assessment. The computation of deferred tax as at 31 December 2007 has reected these changes. Taxation for other jurisdictions is calculated at the rate prevailing in the respective jurisdictions. Certain subsidiaries of the Group qualify for a tax incentive applicable to small-medium enterprises by virtue of having an issued and paid up share capital which is below RM2,500,000. Under this incentive, these subsidiaries enjoy a preferential tax rate of 20% on the rst RM500,000 of the estimated assessable prot. A reconciliation of income tax expense applicable to prot/(loss) before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows: 2007 RM000 2006 RM000
Group Prot/(loss) before taxation from: Continuing operations Discontinued operations (Note 13)
840,911 43,218 884,129
(74,654) 1,562 (73,092)
167
12.
TAXATION (CONTD.) 2007 RM000 238,715 (70) 1,384 (1,269) (6,768) 7,392 (262,771) (81,612) 92,552 58,860 270 2006 RM000 (20,466) (40) 1,425 46 (2,926) 7,758 (61,226) 67,880 (354) 18,200 52,360
Group (Contd.) Taxation at Malaysian statutory tax rate of 27% (2006: 28%) Tax incentive obtained from preferential tax rate of 20% Effect of changes in tax rates on opening balance of deferred tax Effect of changes in tax rates Deferred tax recognised at different tax rate Effects of share of prots of associates Foreign income tax Effect of tax exemption status Income not subject to tax Expenses not deductible for tax purposes Deferred tax assets recognised on previously unrecognised tax losses Deferred tax assets not recognised on: - other deductible temporary differences - unused tax losses Utilisation of previously unrecognised deferred tax assets on unabsorbed capital allowances and unrecognised tax losses Underprovision of deferred tax in prior years Overprovision of tax expense in prior years Tax expense for the year
3,091 (18,388) 31,386
(1,680) (332) 60,645
Company Prot/(loss) before taxation Taxation at Malaysian statutory tax rate of 27% (2006: 28%) Foreign income tax Effect of tax exemption status Income not subject to tax Expenses not deductible for tax purposes Deferred tax assets not recognised on: - other deductible temporary differences - unused tax losses Overprovision of tax expense in prior years Tax expense for the year
2007 RM000 870,596 235,061 7,392 (262,771) (118,187) 90,817 55,080 (16,879) (9,487)
2006 RM000 (180,951) (50,666) 7,758 (85,113) 74,459 18,200 43,120 (332) 7,426
168
12.
TAXATION (CONTD.) Tax savings during the nancial year arising from: Group 2007 RM000 Utilisation of tax losses brought forward from previous years Unutilised tax losses carried forward 1,503 2006 RM000 726 3,771
13.
DISCONTINUED OPERATIONS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (a) Disposal of MAS Hotel & Boutiques Sdn. Bhd. (MHB) On 1 March 2007, the Company entered into a conditional Share Purchase Agreement (SPA) for the proposed disposal of 10,000,000 ordinary shares of RM1.00 each representing 100% of the entire allotted and issued share capital of the Companys whollyowned subsidiary, MHB to Kingdom Langkawi B.V. for a cash consideration of RM435 million. On 5 April 2007, the Company partially disposed MHB and a gain on disposal of RM36.1 million was recognised. Full completion is pending fullment of a nal condition precedent, i.e. settlement of certain land issue by March 2008. As at 31 December 2007, the results of this subsidiary up to the date of disposal is presented separately on the consolidated income statement as a discontinued operation. (b) Ceased operation of Syarikat Pengangkutan Senai (SPS) On 15 August 2007, the Company ceased operations of SPS, a wholly-owned subsidiary company involved in providing coach transportation services. All related expenses incurred have been accrued in the nancial statements for the nancial year ended 31 December 2007. The nancial results of SPS is presented separately on the consolidated income statements as a discontinued operation. An analysis of the result of discontinued operations is as follows: MHB 2007 RM000 Revenue Expenses Gain on disposal of discontinued operations Prot/(loss) before tax (Note 12) Taxation (Note 12) Prot/(loss) for the period from discontinued operations 21,059 (13,420) 36,145 43,784 (1,796) 2006 RM000 64,168 ( 62,137) 2,031 (27) 2007 RM000 101 (667) (566) SPS 2006 RM000 391 (860) (469) 2007 RM000 21,160 (14,087) 36,145 43,218 (1,796) Total 2006 RM000 64,559 (62,997) 1,562 (27)
41,988
2,004
(566)
(469)
41,422
1,535 169
13.
DISCONTINUED OPERATIONS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (CONTD.) The following amounts have been included in arriving at prot/(loss) before tax of discontinued operations: MHB 2007 RM000 Staff cost Directors fees Auditors remuneration Depreciation on property, plant and equipment Provision for doubtful debts 3,568 5,249 2006 RM000 12,895 2 48 15,743 40 2007 RM000 321 1 48 SPS 2006 RM000 373 4 51 2007 RM000 3,889 1 5,297 Total 2006 RM000 13,268 2 52 15,794 40
The cash ows attributed to the discontinued operations are as follows:
MHB 2007 RM000 Operating cash ows Investing cash ows Financing cash ows Total cash ows (1,875) (81) 6,841 4,885 2006 RM000 12,478 (3,123) (6,905) 2,450 2007 RM000 (138) (138)
SPS 2006 RM000 170 170 2007 RM000 (2,013) (81) 6,841 4,747
Total 2006 RM000 12,648 (3,123) (6,905) 2,620
As at 31 December 2007, property, plant and equipment of SPS classied as non-current assets held for sale is RM35,000.
170
13.
DISCONTINUED OPERATIONS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (CONTD.) The assets and liabilities of MHB disposed off at the effective date are as follows: RM000 Property, plant and equipment Prepaid lease payments on land Inventories Receivables Cash and bank balances Payables Net assets disposed Defrayed costs Proceeds from disposal of a subsidiary Gain on disposal of a subsidiary Disposal proceeds settled by: Cash proceeds Deferred payment Total consideration Cash inow arising on disposal: Cash consideration Defrayed cost Net cash inow of the Company Cash and cash equivalents of subsidiary disposed Net cash inow of the Group 261,812 76,907 1,631 2,837 14,073 (7,142) 350,118 13,737 (400,000) (36,145)
400,000 35,000 435,000
400,000 (13,737) 386,263 (14,073) 372,190
The deferred payment is expected to be settled in cash by the purchaser, subject to the fullment of a nal condition precedent by March 2008. However, the nal condition is unable to be fullled by the said date. The Group has requested for extension on the deadline for 24 months, which is pending the agreement from the purchaser. There was no tax charge or credit arising from the gain on disposal.
171
14.
EARNINGS / (LOSS) PER SHARE (a) Basic The basic earnings/(loss) per share is calculated by dividing the net prot/(loss) for the year attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the nancial year. Group 2007 RM000 Prot/(loss) attributable to equity holders of the Company (RM000) Continuing operations Discontinued operations 2006 RM000
809,996 41,422 851,418
(137,967) 1,535 (136,432) 1,398,620
Weighted average number of ordinary shares in issue (000) Basic earnings/(loss) per share for (sen): Continuing operations Discontinued operations
1,466,713
55.2 2.8 58.0
(9.9) 0.1 (9.8)
The comparative basic earnings/(loss) per share has been restated to take into account the effect of the issuance of Rights Shares on weighted average number of ordinary shares in issue in accordance with FRS 133 Earnings Per Share. (b) Diluted For the purpose of calculating diluted earnings per share, the prot/(loss) for the year attributable to ordinary equity holders of the Company and the weighted average number of ordinary shares in issue during the nancial year have been adjusted for the dilutive effects of all potential ordinary shares, i.e. RCPS and share options granted to employees. Group 2007 RM000 1,466,713 103,148 1,569,861 2006 RM000 1,398,620 1,398,620
Weighted average number of ordinary shares in issue (000) Effects of dilution resulting from RCPS (000)* Adjusted weighted average number of ordinary shares in issue and issuable (000) Diluted earnings/(loss) per share for (sen): Continuing operations Discontinued operations
51.6 2.6 54.2
(9.9) 0.1 (9.8)
* No dilutive effects resulting from share options granted to employees as the effects of potential ordinary shares to be issued are anti-dilutive. 172
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT
Group
At 31 December 2007 Cost/Valuation At 1 January 2007 Additions Disposals Transfers (to)/from Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2007 Representing: At cost At valuation
Land and buildings RM000 (Note 15(a)(i))
Aircraft, aircraft modications/ retrots, engines and spares RM000 (Note 15(b)(i))
Operating equipment, ofce equipment and motor vehicles RM000 (Note 15(c)(i))
Progress Payments RM000 (Note 15(d)(i))
Total RM000
1,159,860 16,486 (295,330)
1,965,952 192,965 -
1,625,537 22,983 (47,162)
366,120 178,869 (14,003)
5,117,469 411,303 (356,495)
(143,077) (1,292) 269,394 1,006,041
67,065 (74,758) 34,875 2,186,099
(1,402) (7,240) 53,979 1,646,695
(358,248) 172,738
(77,414) (83,290) 5,011,573
995,874 10,167 1,006,041
2,186,099 2,186,099
1,646,695 1,646,695
172,738 172,738
5,001,406 10,167 5,011,573
Accumulated Depreciation and Impairment Losses At 1 January 2007 Charge for the year (Writeback of)/Provision for impairment losses Disposals Transfers (to)/from Non-Current Assets Held for Sale Write-offs At 31 December 2007 Representing: At cost At valuation 425,768 20,678 (29,094) 921,342 230,813 (29,093) 1,358,822 93,119 26,992 (23,667) 2,705,932 344,610 (2,101) (52,761)
(42,421) (14) 374,917
59,593 (54,410) 1,128,245
(1,371) (6,363) 1,447,532
15,801 (60,787) 2,950,694
368,009 6,908 374,917
1,128,245 1,128,245
1,447,532 1,447,532
2,943,786 6,908 2,950,694
173
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.)
Group (Contd.)
At 31 December 2007 Analysed as: Accumulated depreciation Accumulated impairment losses
Total RM000
374,419 498 374,917
1,109,728 18,517 1,128,245
1,420,540 26,992 1,447,532
2,904,687 46,007 2,950,694
Net Book Value At cost At valuation At 31 December 2007 627,865 3,259 631,124 1,057,854 1,057,854 199,163 199,163 172,738 172,738 2,057,620 3,259 2,060,879
31 December 2006 Cost/Valuation At 1 January 2006 Additions Disposals Transfers to Non-Current Assets Held for Sale Write (offs)/back Reclassications At 31 December 2006 Representing: At cost At valuation 1,306,327 2,675 (141,907) (1,765) (3,270) (2,200) 1,159,860 1,628,224 382,878 (73,304) (35,037) 63,191 1,965,952 1,529,409 34,827 (4,820) (3,883) 70,004 1,625,537 198,614 297,493 1,008 (130,995) 366,120 4,662,574 717,873 (146,727) (75,069) (41,182) 5,117,469
1,142,348 17,512 1,159,860
1,965,952 1,965,952
1,625,537 1,625,537
366,120 366,120
5,099,957 17,512 5,117,469
174
15.
Group (Contd.)
At 31 December 2006 Accumulated Depreciation and Impairment Losses At 1 January 2006 Charge for the year Provision for impairment losses Disposals Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2006 Representing: At cost At valuation
Total RM000
488,810 31,736 498 (91,385) (1,208) (2,683) 425,768
829,186 173,949 14,366 (63,214) (32,945) 921,342
1,255,099 110,228 (4,610) (1,895) 1,358,822
2,573,095 315,913 14,864 (95,995) (64,422) (37,523) 2,705,932
414,742 11,026 425,768
921,342 921,342
1,358,822 1,358,822
2,694,906 11,026 2,705,932
Analysed as: Accumulated depreciation Accumulated impairment losses
425,270 498 425,768
873,732 47,610 921,342
1,358,822 1,358,822
2,657,824 48,108 2,705,932
175
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) Operating equipment, ofce equipment and motor vehicles RM000 (Note 15(c)(ii))
Company
At 31 December 2007 Cost/Valuation At 1 January 2007 Additions Disposals Transfers (to)/from Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2007 Representing: At cost At valuation
Land and buildings RM000 (Note 15(a)(ii))
Progress Payments RM000 (Note 15(d)(ii))
Total RM000
905,798 2,491 (42,336)
1,965,952 192,965 -
1,138,712 31,554 (3,828)
352,115 178,869 -
4,362,577 405,879 (46,164)
(143,077) (1,292) 269,394 990,978
67,065 (74,758) 34,875 2,186,099
(7,140) 53,979 1,213,277
(358,248) 172,736
(76,012) (83,190) 4,563,090
980,811 10,167 990,978
2,186,099 2,186,099
1,213,277 1,213,277
172,736 172,736
4,552,923 10,167 4,563,090
Accumulated Depreciation and Impairment Losses At 1 January 2007 Charge for the year (Writeback of)/provision for impairment losses Disposals Transfers (to)/from Non-Current Assets Held for Sale Write-offs At 31 December 2007 Representing: At cost At valuation: 417,106 20,452 (23,496) 921,342 230,813 (29,093) 992,789 51,111 26,992 (3,663) 2,331,237 302,376 (2,101) (27,159)
(42,420) (14) 371,628
59,593 (54,410) 1,128,245
(6,263) 1,060,966
17,173 (60,687) 2,560,839
364,720 6,908 371,628
1,128,245 1,128,245
1,060,966 1,060,966
2,553,931 6,908 2,560,839
176
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) Operating equipment, ofce equipment and motor vehicles RM000 (Note 15(c)(ii))
Company (Contd.)
At 31 December 2007 Analysed as: Accumulated depreciation Accumulated impairment losses
Total RM000
371,130 498 371,628
1,109,728 18,517 1,128,245
1,033,974 26,992 1,060,966
2,514,832 46,007 2,560,839
31 December 2006 Cost/Valuation At 1 January 2006 Additions Disposals Transfers to Non-Current Assets Held for Sale Write (offs)/ back Reclassications At 31 December 2006 Representing: At cost At valuation 1,046,608 2,330 (141,906) (1,765) (2,987) 3,518 905,798 1,628,224 382,878 (73,304) (35,037) 63,191 1,965,952 1,073,574 21,530 (4,510) (1,280) 49,398 1,138,712 169,721 297,493 1,008 (116,107) 352,115 3,918,127 704,231 (146,416) (75,069) (38,296) 4,362,577
888,286 17,5128 905,798
1,965,952 1,965,952
1,138,712 1,138,712
352,115 352,115
4,345,065 17,512 4,362,577
177
15.
Company (Contd.)
At 31 December 2006 Accumulated Depreciation and Impairment Losses At 1 January 2006 Charge for the year Provision for impairment losses Disposals Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2006 Representing: At cost At valuation
Operating equipment, ofce equipment and motor vehicles RM000 (Note 15(c)(ii))
Total RM000
484,794 26,808 498 (91,385) (1,208) (2,401) 417,106
829,186 173,949 14,366 (63,214) (32,945) 921,342
934,531 63,572 (4,299) (1,015) 992,789
2,248,511 264,329 14,864 (95,684) (64,422) (36,361) 2,331,237
406,080 11,026 417,106
921,342 921,342
992,789 992,789
2,320,211 11,026 2,331,237
416,608 498 417,106
873,732 47,610 921,342
992,789 992,789
2,283,129 48,108 2,331,237
178
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (a) (i) Land and Buildings Group At 31 December 2007 Cost/Valuation At 1 January 2007 Additions Disposals Transfers to Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2007 Representing: At cost At valuation 11,387 (1,599) (9,788) 1,148,473 16,486 (293,731) (133,289) (1,292) 269,394 1,006,041 1,159,860 16,486 (295,330) (143,077) (1,292) 269,394 1,006,041 Freehold land RM000
Buildings RM000
Total RM000
995,874 10,167 1 ,006,041
995,874 10,167 1,006,041
Accumulated Depreciation and Impairment Losses At 1 January 2007 Charge for the year Disposals Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2007 Representing: At cost At valuation 425,768 20,678 (29,094) (42,421) (14) 374,917 425,768 20,678 (29,094) (42,421) (14) 374,917
368,009 6,908 374,917
368,009 6,908 374,917
374,419 498 374,917
374,419 498 374,917
Net Book Value At cost At valuation At 31 December 2007 627,865 3,259 631,124 627,865 3,259 631,124
179
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (a) (i) Land and Buildings (Contd.) Group At 31 December 2006 Cost/Valuation At 1 January 2006 Additions Disposals Transfers to Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2006 Representing: At cost At valuation 11,387 11,387 1,294,940 2,675 (141,907) (1,765) (3,270) (2,200) 1,148,473 1,306,327 2,675 (141,907) (1,765) (3,270) (2,200) 1,159,860 Freehold land RM000
Buildings RM000
Total RM000
11,387 11,387
1,130,961 17,512 1,148,473
1,142,348 17,512 1,159,860
Accumulated Depreciation and Impairment Losses At 1 January 2006 Charge for the year Provision for impairment losses Disposals Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2006 Representing: At cost At valuation 488,810 31,736 498 (91,385) (1,208) (2,683) 425,768 488,810 31,736 498 (91,385) (1,208) (2,683) 425,768
414,742 11,026 425,768
414,742 11,026 425,768
425,270 498 425,768
425,270 498 425,768
Net Book Value At cost At valuation At 31 December 2006 180

11,387 11,387
716,219 6,486 722,705
727,606 6,486 734,092
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (a) (ii) Land and Buildings Company At 31 December 2007 Cost/Valuation At 1 January 2007 Additions Disposals Transfers to Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2007 Representing: At cost At valuation 9,788 (9,788) 896,010 2,491 (42,336) (133,289) (1,292) 269,394 990,978 905,798 2,491 (42,336) (143,077) (1,292) 269,394 990,978 Freehold land RM000
Buildings RM000
Total RM000
980,811 10,167 990,978
980,811 10,167 990,978
Accumulated Depreciation and Impairment Losses At 1 January 2007 Charge for the year Disposals Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2007 Representing: At cost At valuation Analysed as: Accumulated depreciation Accumulated impairment losses 417,106 20,452 (23,496) (42,420) (14) 371,628 417,106 20,452 (23,496) (42,420) (14) 371,628
364,720 6,908 371,628 371,130 498 371,628
364,720 6,908 371,628 371,130 498 371,628
Net Book Value At cost At valuation At 31 December 2007 616,091 3,259 619,350 616,091 3,259 619,350
181
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (a) (ii) Land and Buildings (Contd.) Company At 31 December 2006 Cost/Valuation At 1 January 2006 Additions Disposals Transfers to Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2006 Representing: At cost At valuation 9,788 9,788 1,036,820 2,330 (141,906) (1,765) (2,987) 3,518 896,010 1,046,608 2,330 (141,906) (1,765) (2,987) 3,518 905,798 Freehold land RM000
Buildings RM000
Total RM000
9,788 9,788
878,498 17,512 896,010
888,286 17,512 905,798
Accumulated Depreciation and Impairment Losses At 1 January 2006 Charge for the year Provision for impairment losses Disposals Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2006 Representing: At cost At valuation 484,794 26,808 498 (91,385) (1,208) (2,401) 417,106 484,794 26,808 498 (91,385) (1,208) (2,401) 417,106
406,080 11,026 417,106
406,080 11,026 417,106
416,608 498 417,106
416,608 498 417,106
Net Book Value At cost At valuation At 31 December 2006 182

9,788 9,788
472,418 6,486 478,904
482,206 6,486 488,692
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (a) (ii) Land and Buildings (Contd.) Certain buildings of the Group and of the Company have been constructed on Federal and State Government land for which the lease arrangements are being formalised. Certain buildings at a carrying value of RM3,259,000 (2006: RM6,486,000) were revalued by directors in 1985, as disclosed in Note 2.4(d)(vi). Had the revalued buildings been carried at historical cost less accumulated depreciation, the net book value of those buildings would have been as follows: Group and Company 2007 2006 RM000 RM000 Leasehold buildings 2,049 4,566
(b) (i) Aircraft, Aircraft Modications/Retrots, Engines and Spares Aircraft Modication and spare engines RM000
Group and Company Aircraft RM000
At 31 December 2007 Cost At 1 January 2007 Additions Transfers from Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2007
Aircraft retrots and spares RM000
Total RM000
15,531 15,531
574,819 103,164 7,943 (5,614) 33,327 713,639
1,391,133 74,270 59,122 (69,144) 1,548 1,456,929
1,965,952 192,965 67,065 (74,758) 34,875 2,186,099
Accumulated Depreciation and Impairment Losses At 1 January 2007 Charge for the year Provision for/ (Writeback of) impairment losses Transfers from Non-Current Assets Held for Sale Write-offs At 31 December 2007 935 287,076 105,021 634,266 124,857 921,342 230,813
935
3,600 7,943 (3,594) 400,046
(32,693) 51,650 (50,816) 727,264
(29,093) 59,593 (54,410) 1,128,245
183
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (b) (i) Aircraft, Aircraft Modications/Retrots, Engines and Spares (Contd.) Group and Company Aircraft RM000 Aircraft Modication and spare engines RM000 Aircraft retrots and spares RM000
At 31 December 2007 (Contd.) Analysed as: Accumulated depreciation Accumulated impairment losses
Total RM000
935 935
396,446 3,600 400,046
712,347 14,917 727,264
1,109,728 18,517 1,128,245
Net Book Value At 31 December 2007 14,596 313,593 729,665 1,057,854
Group and Company
At 31 December 2006 Cost At 1 January 2006 Additions Transfers to Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2006
Aircraft Modication and spare engines RM000
Total RM0000
462,212 60,978 (11,562) 63,191 574,819
1,166,012 321,900 (61,742) (35,037) 1,391,133
1,628,224 382,878 (73,304) (35,037) 63,191 1,965,952
Accumulated Depreciation and Impairment Losses At 1 January 2006 Charge for the year Impairment losses Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2006 216,308 82,330 (11,562) 287,076 612,878 91,619 14,366 (51,652) (32,945) 634,266 829,186 173,949 14,366 (63,214) (32,945) 921,342
184
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (b) (i) Aircraft, Aircraft Modications/Retrots, Engines and Spares (Contd.) Aircraft Modication and spare engines RM000
Group and Company
At 31 December 2006 (Contd.) Analysed as: Accumulated depreciation Accumulated impairment losses
Total RM0000
287,076 287,076
586,656 47,610 634,266
873,732 47,610 921,342
Net Book Value At 31 December 2006 287,743 756,867 1,044,610
(c)
(i) Operating Equipment, Ofce Equipment and Motor Vehicles
Group
At 31 December 2007 Cost At 1 January 2007 Additions Disposals Transfers to Non-Current Assets Held for Sale Write-offs Reclassications At 31 December 2007
Operating plant and equipment RM000
Ofce Furniture and equipment RM000
Motor vehicles RM000
Total RM000
1,075,157 11,383 (1,738) (4,565) 25,907 1,106,144
485,815 9,264 (42,153) (2,666) 28,194 478,454
64,565 2,336 (3,271) (1,402) (9) (122) 62,097
1,625,537 22,983 (47,162) (1,402) (7,240) 53,979 1,646,695
185
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (c) (i) Operating Equipment, Ofce Equipment and Motor Vehicles (Contd.) Ofce Furniture and equipment RM000
Group
At 31 December 2007 (Contd.) Accumulated Depreciation At 1 January 2007 Charge for the year Provision for impairment losses Disposals Transfers to Non-Current Assets Held for Sale Write-offs At 31 December 2007
Total RM000
861,198 86,537 17,456 (1,738) (4,398) 959,055
437,331 5,197 8,746 (19,185) (1,965) 430,124
60,293 1,385 790 (2,744) (1,371) 58,353
1,358,822 93,119 26,992 (23,667) (1,371) (6,363) 1,447,532
941,599 17,456 959,055
421,378 8,746 430,124
57,563 790 58,353
1,420,540 26,992 1,447,532
Net Book Value At 31 December 2007 147,089 48,330 3,744 199,163
186
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (c) (i) Operating Equipment, Ofce Equipment and Motor Vehicles (Contd.) Ofce Furniture and equipment RM000
Group
At 31 December 2006 Cost At 1 January 2006 Additions Disposals Write-offs Reclassications At 31 December 2006
Total RM000
1,008,500 18,940 (1,051) (977) 49,745 1,075,157
453,856 15,426 (293) (2,904) 19,730 485,815
67,053 461 (3,476) (2) 529 64,565
1,529,409 34,827 (4,820) (3,883) 70,004 1,625,537
Accumulated Depreciation At 1 January 2006 Charge for the year Disposals Write-offs At 31 December 2006 798,094 65,055 (1,051) (900) 861,198 395,260 43,341 (277) (993) 437,331 61,745 1,832 (3,282) (2) 60,293 1,255,099 110,228 (4,601) (1,895) 1,358,822
187
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (c) (ii) Operating Equipment, Ofce Equipment and Motor Vehicles
Company
At 31 December 2007 Cost At 1 January 2007 Additions Disposals Write-offs Reclassications At 31 December 2007
Total RM000
712,688 22,218 (1,354) (4,565) 25,433 754,420
369,626 8,417 (176) (2,566) 28,194 403,495
56,398 919 (2,298) (9) 352 55,362
1,138,712 31,554 (3,828) (7,140) 53,979 1,213,277
Accumulated Depreciation At 1 January 2007 Charge for the year Provision for impairment losses Disposals Write-offs At 31 December 2007 600,156 33,269 17,456 (1,354) (4,398) 645,129 339,073 16,709 8,746 (106) (1,865) 362,557 53,560 1,133 790 (2,203) 53,280 992,789 51,111 26,992 (3,663) (6,263) 1,060,966
627,673 17,456 645,129
353,811 8,746 362,557
52,490 790 53,280
1,033,974 26,992 1,060,966
188
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (c) (ii) Operating Equipment, Ofce Equipment and Motor Vehicles (Contd.)
Company
At 31 December 2006 Cost At 1 January 2006 Additions Disposals Write-offs Reclassication At 31 December 2006
Total RM000
655,248 9,181 (1,044) (443) 49,746 712,688
359,348 12,072 (80) (837) (877) 369,626
58,978 277 (3,386) 529 56,398
1,073,574 21,530 (4,510) (1,280) 49,398 1,138,712
Accumulated Depreciation At 1 January 2006 Charge for the year Disposals Write-offs At 31 December 2006 568,906 32,661 (1,044) (367) 600,156 309,960 29,825 (64) (648) 339,073 55,665 1,086 (3,191) 53,560 934,531 63,572 (4,299) (1,015) 992,789
(d)
(i)
Progress Payments Aircraft equipment and simulators RM000
Group
At 31 December 2007 Cost At 1 January 2007 Additions Disposal Reclassications At 31 December 2007
Properties under construction RM000
Total RM000
144,194 33,647 (42,458) 135,383
221,926 145,222 (14,003) (315,790) 37,355
366,120 178,869 (14,003) (358,248) 172,738
189
15.
AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTD.) (d) (i) Progress Payments (Contd.) Aircraft equipment and simulators RM000
Group
At 31 December 2006 Cost At 1 January 2006 Additions Write back Reclassications At 31 December 2006
Total RM000
137,593 116,169 172 (109,740) 144,194
61,021 181,324 836 (21,255) 221,926
198,614 297,493 1,008 (130,995) 366,120
(d)
(ii) Progress Payments
Company
At 31 December 2007 Cost At 1 January 2007 Additions Reclassications At 31 December 2007
Aircraft equipment and simulators RM000
Total RM000
167,599 33,647 (42,458) 158,788
184,516 145,222 (315,790) 13,948
352,115 178,869 (358,248) 172,736
At 31 December 2006 Cost At 1 January 2006 Additions Write back Reclassications At 31 December 2006 160,998 116,169 172 (109,740) 167,599 8,723 181,324 836 (6,367) 184,516 169,721 297,493 1,008 (116,107) 352,115
190
16.
PREPAID LEASE PAYMENTS ON LAND Group 2007 RM000 Net Book Value At 1 January Addition Disposal Transfers from/(to) Non-Current Assets Held for Sale Amortisation for the year (Note 6) At 31 December 91,824 (76,907) 3,278 (582) 17,613 134,079 704 (41,492) (1,467) 91,824 16,416 (382) (173) 15,861 58,429 (41,492) (521) 16,416 2006 RM000 Company 2007 2006 RM000 RM000
Analysed as: Long term Short term
17,572 41 17,613
91,782 42 91,824
15,820 41 15,861
16,374 42 16,416
Included in the leasehold land in prior year is a parcel of land costing approximately RM22,126,000 whereby the transfer of land title is pending approval from the relevant authorities. Certain land at carrying value of RM41,000 (2006: RM42,000) were revalued by directors in 1985, as disclosed in Note 2.4(d)(vi). Had the revalued leasehold land been carried at historical cost less accumulated depreciation, the net book value of those leasehold land would have been as follows: Group and Company 2007 2006 RM000 RM000 Leasehold land 45 76
191
17.
INVESTMENTS IN SUBSIDIARIES Company 2007 RM000 Unquoted shares, at cost Less: Accumulated impairment losses 173,300 (138,151) 35,149 2006 RM000 180,698 (138,151) 42,547
Details of the subsidiaries, which are incorporated in Malaysia, are as follows:
Name of Company
Country of Incorporation
Effective Interest 2007 2006 % %
Principal Activities
Held by Company: Abacus Distribution Systems (Malaysia) Sdn. Bhd. Malaysia 80 80 Promotion, development, operation and marketing of computerised reservations systems and related services Provision of laundry and cleaning related services Air transportation and the provision of related services
Aerokleen Services Sdn. Bhd. FlyFirey Sdn. Bhd. (Firey) (formerly known as Kelas Services Sdn. Bhd.) Firey Holiday Sdn. Bhd. (formerly known as Khidmat Stabil Sdn. Bhd.) Malaysia Airlines Cargo Sdn. Bhd. (MASkargo)
Malaysia
51
51
Malaysia
100
100
Malaysia
100
Tour and travel agency and the provision of related services
Malaysia
100
100
Air cargo operations, charter freighter and all warehousing activities relating to air cargo operations Provision of catering and cabin handling services
MAS Catering (Sarawak) Sdn. Bhd.
Malaysia
60
60
192
17.
INVESTMENTS IN SUBSIDIARIES (CONTD.) Name of Company Country of Incorporation Effective Interest 2007 2006 % % Principal Activities
Held by Company: MAS Golden Boutiques Sdn. Bhd. MAS Hotel & Boutiques Sdn. Bhd. (MHB) MASkargo Logistics Sdn. Bhd. Malaysia 100 100 Retailing of inight goods and boutique operations
Malaysia
100
Provision of hotel and boutique facilities
Malaysia
100
100
Provision of trucking, clearance and warehousing services Investment holding
Malaysia Airlines Capital (L) Limited MASwings Sdn. Bhd. (formerly known as Absolute Competence Sdn. Bhd.) MAS Golden Holidays Sdn. Bhd. MAS Aerotechnologies Sdn. Bhd. Syarikat Pengangkutan Senai Sdn. Bhd.
Malaysia
100
100
Malaysia
100
Air transportation and the provision of related services
Malaysia
100
100
Dormant
Malaysia
100
100
Dormant
Malaysia
100
100
Provision of coach transportation services. Ceased operations on 15 August 2007 Dormant
MAS Academy Sdn. Bhd. Malaysian Aerospace Engineering Sdn. Bhd.
Malaysia
100
100
Malaysia
100
Dormant
193
17.
INVESTMENTS IN SUBSIDIARIES (CONTD.)
Name of Company
Country of Incorporation
Effective Interest 2007 2006 % %
Principal Activities
Held by Company: Aircraft Engine Repair and Overhaul (Malaysia) Sdn. Bhd. MAS Properties Sdn. Bhd. MAS Wings of Gold Sdn. Bhd. MIR Technologies Sdn. Bhd. Macnet CCN (M) Sdn. Bhd. Malaysia 100 Voluntarily liquidated on 6 February 2007
Malaysia
100
Voluntarily liquidated on 6 February 2007 Voluntarily liquidated on 6 February 2007 Voluntarily liquidated on 6 February 2007 Under Members Voluntary Winding Up
Malaysia
100
Malaysia
100
Malaysia
100
100
(a)
Acquisition of subsidiaries (i) MASwings Sdn. Bhd. (formerly known as Absolute Competence Sdn. Bhd.) On 30 May 2007, the Company acquired a total of two (2) ordinary share in Absolute Competence Sdn. Bhd. (ACSB), a shelf company, for a purchase consideration of RM2. With effect from that date, ACSB became a wholly owned subsidiary of the Company. On 13 June 2007, ACSBs name was changed to MASwings Sdn. Bhd. (MASwings). MASwings principal activity is to provide air transportation services to rural areas of Sabah and Sarawak. MASwings has contributed the following results to the Group: 2007 RM000 Revenue Prot for the year 23,134 -
194
17.
INVESTMENTS IN SUBSIDIARIES (CONTD.) (a) Acquisition of subsidiaries (Contd.)
(ii)
Flyrey Holiday Sdn. Bhd. (formerly known as Khidmat Stabil Sdn. Bhd.) On 31 July 2007, a wholly owned subsidiary, Firey acquired 100% equity of Khidmat Stabil Sdn. Bhd. (Khidmat Stabil), a shelf company consists of a total of two (2) ordinary shares for a purchase consideration of RM2. On 6 August 2007, Khidmat Stabil increased its shareholding to RM200,000 with the allotment of additional 199,998 ordinary shares of RM1 each. On 14 August 2007, Khidmat Stabil changed its name to Flyrey Holiday Sdn. Bhd. (Firey Holiday). Firey Holidays principal activity is to provide tour and travel services. Firey Holidays contribution of results to the Group during the nancial year is immaterial.
(iii) Malaysian Aerospace Engineering Sdn. Bhd. On 30 May 2007, a wholly owned subsidiary, Malaysian Aerospace Engineering Sdn. Bhd. (MAESB) was incorporated with two (2) ordinary shares of RM1 each. There is no contribution of results to the Group during the nancial year as MAESB is still dormant.
(b)
Disposal of subsidiary Information relating to the disposal of MHB is set out in Note 13 to the nancial statements.
18.
INVESTMENTS IN ASSOCIATES
Group 2007 RM000 Unquoted shares, at cost Less: Accumulated impairment losses Share of post acquisition losses 124,919 124,919 (66,472) 58,447 2006 RM000 124,919 124,919 (57,458) 67,461 2007 RM000 124,919 (43,645) 81,274 81,274
Company 2006 RM000 124,919 (43,645) 81,274 81,274
Represented by: Share of net assets Share of intangible assets Goodwill on acquisition
31,160 26,232 57,392 1,055 58,447
40,174 26,232 66,406 1,055 67,461
195
18.
INVESTMENTS IN ASSOCIATES (CONTD.) Details of the associated companies are:
Name of Company [Financial year ended] Hamilton Sundstrand Customer Support Centre (M) Sdn. Bhd. (Hamilton) [31 December] LSG Sky Chefs-Brahims Sdn. Bhd. (LSG) [31 December] GE Engine Services Malaysia Sdn. Bhd. (GEESM) [31 December] Honeywell Aerospace Services (M) Sdn. Bhd. (Honeywell) [31 December] Pan Asia Pacic Aviation Services Limited [31 March] Taj Madras Flight Kitchen Limited [31 March] Aerone Meat Sdn. Bhd. [31 March]
Country of Incorporation Malaysia
Effective Interest 2007 2006 % % 49 49
Principal Activities Repair and overhaul of selected aircraft environmental control systems, aircraft pneumatic components and propeller system Catering related services, cabin handling and cleaning services
Malaysia
30
30
Malaysia
30
30
Repair and overhaul of aircraft engine
Malaysia
30
30
Repairing, servicing, overhaulling and testing of aircraft auxiliary power
Hong Kong
23.5
23.5
Provision of aircraft maintenance services
India
20
20
Inight catering of food and beverages
Malaysia
49
49
Dormant
196
18.
INVESTMENTS IN ASSOCIATES (CONTD.) The nancial statements of the above associates are coterminous with those of the Group, except for Pan Asia Pacic Aviation Services Limited, Taj Madras Flight Kitchen Limited and Aerone Meat Sdn. Bhd. which have a nancial year end of 31 March to conform with their holding companys nancial year end. For the purpose of applying the equity method of accounting, the unaudited nancial statements of both companies for the nancial year ended 31 December have been used. The summarised nancial information of the associates are as follows: 2007 RM000 547,632 248,793 796,425 565,493 56,781 622,274 2006 RM000 533,628 289,554 823,182 537,901 81,679 619,580
Assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Results Revenue Prot for the year
1,497,347 84,197
696,314 103,373
19.
OTHER INVESTMENTS
Group and Company 2007 2006 RM000 RM000 Quoted shares, at cost: - outside Malaysia Unquoted shares, at cost: - in Malaysia - outside Malaysia 1,377 1,377
24,100 40,733 64,833 115 64,948 66,325
60,502 40,733 101,235 89 101,324 102,701
Other Government and Municipal Bonds
Total Market value of quoted shares: - outside Malaysia
32,303
26,531
197
20.
INTANGIBLE ASSETS Software and related cost RM000
Group
At 31 December 2007 Cost At 1 January 2007 Additions At 31 December 2007
Landing slots RM000
Total RM000
57,279 36,006 93,285
25,314 25,314
82,593 36,006 118,599
Accumulated Amortisation At 1 January 2007 Charge for the year (Note 6) At 31 December 2007 2,231 13,206 15,437 2,231 13,206 15,437
Net Book Value
77,848
25,314
103,162
At 31 December 2006 Costs At 1 January 2006 Additions At 31 December 2006 57,279 57,279 25,314 25,314 25,314 57,279 82,593
Accumulated Amortisation At 1 January 2006 Charge for the year (Note 6) At 31 December 2006 2,231 2,231 2,231 2,231
Net Book Value
55,048
25,314
80,362
198
20.
INTANGIBLE ASSETS (CONTD.)
Company
At 31 December 2007 Cost At 1 January 2007 Additions At 31 December 2007
Software and related cost RM000
Landing slots RM000
Total RM000
46,540 26,261 72,801
25,314 25,314
71,854 26,261 98,115
Accumulated Amortisation At 1 January 2007 Charge for the year (Note 6) At 31 December 2007 1,573 10,693 12,266 1,573 10,693 12,266
Net Book Value
60,535
25,314
85,849
At 31 December 2006 Costs At 1 January 2006 Additions At 31 December 2006 46,540 46,540 25,314 25,314 25,314 46,540 71,854
Accumulated Amortisation At 1 January 2006 Charge for the year (Note 6) At 31 December 2006 1,573 1,573 1,573 1,573
Net Book Value
44,967
25,314
70,281
199
20.
INTANGIBLE ASSETS (CONTD.)
(i) Impairment test for intangible assets with indenite useful life The carrying amount of intangible assets with indenite useful life is as follows: Group and Company 2007 2006 RM000 RM000 Landing slots 25,314 25,314
The recoverable amount of the landing slots is based on value in use calculations, using information on current year and preceding year route results. Value in use for Year 2008 is derived from present value of future cash ows expected to be derived from the landing slots or budgeted route results which have been extrapolated using certain estimates and reasonable approximations.
21.
INVENTORIES Group 2007 RM000 At cost: Catering and general stores Consumable aircraft spares 10,302 8,936 19,238 12,599 9,111 21,710 3,133 8,936 12,069 3,133 9,111 12,244 2006 RM000 2007 RM000 Company 2006 RM000
At net realisable value: Catering and general stores Consumable aircraft spares 85,128 260,900 346,028 365,266 88,818 275,241 364,059 385,769 85,128 260,900 346,028 358,097 88,818 275,241 364,059 376,303
200
22.
TRADE AND OTHER RECEIVABLES
2007 RM000 Current Trade receivables Less: Provision for doubtful debt 1,567,096 (532,324) 1,034,772 52,591 524 80,140 126,326 90,948 52,693 363,361 (1,574) 765,009 1,799,781
2006 RM000
2007 RM000
2006 RM000
1,484,680 (460,100) 1,024,580 54,389 1,990 87,573 122,484 117,232 45,608 372,129 (2,201) 799,204 1,823,784
1,525,611 (488,889) 1 ,036,722 52,591 35,943 524 79,430 125,720 90,948 29,674 325,998 (9,767) 731,061 1,767,783
1,449,230 (430,037) 1,019,193 54,389 401,304 1,990 86,872 121,940 117,232 16,734 349,233 (130,903) 1,018,791 2,037,984
Due from a fellow subsidiary (Note a) Due from subsidiaries Due from associated companies Security deposits Prepayments Deferred maintenance costs (Note b) Tax recoverable Sundry receivables Less: Provision for doubtful debts
Non Current Due from a fellow subsidiary (Note a) Deferred maintenance costs (Note b) 243,377 72,878 316,255 295,860 129,410 425,270 243,377 72,878 316,255 295,860 129,410 425,270
(a)
Due from a fellow subsidiary Group and Company 2007 2006 RM000 RM000 Due within one year Due after one year 52,591 243,377 295,968 54,389 295,860 350,249
The amount due from a fellow subsidiary represents prepaid lease rentals. It is unsecured, interest free and will expire on 28 May 2014.
201
22.
TRADE AND OTHER RECEIVABLES (CONTD.) (b) Deferred maintenance cost Group and Company 2007 2006 RM000 RM000 Due within one year Due after one year 90,948 72,878 163,826 117,232 129,410 246,642
Deferred maintenance cost relates to maintenance costs incurred for aircraft, engines, auxiliary power units or landing gears prior to the return obligation stated in the lease agreements. Deferred maintenance costs is capitalized and amortised over the actual ying hours as the aircraft is own up to its return condition. Upon the expiry of the lease or disposal of the aircraft, the net carrying amount is recognized in the income statement. The amounts due from subsidiaries and associates are unsecured, interest free and have no xed terms of repayment. The Groups normal trade credit terms ranges from 14 to 30 (2006: 14 to 30) days. Other credit terms are assessed and approved on a case-by-case basis. The Group has no signicant concentration of credit risk that may arise from exposures to a single debtor or to groups of debtors.
23.
CASH AND BANK BALANCES Group 2007 RM000 Cash on hand and at banks Term deposits with: - Licensed banks - Other nancial institutions 1,350,767 2,033,533 1,875,038 5,259,338 2006 RM000 202,810 447,858 934,031 1,584,699 Company 2007 2006 RM000 RM000 1,325,143 2,023,000 1,870,146 5,218,289 191,003 423,400 934,031 1,548,434
202
23.
CASH AND BANK BALANCES (CONTD.) The range of interest rates of the deposits at the balance sheet date is as follows: Group 2007 % Licensed banks Other nancial institutions 3.51 - 5.45 1.60 - 8.30 2006 % 0.88 - 3.82 3.00 - 7.25 2007 % 3.51 - 5.45 1.60 - 8.30 Company 2006 % 2.60 - 3.82 3.00 - 7.25
The range of remaining maturities of the deposits as at the end of the nancial year is as follows:
Group 2007 Days Licensed banks Other nancial institutions 3 - 710 1 -710 2006 Days 3 - 365 1 -31 2007 Days 3 - 710 1 - 710
Company 2006 Days 3 -31 1 - 31
Other nancial institutions are investment banks in Malaysia and other foreign banks.
24.
NON-CURRENT ASSETS HELD FOR SALE The non-current assets classied as held for sale on the Groups and Companys as at balance sheet date are as follows: Carrying amounts immediately before classication RM000
Group Aircraft, property, plant and equipment As at 31 December 2007 As at 31 December 2006
Allocation of remeasurement RM000
Carrying amounts RM000
2,740 10,647
2 ,740 10,647
Company Aircraft, property, plant and equipment As at 31 December 2007 As at 31 December 2006 2,704 10,647 2,704 10,647
203
25.
SALES IN ADVANCE OF CARRIAGE Sales in advance of carriage represents the value of unutilised tickets up to 18 months.
26.
EMPLOYEE BENEFITS Employee Share Options Scheme (ESOS) The MAS ESOS is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 23 April 2007. The ESOS was launched on 21 May 2007 and is to be in force for a period of 5 years from the effective date.
(a)
The salient details of the ESOS are as follows: (i) Offer The offer is made to any eligible employee selected based on the criteria of allocation at the discretion of the ESOS Committee. Each offer shall be made in writing and is personal to the eligible employee and is non-assignable and non-transferable.
(ii)
Maximum Number of Shares Available Under the ESOS The total number of the new ordinary shares in MAS which has a par value of RM1.00 each (MAS Shares) which may be made available under the ESOS shall not exceed 10% of the total issued and paid-up share capital comprising ordinary shares of the Company at the time of offer. In the event that the number of new MAS Shares granted under the ESOS exceeds the aggregate of 10% of the issued and paid-up share capital of the Company, no further option shall be offered until the number of new MAS Shares to be issued under the ESOS falls below 10% of the Companys issued and paid-up share capital.
(iii)
Eligibility The selection of any director or employee for the participation of the ESOS shall be at the discretion of the ESOS Committee based on the eligibility criteria stipulated in the By-Laws. Any allocation of option under the ESOS to any person who is a Director of the Company or persons connected to such director, major shareholder or chief executive ofcer or the holding company shall require the prior approval of the shareholders of the Company in a general meeting. Any eligible employee who has accepted the offer under the ESOS shall not be entitled to participate in any other share option scheme which may be implemented by any other company in the Group during the duration of the ESOS.
204
26.
EMPLOYEE BENEFITS (CONTD.) Employee Share Options Scheme (ESOS) (Contd.) (a) The salient details of the ESOS are as follows: (Contd.) (iv) Termination of Option In the event the grantee ceased to be in the employment of MAS Group such option shall ceased to be valid without any claims against the Company, unless approved otherwise by the ESOS Committee. (v) Duration and Termination of the ESOS The ESOS shall be in force for a period of 5 years from the effective date of the scheme. The ESOS Committee shall have the discretion, to extend the tenure of the ESOS for another 3 years or shorter immediately from the expiry of the rst 5 years. The ESOS may be terminated by the Company upon recommendation of the ESOS Committee at any time during the continuance of ESOS. Upon such termination, the unexercised or partially exercised options shall be deemed terminated and be null and void. (vi) Maximum Allowable Allotment The number of MAS Shares allocated, in aggregate to the directors and senior management of the Group shall not exceed 50% of the total MAS Shares available under the ESOS. The number of MAS Shares allocated to any eligible employee who, either singly or collectively through persons connected with the eligible employee, holds 20% or more in the issued and paid-up share capital of the Company, shall not exceed 10% of the total MAS Shares available under the ESOS. (vii) Subscription Price The subscription price upon the exercise of the option under the ESOS shall be the weighted average market price of the MAS Shares for the (ve) 5 Market Days immediately preceding the offer date, or the par value of the MAS Shares, whichever is higher. (viii) Exercise of Option An option granted to an Eligible Employee is exercisable in the following manner: - Offer in Year 1 of the option period Percentage of option exercisable with each year from the date of the Offer Year 1 40% Year 2 30% Year 3 30% Year 4 Year 5 -
205
26.
EMPLOYEE BENEFITS (CONTD.) Employee Share Options Scheme (ESOS) (Contd.) (a) The salient details of the ESOS are as follows: (Contd.) (viii) Exercise of Option (Contd.) - Offer in Year 2 of the option period Percentage of option exercisable with each year from the date of the Offer Year 1 Year 2 40% Year 3 30% Year 4 30% Year 5 -
- Offer in Year 3 of the option period Percentage of option exercisable with each year from the date of the Offer Year 1 Year 2 Year 3 40% Year 4 30% Year 5 30%
(ix)
Rights Attaching to the New MAS Shares The new MAS Shares to be allotted upon the exercise of an option shall, upon allotment and issue, rank pari passu in all respects with the existing ordinary shares of the Company save and except that the new MAS Shares will not be entitled to any dividends, rights and allotments and/or other distributions which entitlement date precedes the date of allotment of the said shares.
(x)
Alteration of Share Capital In the event of any alteration in the capital structure of the Company during the option period, whether by way of a rights issue*, bonus issue or other capitalisation issue, consolidation or subdivision of MAS Shares or reduction of capital or any other variation of capital, the Company shall adjust the number of MAS Shares which a grantee is entitled to subscribe for upon the exercise of each option and/or the subscription price. The above shall not be applicable where an alteration in the capital structure of the Company arises form any of the following: (a) an issue of new MAS Shares or other securities convertible into MAS Shares or rights to acquire or subscribe for MAS Shares in consideration or part consideration for an acquisition of any other securities, assets or business; a special issue of new MAS Shares to Bumiputera investors nominated by Ministry of International Trade and Industry, Malaysia and/or other government authority to comply with the Government policy on Bumiputera capital participation;
(b)
206
26.
EMPLOYEE BENEFITS (CONTD.) Employee Share Options Scheme (ESOS) (Contd.) (a) The salient details of the ESOS are as follows: (Contd.) (x) Alteration of Share Capital (Contd.) (c) a private placement/restricted issue of new MAS Shares by the Company; (d) an issue of new MAS Shares arising from the exercise of any conversion rights attached to securities convertible to MAS Shares or upon exercise of any rights including warrants (if any) issued by the Company; (e) an issue of new MAS Shares upon exercise of options pursuant to the ESOS; and (f) a share buy-back arrangement by the Company, pursuant to Section 67A of the Act.
* Subsequent to the commencement of the ESOS, MAS had implemented a Rights Issue in November 2007 as disclosed in Note 31(b). Pursuant to Paragraphs 13.1 and 13.9(e) in the by-laws, MAS has made the relevant adjustments to both the exercise price of the options and the number of the options allocated to maintain the value of the options in light of the alteration of its capital structure by way of a Rights Issue. (xi) Utilisation of Proceeds The proceeds arising from the subscription of the options by the eligible employee shall be utilised as working capital of the Group. The following table illustrates the number and weighted average exercise prices of, and movements in, share options during the nancial year: Number of Share Option (000) Exercisable 31.12.2007 30,844 5.09
1.1.2007 2007 2007 Options Exercise Price -
Granted 31,118 5.09
Exercised -
Forfeited (274) 5.09
Expired -
31.12.2007 30,844 5.09
207
26.
EMPLOYEE BENEFITS (CONTD.) Employee Share Options Scheme (ESOS) (Contd.) (a) The salient details of the ESOS are as follows: (Contd.) (xi) Utilisation of Proceeds (Contd.)
(b) Details of share options outstanding during the end of the nancial year: Exercise Price RM 2007 2007 Options 5.09 5 November 2007 to 31 December 2011 Exercise Period
(c) Fair value of share options granted during the nancial year The fair value of share options granted during the year was estimated by an external valuer using a binomial model, taking into account the terms and conditions upon which the options were granted. The fair value of share options measured at grant date and the assumptions are as follows: 2007 Fair value of share options granted on 29 June 2007 (RM) Share price (RM) Exercise price (RM) Expected volatility (%) Attrition rate (%) Exercise multipliers Risk free rate (%) Expected dividend yield (%) 0.92 - 1.33 per share option 5.90 5.09 28.37 3.51 - 6.89 1.2 times and 1.5 times 3.31 0.67
The expected volatility reects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the option grant were incorporated into the measurement of fair value.
208
27.
TRADE AND OTHER PAYABLES Group 2007 RM000 Trade payables Due to immediate holding company Due to subsidiaries Due to associates Other payables Accruals 1,863,080 71,860 49,346 507,012 506,925 2,998,223 2006 RM000 1,718,552 72,031 7,674 343,156 374,290 2,515,703 Company 2007 2006 RM000 RM000 1,572,272 71,860 360,213 49,346 458,261 496,464 3,008,416 1,489,626 72,031 152,059 7,674 283,828 363,866 2,369,084
The normal trade credit terms granted to the Group ranges from 30 to 60 (2006: 30 to 60) days. The amounts due to immediate holding company, subsidiaries and associates are unsecured, interest free and have no xed terms of repayment. Included in other payables is Redeemable Preference Shares issued during the nancial year of RM500 (2006: RMNil).
28.
PROVISIONS Group 2007 RM000 At 1 January Additional provisions Utilisation of provisions At 31 December 347,714 633,754 (299,640) 681,828 2006 RM000 180,358 570,974 (403,618) 347,714 Company 2007 2006 RM000 RM000 347,714 621,889 (299,640) 669,963 180,358 570,974 (403,618) 347,714
Provisions are mainly in respect of aircraft maintenance and overhaul costs. The Company leases a majority of its aircraft and engines whereby under the terms of the leases, these aircraft and engines are to be returned substantially in the original state when they were leased. Provisions are made based on the estimated hours own and estimated costs of maintenance required. These estimates are based on past experiences and are regularly reviewed to ensure they approximate actual costs.
209
29.
BORROWINGS Group and Company 2007 2006 RM000 RM000 Short term borrowings Unsecured: Bridging loan Revolving credit
450,000 600,000 1,050,000
Long term borrowings Term Loan Redeemable Convertible Preference Shares Liability Component (Note 30) 500,000 359,672 859,672 859,672 1,050,000
Total borrowings
The bridging loan in the prior year was unsecured, bore effective weighted interest rate of 4.83% per annum and was fully paid during the nancial year. The revolving credit in the prior year was unsecured, bore an interest of 4.49% per annum and was fully paid during the nancial year. The term loan has a tenure of 3 years from the drawdown date of the facility, i.e. 31 January 2007. The repayment term is one (1) bullet repayment at the end of the tenure. The term loan interest for Year 1 is xed at 5.58% per annum and Year 2 and Year 3 is KLIBOR plus 1.53% per annum.
30.
REDEEMABLE CONVERTIBLE PREFERENCE SHARES (RCPS) During the nancial year, the Company issued 417,747,955 RCPS of RM0.10 each at an issue price of RM1.00 each. The total proceeds received from the issuance of the RCPS is split between a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated by discounting the future contractual cash ows at the prevailing market interest rate available to the Group. The difference between the total issue price of the RCPS and the fair value assigned to the liability component, representing the conversion option is accounted in shareholders equity. The RCPS are accounted for in the balance sheets of the Group and of the Company as follows: Group and Company 2007 RM000 Nominal value of RCPS Less: Equity component Liability component at date of issue 417,748 (58,076) 359,672
210
30.
REDEEMABLE CONVERTIBLE PREFERENCE SHARES (RCPS) (CONTD.) The following are the salient terms of the RCPS: (a) Conversion Period - four (4) years commencing from the rst anniversary after the date of issuance on 31 October 2007. (b) Conversion Price - xed at RM4.05, which is the theoretical ex-rights market price of MAS Shares during the Rights Issue as disclosed in Note 31(b). (c) Conversion Right - each RCPS carries the entitlement to convert into new MAS Shares at the Conversion Price through the surrender of the RCPS. (d) Dividend - a non-cumulative preference dividend rate of 30% per annum on the par value of RCPS, shall be payable out of post taxation prots. (e) Ranking of the RCPS - The RCPS shall rank pari passu amongst themselves. On a winding-up or upon a reduction of capital or other return of capital (other than on redemption or on the exercise of the Cash Settlement Option): (i) the RCPS shall confer on the holder thereof the right to receive, in priority to the holders of any other class of shares (except for the Special Share and RPS of RM0.10 each) in the Company, cash repayment in full of the nominal amount (and the premium payable and the amount of any dividend that have been declared and remaining in arrears) of that RCPS; and
(ii) the RCPS shall not confer on the holders thereof the right to participate in any surplus capital or surplus prots. (f) Ranking - the new MAS Shares to be issued pursuant to the conversion of the RCPS, shall, upon allotment and issue, rank pari passu in all respects with the existing MAS Shares, save and except that they shall not be entitled to participate in any right, allotment and/or any other distributions, the entitlement date of which is prior to the date of allotment of the new MAS Shares. In addition, the new MAS Shares to be issued pursuant to the conversion of the RCPS shall not be entitled to participate in any dividend which may be declared in respect of the nancial year immediately preceding the exercise of the RCPS notwithstanding the entitlement date thereof may fall on a date after the exercise of the RCPS.
(g) Redemption Date - any RCPS, which has not been converted during the Conversion Period will be mandatorily redeemed by the Company at the issue price of RM1.00 each within thirty (30) days after the Conversion Period ends. (h) Cash Settlement Option- The Company has the right to provide RCPS holders who elect to convert their RCPS into MAS Shares, payment in cash equal to the value of their new MAS Shares entitlements, based on the weighted average market price of MAS Shares for the ten (10)-market day period ending on and inclusive of the date of the receipt of the relevant conversion notice by the Company.
211
31.
SHARE CAPITAL Number of Shares 2007 2006 000 000 Amount 2007 RM000 2006 RM000
Group and Company Authorised: Ordinary shares of RM1.00 each One Special Rights Redeemable Preference Share of RM1.00 each (Note a) Redeemable Convertible Preference Shares of RM0.01 each Redeemable Convertible Preference Shares of RM0.10 each At 1 January Created during the year At 31 December Redeemable Preference Shares of RM0.10 each At 1 January Created during the year At 31 December
9,000,000
9,000,000
9 ,000,000
9,000,000
1 share
1 share
RM1
RM1
100,000,000
100,000,000
1,000,000
1,000,000
418,000 418,000
41,800 41,800
1,000 1,000 109,419,000
1,000 1,000 109,001,000
100 100 10,041,900
100 100 10,000,100
Issued and fully paid: Ordinary shares of RM1.00 each At 1 January Issued during the year: Rights Issue (Note b) At 31 December One Special Rights Redeemable Preference Share of RM1.00 each (Note a)
1,253,244 417,748 1,670,992
1,253,244 1,253,244
1,253,244 417,748 1,670,992
1,253,244 1,253,244
1 share 1,670,992
1 share 1,253,244
RM1 1,670,992
RM1 1,253,244
212
31.
SHARE CAPITAL (CONTD.) (a) Special Rights Redeemable Preference Share (Special Share) The Special Share would enable the Government through the Minister of Finance Incorporated (MoF) to ensure that certain major decisions affecting the operations of the Company are consistent with the Governments policy. The Special Share, which may only be held by the MoF or its successors or any Minister, representative, or any person acting on behalf of the Government of Malaysia, carries certain special rights as provided by Article 5 of the Companys Articles of Association (as amended at the Extraordinary General Meeting held on 19 April 1995). These special rights include: (i) the right to appoint not more than three persons at any time as directors of the Company;
(ii) the right to repayment of the capital paid up on the Special Share in priority to any other member in the event of a winding-up of the Company; and (iii) the right to require the Company to redeem the Special Share at par at any time. Certain matters, in particular the alterations of specied Articles of Association of the Company, require the prior approval of the holder of the Special Share. The Special Share does not carry any right to vote at General Meetings but the holder is entitled to attend and speak at such meetings. (b) Rights Issue On 15 January 2007, the Company announced the proposed renounceable rights issues of up to 418 million new ordinary shares of RM1.00 each in the Company (Rights Shares) at an issue price to be determined later by the Companys Board of Directors (Board) and up to 418 million RCPS of RM0.10 each in the Company at an issue price of RM1.00 each on the basis of one (1) Rights Share and one (1) RCPS for every three (3) existing ordinary shares of RM1.00 each in the company (MAS Shares) held (Proposed Rights Issue). Under the Proposed Rights Issue, the Board would provisionally allot up to 418 million Rights Shares and up to 418 million RCPS to the shareholders whose names appear on the Record of Depositors (Entitled Shareholders) at the close of business of the Company, on a date to be determined and announced later by the Board, on the basis of one (1) Rights Share and one (1) RCPS for every three (3) existing MAS Shares held. The Board would deal with the fractional entitlements of the Rights Shares and RCPS in such manner as it may in its absolute discretion deem t and expedient in the interest of the Company. The Entitled Shareholders could elect to subscribe for their respective Rights Shares entitlements and/or RCPS entitlements. On 28 February 2007, The Securities Commission (SC) approved the Proposed Rights Issue subject to compliance of certain conditions. On 18 April 2007, Bank Negara Malaysia (BNM) approved the issuance of 58.0 million RCPS to non-residents of Malaysia and on 31 May 2007, further approval was obtained for the issuance of an additional 70.1 million RCPS to non-residents of Malaysia. On 23 April 2007, at the Companys Extraordinary General Meeting, the shareholders of the Company approved, inter-alia, the Proposed Rights Issue and the proposed amendments to the Memorandum and Articles of Association of the Company.
213
31.
SHARE CAPITAL (CONTD.) (b) Rights Issue (Contd.) The shareholders of the Company also approved the proposed increase in the Companys authorised share capital to facilitate the issuance of the RCPS pursuant to the Proposed Right Issue. The authorised share capital of the Company has been increased from RM10,000,100,001 to RM10,041,900,001 comprising 9,000,000,000 MAS Shares, one (1) special rights redeemable preference share of RM1.00, 100,000,000,000 redeemable convertible preference shares of RM0.01 each, 1,000,000 redeemable preference shares of RM0.10 each and 418,000,000 RCPS by the creation of 418,000,000 RCPS. On 15 May 2007, Bursa Malaysia Securities Berhad (Bursa Securities) approved in principle the admission of the RCPS to the Ofcial List of Bursa Securities and for the listing and quotation of the Right Shares, RCPS and the new MAS Shares to be issued pursuant to the conversion of the RCPS on the Main Board of Bursa Securities. On 10 September 2007, the Company announced that the issue price for the Rights Shares was xed at RM2.70 each, the conversion price for the RCPS was xed at RM4.05 and it had entered into an Underwriting Agreement with CIMB. On 1 November 2007, the Company announced that the nal subscription result and basis of allotment of the excess under the Rights Issue was 417,747,955 Rights Shares of RM1.00 each and 417,747,955 RCPS of RM0.10 each on the basis of 1 Rights Share and 1 RCPS for every 3 existing shares held (Rights Issue). The Rights Shares issued would be granted listing and quotation with effect from 5 November 2007 and RCPS issued would be admitted to the Ofcial List of Securities Exchange and the listing and quotation of these RCPS on the Main Board under the Trading Services sector, would be granted with effect from 5 November 2007, on a Ready basis pursuant to the Rules of the Securities Exchange. On 5 November 2007, the Rights Issue was completed following the listing and quotation of the above.
214
32.
RESERVES The nature and purpose of each category of reserves are as follows: (a) Share Premium Reserve The share premium reserve relates to the amount paid by shareholders for shares in excess of the nominal value. (b) Equity Component of RCPS This reserve represents the fair value of the equity component of RCPS, as determined on the date of issue. (c) Share Option Reserve The share option reserve represents the equity-settled share options granted to employees. This reserve is made up of the cumulative value of services received from employees recorded on grant of share options. (d) General Reserve The general reserve relates to transfers made from retained prots in prior years.
33. DEFERRED TAXATION Group 2007 RM000 At 1 January Recognised in the income statement (Note 12) At 31 December Presented after appropriate offsetting as follows: Deferred tax assets Deferred tax liabilities (4,007) 315 (3,692) (41,828) 1,277 (40,551) (40,551) 36,859 (3,692) 2006 RM000 (91,676) 51,125 (40,551)
215
33.
DEFERRED TAXATION (CONTD.) The components and movements of deferred tax liabilities and assets during the nancial year prior to offsetting are as follows: Deferred tax liabilities of the Group: Accelerated Capital Allowances RM000 At 1 January 2007 Recognised in the income statement At 31 December 2007 At 1 January 2006 Recognised in the income statement At 31 December 2006 20,066 (11,143) 8,923 24,797 (4,731) 20,066
Deferred tax assets of the Group: Unused Tax Losses and Unabsorbed Capital Allowances RM000 At 1 January 2007 Recognised in the income statement At 31 December 2007 At 1 January 2006 Recognised in the income statement At 31 December 2006 (59,659) 58,177 (1,482) (115,534) 55,875 (59,659)
Provisions RM000 (958) (10,175) (11,133) (939) (19) (958)
Total RM000 (60,617) 48,002 (12,615) (116,473) 55,856 (60,617)
Deferred tax assets have not been recognised in respect of the following items: Group 2007 RM000 Unused tax losses Unabsorbed capital allowances Other deductible temporary differences 778,000 936,000 1,063,000 2,777,000 2006 RM000 777,000 980,000 845,000 2,602,000 Company 2007 2006 RM000 RM000 774,000 936,000 1,049,000 2,759,000 774,000 936,000 845,000 2,555,000
216
33.
DEFERRED TAXATION (CONTD.) The unused tax losses and unabsorbed capital allowances are available indenitely for offsetting against future taxable prots of the respective companies in which those items arose, subject to no substantial changes in shareholdings on those subsidiaries under the Income Tax Act, 1967 and guidelines issued by the tax authority. Deferred tax assets have not been recognised in respect of these items as they may not be used to offset taxable prots of the other subsidiaries in the Group and they have arisen in subsidiaries that have a recent history of losses. The Company has been granted an extension of the tax exemption status by the Ministry of Finance on its chargeable income in respect of all sources of income. As such, deferred tax assets have not been recognised in respect of the unused tax losses, unabsorbed capital allowances and other deductible temporary differences.
34.
CHANGES IN ACCOUNTING POLICIES AND PRIOR YEAR ADJUSTMENTS Investment In Associates The adoption of the revised FRS 128: Investments in Associates on 1 January 2006 has resulted in a change in accounting policy that has been effected retrospectively. The effects of this change on the balance sheets is as follows: Previously Stated RM000 Accumulated losses as at 31 December 2005 Investments in associates as at 31 December 2005 (3,033,324) 53,133
Adjustments RM000 (12,757) (12,757)
Restated RM000 (3,046,081) 40,376
35.
OPERATING LEASE ARRANGEMENTS Group 2007 RM000 Due Due Due Due within one year between one and two years between two and ve years after ve years 1,916,204 1,906,652 3,232,967 1,719,735 8,775,558 2006 RM000 1,918,446 1,635,021 3,523,069 2,703,303 9,779,839 Company 2007 2006 RM000 RM000 1,661,824 1,663,562 3,009,324 1,432,874 7,767,584 1,613,888 1,489,704 3,323,751 2,280,885 8,708,228
217
36.
SEGMENTAL INFORMATION (a) Business Segments The Group operates predominantly in two business segments, being airline operations and cargo services. (i) Airline operations - operation of aircraft for passenger (ii) Cargo services - operation of aircraft for cargo and mail services Other business segments include hotel operations, catering, engineering, computerised reservation services, coach transportation, trucking and warehousing services, retailing of goods, terminal charges and tour and travel related activities, none of which are of a sufcient size to be reported separately. The directors are of the opinion that all inter-segment transactions have been entered into in the normal course of business. Belly space charges from Airline to Cargo are based on an internal pricing policy. All other inter-segment transactions have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties. These transactions are eliminated on consolidation. <------------------- Continuing Operations ------------------> Discontinued Airline Cargo Operationsoperations services Others Elimination Total Others RM000 RM000 RM000 RM000 RM000 RM000 31 December 2007 Revenue External sales Inter-segment sales Total revenue 11,978,955 960,059 12,939,014 2,687,052 20,123 80,801 - 14,686,130 (1,040,860) (1,040,860) 14,686,130 21,160 21,160 14,707,290 14,707,290
Consolidated RM000
2,687,052 100,924
Results Segment results Share of results of associates Prot before taxation Taxation Net prot for the year 860,003 12,570 9,487 126,178 (36,515) 10,609 (2,562) (168,449) 828,341 12,570 840,911 (29,590) 811,321 43,218 43,218 (1,796) 41,422 871,559 12,570 884,129 (31,386) 852,743
Assets Segment assets Investments in associates Consolidated total assets 218 9,617,131 58,447 425,489 86,066 (133,320) 9,995,366 58,447 10,053,813 89 89 9,995,455 58,447 10,053,902
36.
SEGMENTAL INFORMATION (CONTD.) (a) Business Segments (Contd.) <------------------- Continuing Operations ------------------> Discontinued Airline Cargo Operationsoperations services Others Elimination Total Others Consolidated RM000 RM000 RM000 RM000 RM000 RM000 RM000 31 December 2007 (Contd.) Liabilities Segment liabilities 5,783,581 323,329 38,935 (37,981) 6,107,864 261 6,108,125
Other segment information Capital expenditure Depreciation Amortisation Writeback of impairment losses recognised in income statement 406,410 302,412 11,064 2,675 33,016 2,393 2,218 9,182 331 411,303 344,610 13,788 411,303 344,610 13,788
(2,101)
(2,101)
(2,101)
31 December 2006 Revenue External sales Inter-segment sales Total revenue 10,153,250 1,010,332 11,163,582 2,748,906 2,748,906 75,888 23,479 99,367 - 12,978,044 (1,033,811) (1,033,811) 12,978,044 64,559 64,559 13,042,603 13,042,603
Results Segment results (180,951) Share of results of associates 27,789 (Loss)/prot before taxation Taxation (7,426) Net (loss)/prot for the nancial year 179,576 12,960 (114,028) (102,443) 27,789 (74,654) (60,618) (135,272) 1,562 1,562 (27) 1,535 (100,881) 27,789 (73,092) (60,645) (133,737)
(50,281)
(2,911)
219
36.
SEGMENTAL INFORMATION (CONTD.) (a) Business Segments (Contd.) <------------------- Continuing Operations ------------------> Discontinued Airline Cargo Operationsoperations services Others Elimination Total Others RM000 RM000 RM000 RM000 RM000 RM000 31 December 2006 (Contd.) Assets Segment assets Investment in associates Consolidated total assets 6,728,624 67,461 282,549 356,429 (409,181) 6,958,421 67,461 7,025,882 14,757 14,757 6,973,178 67,461 7,040,639
Consolidated RM000
Liabilities Segment liabilities 5,042,057 271,601 14,140 (190,587) 5,137,211 14,222 5,151,433
Other segment information Capital expenditure Depreciation Amortisation Provision for impairment losses recognised in income statement 704,231 264,329 2,094 11,354 32,968 658 2,288 18,616 717,873 315,913 2,752 3,222 721,095 315,913 2,752
14,864
14,864
14,864
220
36.
SEGMENTAL INFORMATION (CONTD.) (b) Geographical segments The following table provides and analysis of the Groups revenue by geographical segment: Continuing Operations 2007 2006 RM000 RM000 Revenue Orient and North America Europe and Middle East Australia and New Zealand Asia Africa and South America Other revenue 2,929,338 2,111,181 1,763,334 4,184,485 249,938 11,238,276 3,447,854 14,686,130 2,674,103 3,373,499 1,662,916 2,178,875 273,100 10,162,493 2,815,551 12,978,044 21,160 21,160 64,559 64,559 2,929,338 2,674,103 2,111,181 3,373,499 1,763,334 1,662,916 4,184,485 2,178,875 249,938 273,100 11,238,276 10,162,493 3,469,014 2,880,110 14,707,290 13,042,603 Discontinued Operations 2007 2006 RM000 RM000 Total 2007 RM000 2006 RM000
The Groups revenue by geographical segment is based on own revenue. Assets, which consist principally of ight and ground equipment that support the entire worldwide transportation system, are mainly located in Malaysia. An analysis of assets and capital expenditure of the Group by geographical distribution has therefore not been included.
221
37.
SIGNIFICANT RELATED PARTY TRANSACTIONS (a) In addition to transactions detailed elsewhere in the nancial statements, the group and the company had the following transactions with related parties during the nancial year. Group 2007 RM000 Expenses Expenses charged by subsidiaries: - Handling and cleaning services - Inight meals - Other inight services - Trucking, clearance and warehousing services GEESM, an associate - Engine maintenance services rendered and purchase of aircraft spares and equipment Taj Madras Flight Kitchen Limited, an associate - Catering services Pan Asia Pacic Aviation Services Limited, an associate - Transit and cabin services LSG, an associate - Purchase of meals and beverages Evergreen Sky Catering Corporation, a company in which the Company has substantial shareholding - Catering services Miascor Catering Services, a company in which the Company has substantial shareholding - Catering services Abacus International Holding Limited, a company in which the Company has substantial shareholding - Computer reservation system access fee 2006 RM000 Company 2007 2006 RM000 RM000
2,562 7,252 11,152 5,545
3,284 9,812 10,233 5,539
428,485
427,362
428,485
427,362
1,858
1,444
1,858
1,444
5,868
6,093
5,868
6,093
234,678
236,024
234,678
235,167
9,132
8,284
9,132
8,284
633
875
633
875
39,922
34,366
39,922
34,366
222
37.
SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTD.) (a) Expenses (Contd.) Group 2007 RM000 Honeywell, an associate - Aircraft maintenance services Hamilton, an associate - Aircraft maintenance services 2006 RM000 Company 2007 2006 RM000 RM000
5,973
5,954
5,973
5,954
7,864
7,014
7,864
7,014
Income Dividend received from: - subsidiaries - associated companies Income received from subsidiaries: - hire of belly space - hire of aircraft - handling and cleaning services - commission GEESM - Rental and shared services income received LSG - Rental and shared services income received - Laundry and cleaning services
10,906 22,993
1,165 705
960,059 165,998 5,258 -
1,010,332 131,064 4,837 1,165
15,649
15,964
15,649
15,964
22,889 685
23,283 856
22,889 -
23,283 -
223
37.
SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTD.) Transactions with holding company and its fellow subsidiaries Group 2007 RM000 Expenses Hire of aircraft paid to PMB Lease rental paid to Aircraft Business Malaysia Sdn. Bhd. Rental paid to Asset Global Network Sdn. Bhd. 639,592 283,846 71,408 565,770 279,961 71,409 639,592 283,846 71,408 565,770 279,961 71,409 2006 RM000 Company 2007 2006 RM000 RM000
Income Residual value sharing on sale of aircraft 209,333 35,629 209,333 35,629
The directors are of the opinion that all the transactions above have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties.
(b)
Compensation of key management personnel (KMP) Total KMPs remuneration (including Board of Directors) Group and Company 2007 2006 RM000 RM000 Total 7,828 2,749
KMPs remuneration (excluding Board of Directors) Group and Company 2007 2006 RM000 RM000 Salaries and other emoluments Bonus Dened contribution plan Share options granted under ESOS 2,120 971 148 750 3,989 763 76 125 964
224
37.
SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTD.) (b) Compensation of key management personnel (KMP) (Contd.) For the details of Board of Directors remuneration, please refer to Note 9. The share options were granted on the same terms and conditions as those offered to the other employees of the Group (Note 26). Signicant related party transactions with KMPs (including Board of Directors) There was no signicant related party transactions with KMPs (including Board of Directors) during the nancial year.
38.
COMMITMENTS Group 2007 RM000 Capital commitments: Due within one year - approved and contracted for - approved but not contracted for 2006 RM000 2007 RM000 Company 2006 RM000
477,979 181,522 659,501
466,062 219,572 685,634
456,949 177,960 634,909
420,389 204,187 624,576
Due within two to ve years - approved and contracted for - approved but not contracted for
524,689 333,582 858,271
173,993 113,300 287,293
514,620 333,582 848,202
163,967 113,300 277,267
Total capital commitments - approved and contracted for - approved but not contracted for
1,002,668 515,104 1,517,772
640,055 332,872 972,927
971,569 511,542 1,483,111
584,356 317,487 901,843
The outstanding capital commitments relate to purchase of aircraft, integrated maintenance and engineering system, passenger services system and other capital expenditure projects.
225
39.
CONTINGENT LIABILITIES (a) Guarantees (Unsecured) Group and Company 2007 2006 RM000 RM000 Corporate guarantees given to third parties in respect of credit facilities provided to an associated company Bank guarantee given to third parties in respect of services provided to the Group and the Company Performance bonds given in respect of services provided to third party 4,903 142,892 234 148,029 5,123 138,146 518 143,787
(b)
Liabilities assumed by the immediate holding company Group and Company 2007 2006 RM000 RM000 Term loans - secured - unsecured Finance lease payables (secured) 236,841 104,554 430,081 771,476 919,505 391,356 112,104 699,966 1,203,426 1,347,213
In connection with the Widespread Asset Unbundling (WAU) exercise undertaken by the Company in 2002, the Company continues to be the named borrower of nance leases and term loans which have been taken over by the immediate holding company and is still contractually bound to meet these borrowings in the event the immediate holding company defaults on the payments. As such, the outstanding balance of the borrowings assumed by the immediate holding company is included within the Groups and the Companys contingent liabilities. The above nance leases and term loans mature as follows: Finance Leases RM000 36,551 20,914 372,616 430,081
Term Loan RM000 Within one year Between one and two years Between two and ve years After ve years 141,798 114,566 42,031 43,000 341,395
Total RM000 178,349 135,480 414,647 43,000 771,476
226
39.
CONTINGENT LIABILITIES (CONTD.) (c) As at 31 December 2007, the Company has lease obligations amounting to RM219,048,854 (2006: RM651,700,000) which are covered by interest bearing funds amounting to RM202,307,996 (2006: RM614,400,000) placed with nancial institutions at the inception dates of the respective lease agreements under defeasance arrangements. The defeased lease obligations, together with the related fund placements and payments, are therefore not included in these nancial statements. The Group has in operation 100 (2006: 93) aircraft and 29 (2006: 28) engines under operating leases. Of these, 6 (2006: 15) aircraft relate to the borrowings assumed by the immediate holding company which are included the Groups and the Companys contingent liabilities. The directors are of the opinion that the immediate holding company, being a wholly owned subsidiary of KNB, will be able to meet all payments to the Company in respect of the above liabilities as and when they fall due. (d) Shahjalal Aviation Systems Ltd (Shahjahal) was a general sales agent and had led a claim in Dhaka, Bangladesh against MAS for a sum of BDT2,670.0 million (RM175.7 million) purportedly due to them on account of commission charges, loss of business and goodwill under the general sales agency. MAS had earlier led a claim against Shahjalal for a sum of TK152.0 million (RM10.0 million) which was subsequently reduced to BDT87.8 million (approximately RM4.6 million) after adjustments of the bank guarantee and other amounts, together with interest, on account of unremitted passenger and cargo sales. On 16 September 2004, MAS received notice that Advanced Cargo Logistic GmBH (ACL) had initiated proceedings against MAS at the International Court of Arbitration in Paris, France. The claim against MAS for alleged breach of a ground handling contract (ACL Agreement) is damages in the sum of EUR62.7 million (approximately RM300 million). On 23 April 2007, MAS received a partial award from the Arbitral Tribunal dated 4 April 2007 declaring that MAS has breached the ACL agreement but made no ruling on MAS liability to compensate ACL for the damages suffered as a result of the breach. The Arbitral Tribunal has xed the hearing on the quantum of damages and costs on 3 until 6 November 2008. ACL has since in its statement of claim on quantum, revised its claim to EUR51.6 million (approximately RM243 million). The partial award makes no monetary award and, at this time, has no ascertainable nancial and operational effect on the Company and the Group. The legal effect is being analysed by MAS Malaysian and Swiss counsels. (f) Securiforce Sdn. Bhd. and Securiforce Hi-Tech Cargo Sdn. Bhd. (collectively, the Plaintiffs) served a writ of summons and statement of claim on MAS and its whollyowned subsidiary, MASkargo, on 16 June 2005. The Plaintiffs claim is for special damages of RM4.9 million and general damages of RM250 million as well as unspecied exemplary damages as a consequence of what is alleged by the Plaintiffs to be a termination by MAS, in breach of a purported contract consisting of various documents involving services rendered by the Plaintiffs to MAS and MASkargo. MAS and MASkargo are challenging the claim.
(e)
227
39.
CONTINGENT LIABILITIES (CONTD.) (g) On 26 May 2006, MAS led a civil suit (Original Suit) in the High Court at Kuala Lumpur against its former Executive Chairman, Tan Sri Tajudin bin Ramli and four (4) other Defendants for damages of approximately RM90 million together with further damages to be assessed, resulting from inter alia breach of duciary duties and/or knowingly assisting or beneting from such breach of duciary duties. In response to the Original Suit, Tan Sri Tajudin bin Ramli, Promet and Kauthar had on 9 October 2006 jointly led and served a defence and counterclaim (Counter Claim) on the Plaintiffs, MAS directors and the Government alleging that the Defendants in the Counter Claim (except for the Government) had conspired to injure them or had caused injury to them through malicious prosecution of the Original Suit. (h) On 15 May 2007, MAS received Notice from the Secretariat of the ICC International Court of Arbitration in Paris, France that Air Maldives Ltd. (AML) had commenced arbitration proceedings against MAS for alleged continuous breaches of MAS duties under a Management Agreement between MAS and AML dated 16 January 1996 (Arbitration). Pending further particulars of AMLs claim in the Arbitration, the effects of the claim on the nancial position of MAS cannot be ascertained. MAS is currently seeking legal advice to challenge the claim. (i) On 27 December 2007, MAS and MASkargo were served with Statement of Objections from the European Commission in relation to its freight investigation under Article 81 of the European Community Treaty, the general prohibition against anti-competitive behaviour. The Statement of Objections is a routine stage in the European Commissions investigations under the said Article 81 and is not a nal determination of an infringement, nor does the Statement of Objections indicate any quantum of nes that might be ultimately imposed. (j) On 18 January 2008, MAS has been served with a complaint led in the United States District Court for the Northern District of California (San Francisco) led on behalf of Meor Adlin against MAS and eleven other airlines. The cases involves allegation of price xing on transpacic passenger fares and related surcharges. At this juncture, no infringement has been established. The recently served complaint does not make any mention of the quantum of damages sought against MAS. MAS is currently seeking legal advice in relation to the complaint. (k) On 25 January 2008, MAS has been served with a complaint led in the United States District Court for the Central District of California (Los Angeles) led on behalf of Stephen Gafgan against MAS and eleven other airlines. The cases involves allegation of price xing on fuel surcharges on transpacic passenger fares. At this juncture, no infringement has been established. The recently served complaint does not make any mention of the quantum of damages sought against MAS. MAS is currently seeking legal advice in relation to the complaint.
228
39.
CONTINGENT LIABILITIES (CONTD.) (l) On 28 January 2008, MAS has been served with a complaint led in the United States District Court for the Northern District of California (San Francisco) on behalf of Micah Abrams against MAS and nine other airlines. The cases involves allegation of price xing on transpacic passenger fares and related surcharges. At this juncture, no infringement has been established. The recently served complaint does not make any mention of the quantum of damages sought against MAS. MAS is currently seeking legal advice in relation to the complaint.
40.
CONTINGENT ASSETS As mentioned in the prior years report, the Company is entitled to an 80% share of the gain on disposal of certain aircraft unbundled to PMB under the Agreement for Aircraft and Finance Agreements Unbundling. The gain will be computed based on the excess of the value realised over the decayed cost of the aircraft. The decayed cost for each aircraft at future dates is stipulated by the WAU agreement. Based on published industry price data, the Companys share of the gain on disposal if the applicable aircraft were to be disposed as at 31 December 2007 is RM786,289,000 (2006: RM1,172,000,000).
41.
FINANCIAL INSTRUMENTS (a) Financial Risk Management Objectives and Policies The Group operates globally and generates revenue in various currencies. The Groups airline operations carry certain nancial, credit and commodity risk, including the effects of changes in fuel prices, foreign currency exchange rates, interest rates and the market value of its investments. The Groups overall risk management approach is to mitigate the effects of such volatility on its nancial performance and reect an inclination towards risk averse policies. The Groups policy is not to trade in derivatives but to use these instruments to hedge against anticipated exposures. (b) Fuel Price Risk The Groups earnings are affected by changes in the price of jet fuel. The Group manages this risk by using instruments such as swaps, collars and swaptions. The Groups risk management strategy is to maintain a competitive hedge with regards to its competitors. The Groups risk management policy is to hedge up to 80% of the annual budget volume for the 12 months and up to 50% of the volume for the tenure of such contract up to 48 months. As at 31 December 2007, the Group and the Company have entered into various fuel hedging transactions from 1 January 2008 to 31 December 2008 in several lots totalling 5,400,000 (2007: 11,130,000) barrels.
229
41.
FINANCIAL INSTRUMENTS (CONTD.) (b) Fuel Price Risk (Contd.) Group and Company Notional Amount 2007 2006 RM000 RM000 Fuel derivatives: - Due within one year - Due after one year 6,932,705 774,612 7,707,317 4,537,120 927,281 5,464,401
(c)
Interest Rate Risk The Groups earnings are affected by changes in interest rates, the impact of which is on interest income and expense from short term deposits, interest bearing nancial assets and liabilities, and operating lease payments. The Groups policy on managing its interest rate risk is by maintaining a prudent mix of xed and oating rate investments and borrowings. As at 31 December 2007, the Group and the Company have entered into various instruments such as collars, caps and swaps with the following notional amounts and maturities pertaining to USD obligations: Group and Company Notional Amount 2007 2006 RM000 RM000 Interest rate derivatives: - Due within one year - Due after one year 2,126,180 1,726,952 3,853,132 4,496,738 4,496,738
The xed interest rates relating to interest rate derivatives at the balance sheet date vary from 3.7% to 5.5% (2006: 3.7% to 5.5%) per annum. (d) Foreign Exchange Risk The Group is exposed to the effects of foreign exchange rate uctuations because of its foreign currency denominated operating revenues and expenses. The Groups largest exposures are from United States Dollar (USD), Euro (EUR), Great Britain Pound (GBP), Japanese Yen (JPY) and Australian Dollar (AUD). The Group seeks to reduce its foreign exchange exposure arising from transactions in various currencies through a policy of matching, as far as possible, receipts and payments in each individual currency. Surpluses of convertible currencies are sold, either spot or forward, for RM and USD.
230
41.
FINANCIAL INSTRUMENTS (CONTD.) (d) Foreign Exchange Risk (Contd.) The net unhedged nancial assets and nancial liabilities of the Group that are not denominated in their functional currencies are as follows: Net Financial Assets/(Liabilities) Held in Non-Financial Currencies USD EUR GBP SGD AUD Total RM000 RM000 RM000 RM000 RM000 RM000 Functional currency of the Group: At 31 December 2007 Ringgit Malaysia At 31 December 2006 Ringgit Malaysia Functional currency of the Company: At 31 December 2007 Ringgit Malaysia At 31 December 2006 Ringgit Malaysia
(8,353,174)
5,275,199
4,782,22
1,202,432
7,509,626
10,416,305
(8,170,941)
3,934,042
4,341,989
1,102,503
5,527,375
6,734,968
(8,153,265)
5,275,567
4,782,228
1,202,453
7,509,626
10,616,609
(8,045,647)
3,934,343
4,341,989
1,102,512
5,527,375
6,860,572
As at 31 December 2007, the Group and the Company have entered into various foreign exchange instruments such as outright forward and options with the following notional amounts: Group and Company Notional Amount 2007 2006 RM000 RM000 Foreign exchange derivatives: - Due within one year 792,870 1,616,485
231
41.
FINANCIAL INSTRUMENTS (CONTD.) (e) Liquidity Risk The Group manages its liquidity risk by maintaining sufcient levels of cash or cash convertible investments and available credit facilities to meet its working capital requirements. Surplus funds are invested in high quality short term liquid instruments, usually bank deposits. (f) Credit Risk Credit risk is the potential loss from a transaction in the event of default by the counterparty during the term of the transaction or on settlement of the transaction. Credit exposure is measured as the cost to replace existing transactions should a counterparty default. The Group has credit risk associated with travel agents, industry settlement organisations and credit provided to direct customers. The Group minimises this credit risk through the application of stringent credit policies and accreditation of travel agents through industry programmes. Other than the amount due from/to related companies, the Group does not have any signicant exposure to any individual customer or counterparty nor does it have any major concentration of credit risk related to any nancial instruments. (g) Market Price Risk As at 31 December 2007, the Group owned quoted investments amounting to RM1,377,000 (2006: RM1,377,000). The market risk associated with quoted investments is the potential loss resulting from a decrease in market prices. (h) Fair Values The aggregate net fair values of nancial assets and nancial liabilities which are not carried at fair value on the balance sheets of the Group and of the Company are represented as follows: Group and Company Carrying Fair amount Value RM000 RM000
Note Financial Assets - 31 December 2007 - 31 December 2006 19 19
1,377 1,377
32,303 26,531
232
41.
FINANCIAL INSTRUMENTS (CONTD.) (h) Fair Values (Contd.) The method and assumption used to estimate the fair value of the nancial assets are determined by reference to stock exchange quoted market bid prices at the close of the business on the balance sheet date. The carrying amounts of all other nancial assets and liabilities at the balance sheet date are not materially different from their fair values due to the relatively short term maturity of these nancial instruments. The notional amount and fair value of nancial instruments not recognised in the balance sheet at the balance sheets date are as follows: Group and Company Notional Amount 2007 RM000 Contingent asset Fuel derivatives Interest rate derivatives Foreign exchange derivatives 40 41(b) 41(c) 41(d) 7,707,317 3,853,132 792,870 2006 RM000 5,464,401 4,496,738 1,616,485 Group and Company Fair Value 2007 RM000 786,289 199,603 29,426 1,869 2006 RM000 1,172,000 171,956 79,335 (2,871)
Note
The methods and assumptions used by management to estimate the fair value of the nancial instruments are as follows: (i) The fair value of the contingent asset is determined by reference to the published industry price data of the aircraft; The fair value of the fuel forward derivatives are determined by marking to market value on the existing fuel position;
(ii)
(iii) The fair value of the interest rate derivatives are determined by the amount that would be payable or receivable assuming these contracts are liquidated at the balance sheet date, and is calculated as the present value of the estimated future cash ows; and (iv) The fair value of the foreign exchange forward derivatives are determined by using the rates assuming the contracts are liquidated at balance sheet date. The notional amount and net fair value of contingent liabilities (as disclosed in Note 39) are not disclosed as it is not practicable to estimate the fair value of contingent liabilities reliably due to the uncertainties of timing, costs and eventual outcome.
233
42.
SIGNIFICANT EVENTS (a) (b) Information relating to the issuance of Rights Issue is set out in Note 31(b). On 15 January 2007, the Company proposed to implement ESOS for eligible employees including executive directors of the Group who meet the criteria of eligibility for participation in the ESOS. CIMB Investment Bank Berhad (formerly known as Commerce International Merchant Bankers Berhad) was appointed as the adviser to the Company for the ESOS. The objective of the ESOS is to reward and retain high performing employees and to encourage a high performance culture. On 23 April 2007, at the Extraordinary General Meeting, the shareholders of the Company approved the ESOS above. On 15 May 2007, the Proposed ESOS was approved by Bursa Malaysia. On 21 May 2007, the Company launched the ESOS to eligible employees and the nal acceptance (grant date) for this scheme was 29 June 2007. Information relating to the ESOS is set out in Note 26. (c) On 1 March 2007, the Company entered into a conditional Share Purchase Agreement (SPA) for the proposed disposal of 10,000,000 ordinary shares of RM1.00 each representing 100% of the entire allotted and issued share capital of the Companys wholly-owned subsidiary, MHB to Kingdom Langkawi B.V. for a cash consideration of RM435 million. As at 31 December 2007, the Company has partially disposed MHB and full completion of the disposal is pending fullment of a nal condition precedent, i.e. settlement of certain land issues by March 2008. (d) On 9 March 2007, the Company entered into a conditional sale and purchase agreement and a lease agreement with Employees Provident Fund Board (EPF) for the proposed disposal and leaseback of a piece of freehold land held under H.S.D 63481, P.T. No. 314 in the Mukim Of Damansara, District of Petaling, State of Selangor Darul Ehsan together with the building, known as MAS Academy of No.2, Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan for a cash consideration of RM145 million. The leaseback period is 5 years from the completion of the proposed disposal with an option of renewal for a further 5 years. On 23 April 2007, at the Extraordinary General Meeting, the shareholders of the Company approved the proposed disposal and leaseback. During the nancial year, the conditions precedents were fullled and included in the Group Income Statement is a gain on disposal of RM46.3 million.
234
42.
SIGNIFICANT EVENTS (CONTD.) (e) On 14 March 2007, the Company announced that it would launch its new airline known as Firey. Firey would be operated by the Companys wholly owned subsidiary, FlyFirey Sdn. Bhd. (formerly known as Kelas Services Sdn. Bhd.). The Company obtained the Air Services License and Air Operators Certicate by the Department of Civil Aviation Malaysia effective 17 March 2007. Firey, managed as a separate entity, commenced operations with two (2) Fokker 50 aircraft in early April 2007 and operates twice daily services out of Penang International Airport to Kota Bahru, Langkawi, Kuantan and Kuala Terengganu; and daily services to Phuket and Koh Samui. On 29 September, Firey commenced twice daily ights between Sultan Abdul Aziz Shah Airport (SAAS), Subang and Penang. Firey has also obtained approval from the Government to serve 6 domestic and 9 regional routes out of Penang International Airport, 12 domestic and 13 regional routes out of SAAS, Subang as well as 7 domestic and 14 regional destinations out of Senai International Airport. On 24 October 2007, the Company entered into a sale and purchase agreement with Avions De Transport Regional to purchase 10 ATR72-500 aircraft plus an option to purchase another 10 of the same for the operations of Firey. The catalogue price of the aircraft is USD18.3 mil for deliveries in 2007.
43.
COMPARATIVES The following balance sheet comparative gures have been reclassied to conform with current years presentation: As Previously stated RM000 Group Aircraft, property, plant and equipment (Net Book Value)* Other investments Other receivables (non-current assets) Trade and other receivables Trade and other payables Provisions
Re-classication RM000
As Restated RM000
2,404,940 105,233 295,860 1,902,351 (2,808,509) -
6,597 (2,532) 129,410 (78,567) 292,806 (347,714)
2,411,537 102,701 425,270 1,823,784 ( 2,515,703) (347,714)
Company Aircraft, property, plant and equipment (Net Book Value)* Other investments Other receivables (non-current assets) Trade and other receivables Trade and other payables Provisions
2,024,743 105,233 295,860 2,116,553 (2,661,892) -
6,597 (2,532) 129,410 (78,569) 292,808 (347,714)
2,031,340 102,701 425,270 2,037,984 (2,369,084) (347,714)
* The previously stated gure is after taking into account the effect of FRS 117 in Note 2.2(c).
235
43.
COMPARATIVES (CONTD.) The following income statements comparative gures have been reclassied to conform with current years presentation: As Previously stated RM000 Group Operating revenue Operating expenditure Other operating income Finance cost Taxation Prot for the year from discontinued operations 13,171,838 (13,792,392) 317,711 (49,215) (60,645) (193,794) 183,411 (7,495) 16,316 27 1,535 12,978,044 (13,608,981) 310,216 (32,899) (60,618) 1,535
Re-classication RM000
As Restated RM000
Company Operating revenue Operating expenditure Other operating income Finance cost 11,203,686 (11,902,948) 316,298 (49,164) (18,260) 31,283 (29,340) 16,317 11,185,426 (11,871,665) 286,958 (32,847)
44.
CURRENCY The nancial statements are presented in Ringgit Malaysia (RM) and all values are rounded to the nearest thousand (RM000) except when otherwise indicated.
236
Key Corporate Events Awards & Recognition
237
Key Corporate Events
25 February 2008 Malaysia Airlines announced its highest prots in its 60-year history. The prot of RM851 million is 17-times more than its original Business Turnaround Plan (BTP 1) target of RM50 million for 2007 and more than the RM500 million target for 2008. 22-24 February 2008 A highly successful Malaysia Airlines Travel Fair netted a total revenue of RM1.1 million through its 3-day virtual and physical travel fair. The physical fairs were held at 8 locations namely the Kuala Lumpur Convention Centre, Penang International Sports Arena, Persada Johor International Convention Centre, Sutera Harbour Resort Kota Kinabalu, Permata Exhibition Centre Kuching, Wisma Sanyan (Sibu) and Mega Hotel (Miri).
18 February 2008 Malaysia Airlines was awarded the Phoenix Award by Penton Medias Air Transport World, in recognition of the life-changing transformation that the airline went through. 1 February 2008 Malaysia Airlines launched its direct services to Yogyakarta, Indonesia. 30 January 2008 Malaysia Airlines launched its Business Transformation Plan (BTP 2) to its employees in its annual Townhall session. A media brieng to announce the BTP 2 to the public and its stakeholders was held the next day. Malaysia Airlines retained its 5-Star Airline accreditation for the second year running. Skytrax CEO, Edward Plaistead presented the certicate to the CEO of Malaysia Airlines, Dato Sri Idris Jala during the Townhall session. 29 January 2008 Malaysia Airlines organised Malam MH, a night to honour and recognise employees, divisions and stations for their contributions in helping Malaysia Airlines achieve its successful turnaround.
30 January 2008 1 February 2008 Malaysia Airlines, in collaboration with Etiqa Insurance and Mondial Assistance began offering a comprehensive travel insurance plan from as low as RM15 to all Malaysian residents travelling outbound from Malaysia and within Malaysia. 31 January 2008 Malaysia Airlines launched its revitalised Customer Value Proposition (CVP) MH=Malaysian Hospitality, hassle free, all the way to the public. The new CVP leverages on the strengths of the natural Malaysian way of life from open houses to respect for different cultures and traditions to an ingrained sense of treating visitors like guests in our homes.
February 2008
29 January 2008
238
MASWings. The airline Engineering & Maintenance team also signed 3 separate agreements with Saudi Arabian Airlines, Lorena Air and Air Atlanta Icelandic. 21 December 2007 Malaysia Airlines and MASkargo rallied to dispatch 3 tonnes of ood relief items to Pahang. The items were donated by the airlines staff during a 10-day campaign held between the months of November and December 2007. 27 November 2007 Malaysia Airlines and China Southern Airlines signed a code-share partnership, giving customers 35 weekly ights between Kuala Lumpur and Guangzhou, Shanghai and Beijing. 16 November 2007 Malaysia Airlines received the Malaysias Most Valuable Brands award, poling in 12th position from a total 30 top brands in the country. 10 November 2007 Following strong demand for a full-service carrier, Malaysia Airlines re-launched its services to Macau after a 9-year interval, with 4 weekly ights offered.
30 October 2007 SIRIM Berhad presented Malaysia Airlines with the OHSAS 18001 and MS1722 certications, in recognition of the airlines stringent health and safety standards.
29 October 2007 29 October 2007 Firey launched its rst ight from the Sultan Abdul Aziz Shah Airport in Subang. It currently ies daily from Penang to ve domestic destinations (Kuala Lumpur via Subang, Kota Bharu, Kuala Terengganu, Kuantan and Langkawi) and two regional destinations in Thailand (Koh Samui and Phuket). 26 October 2007 MASkargo won the Excellence in Logistics-Air Cargo Services award organised by Technology Business Review for the second consecutive year.
December 2007 19 December 2007 MAS Aerospace Engineering signed a Memorandum of Understanding with Qantas to establish a joint venture company to provide airframe maintenance services from Malaysia. 4-8 December 2007 The 9th Langkawi International Maritime and Aerospace (LIMA) Exhibition was held in Langkawi, which saw Malaysia Airlines mounting additional ights to cater for the increased demand. The airlines also signed an agreement with Avion de Transport Regional (ATR) for the purchase of 20 ATR turbo prop aircraft for its subsidiaries, Firey and
10 November 2007
239
1 October 2007 1 October 2007 Malaysia Airlines subsidiary, MASWings commenced its rural air services in Sabah and Sarawak, enhancing air connectivity between Sabah and Sarawak and boosting tourism initiatives in both states. October 2007 Malaysia Airlines completed its eTicketing implementation with all 10 Global Distribution System (GDS) partners. It also cut over to eTicketing at all its ticketing ofces on 28 October 2007, enabling the ticketing ofces to issue IATA eTickets and service IATA eTickets sold by agents, well in advance of the IATA deadline. 21 September 2007 Malaysia Airlines Engineering Training Centre was launched, ensuring a continuous supply of skilled workforce to boost the airlines growth in the Maintenance, Repair and Overhaul (MRO) business. 21 September 2007 31 August 2007 Malaysia Airlines, in collaboration with Keretapi Tanah Melayu Berhad and Northport Corporation Berhad, participated in the Merdeka Parade at Dataran Merdeka, Kuala Lumpur. The event was especially meaningful as it marked the 50th year of independence for Malaysia. 7 August 2007 An Investor/Analyst Day was held for the 3rd time to update the nancial community of the companys progress and future plans. The session, which was held at the South Support Zone of the Kuala Lumpur International Airport, also enlightened participants on MASkargo, the LSGB Skychef catering facility and the Engineering & Maintenance division of the airline. 18 June 2007 Malaysia Airlines held its 36th Annual General Meeting at the Malaysia Airlines Academy in Kelana Jaya.
31 August 2007
240
June 2007 Malaysia Airlines announced its Lets Fly Malaysia campaign, in conjunction with the nations 50th Merdeka celebrations. Among the highlights of the campaign were amazing low fares for both domestic and international travel under the 50-hour Open House online promotion and the inclusion of dishes that Tuanku Abdul Rahman (Malaysias rst Prime Minister) enjoyed, taken from the book Favourite Dishes from the Tunkus Kitchen. 15 May 2007 Malaysia Airlines renewed its partnership with the Malaysian Medical Relief Society (MERCY Malaysia) for another year.
23 April 2007 Malaysia Airlines held an Extraordinary General Meeting (EGM) at the Malaysia Airlines Academy in Kelana Jaya, where shareholders unanimously approved the establishment of the Employee Share Option Scheme (ESOS). 5 April 2007 Malaysia Airlines signed a codeshare partnership agreement with Alitalia. Effective 1 June 2007, the two airlines gained access into each others networks between Malaysia to Australia and the southern part of Europe. 2 April 2007 Firey, Malaysias community airline, was ofcially launched when 2 Fokker-50 aircraft landed safely at the Penang International Airport. Both inaugural ights carried the Tourism Minister, Datuk Seri Tengku Adnan Tengku Mansor, guests and Firey staff.
16-18 March 2007 Malaysia Airlines participated in the Malaysia Association of Tours & Travel (MATTA) fair, offering attractive packages to domestic and international destinations.
27 February 2007
27 February 2007 Malaysia Airlines successfully cut-over its old Departure Control System (DCS) with the new SITA DCS as part of the Passenger Services System (PSS) Programme in order to support the airlines move to industry-standard eTicketing.
241
Awards and Recognition
Awards 1. 5-Star Airline Award 2007, Skytrax 2. Phoenix Award 2007, Air Transport World (Penton Media) 3. Asias Leading Business Class Airline (World Travel Award, UK) 4. Top 30 Brands in Malaysia (Malaysias Most Valuable Brands MMVB) 5. Worlds Best Cabin Staff (Skytrax, UK) 6. 4th Best Airline for Cabin Service Worldwide (smartTravelAsia.com Travel Poll 2007) 7. 5-Star Airline Award 2006, Skytrax 8. Global winner for Economy Class Onboard Service Excellence 2006, Skytrax 9. Best Airline to Asia, Travel Weekly Globe Award 10. Best New Business Class Seat, Global Traveler 11. Best Economy Class, World Airline Awards 12. Best South Asia Airline, Hospitality India Awards 2006 13. Airline of the Year 2006, KL International Airport Awards 14. Airline Turnaround of the Year 2006, Centre for Asia Pacic Aviation Awards (CAPA) 15. Platinum Award, Readers Digest Trusted Brand Award
242
Form of Proxy
Shareholders CDS Account No. No. of ordinary shares held
MALAYSIAN AIRLINE SYSTEM BERHAD (Company No. 10601-W) (Incorporated in Malaysia)
I/We, ................................ (Full Name as per NRIC in capital letters) Company No./NRIC No.. ..........................................of .................. (Full address) being a member(s) of MALAYSIAN AIRLINE SYSTEM BERHAD (the Company), hereby appoint: Name/NRIC No. Proxy 1 Proxy 2 TOTAL ........... ........... ........... No. of shares ....... ....... ....... Percentage (%) ............. ............. ............. or failing him/her or failing him/her
the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the Thirty Seventh Annual General Meeting of the Company to be held at the Auditorium, 1st Floor, South Wing, MAS Academy, No. 2, Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan on Monday, 23 June 2008 at 10.00 a.m. and at any adjournment thereof, on the following resolutions referred to in the Notice of the Thirty Seventh Annual General Meeting. My/our proxy is to vote as indicated below:Ordinary Resolutions Resolution No. 1 Resolution Resolution Resolution Resolution Resolution No. No. No. No. No. 2 3 4 5 6 Adoption of Audited Financial Statements for the nancial year 31 December 2007 and the Reports of the Directors and Auditors. Approval of Directors fees. Declaration of a rst and nal tax-exempt dividend of 2.5 sen per share Re-election of Dato Sri Iris Jala @ Idris Jala as Director Re-election of Dato N. Sadasivan a/l N. N. Pillay as Director Re-election of Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim as Director Re-election of Datuk Amar Wilson Baya Dandot as Director Re-appointment of Messrs Ernst & Young as Auditors and to authorize the Directors to x the Auditors remuneration Authority under Section 132D of the Companies Act, 1965 for Directors to issue shares. For Against
Resolution No. 7 Resolution No. 8 Resolution No. 9
As witness my/our hands this ................. day of , 2008
.......................................................... Signature of Member / Common Seal
NOTES: 1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy/proxies and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 2. In the case of a corporate member, the instrument appointing a proxy shall be under its Common Seal or under the hand of its ofcers or attorney, duly authorised in that behalf. 3. A holder may appoint more than two (2) proxies to attend the Meeting. Where a member appoints two (2) or more proxies, he shall specify the proportions of his shareholding to be represented by each proxy. 4. The right of foreigners to vote in respect of their deposited securities is subject to Section 41(1)(e) and Section 41(2) of the Securities Industry (Central Depositories) Act, 1991 and the Securities Industry (Central Depositories) (Foreign Ownership) Regulations, 1996. The position of such Depositors in
this regard will be determined based on the General Meeting Record of Depositors. Such Depositors whose shares exceed the Companys foreign shareholding limit of 45% as at the date of the General Meeting Record of Depositors may attend the above Meeting but are not entitled to vote. Consequently, a proxy appointed by such Depositor who is not entitled to vote will also not be entitled to vote at the above Meeting. 5. The instrument appointing a proxy must be deposited at Symphony Share Registrars Sdn. Bhd., Level 26 Menara Multi-Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than 48 hours before the time for holding the Meeting or at any adjournment thereof. 6. Shareholders attention is hereby drawn to the Listing Requirements of the Bursa Malaysia Securities Berhad, which allows a member of the Company who is an authorised nominee as dened under the Securities Industry (Central Depositories) Act, 1991, to appoint at least one (1) proxy in respect of each securities account he holds with ordinary shares of the Company standing to the credit of the said securities account.
243
Fold here
Afx stamp here
Malaysian Airline System Berhad (10601-W) 3rd Floor, Administration Building 1, MAS Complex A, Sultan Abdul Aziz Shah Airport, 47200 Subang, Selangor Darul Ehsan, Malaysia.
Fold here
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MH PROMISE

Notice of Annual General Meeting

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Notice of Annual General Meeting

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Notice of Annual General Meeting

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Statement Accompanying the Notice of Annual General Meeting

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Statement Accompanying the Notice of Annual General Meeting

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

DATO DR. MOHD MUNIR BIN ABDUL MAJID

DATO N. SADASIVAN A/L N. N. PILLAY

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

DATO SRI IRIS JALA @ IDRIS JALA

TENGKU DATO AZMIL ZAHRUDDIN BIN RAJA ABDUL AZIZ

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

KEONG CHOON KEAT

DATO MOHAMED AZMAN BIN YAHYA

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MARTIN GILBERT BARROW

DATUK SERI PANGLIMA MOHD. ANNUAR BIN ZAINI

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

DATO ZAHARAAH BINTI SHAARI

DATO SRI DR. WAN ABDUL AZIZ BIN WAN ABDULLAH

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

DATUK HAJI YUSOFF @ HUNTER BIN DATUK HAJI MOHAMED KASIM

DATUK AMAR WILSON BAYA DANDOT

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

ABDUL RAHMAN BIN ABDUL GHANI

DATO PUTEH RUKIAH BINTI ABD MAJID

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

DATUK HAJI MOHAMAD MORSHIDI BIN ABDUL GHANI

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Ten Years Statictical Review of the Group

TEN YEARS STATISTICAL REVIEW OF THE GROUP

(RM000) (RM000) (RM000) (RM000) (RM000) (%) (%) (sen)

15,288,640 14,460,299 (29,590) 852,743 3,934,893 5.6 21.7 58.05

13,407,240 13,641,880 (60,618) (133,737) 1,873,425 (1.0) (7.1) (10.90)

9,181,338 10,434,634 (18,657) (1,251,603) 2,009,857 (13.6) (62.3) (100.20)

11,364,309 11,046,764 (35,707) 326,079 3,318,732 2.9 9.8 26.0

(KM) (Hours) (000 KM) (000 TKM) (000 Seat KM)

421,075 356,295 239,699 9,579,101 56,227,787

525,784 381,134 249,925 9,525,623 58,923,735

505,376 314,087 207,117 7,716,059 49,785,977

504,051 411,134 265,050 10,299,867 64,115,190

14,213 40,162,186 71.4 2,621,597 4,721 6,305,358 65.8

15,466 41,099,612 69.8 2,593,332 4,309 6,359,430 66.8

13,852 35,604,763 71.5 1,948,761 2,131 5,205,283 67.5

17,536 44,226,090 69.0 2,686,783 3,004 6,728,547 65.3

19,423 787 493,183 324,634

19,596 688 486,100 324,527

22,835 402 337,905 227,952