KUALA LUMPUR, Aug 19 – Brahim’s Holdings Bhd, a provider of inflight meals, played a small but vital role in the financial rescue efforts of Malaysia Airlines (MAS) 11 years ago. At that time, Brahim’s, which now operates the world’s biggest halal flight kitchen, was in the limelight for getting a 25-year catering deal from the national carrier.
There were claims that the RM6.25 billion deal was lopsided but some might have also forgotten the cost that Brahim’s had to bear. The company had to get a bank loan to fork out RM170 million in cash for a 70 per cent equity in MAS Catering Sdn Bhd.
At that time, MAS Catering had accumulated losses of RM240 million, had negative shareholders’ funds and was bleeding RM40 million a year in its operations. Brahim’s had to inherit all those “imbalanced ledgers” too.
“The 25-year concession was needed to ensure the buyer had sufficient time to recover its investment which was unlike any other bail-out project,” Brahim’s Executive Chairman, Datuk Ibrahim Ahmad Badawi said.
“With the sale, obviously the buyer requires some degree of assurance of business continuity. “It cannot be compared to other non-MAS airline inflight contracts which are
generally of two to three-year duration and renewed thereafter upon expiry.
“Ten years of hard work finally saw MAS Catering’s RM240 million accumulated losses wiped out just two years ago,” he told Bernama. “What we did was reduce wastage, cut the workforce by one third to below 1,200, added 12 new customers and nearly doubled production,” he said.
More importantly, efficiency was improved by investing a further RM57 million for machinery and equipment and control systems. “As a result, Brahim’s made an operating profit in the second year and then completely wiped out the accumulated losses,” Ibrahim said.
He added, the company had managed to pay RM121 million in dividends and Ibrahim said MAS continued to have a 30 per cent equity interest in MAS Catering, which was now known as Brahim’s Airline Catering Sdn Bhd (BAC).
“MAS actively participates in the Board and Audit Committee decisions of BAC. Thus, it cannot be pictured as a lopsided arrangement. “The lucrativeness of this 25-year concession as painted by many is inaccurate.
“Our net margins from this business ranges from nine to 12 per cent annually, and generally in the food services sector, higher margins of even up to 20 per cent is not uncommon,” he added.
Ibrahim said BAC’s annual billings to MAS was about RM260 million. This constituted less than two per cent of the airlines’ total annual operating costs. On Aug 8, Khazanah Nasional Bhd announced it would be taking MAS private and “cost cutting measures” were one of the “main ingredients” in its kitchen.
Khazanah is the majority shareholder of MAS with a 69.37 per cent stake. Some have postulated that Brahim’s long-term contract needed to be “sliced” as “it seemed to be doing well even as MAS continued to lose money.”
“To use the same judgment, other MAS suppliers are also making money, while the airline bleeds and their contribution to it, is by way of a much higher billing,” said Ibrahim.
Asked if the MAS management had come to discuss Brahim’s contract, he replied, “Got but not conclusive.”
He also said Brahim’s was a dynamic company that can adjust to any development pertaining to its long-term contract with MAS. To reduce the dependency on MAS, Brahim’s has been tying up with other foreign airlines. It now caters inflight meals to more than 30 airlines.
It was reported that Brahim’s signed up six new airlines in 2013 and is targeting three more foreign airlines after signing up Lufthansa earlier this year. It currently serves 35 international airlines and clients include AirAsia, AirAsia X, Cathay Pacific, China Airlines, Japan Airlines, Korean Air, Thai Airways, Emirates Airliness, Garuda, Indian Airlines, Eva Air and Pakistan International Airlines.
The company caters to an average of 190 aircraft daily. Also an average of 50,000 meals are prepared daily from its huge and highly sophisticated halal flight kitchen located at the Kuala Lumpur International Airport.
Analysts have forecast that Brahim’s could see an impact to its earnings if MAS decides on its route rationalisation. Brahim’s sources up to 75 per cent of its sales from MAS’ inflight meals. Ibrahim said Brahim’s billings to non-MAS customers range between RM80 million and RM100 million.
-BERNAMA
