PRIVATIZATION Privatization in Malaysia, Regulation, rent-seeking and policy failure

146 Malaysia Airlinesperformance also declined from −0.006 to −0.036 per cent in comparison toits competitors as average returns on assets 18 declined from 33.7 to 4.0 percent after privatization (Table 6.06).External factorsThe Asian financial crisis in 1997–98 had a big impact on the region’s airlines,with MAS particularly badly affected as its capital requirements were financedmainly in US dollars and Japanese yen because MAS was apparently notallowed to borrow domestically to avoid ‘crowding out’ the Malaysianfinancial market. 19 Around 70 per cent of MAS’s RM10.3 billion in shorttermloans and fixed leases was in US dollars (at the end of September 1997),with nearly US$3 billion in dollar-denominated debt (The Edge, 5 January1998; Asiaweek, 6 March 1998). 20 By May 1998, 81 per cent of MAS’sRM10.6 billion debt was mainly in US dollars with 12 per cent in Japaneseyen (The Edge, 8 June 1998). This high US dollar exposure meant that aRM0.10 change in the exchange rate could have affected MAS by RM40million. A 69.5 per cent fall in profit was attributed to foreign exchange lossesof RM2.1 billion (US$1=RM3.30) in 1997 (The Edge, 5 January 1998).Around 43 per cent of MAS’s total revenue was in ringgit, 14 per cent inUS dollars, and the rest in other currencies. However, while 44 per cent ofexpenses was in ringgit, 28 per cent of expenses was in US dollars, includingdebt servicing and fuel costs. 21 Fuel and oil accounted for 14.4 per cent ofoperating expenses at a time when the ringgit had depreciated 35 per centagainst the dollar (Asiaweek, 6 March 1998) but MAS did not have a fuelhedging policy. This meant that MAS had to struggle to cover interest payments,even without the impact of the crisis, as its debt burden increasedsubstantially. This was evident in the company’s attempts to restructure itsTable 6.06 MAS: Operating profit (loss) as a percentage of operating revenue, 1990–1997 (current US$ million)MAS SIA CathayPacificThaiAsiaaverageWorldaverageMASaverageCompetitoraverage1990 (1.2) 14.2 14.1 17.0 4.1 (0.8)1991 3.6 13.9 16.1 7.2 n/a 2.11992 1.1 10.4 16.2 8.6 3.3 (0.8) (0.07) 10.81993 (4.9) 8.1 9.3 7.9 2.3 1.01994 8.5 12.6 9.8 13.3 4.4 3.41995 3.1 11.7 15.4 12.9 5.4 5.11996 2.7 9.2 13.3 12.1 4.6 4.4 (0.40) 11.21997 (7.0) 9.0 6.5 10.6 4.1 5.6Source: Adapted from ICAO (1992–99); Malaysia Airlines (1991–98), Cathay Pacific Airways(1995–98); Singapore Airlines (1997–2000); Thai Airways (1998–2000).Note: Averages for 1991–93 and 1995–97.