a n n u a l r e p o r t 2 O O1 / 2 0 0 2M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D

malaysia-airlines.com

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D 10601-W

33rd Floor, Bangunan MAS, Jalan Sultan Ismail50250 Kuala Lumpur, Malaysia

Tel: 603 2161 0555 Fax: 603 2161 3472

c o n t e n t sNotice of Annual General Meeting

Board of Directors

Directors’ Profiles

Corporate Information

Statement on Corporate Governance

Audit Committee’s Report

Statement on Internal Control

Group Structure

Route Network (International & Domestic)

Destination List

Aircraft Fleet

Chairman’s Statement

Managing Director’s Statement

Review of Operations

Calendar of Events

Group Financial Highlights

Financial Statements

Statistics on Shareholdings

Properties Owned

Form of Proxy

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no t i ce o f annua l genera lmeet ingNOTICE IS HEREBY GIVEN THAT the Thirty First AnnualGeneral Meeting of Malaysian Airline System Berhad will be heldat Dewan Tun Hussein Onn, Level 2, Putra World Trade Centre,41, Jalan Tun Ismail, 50480 Kuala Lumpur on Monday, 30 September 2002 at 10.00 am for the following purposes:-

AGENDA

As Ordinary Business 1. To receive and adopt the Report of the Directors and

the Audited Accounts for the financial year ended31 March 2002 together with the Report of the Auditorsthereon. Resolution 1

2. To approve the Directors’ fees for the financial year ended31 March 2002. Resolution 2

3. To re-elect the following Directors retiring under Article 139of the Company’s Articles of Association, and who, beingeligible, offer themselves for re-election:-(i) Y.Bhg. Dato’ Zaharaah Binti Shaari Resolution 3 (ii) Y.Bhg. Datu Dr. Hatta Bin Solhi Resolution 4

4. To re-elect the following Directors retiring under Article 137of the Company’s Articles of Association, and who, beingeligible, offer themselves for re-election:-(i) Mr. Martin Gilbert Barrow Resolution 5(ii) Y.Bhg. Dato’ N. Sadasivan a/l N. N. Pillay Resolution 6(iii) Y.Bhg. Dato’ Mohamed Azman Bin Yahya Resolution 7(iv) Y.Bhg. Datuk Kee Mustafa Resolution 8

5. To appoint Auditors and to authorise the Directors to fix theirremuneration.

Notice of Nomination pursuant to Section 172(11) of theCompanies Act, 1965, a copy of which is annexed hereto andmarked “Annexure A” has been received by the Company forthe nomination of Messrs. Ernst & Young who have giventheir consent to act, for appointment as Auditors and of theintention to propose the following ordinary resolution:-

“That Messrs. Ernst & Young be and is hereby appointedAuditors of the Company in place of the retiringAuditors, Messrs. Arthur Andersen & Co. to hold office untilthe conclusion of the next Annual General Meeting at aremuneration to be determined by the Directors.”

Resolution 9

6. As Special BusinessTo consider and, if thought fit, to pass the following OrdinaryResolution:-

Authority to issue and allot shares

“That subject always to the Companies Act, 1965, theArticles of Association of the Company and the approvals ofthe relevant governmental/regulatory authorities, the Directorsbe and are hereby authorised pursuant to Section 132D ofthe Companies Act, 1965, to issue and allot shares in theCompany at any time until the conclusion of the next AnnualGeneral Meeting and upon such terms and conditions and forsuch purposes as the Directors may, in their absolutediscretion, deem fit provided that the aggregate number ofshares to be issued does not exceed ten per centum of theissued share capital of the Company for the time being.”

Resolution 10

7. To transact any other ordinary business for which due noticehas been given. Resolution 11

By Order of the Board

CHUA SIEW CHUAN (MAICSA 0777689)RIZANI BIN HASSAN (LS 05125)Company Secretaries

8 September 2002Kuala Lumpur

Explanatory Notes on Item 6 of theAgenda:

Resolution pursuant to Section 132D,Companies Act, 1965.

The Ordinary Resolution proposedunder item 6 of the Agenda, if passed,will empower the Directors to issueshares in the Company up to anamount not exceeding in total 10% ofthe issued share capital of theCompany, subject to compliance withthe relevant regulatory requirements.The approval is sought to avoid anydelay and cost in convening a generalmeeting for such issuance of shares.This authority, unless revoked or variedby the Company at a general meeting,will expire at the next Annual GeneralMeeting.

Notes:1.A member of the Company entitled toattend and vote at the Meeting isentitled to appoint a proxy to attendand vote in his stead. A proxy may butneed not be a member of theCompany and a member may appointany person to be his proxy and theprovisions of Section 149(1)(b) of theCompanies Act, 1965 shall not applyto the Company. 2.In the case of a corporate member, theinstrument appointing a proxy shall beunder its Common Seal or under thehand of its officers or attorney, dulyauthorised in that behalf.3.Where a member appoints two or moreproxies, he shall specify theproportions of his shareholding to berepresented by each proxy.

4.The right of Foreigners to vote inrespect of their deposited securities issubject to Section 41(1)(e) andSection 41(2) of the Securities Industry(Central Depositories) Act, 1991 andthe Securities Industry (CentralDepositories) (Foreign Ownership)Regulations, 1996. The position ofsuch Depositors in this regard will bedetermined based on the GeneralMeeting Record of Depositors. SuchDepositors whose shares exceed theCompany’s foreign shareholding limit of45% as at the date of the GeneralMeeting Record of Depositors mayattend the above Meeting but are notentitled to vote. Consequently, a proxyappointed by such Depositor who isnot entitled to vote will also not beentitled to vote at the above Meeting.

5.The instrument appointing a proxymust be deposited at the RegisteredOffice of the Company at 33rd Floor,Bangunan MAS, Jalan Sultan Ismail,50250 Kuala Lumpur, not less than48 hours before the time for holdingthe Meeting or at any adjournmentthereof.6.Shareholders’ attention is herebydrawn to the Listing Requirements ofthe Kuala Lumpur Stock Exchange,which allows a member of theCompany which is an authorisednominee as defined under the SecuritiesIndustry (Central Depositories) Act,1991, to appoint at least one (1) proxyin respect of each securities account itholds with ordinary shares of theCompany standing to the credit of thesaid securities account.

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s ta tement accompany ingthe not ice o f the annua l genera lmeet ing

Directors standing for re-election

The Directors standing for re-election at the Thirty First Annual General Meeting of the Company to be held at Dewan Tun HusseinOnn, Level 2, Putra World Trade Centre, 41, Jalan Tun Ismail, 50480 Kuala Lumpur on Monday, 30 September 2002 at 10.00 am areas follows:-

Name of Director Details of Attendance at Details of Individual Directors andBoard Meetings Other Disclosure Requirements

Y.Bhg. Dato’ Zaharaah Binti Shaari Refer to page 14 of the Annual Report Refer to page 8 of the Annual Report(Article 139 of the Company’s Articles of Association)

Y.Bhg. Datu Dr. Hatta Bin Solhi Refer to page 14 of the Annual Report Refer to page 8 of the Annual Report(Article 139 of the Company’s Articles of Association)

Mr. Martin Gilbert Barrow Refer to page 14 of the Annual Report Refer to page 9 of the Annual Report(Article 137 of the Company’s Articles of Association)

Y.Bhg. Dato’ N. Sadasivan Refer to page 14 of the Annual Report Refer to page 9 of the Annual Reporta/l N. N. Pillay(Article 137 of the Company’s Articles of Association)

Y.Bhg. Dato’ Mohamed Azman Refer to page 14 of the Annual Report Refer to page 9 of the Annual ReportBin Yahya(Article 137 of the Company’s Articles of Association)

Y.Bhg. Datuk Kee Mustafa Refer to page 14 of the Annual Report Refer to page 10 of the Annual Report(Article 137 of the Company’s Articles of Association)

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board o f d i rec to rs

Seated from left to right

Y.Bhg. Dato’ Md. Nor Bin Md. Yusof Managing Director | Y.Bhg. Tan Sri Dato’ Seri Azizan Bin Zainul Abidin Chairman |Y.Bhg. Dato’ Zaharaah Binti Shaari Director |

Standing from left to right

Y.Bhg. Datuk Kee Mustafa Director | Y.Bhg. Dato’ N. Sadasivan a/l N. N. Pillay Director | Y.Bhg. Datu Dr. Hatta Bin Solhi Director | Mr. Keong Choon Keat Director |

Y.Bhg. Dato’ Mohamed Azman Bin Yahya Director | Mr. Martin Gilbert Barrow Director |Y.Bhg. Tan Sri Dato’ Dr. Samsudin Bin Hitam Director |

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Y.Bhg. Tan Sri Dato’ Seri Azizan BinZainul AbidinNon-Independent and Non-ExecutiveChairman (Nominee of a substantialshareholder)

Y.Bhg. Tan Sri Dato’ Seri Azizan BinZainul Abidin, aged 67, is a Malaysian. Hegraduated with a Bachelor of Arts (Hons.)from the University of Malaya, Malaysia in1959 and attended a Development andAdministration course at the OxfordUniversity, United Kingdom, Royal Collegeof Defence Studies, United Kingdom andan Advanced Management Programme atthe Harvard Business School, UnitedStates of America. He was appointedChairman of Petroliam Nasional Berhad(PETRONAS) on 10 February 1995 afterserving as President and Chief Executive

of PETRONAS from February 1988. Prior to joining PETRONAS, he served inthe Malaysian Civil Service for twenty-eight (28) years and had held variouspositions in the civil service includingSecretary to the National SecurityCouncil, Principal Private Secretary tothree (3) Prime Ministers, Secretary-General to the Ministry of Trade andIndustry and Secretary-General to theMinistry of Home Affairs. Tan Sri Dato’Seri Azizan is also the President and ChiefExecutive of Perbadanan Putrajaya whichis involved in the planning, developmentand management of Putrajaya, the newFederal Government AdministrativeCentre.

He was appointed as Chairman ofMalaysian Airline System Berhad on

15 February 2001. He is also theChairman of the Nomination Committee.Currently he sits on the board of severalpublic companies including PetroliamNasional Berhad and Group, KLCC(Holdings) Berhad, Kuala Lumpur CityCentre Berhad, Kuala Lumpur City ParkBerhad, Malaysian PhilharmonicOrchestra and Dewan FilharmonikPetronas. He attended fourteen (14) outof the fourteen (14) Board meetings heldduring the financial year (2001/2002).

Y.Bhg. Dato’ Md. Nor Bin Md. Yusof Non-Independent and Executive Director

Y.Bhg. Dato’ Md. Nor Bin Md. Yusof,aged 55, is a Malaysian. He graduatedwith a Bachelor of Commerce degreefrom the University of Otago, NewZealand and is a qualified CharteredAccountant. He has attended varioussenior management training programmesincluding the Advanced ManagementProgramme at Wharton School and aBanking and Monetary PoliciesProgramme organised by HarvardUniversity. Prior to joining MalaysiaAirlines, he was appointed the advisor tothe Ministry of Finance in May 2000,having served the Commerce AssetHoldings Berhad Group as a Directorsince 22 February 1988. His last positionwas President and Chief Executive Officerat the then Bank of Commerce Berhad(BOC). During his tenure at BOC, Dato’was also the Chairman of CommerceInternational Merchant Bankers Berhadand a Director on the Board of the Bankof Commerce (L) Ltd., Pos MalaysiaBerhad, Cagamas Bhd., Labuan OffshoreFinancial Services Authority, FinancialPark (Labuan) Sdn. Bhd. and severalother organisations. He was also amember of the Executive Committee ofthe Association of Banks Malaysia and theChairman of Banking Mediation Bureau.

He was appointed as Managing Directorof Malaysian Airline System Berhad on14 February 2001 and was recentlyappointed as a member of the Board

d i rec to rs ’ p ro f i l es

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Safety and Security Committee. Currently,he also sits on the board of LabuanOffshore Financial Services Authority. Heattended fourteen (14) out of the fourteen(14) Board meetings held during thefinancial year (2001/2002).

Y.Bhg. Tan Sri Dato’ Dr. Samsudin BinHitamNon-Independent and Non-ExecutiveDirector. (Nominee of a substantialshareholder).

Y.Bhg. Tan Sri Dato’ Dr. Samsudin BinHitam, aged 55, is a Malaysian. Hegraduated in 1970 with a Bachelor of Arts(Hons.) in Malay Studies from theUniversity of Malaya, Malaysia. He laterobtained a Master of Science inAgricultural Economics and a Doctorate inLand Resources, both from the Universityof Wisconsin, United States of America in1977 and 1986 respectively. He beganhis career with the Treasury as AssistantSecretary, Budget Division in 1970 andlater became Assistant Director, BudgetDivision in 1973. In 1980, he waspromoted to Senior Assistant Director,Budget Division. In 1986, he joined theEconomic Planning Unit (EPU) as theSecretary to the Economic Panel and wassubsequently promoted to Director ofMacroeconomics in 1987. In 1992, hewas appointed as Deputy General(Sectoral) of the EPU and subsequentlyas Deputy Director General (Macro). In1998, he was appointed as the DirectorGeneral of the EPU before moving backto the Treasury in June 2000 as theSecretary General.

He was appointed as a Director ofMalaysian Airline System Berhad on 21 July 2000. He is also a member of theBoard Audit Committee and NominationCommittee. Currently, he sits on the boardof several public companies includingPetroliam Nasional Berhad, KhazanahNasional Berhad and Bintulu PortHoldings Berhad and Group. He is also a

board member of several statutory bodiesincluding Lembaga Hasil Dalam Negeri,Kumpulan Wang Amanah Pencen andBank Negara Malaysia. He attendedthirteen (13) out of the fourteen (14)Board meetings held during the financialyear (2001/2002).

Y.Bhg. Dato’ Zaharaah Binti ShaariNon-Independent and Non-ExecutiveDirector. (Nominee of a substantialshareholder).

Y.Bhg. Dato’ Zaharaah Binti Shaari, aged53, is a Malaysian. She graduated with aBachelor of Arts (Hons.) from theUniversity of Malaya, Malaysia in 1971and later obtained a Master of Science inTransport Planning and Management fromthe Polytechnic of Central London, UnitedKingdom. She began her career with theMinistry of Transport as AssistantSecretary, Civil Aviation Division in 1971and later as Principal Assistant Secretaryin Civil Aviation Development, AirTransport and International AffairsDivision. In 1974, she became Director ofthe Air Transport and International AffairsDivision and subsequently the UnderSecretary of Aviation in the Ministry ofTransport. In 1996, she was appointed asDeputy Director of Budget, Ministry ofFinance and subsequently as Director ofBudget before assuming her presentposition as Secretary-General to theMinistry of Transport in 1999.

She was appointed as a Director ofMalaysian Airline System Berhad on1 October 1999. She is also a member ofthe Board Audit Committee andRemuneration Committee. Currently, shesits on the board of Malaysia AirportsHoldings Berhad. She is also theChairman of Bintulu Port Authority andIpoh Cargo Terminal. She attendedthirteen (13) out of the fourteen (14)Board meetings held during the financialyear (2001/2002).

Y.Bhg. Datu Dr. Hatta Bin SolhiIndependent and Non-Executive Director.(Nominee of a non-substantialshareholder).

Y.Bhg. Datu Dr. Hatta Bin Solhi, aged 58,is a Malaysian. He graduated with aBachelor of Arts (Hons.) in PoliticalScience and Sociology from the CarltonUniversity of Ottawa, Canada in 1970 andlater obtained a Master of Arts in RuralSocial Development from the University ofReading, United Kingdom and aDoctorate in Political Science(Development Studies) from the Universityof Hawaii in 1984. He attended anAdvanced Management Programme atTempleton College Oxford University in1997. He began his career in 1971 as aRural Sociologist in the Department ofAgriculture, Sarawak. From 1977 to2001, he held various management positions including Director of theMalaysian Centre for DevelopmentStudies, Prime Minister’s Department,Sarawak Branch, Deputy Director(Planning) in the Department ofDevelopment, Sarawak, Director of theState Planning Unit, Chief Minister’sDepartment, Director of Yayasan Sarawakand Deputy State Secretary of Sarawak.He retired from public service on 8 November 2001.

He was appointed as a Director ofMalaysian Airline System Berhad on1 October 1999. He is also a member ofthe Board Audit Committee and BoardSafety and Security Committee. He is aDirector of 2 other public companiesnamely, Utama Banking Group and ZeconEngineering Berhad and Chairman ofCurtin (M) Sdn. Bhd. and SarawakPlantation Berhad. He also serves as aBoard member of Sarawak EconomicDevelopment Corporation, LembagaAmanah Yayasan Sarawak and MajlisPendidikan Tinggi Negara. He attendedeleven (11) out of the fourteen (14) Boardmeetings held during the financial year(2001/2002).

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Mr. Keong Choon KeatIndependent and Non-Executive Director

Mr. Keong Choon Keat, aged 58, is aMalaysian. He is a member of theMalaysian Institute of Accountants and theMalaysian Association of Certified PublicAccountants and is a Fellow Member ofthe Institute of Chartered Accountants inEngland and Wales. He was attached toBristol Myers & Company Ltd. inMiddlesex, England as an Accountant in1968 before joining Malaysian TobaccoCompany Bhd. as an Accountant in 1969.From 1974 to 1999, he was attached toUMW Holdings Bhd. where he heldvarious management positions fromGeneral Manager to Director GroupAccounts before being promoted to theposition of an Executive Director in 1988.Upon retirement in 1999, he joined aconsultancy firm providing outplacementand career management consultancyservices in Malaysia.

He was appointed as a Director ofMalaysian Airline System Berhad on16 April 2001. He is also the Chairman ofthe Board Audit Committee and amember of the Remuneration Committee.He is a Director of several publiccompanies including JT InternationalBerhad, Chin Teck Plantations Berhad,Negri Sembilan Oil Palms Berhad,Pacificmas Bhd. and The PacificInsurance Berhad. He attended twelve(12) out of the thirteen (13) Boardmeetings held during the financial year(2001/2002) since his appointment tothe Board of Directors of Malaysian AirlineSystem Berhad.

Mr. Martin Gilbert BarrowIndependent and Non-Executive Director

Mr. Martin Gilbert Barrow, aged 58, isBritish. He graduated with Oxford andCambridge Board Examination “A” levelsin Science and Mathematics. Hesubsequently attended courses in Financeand Marketing. He joined JardineMatheson, Hong Kong, in 1965. From1975 to 1980, he was transferred to

Japan as a Managing Director of theGroup’s operations in Japan. He waspromoted to the position of a Presidentof Olayan Saudi Holding Company, theGroup’s affiliate in Saudi Arabia from1980 to 1983. He returned to HongKong as Regional Managing Director,Jardines’ operations in Hong Kong andChina in 1983 and was appointed aDirector of Jardine Matheson Ltd. at theGroup Head Office from 1989 to 2001.In addition, he was active in public serviceand was Chairman of the Hong KongTourist Association from 1988 to 1996and a member of the Aviation AdvisoryBoard. He retired from Jardine Mathesonon June 2001.

He was appointed as a Director ofMalaysian Airline System Berhad on29 August 2001 and was recentlyappointed as Chairman of the BoardSafety and Security Committee. He holdsno other Directorships in public companiesin Malaysia. He attended five (5) out ofthe seven (7) Board meetings held duringthe financial year (2001/2002) since hisappointment to the Board of Directors ofMalaysian Airline System Berhad.

Y.Bhg. Dato’ N. Sadasivan a/l N. N.PillayIndependent and Non-Executive Director

Y.Bhg. Dato’ N. Sadasivan a/l N. N.Pillay, aged 62, is a Malaysian. Hegraduated in 1963 with a Bachelor of Arts(Hons.) degree in Economics from theUniversity of Malaya, Malaysia. He beganhis career with the EconomicsDevelopment Board, Singapore asEconomist/Chief, Industrial FacilitiesDivision in 1963. From 1968 to 1995, hewas attached to the Malaysian IndustrialDevelopment Authority (MIDA) where heheld various management positions fromDirector of Division to Deputy Director-General before being promoted to theposition of Director-General in 1984.Upon retirement in 1995, he set up hisown consultancy firm, SKA ManagementConsultants Sdn. Bhd.

He was appointed as a Director ofMalaysian Airline System Berhad on1 December 2001. He is a member ofthe Board Audit Committee, NominationCommittee and Remuneration Committee.Currently, he sits on the board of severalpublic companies including ChemicalCompany of Malaysia Berhad, PetronasGas Berhad, Leader Universal HoldingsBerhad, Amanah Capital Partners Berhad,APM Automotive Holdings Berhad,Pengurusan Danaharta Nasional Berhadand Bukit Katil Resources Berhad. He isalso a member of Bank Negara Malaysia.He attended four (4) out of the four (4)Board meetings held during the financialyear (2001/2002) since his appointmentto the Board of Directors of MalaysianAirline System Berhad.

Y.Bhg. Dato’ Mohamed Azman BinYahyaIndependent and Non-Executive Director

Y.Bhg. Dato’ Mohamed Azman Bin Yahya,aged 38, is a Malaysian. He graduatedwith First Class Honours Degrees inEconomics from the London School ofEconomics & Political Science from theUniversity of London and is a member ofthe Malaysian Institute of Accountants and the Institute of Chartered Accountants inEngland and Wales. He began his careerwith KPMG in London as a CharteredAccountant in 1985. Upon his return toMalaysia in 1989, he joined the Island &Peninsular Berhad Group, a major listedproperty and plantations group. He movedon to Bumiputra Merchant BankersBerhad in 1990 heading the CorporateFinance Department and was appointedas the Chief Executive of AmanahMerchant Bank Berhad in 1994. In 1998,he was appointed as Group ExecutiveDirector of Amanah Capital Group, afinancial services and property groupinvolved in, inter-alia, investment banking,money and futures broking, financecompany, discount house operations andfund management. He was appointed theManaging Director of PengurusanDanaharta Nasional Berhad, the nationalasset management company of Malaysia,

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since its inception in 1998 prior to beingappointed as non-executive Chairman on1 August 2001. He is also the Chairmanof the Corporate Debt RestructuringCommittee.

He was appointed as a Director ofMalaysian Airline System Berhad on1 December 2001. He is also theChairman of the RemunerationCommittee. He sits on the Board ofseveral public companies including SimeDarby Berhad, Pharmaniaga Berhad,Island & Peninsular Berhad, PLUSExpressways Berhad and AE MultiHoldings Berhad. He also serves as amember of the Malaysian SteeringCommittee on Bank Restructuring, theadvisory panel for the Malaysian BankingMasterplan, the Securities CommissionCapital Market Advisory Council and theMalaysia Venture Capital ManagementBerhad. He attended four (4) out of thefour (4) Board meetings held during thefinancial year (2001/2002) since hisappointment to the Board of Directors ofMalaysian Airline System Berhad.

Y.Bhg. Datuk Kee MustafaIndependent and Non-Executive Director(Nominee of non-substantial shareholder)

Y.Bhg. Datuk Kee Mustafa, aged 52, is aMalaysian. He graduated with a Bachelorof Arts degree majoring in Anthropologyand Sociology from the University ofMalaya, Malaysia. He began his careerwith the Chief Minister’s Department,Sabah Branch as Executive Officer,Service Division, Establishment Office andlater became Principal Assistant Director,Training and Career Division,Establishment Office in 1978. In 1982,he was appointed as the PrincipalAssistant Director, Service Division,Establishment Office and subsequentlypromoted to Secretary, Internal Affairs andResearch Division in 1983. In 1984, hejoined the Sabah EnergyCorporation/Sabah Gas Industries Sdn.Bhd. as Personnel Manager/SeniorAdministration Officer and subsequently

promoted to Senior AdministrationManager in 1989. He rejoined the ChiefMinister’s Department as PrincipalAssistant Director, Research and TrainingDevelopment, Human ResourceDevelopment Bureau in 1991 and later asDirector, Resettlement Division andCabinet and Policy Division. In 1996, hewas the Permanent Secretary of theMinistry of Communication and Works andsubsequently was appointed the Director,Science and Technology Unit. In 1999, hewas appointed as Chairman of KKIPCommunications Sdn. Bhd. before movingback to the Chief Minister’s Department in2000 as Director, Public ServicesDepartment. He is currently the StateSecretary of Sabah, Chief Minister’sDepartment.

He was appointed as a Director ofMalaysian Airline System Berhad on1 December 2001. He is a member ofthe Nomination Committee. Currently, hesits on the board of several publiccompanies including Sawit KinabaluBerhad, Borneo Housing MortgageFinance Berhad and University MalaysiaSabah. He attended two (2) out of thefour (4) Board meetings held during thefinancial year (2001/2002) since hisappointment to the Board of Directors ofMalaysian Airline System Berhad.

Y.Bhg. Datuk Wan Abdul Kadir BinWan Yubi @ Datuk Wan Ali TuankuYubi

Y.Bhg. Datuk Wan Abdul Kadir Bin WanYubi @ Datuk Wan Ali Tuanku Yubi, aged53, is a Malaysian and an AlternateDirector to Y.Bhg. Datu Dr. Hatta BinSolhi. He graduated with a Bachelor ofEconomics degree from the University ofMalaya, Malaysia in 1973 and laterobtained a Master of Arts in Educationfrom the University of Birmingham in1982. He started his career as anEducation Officer at the Department ofEducation, Sarawak, a Federal Serviceappointment in 1974 and wassubsequently appointed Senior Education

Officer. In 1984, he was transferred tothe State Financial Secretary’s Office,Sarawak (Contracts). In 1987, he servedas Resident, Limbang Division in Sarawakfor a year before being posted asPermanent Secretary to the Ministry ofLand Development in 1988 where he heldthe position for four and a half years.Subsequently, he moved on to serve asthe General Manager of Land Custodyand Development Authority in 1992 andwas transferred back to the State CivilService as the Deputy State FinancialSecretary in 1994. He was promoted tothe position of State Financial Secretary in1995 where he held the post for almostsix (6) years before opting for earlyretirement from the State Civil Service inNovember 2000. He was a formerDirector of Borneo Housing MortgageFinance Berhad, Malaysian InternationalShipping Corporation Bhd., AmanahSaham Sarawak Bhd. and Sarawak OilPalms Bhd. Datuk Wan Ali is currentlythe Chief Executive Officer of SarawakEnterprise Corporation Berhad, acompany listed on the First Board of theKuala Lumpur Stock Exchange.

He was appointed as an AlternateDirector to Y.Bhg. Datu Dr. Hatta BinSolhi of Malaysian Airline System Berhadon 4 January 2000. He is also a Directorof several public companies includingCahya Mata Sarawak Berhad andSarawak Enterprise Corporation Berhadand Group. He attended four (4) out ofthe fourteen (14) Board meetings heldduring the financial year (2001/2002) onbehalf of Y.Bhg. Datu Dr. Hatta Bin Solhi.

Encik Jusof bin Ismail

Encik Jusof bin Ismail, aged 40, is aMalaysian and an Alternate Director toY.Bhg. Tan Sri Dato’ Dr. Samsudin BinHitam. He graduated with a Bachelor ofEconomics from the University of Malaya,Malaysia in 1985 and later obtained aDiploma in Public Administration from theNational Institute of Public Administration,Kuala Lumpur, Malaysia in 1987 and a

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Master of Economics at Williams College,Massachusetts, United States of America.He began his career with the Treasury asAssistant Secretary, Economic Division(Public Finance Section) in 1988. In 1997,he was transferred to the Finance Division(Privatisation Section) of Treasury asAssistant Secretary before his appointmentin 2000 as Special Officer to the SecretaryGeneral of Treasury.

He was appointed as an Alternate Directorto Y.Bhg. Tan Sri Dato’ Dr. Samsudin BinHitam of Malaysian Airline System Berhadon 28 August 2000. He did not attend anyBoard meetings held during the financialyear (2001/2002) on behalf of Y.Bhg. TanSri Dato’ Dr. Samsudin Bin Hitam.

Y.Bhg. Datuk Abdillah @ Abdullah BHassan @ S Hassan

Y.Bhg. Datuk Abdillah @ Abdullah BHassan @ S Hassan, aged 53, is aMalaysian and an Alternate Director toY.Bhg. Datuk Kee Mustafa. He graduatedwith a Bachelor of Arts (Hons.) Degreefrom the University of Malaya, Malaysia.He started his career as an AdministrativeOfficer, Chief Minister’s Department,Sabah Branch in 1974 and wassubsequently appointed as District Officer,Kudat in 1977. In 1980, he wastransferred to the Ministry of Culture,Youth and Sports as Permanent Secretary.In 1984, he served as Secretary of InternalAffairs & Research before being posted asDirector of State’s Public ServiceDepartment in 1994. Subsequently, hemoved on to serve as the Deputy StateSecretary in 1996 before assuming hispresent position as Permanent Secretary,Ministry of Finance.

He was appointed as an Alternate Directorto Y.Bhg. Datuk Kee Mustafa of MalaysianAirline System Berhad on 1 December2001. He is also a Director of severalpublic companies including SabahDevelopment Bank Berhad, BorneoHousing Mortgage Finance Berhad andPerbadanan Pinjaman Sabah. He attendedtwo (2) out of the four (4) Board meetingsheld during the financial year (2001/2002)on behalf of Y.Bhg. Datuk Kee Mustafasince his appointment to the Board ofDirectors of Malaysian Airline SystemBerhad.

None of the Directors has any familyrelationship with any Director and/ormajor shareholders nor conflict ofinterest with Malaysian AirlineSystem Berhad.

None of the Directors has ever beenconvicted for any offences (otherthan traffic offences, if any).

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corpora te in fo rmat ionas a t 1 september 2002

Board of Directors

Y.Bhg. Tan Sri Dato’ SeriAzizan Bin Zainul Abidin(Chairman)(Non-Independent and Non-Executive Chairman)

Y.Bhg. Dato’ Md. Nor BinMd. Yusof(Managing Director)(Non-Independent andExecutive Director)

Y.Bhg. Tan Sri Dato’ Dr.Samsudin Bin Hitam(Non-Independent and Non-Executive Director)

Y.Bhg. Dato’ Zaharaah BintiShaari(Non-Independent and Non-Executive Director)

Y.Bhg. Datu Dr. Hatta BinSolhi(Independent and Non-Executive Director)

Mr. Keong Choon Keat(Independent and Non-Executive Director)

Mr. Martin Gilbert Barrow(Independent and Non-Executive Director)

Y.Bhg. Dato’ N. Sadasivana/l N. N. Pillay(Independent and Non-Executive Director)

Y.Bhg. Dato’ MohamedAzman Bin Yahya(Independent and Non-Executive Director)

Y.Bhg. Datuk Kee Mustafa(Independent and Non-Executive Director)

Y.Bhg. Datuk Wan AbdulKadir Bin Wan Yubi @ DatukWan Ali Tuanku Yubi(Alternate Director to Y.Bhg.Datu Dr. Hatta Bin Solhi)(Independent and Non-Executive Director)

Encik Jusof Bin Ismail(Alternate Director to Y.Bhg.Tan Sri Dato’ Dr. SamsudinBin Hitam)(Non-Independent and Non-Executive Director)

Y.Bhg. Datuk Abdillah @Abdullah B Hassan @ SHassan(Alternate Director to Y.Bhg.Datuk Kee Mustafa)(Independent and Non-Executive Director)

Senior GeneralManagers

Dr. Mohamadon AbdullahSGM, Corporate Services

Ahmad Fuaad Bin Mohd.DahalanSGM, Sales, Distribution &Marketing

Low Chee TengChief Financial Officer

Captain Mohd Nawawi BinAwangSGM, Flight Operations

Marzida Binti Mohd NoorSGM, IT Planning & Services

Ong Jyh JongSGM, Cargo

Paul Augustus MooneySGM, Network & RevenueManagement

Tajuden Bin Abu BakarSGM, Technical & GroundOperations

General Managers

Danny KondicGM, Sales

Khoo Ewe PhungGM, Finance

Mohamed Yusof Bin AhmadMuhaiyuddinGM, Human ResourcesManagement

Mohd Roslan Bin IsmailGM, Engineering &Maintenance

Sani Bin AbdullahGM, Customer Services

Shahnaz Al-Sadat Binti TanSri Sheikh Abdul MohseinGM, Internal Audit

Shamin Ahmad BinMohammed IshaqGM, Marketing Services

Assistant GeneralManagers

Abdullah Bin MudaAGM, Flight Management

Adnan Bin ShahbudinAGM, Security & Safety

Ahmad Muzzaffar BinAhmad MustaphaAGM, CentralisedProcurement

Ahmad Shamsuddin BinMuhiyuddinAGM, Property Maintenance

Ashok Kumar a/l TekchandAGM, Operations Planning

Gan Ching KeatActing AGM, Reservations &Ticketing

Kym Joylene ClarkeAGM, Revenue Management

Liew Lup Foong, JosephineAGM, Systems, Operations &Methods

Mariah Binti ShiekhHussienAGM, Human ResourcesOperations & Systems

Md Yasin Bin BachikAGM, Pricing & Inventory

Dr. Mohd Amin Bin MohdYassin KhanAGM, Network & CapacityPlanning

Captain MohammadAzharuddin Bin OsmanAGM, Flight Operations(Operations)

Mohamad Fadzil BinMohamad AriffAGM, Property Development

Mohd Moghni Bin RahmatAGM, Engineering

Mohd. Naziruddin Bin MohdBasriAGM, ProgrammeManagement Office

Mohd Razali Bin HarunAGM, Aircraft Trading

Nadimah Binti Haji Nik MatAdeebGroup General Counsel

Suhaila Binti HjShamsuddinAGM, Service Quality

Shauqi Bin AhmadAGM, CorporateCommunications

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Shulhameed Bin MaricanAGM, Flight Operations(Inflight Services)

Zabariah Binti Md IbrahimAGM, Budget & Credit Control

Zawiah Binti Mat ArufAGM, Customer Management

Senior Managements(Overseas)

Y. Bhg. Dato' Tuan IbrahimBin Tengku AbdullahRegional GM (MiddleEast/Africa)

Y.Bhg. Dato' Abdul RashidKhan Bin Abdul RahimKhanRegional AGM (Malaysia/Asean)

Azlan Bin HussainRegional AGM (Australia/NewZealand)

George Arthur SkadiangRegional Manager (Sabah &Brunei)

Mohd Salleh Bin HajiAhmad TabraniRegional Manager (Americas)

Mohd Suffian Bin MalikRegional Manager (Sarawak/West Kalimantan)

Sharifudin Bin BapuRegional Manager (UnitedKingdom/Europe)

Syed Abdillah Bin Syed AzizRegional Manager (South Asia)

Yap Kiang ThiamRegional Manager (China/Special Administrative Region)

Company Secretaries

Chua Siew ChuanMAICSA 0777689

Rizani Bin HassanLS 05125

Registered Office

33rd Floor, Bangunan MASJalan Sultan Ismail50250 Kuala LumpurMalaysiaTel: 603 2161 0555Fax: 603 2161 3472 (Main)Fax: 603 2162 8305(Company Secretary)Website: malaysia-airlines.com

Share Registration Office

Malaysian Share RegistrationServices Sdn. Bhd.7th Floor, Exchange SquareBukit Kewangan50250 Kuala LumpurMalaysiaTel: 603 2026 8099Fax: 603 2026 3736

Auditors

Messrs. Arthur Andersen & Co.Level 23A, Menara MileniumJalan Damanlela, PusatBandar DamansaraDamansara Heights50490 Kuala LumpurMalaysiaTel: 603 2087 7000Fax: 603 2095 9076 (Main)Fax: 603 2095 9078 (Audit)

Listing

Kuala Lumpur Stock Exchange

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The Malaysia Airlines Board of Directorshas considered the manner in which it hasapplied the Principles of the MalaysianCode on Corporate Governance (“theCode”) and the extent to which it hascomplied with the Best Practices of theCode, the analysis of which is reported inthis Statement.

The Board of Directors is committed toadopting the highest standards ofcorporate governance practices in all theGroup’s activities around the world. To thisend and in line with the Group’s objectiveof exceeding best practices in theindustry, every effort has been made toevaluate and apply the relevant BestPractices of the Code for the Group.

A.Board’s Execution ofResponsibilities

The Board’s main responsibility is to leadand control the Company in an effectivemanner. The Board assures itseffectiveness of leadership and itsdischarge of responsibilities as detailedbelow.

I. Board Meetings & Attendance

There were 14 Board Meetings heldin this financial year. The Boardplanned and met every month exceptin October and December 2001.There were 4 additional Special BoardMeetings held during the year withspecific strategic agenda. Prior toeach Board meeting, each directorreceived an agenda and a full set ofBoard Papers for each agenda item.

The attendance history of eachdirector is as follows:

II. Board’s Responsibilities

The Board’s principal focus isthe overall strategic direction,development and control of theMalaysia Airlines Group. Key matterssuch as the approval of businessplans, budgets, major capitalexpenditures, assets’ acquisition anddisposal, key human resource policies,approval of annual and interim results,and succession planning for theSenior Management are reserved forthe Board. The Board’s authority isdefined in the Approving AuthorityManual approved during the financialyear. The Manual has beencommunicated to Management andtook effect as at the date of thisreport.

In each of its regularly scheduledmeetings, the Board reviews themonthly operational and financialperformance of the Group.

s ta tement oncorpora te governance

No. of MeetingsDirectors Held* Attended

Y.Bhg. Tan Sri Dato’ Seri Azizan Bin Zainul Abidin (Chairman) 14 14

Y.Bhg. Dato’ Md. Nor Bin Md. Yusof (Managing Director) 14 14

Y.Bhg. Tan Sri Dato’ Dr. Samsudin Bin Hitam (Director) 14 13

Y.Bhg. Dato’ Zaharaah Binti Shaari (Director) 14 13

Y.Bhg. Datu Dr. Hatta Bin Solhi (Director) 14 11

Mr. Keong Choon Keat (Director) 13 12

Mr. Martin Gilbert Barrow (Director) 7 5

Y.Bhg. Dato’ N. Sadasivan a/l N. N. Pillay (Director) 4 4

Y.Bhg. Dato’ Mohamed Azman Bin Yahya (Director) 4 4

Y.Bhg. Datuk Kee Mustafa (Director) 4 2

• The number of meetings attended by each director may vary according to their dates of appointment.

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The Board receives quantitative andqualitative information relating to theGroup’s performance. The Board isresponsible for identifying principalrisks and provides direction on theappropriate policies, procedures andsystems to address the risks. In thisregard, the Board is also responsiblefor reviewing the adequacy and theintegrity of the Group’s internal controlsystems including managementinformation systems and compliance.

To support the execution of itsresponsibilities, the Board establishedfocus sub-committees with specifiedterms of references. The four keysub-committees that have beenestablished are:

(a) Board Audit Committee (“BAC”)(b) Nomination Committee (“NC”)(c) Remuneration Committee (“RC”)(d) Board Safety and Security

Committee (“BSSC”)

The authority of BAC is described inthe Audit Committee’s Report as setout on pages 20 to 21. The authorityof NC and RC are described in B.II.and III below. The BSSC has beenestablished to specifically addresssafety and security risks.

The memberships of each of thesub-committees are summarised asfollows:

Directors BAC NC RC BSSC (1)

Y.Bhg. Tan Sri Dato’ Seri Azizan Bin Zainul Abidin (Chairman) C

Y.Bhg. Dato’ Md. Nor Bin Md. Yusof (Managing Director) M

Y.Bhg. Tan Sri Dato’ Dr. Samsudin Bin Hitam (Director) M M

Y.Bhg. Dato’ Zaharaah Binti Shaari (Director) M M

Y.Bhg. Datu Dr. Hatta Bin Solhi (Director) M M

Mr. Keong Choon Keat (Director) C M

Mr. Martin Gilbert Barrow (Director) C

Y.Bhg. Dato’ N. Sadasivan a/l N. N. Pillay (Director) M M M

Y.Bhg. Dato’ Mohamed Azman Bin Yahya (Director) C

Y.Bhg. Datuk Kee Mustafa (Director) M

C: ChairmanM: Member(1) Members include relevant Senior Management.

The Directors have full access to all information within the Group collectively and individually. They are entitled to and have direct accessto the advice and services of the Group’s Company Secretary.

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B.Establishing a Structure for aContinuously Effective Board

The Board’s structure is key to effectiveexecution of its responsibilities on acontinuous basis. The current structure inplace is shown below.

l. Achieving Board Balance

Board CompositionThe Board of Malaysian Airline SystemBerhad comprises ten (10) memberswith the following composition:

Category No.

Non-Executive Chairman 1

Executive Director 1

Non- Independent & Non-Executive Directors 2

Independent Directors 6

There is a clear division ofresponsibilities between the Chairmanof the Board and the ManagingDirector.

The Independent Directors constitutemore than one-third (1/3) of theBoard. The complement of Non-Executive Directors provides the Boardwith an effective mix of relatedindustry-specific knowledge and broadgovernment, business and commercialexperience. The Directors’ profiles areset out on pages 7 to 11 of this annualreport.

All Non-Executive Directors areindependent of management and freefrom any relationship, which couldinterfere with their independentjudgment. They are co-operativelyworking with the Executive Director inthe interest of the Group by providingobjective and independent judgment.

The Board is satisfied that theIndependent Directors represent theinterests of public shareholders. Dato’N. Sadasivan a/l N.N. Pillay is theIndependent Non-Executive Director towhom concerns may be conveyed insuch cases where it is deemedinappropriate for said concerns to bedealt with by the Chairman or theManaging Director.

Board’s Overall Structure and SizeThe Board believes that its current sizeand structure satisfy the requirementto fairly reflect the investment of theshareholders and that it enables theBoard to provide clear and effectiveleadership to the Group.

II. Ensuring The Board’s ContinuousEffectiveness

A Structure to Evaluate the Board’sEffectivenessA Nomination Committee wasestablished with effect from1 December 2001. The Committee’smembership shall comprise exclusivelyof Non-Executive Directors, themajority of whom are independent.Present membership of the Committeeis as shown in A.I of this Statement.

The Nomination Committee isauthorised to:(a) annually review the required mix of

skills and experience and otherqualities, including corecompetencies which Non-Executiveand Executive Directors possess;

(b) assess on an annual basis, theeffectiveness of the Board as awhole, the committees of the Boardand the contribution of eachindividual Director; and

(c) recommend to the Board onDirectorship Candidates and BoardCommittees Nominees.

Provision of Directors’ ContinuousEducationDuring the financial year, all theDirectors have attended andsuccessfully completed the MandatoryAccreditation Programme conductedby the Research Institute of InvestmentAnalysts Malaysia, an affiliate of theKuala Lumpur Stock Exchange(KLSE). The Group CompanySecretary had also conducted abriefing to all the Directors on theRevamped KLSE ListingRequirements.

As part of the continuous educationplan, Board Meetings were held invarious locations to facilitate theDirectors’ understanding of theGroup’s operations and observe theGroup’s assets. Visits to key functionalunits including the reservation callcentre, engineering, marketing,catering, flight management andinformation technology divisions plusthe resort’s site in Tanjung Rhu, wereorganised for the Board.

The Directors attended the MalaysiaAirlines Worldwide Business Forum2002 organised by the Sales,Distribution & Marketing Divisionwhere the Regional and AreaManagement were updated on thelatest developments of the Group. TheDirectors also attended the launch ofMAS Gemilang which formalised theorganisation’s improvement initiatives.

The Directors will be updated onindustry-specific developments byexternal lecturers on a periodic basis.

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III. Determination of Directors’Remuneration

A Remuneration Committee wasestablished with effect from1 December 2001. The Committee’smembership shall comprise wholly ormainly Non-Executive Directors.Present membership of the Committeeis as shown in A.I of this Statement.

The Committee is authorised to review,assess and recommend to the Boardof Directors the remunerationpackages of the directors in all forms,with other independent professionaladvice or outside advice as necessary.

The Executive Director’s remunerationcomprises basic salary and allowances.Other customary benefits to the Groupare made available as appropriate. Anysalary reviews will take into accountmarket rates and the performance ofthe individual and the Group.

The Non-Executive Directors’remuneration comprises fees andallowances. Determination of saidremuneration is balanced with theirexpected roles and responsibilitiesincluding any additional work andcontribution required.

The details of the total remunerationduring the financial year disclosed bycategory of Directors are as follows:

The Board opts not to disclose theremuneration of individual directors assuggested by the Best Practice of theCode. At this juncture, the Boardbelieves that this information will notadd significantly to the understandingand evaluation of the Group’sgovernance.

IV. Re-election of Directors

In accordance with the Company’sArticles of Association, all directorswho are appointed by the Board aresubject to election by shareholdersat the first opportunity after theirappointment and are subject to re-election at least once every three(3) years.

Basic Salary & Allowance Benefits Total

Executive Director RM600,000/- RM10,000/- RM610,000/-

Non-Executive Directors RM258,000/- - RM258,000/-

Total RM858,000/- RM10,000/- RM868,000/-

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C. Continuous Communication withShareholders

It is the Board’s responsibility to establisha communication programme with itsshareholders.

I. Dialogue with Investors

Upon announcement of the Group’squarterly results, briefings with theanalysts and the media were held.The Managing Director and SeniorManagement were present at thebriefings to clarify and explain anyissues raised by the analysts and themedia.

Special briefings were also held foranalysts and the media on specialdevelopments within the Group afterthe necessary approvals were obtainedand where applicable, the prescribedannouncements to the KLSE weremade.

The Managing Director also briefedinstitutional investors.

II. Annual General Meeting

The Annual General Meeting (“AGM”)is the principal forum for dialogue withshareholders. Notice of the AGM andannual reports are sent out toshareholders at least 21 days beforethe date of the meeting.

The Board takes the opportunity in theAGM to present the progress andperformance of the Group andprovides opportunities for shareholdersto raise questions pertaining to theGroup’s activities. An explanatorystatement to facilitate shareholders’ fullunderstanding and evaluation of theissues involved will accompany itemsof special business included in thenotice of the meeting.

The Directors will be present torespond to questions from theshareholders during the meeting.

D.Accountability & Audit

I. Financial Reporting

The Board ensures that the Group’squarterly reports to the KLSE and theannual report to shareholders present afair assessment of the Group’s positionand prospects.

The Board Audit Committee assists theBoard in scrutinising information fordisclosure in such reports and theoverall quality of the Group’s financialreporting.

II. Statement of Directors’Responsibility in Relation to theFinancial Statements

In the preparation of the financialstatements as set out on pages 41 to100 of this annual report the Directorsare of the opinion that:• the Group has used appropriate

accounting policies which have beenconsistently applied;

• reasonable and prudent judgmentand estimates were made; and

• all applicable approved accountingstandards in Malaysia have beenfollowed.

The Directors are responsible forensuring the Company maintainsaccounting records that disclose withreasonable accuracy the financialposition of the Group and theCompany and that said financialstatements comply with the CompaniesAct, 1965.

The Statement by the Directorspursuant to Section 169 of theCompanies Act, 1965 is set out onpage 53 of this annual report.

III. Internal Control

The report on the Group’s internalcontrol is presented in the Statementon Internal Control laid out on pages22 to 23 of this annual report.

IV. Relationship with the Auditors

An appropriate relationship with theGroup’s auditors is maintained throughthe BAC. The role, authority andresponsibilities of the BAC arepresented in the BAC’s Report set outon pages 20 to 21 of this annualreport.

The Group has always maintained aclose and transparent relationship withits auditors in seeking professionaladvice and ensuring compliance withthe relevant accounting standards.

This Statement is made in accordancewith the resolution of the Board ofDirectors dated 2 July 2002.

Additional Compliance Information

The following information is provided incompliance with Paragraph 9.25 of theKuala Lumpur Stock Exchange (KLSE)Listing Requirements:-

1. Variation of Results

There was no variation for the financialyear by 10% or more from any profitestimate, forecast or projection orunaudited results previously made orreleased by the Company for thefinancial year ended 31 March 2002.

2. Imposition of Sanctions/Penalties

There were no sanctions and/orpenalties (that were made public)imposed on the Company and itssubsidiaries, directors or managementby the relevant regulatory bodiesduring the financial year.

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3. Material Contracts

Save as disclosed below, there wereno other material contracts enteredinto by the Company or its subsidiaries,involving directors and majorshareholders’ interests during thefinancial year:-

(i) A Subscription Agreement dated29 August 2001 between theCompany and Intelek PerkasaBerhad (“IPB”) for the issuanceof 800 million Zero DividendRedeemable ConvertiblePreference Shares (“RCPS”) ofRM0.01 each at an issue price ofRM1.00 per RCPS to IPB. TheRCPS were issued and alloted toIPB in consideration ofRM800,000,000.00 free from allclaims, charges, liens and otherencumbramces in the manner set out in the SubscriptionAgreement and subject to theArticles of the Association of theCompany.

(ii) A Master Aircraft PurchaseAgreement dated 5 February2002 between the Company andAircraft Business Malaysia Sdn.Bhd. (“ABM”), a wholly-ownedsubsidiary of the Minister ofFinance, Incorporated in relation to the disposal of eight (8)aircraft to ABM for a total cashconsideration of RM3.867 billion.Malaysia Airlines and ABM havea common major shareholder, theMinister of Finance, Incorporated.

(iii) A Supplemental Agreementdated 28 May 2002 between theCompany and ABM, a wholly-owned subsidiary of the Ministerof Finance, Incorporated, toamend certain clauses stated inthe Master Aircraft PurchaseAgreement dated 5 February2002 between the aforesaidparties.

(iv) Lease Agreements dated 28 May 2002 and 6 June 2002between the Company and ABM,a wholly-owned subsidiary of theMinister of Finance, Incorporated,in relation to the lease of eight(8) aircraft for a lease period notexceeding 12 years.

(v) Supplemental Agreements dated30 July 2002 between theCompany and ABM, a wholly-owned subsidiary of the Ministerof Finance, Incorporated, toamend the terms of rentalrate/formula stated in the LeaseAgreements dated 28 May 2002and 6 June 2002 between theaforesaid parties.

4. Utilisation of Proceeds fromRedeemable ConvertiblePreference Shares

During the financial year ended31 March 2002, the Company issued800 million Zero Dividend RedeemableConvertible Preference Shares(“RCPS”) of RM0.01 each at an issueprice of RM1.00 each. The grossproceeds of RM800,000,000.00arising from the issuance of RCPS hasbeen utilised in the following manner:-

Note RM Million

Progress payment for the purchase of two (2) new aircraft (i) 300Working Capital (ii) 500

800

Notes:(i) The total cost of the aircraft is

approximately RM1.25 billion.Malaysia Airlines utilisedapproximately RM300 million topay the progress payment dueand the balance was financed bybank borrowings. The Companytook delivery of the two aircraft inMarch 2002 and April 2002respectively.

(ii) Proceeds for working capitalwere utilised mainly for paymentsrelating to fuel charges,personnel costs, interest expenseand aircraft maintenance.

5. Non-audit fees

The amount of non-audit fees paid andpayable to the external auditors by theGroup for the financial year ended31 March 2002 was RM2.258 million.

6. Revaluation Policy on LandedProperties

Revaluation of landed properties willonly be undertaken by the Companyupon the approval of the Board ofDirectors of the Company or shouldthere be an intended sale or should themarket values be materially changed.

7. Profit Guarantee

The Company did not give any profitguarantee during the financial year.

8. Share Buyback

There is no share buyback during thefinancial year.

9. American Depository Receipt (“ADR”) or Global DepositoryReceipt (“GDR”) Programme(as at 31 March 2002)

The Company did not sponsor anyADR or GDR programme.

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A.Establishment

The Board Audit Committee (“BAC”) wasestablished in 1992 as a sub-committee ofthe Board. During the financial year, theBoard of Directors approved a revisedterms of reference for the Committee.

B.Membership and Composition

The terms of reference provide aframework for election of the BACmembers from amongst themselves,comprising no fewer than three (3)directors, the majority of whom shall beindependent directors. The term of officeof BAC members is 3 years and they maybe re-nominated and appointed by theBoard of Directors. The Board of Directorswill review the performance of the BACand its members at least once every 3years.

The present members of the BAC are asper the table below.

The Chairman of the BAC is a member ofthe Malaysian Institute of Accountants.The Directors’ profiles are set out onpages 7 to 11 in the Annual Report.

C.Meetings

The BAC meetings shall be conducted atleast four (4) times annually, or morefrequently as circumstances dictate.

In this financial year, the BAC had9 meetings. The attendance history ofeach member is as per the table below.

The Senior Management’s representatives,the General Manager of the Internal AuditDepartment and External Auditors’representatives attend the meetings whenappropriate. Minutes of each meeting arekept and distributed to each member ofthe BAC and also to other members of theBoard of Directors. The BAC Chairmanreports on each meeting to the Board ofDirectors.

D.Objectives

The principal objectives of the BAC is toassist the Board of Directors in dischargingits statutory duties and responsibilitiesrelating to accounting and reportingpractices of the holding company and eachof its subsidiaries. In addition, the BACshall:

• evaluate the quality of the auditsperformed by the internal and externalauditors;

• provide assurance that the financialinformation presented by management isrelevant, reliable and timely;

• oversee compliance with relevant lawsand regulations and observance of aproper code of conduct; and

• determine the quality, adequacy andeffectiveness of the Group’s internalcontrol environment.

E.Authority

The BAC shall, in accordance with aprocedure to be determined by the Boardof Directors and at the expense of theCompany,

(a) investigate any activity within its termsof reference. All employees shall bedirected to co-operate as requested bymembers of the BAC.

(b) have full and unlimited/unrestrictedaccess to all information anddocuments/resources which arerequired to perform its duties as well asto the internal and external auditors andsenior management of the Companyand Group.

aud i t commi t tee ’s repor t

No. of MeetingsDirectors Classification Held* Attended

Mr. Keong Choon Keat Independent Non-Executive Director 9 9(Chairman - appointed on 16 April 2001)

Y.Bhg. Tan Sri Dato’ Dr. Samsudin Bin Hitam Non-Independent Non-Executive Director 9 8

Y.Bhg. Dato’ Zaharaah Binti Shaari Non-Independent Non-Executive Director 9 7

Y.Bhg. Datu Dr. Hatta Bin Solhi Independent Non-Executive Director 9 8

Y.Bhg. Dato’ N. Sadasivan a/l N. N. Pillay Independent Non-Executive Director 3 3(Appointed on 1 December 2001)

• The number of meetings attended by each director may vary according to their dates of appointment.

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(c) obtain, if it considers necessary,independent professional advice orother advice and to secure theattendance of outsiders with relevantexperience and expertise;

(d) be able to convene meetings with theauditors, external or internal, withoutthe attendance of the ExecutiveDirector, whenever deemed necessary;and

(e) be able to make relevant reports whennecessary to the relevant authorities ifa breach of the Listing Requirementshas occurred.

F.Duties and Responsibilities

The duties and responsibilities of the BACare to review and report to the Board ofDirectors as follows:• with the external auditors, the audit

plan;• with the external auditors, the evaluation

of the system of internal controls;• with the external auditors, the audit

report;• the quality of external auditors and

make recommendations concerningtheir appointment, termination andremuneration and to consider thenomination of a person or persons asexternal auditors;

• the liaison between the externalauditors, the management and theBoard of Directors and also theassistance given by management to theexternal auditors;

• the adequacy of the scope, functionsand resources of the internal auditfunctions and that it has the necessaryauthority to carry out its work;

• the internal audit programme,processes, results of the audit andwhether or not appropriate action istaken on the recommendations of theinternal audit function;

• the quarterly results and year-endfinancial statements prior to approval bythe Board of Directors on:-

i) major accounting policy changes.ii) significant and unusual events.iii) compliance with accounting

standards and other legalrequirements; and

• to monitor any related party transactionsthat may arise within the Group and toreport, if any, transactions between theGroup and any related party outside theGroup which are not based on arms-length terms and which aredisadvantageous to the Group.

G.Activities in this Financial Year

In this financial year, apart from reviewingthe quarterly announcements and annualfinancial statements, the BAC undertookthe following activities:• a Quality Assurance Review of the

Internal Audit Department where currentassessment of the function was carriedout to identify areas for improvementincluding its Charter, organisation andresources, scope of work andmethodology and reporting process;

• inventorisation of outstanding auditissues and consideration of resolutionsfor Management’s action; and

• identify and direct audit assignments forareas of high value assets including theresort’s development under MAS Hotels& Boutiques Sdn. Bhd. and significantoutstanding receivables.

H.Internal Audit Function

The Group has an established internalaudit function which reports to the BAC.During the financial year, a revised internalaudit charter was approved which includesthe structure to support its independence.

The internal audit function is an assuranceunit, which supports the BAC in thereview of the internal control system ofthe Group by providing an independentappraisal of control and governance andhighlighting areas for improvement. Inensuring effectiveness of the internal

control system, the function also partnerswith the Senior Management of the Groupin reviewing the internal control’simplementation for high-risk areas. Theinternal auditors consisting of members ofthe Institute of Internal Auditors strive toadopt established standards of auditing inorder to give assurance on the function’simpartiality, proficiency and dueprofessional care.

The BAC approves the Annual InternalAudit Plan. The risk-based plan isdeveloped to cover key operational andfinancial activities that are significant tothe overall performance of the Group on acyclical basis. The risk areas are classifiedagainst the following objectives:• Revenue Protection and Enhancement• Expenditure Containment• Human Resource Management• Operational Efficiency at Multi-locations• Information System Integrity

The function also executes audits on anad-hoc basis based on special requestseither by the Board of Directors or theSenior Management. Additionally, theInternal Audit works closely with theExternal Auditors to resolve any controlissues raised by them and to assist inensuring appropriate management-basedactions are taken.

In this financial year, the Internal Auditundertook 27 audit assignments coveringselected locations at CorporateHeadquarters and Stations worldwide forboth passenger and cargo businesses.The BAC receives regular reports fromthe General Manager of the Internal Auditon the results of audits performed.

The BAC reviews and approves theInternal Audit Department’s annual budgetto ensure that the function is adequatelyresourced. As at the end of the financialyear, the Department consists of 31auditors with approximately 50,000available man-hours per annum.

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A.The Board’s and Management’sResponsibility

As stated in the Statement on CorporateGovernance, the Board of Directors has anoverall responsibility for the Group’ssystem of internal control including thereview of its effectiveness.

The Board recognises the importance ofmaintaining a sound system of internalcontrol to safeguard shareholders’investments and the Group’s assets. Inexecuting this responsibility, the Board hasinstituted an internal control system, detailsof which are set out below. Further, theBoard has initiated steps to formalise a riskmanagement framework to identify the keysignificant risk areas, evaluate the impactand set policies relating to the risks andthe relevant control thereof.

Management is responsible forimplementing the Board’s policies on risksand control.

B.Malaysia Airlines Internal ControlProcesses

The Board and Management of MalaysiaAirlines are committed to implement aninternal control system to manage risksthat form threats to the Group’s continuousgrowth and financial viability.

As such, continuous actions are beingtaken to improve the policies, processes,people and structures as key elements ofinternal control. This continuousimprovement is not only to improve themanagement of existing risks but also toanticipate and manage potential risksconsidering the changes in the risk profileexperienced by the industry and theGroup.

Key elements of Malaysia Airlines’ internalcontrol system, including the processes inplace to review its adequacy, are:

i) an organisation structure that is alignedto business and operations requirementheaded by accountable DivisionalHeads;

ii) implementation of business planningfor the next financial year andintegrated budget process withestablished ownership of businessobjectives, plans and the expectedfinancial outcome. Enhancement of theprocess was undertaken in thefinancial year in conjunction with thestreamlining of the organisationstructure and Senior Management;

iii) the establishment of a ManagementCommittee comprising the SeniorManagement with responsibilities thatinclude execution of the followingcontrols:a. monthly performance reviews of

actual performance againstexpectations and budget.

b. quality assurance on key informationand performance reports to theBoard of Directors.

c. partnership with the Board AuditCommittee (“BAC”) and the InternalAudit to address any internal controlissues;

iv) clear definition of responsibilities andauthority through the ApprovingAuthority Manual (“AAM”). As anenhancement, a consolidated AAMwas approved by the Board during thefinancial year and took effect as at thedate of this report;

v) procedures with embedded internalcontrol are documented in series ofStandard Operating Manuals. Astructure for organisation-wide controland custodian of the Manuals havebeen established. Continuous effortsare undertaken to ensurestandardisation, timeliness,comprehensiveness and improvedcommunications on key internal controlprocedures including authorisation,accountability, monitoring andreconciliation processes;

vi) continuous education for employees onthe importance of governance, riskmanagement and internal control aspart of their development programme;

vii) the Internal Audit Department,reporting to the BAC, performssystematic reviews of key processesrelating to high-risk areas and assessthe effectiveness of internal controlincluding compliance. Areas forimprovement and proposedrecommendations are highlighted toSenior Management and the BAC witha periodic follow-up review on actionstaken;

viii) the BAC, on behalf of the Board,regularly reviews internal control issuesidentified in reports prepared by theinternal auditor and external auditorand the related actions taken withSenior Management. The scope of thisreview includes any significant internalcontrol aspects of issues identified inthe financial statements as disclosed inthis annual report;

ix) in its monthly meeting agenda, theBoard of Directors reviews theoperational and financial performanceof the Group. The scope of this reviewalso covers any significant internalcontrol aspects of issues identified inthe monthly performance reportsincluding any areas disclosed in thisannual report;

s ta tement on in te rna l cont ro l

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x) during the financial year, the SeniorManagement initiated steps toformalise a risk managementframework with the followingobjectives:a. to systemise a continuous process

for identifying, evaluating andmanaging the significant risks facedby the Company;

b. to provide a platform for thecommunication of risk and controlprofiles between SeniorManagement and Board ofDirectors;

c. to inculcate an organisation-wideculture of risk awareness andmanagement; and

d. to establish a documented processof control monitoring andimprovement plans.

As at the date of the report, the frameworkis currently being designed together withits organisation-wide implementation plan.

C.Design of the Internal ControlSystem

The Board and the Senior Managementendeavour to maintain an adequate systemof internal control organisation-wide withconsistent integrity designed to managerather than eliminate risk.

However, it is recognised that evaluationand implementation of the system can onlyprovide reasonable assurance of the Groupachieving its objectives. The system willnot provide absolute assurance against anymaterial loss occurrence.

The Board confirms that the system ofinternal control with the key elementshighlighted above was in place during thefinancial year, except where statedotherwise. The system is subject to regularreviews by the Board.

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100%MAS Catering Sdn. Bhd.

60%MAS Catering (Sarawak) Sdn. Bhd.

49% Aerofine Meat Sdn. Bhd.

100%Malaysia Airlines Cargo Sdn. Bhd.

100%MAS Aerotechnologies Sdn. Bhd.

100% MAS Golden Boutiques Sdn. Bhd.

100%Syarikat Pengangkutan Senai Sdn. Bhd.

80%Abacus Distribution Systems (Malaysia)Sdn. Bhd.

51%Aerokleen Services Sdn. Bhd.

100%MAS Golden Holidays Sdn. Bhd.

100%Pengangkutan Kargo Udara MAS Sdn.Bhd.

56.7%Macnet CCN (M) Sdn. Bhd.

100%Aircraft Engine Repair And Overhaul (M)Sdn. Bhd.

100%MAS Hotels And Boutiques Sdn. Bhd.

25%Signforce Sdn. Bhd.

100%MAS Academy Sdn. Bhd.

100%MAS Properties Sdn. Bhd.

100%MAS Wings of Gold Sdn. Bhd.

100%Tiara Malaysia Airlines Sdn. Bhd.

100%Kelas Services Sdn. Bhd.

100%MIR Technologies Sdn. Bhd.

100% Sepang Berhad

100%Malaysia Airlines Capital (L) Limited

Investment in Associates

30%Honeywell Aerospace Services Sdn. Bhd.

30% GE Engine Services Malaysia Sdn. Bhd.

33.33%Asian Frequent Flyer Pte. Ltd.

49%Hamilton Sundstrand Customer SupportCentre (M) Sdn. Bhd.

23.53%Pan Asia Pacific Aviation Services Limited

20%Taj Madras Flight Kitchen Limited

g roup s t ruc tu reas a t 1 september 2002

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GLASGOW

HO CHI MINH CITY

rou te network( in te rna t iona l & domest ic )

International route network

Domestic route network

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dest ina t ion l i s tas a t september 2002

INTERNATIONAL:

1. ADELAIDE2. AMMAN3. AMSTERDAM4. AUCKLAND5. BANDAR SERI BEGAWAN6. BANGALORE7. BANGKOK8. BEIJING9. BEIRUT

10. BUENOS AIRES11. BELFAST12. BRISBANE13. CAIRO14. CAPE TOWN15. CEBU16. CHENNAI17. COLOMBO18. COPENHAGEN19. DELHI20. DENPASAR21. DHAKA22. DOHA23. DUBAI24. DUBLIN25. EDINBURGH26. FRANKFURT27. FUKUOKA28. GOTHENBURG29. GUANGZHOU30. HANOI31. HELSINKI32. HO CHI MINH CITY33. HONG KONG34. HYDERABAD35. ISTANBUL36. JAKARTA37. JEDDAH

38. JOHANNESBURG39. KARACHI40. KAOHSIUNG41. LEEDS BRADFORD42. LONDON43. LOS ANGELES44. MALE45. MANCHESTER46. MANILA47. MAURITIUS48. MEDAN49. MELBOURNE50. MUMBAI51. NAGOYA52. NEW YORK53. OSAKA54. OSLO55. PARIS56. PERTH57. PHNOM PENH58. PHUKET59. PONTIANAK60. ROME61. SEOUL62. SHANGHAI63. SINGAPORE64. STOCKHOLM65. SURABAYA66. SYDNEY67. TAIPEI68. TARAKAN69. TEESSIDE70. TOKYO71. XIAMEN72. YANGON73. VIENNA74. ZURICH

DOMESTIC:

1. ALOR SETAR2. BAKALALAN3. BARIO4. BELAGA5. BINTULU6. IPOH7. JOHOR BAHRU8. KOTA BHARU9. KOTA KINABALU

10. KUALA LUMPUR11. KUALA TERENGGANU12. KUANTAN13. KUCHING14. KUDAT15. LABUAN16. LANGKAWI17. LAHAD DATU18. LAWAS19. LIMBANG20. LONG LELLANG21. LONG AKAH22. LONG BANGA23. LONG SERIDAN24. MARUDI25. MIRI26. MUKAH27. MULU28. PENANG29. SANDAKAN30. SIBU31. TAWAU32. TOMANGGONG

INTERNATIONAL 74

DOMESTIC 32(INCLUDING KUALA LUMPUR)

TOTAL 106

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a i rc ra f t f lee t

In Malaysia Airlines Leased to AverageOperation 3rd Parties Age

Malaysia Airlines-Owned Aircraft 2002 2001 2002 2001 2002 2001

B747–4H6P 15 13 5.9 5.7

B747–4H6C 2 2 12.6 11.6

B747–3H6C 1 1 15.7 14.7

B747–236 (Freighter) 2 2 4.6 3.6

B777–200 2 2 20.0 19.0

DC10–30 - 1 - 20.1

A330–300 9 10 6.8 5.8

B737–700 (BBJ) 1 1 1.6 0.6

B737–400 35 32 3 8.6 7.6

F50 10 10 12.0 11.0

DHC6 TWIN OTTER 5 5 15.9 14.9

82 79 - 3 9.1 8.4

Leased Aircraft

B747–4H6P 1 1

B747–400 (Freighter) - 1

B747–200 (Freighter) 2 2

B777–200 11 10

B737–400 4 4

DHC6 TWIN OTTER 1 1

19 19 - -

SYSTEMWIDE TOTAL 101 98 - 3 9.1 8.4

no. of aircraft as at 31 march 2002/2001

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cha i rman’s s ta tementY.Bhg. Tan Sri Dato’ Seri Azizan Bin Zainul Abidin chairman |

The year under review has been an extraordinary one for Malaysia Airlines.We began the year from an extremely fragile position having been weakenedby successive losses in the previous few years. Then during the course of theyear we experienced real trauma. Even while we were working on a recoveryplan, the airline industry was dealt an unimaginable shock from theSeptember 11 attacks in New York and Washington. The world was suddenlyplunged into a whole new dimension of political, economic and commercialafter shocks. Though the aviation industry is accustomed and inured to thesurprises and shocks of the volatile global business environment, there wasno precedent to follow in dealing with this entirely new situation. This periodwill no doubt go down in the annals of Malaysia Airlines as one of the mosttesting times in its history.

We are pleased to report that by the end of the year there was not only agrowing hope of recovery but also a realistic prospect of achieving it within areasonably short time. The year will also be remembered as the year thatspawned a turnaround strategy for the national airline that was both inspiredand doable. It summoned an innovative response by the Government and

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Malaysia Airlines that may prove to be alandmark solution more widely applicableto the structural problems faced by theairlines industry. The scheme proposedentailed separating ownership of the mainassets of the airline from its operations,achieved through the setting up of specialpurpose vehicles to purchase the assetsowned by Malaysia Airlines and leasingthem back to the airline for its operations.It was decided to separate the internationalfrom the domestic operations. Theinternational operation would be operatedby a new subsidiary. This was the crucialstrategy that paved the way for therestructuring of Malaysia Airlines andplaced it on a firmer footing to work out itsrecovery.

However, a number of concerns on thepart of the Board of Malaysia Airlines andthe Government had to be resolved in thedetailed implementation plan. The Board’smain concerns centred on three issues,namely the necessity for the new entity torenegotiate the numerous agreements andarrangements that had been entered intoby Malaysia Airlines, the practical problemsthat would be encountered in dividing thestaff between the two entities and theimpact on morale, together with theprospect of the international operationforfeiting the use of the Malaysia Airlinesbrand. A refinement of the basic conceptwas subsequently crafted byrepresentatives of both the Governmentand Malaysia Airlines, with the assistanceof the consultants engaged to help in theprocess. In the definitive restructuring planMalaysia Airlines would remain as theinternational carrier and would retain theMalaysia Airlines brand. All agreementsand arrangements entered into by MalaysiaAirlines would remain intact. MalaysiaAirlines would emerge an asset lightcompany with a healthier capital structure.At the same time a new holding company,Penerbangan Malaysia Berhad, was set upto hold the Government shares in MalaysiaAirlines. It was also decided that Malaysia

Airlines would operate the domestic sectoron behalf of Penerbangan MalaysiaBerhad. This would obviate the necessityof splitting the personnel between the twoentities, thereby allaying staff anxieties.

It is gratifying to be able to conclude thatthe restructuring plan finally approved bythe Board of Malaysia Airlines hassatisfactorily addressed the main concernsof the Board and the other interestedparties including the Government andminority shareholders. I believe that it alsomet the demand for transparency.

Right from the start of the recovery drive,various measures were instituted tostrengthen the management of thecompany, improve procedures andprocesses, enhance the capability ofMalaysia Airlines staff and upgrade thehardware and systems for greaterproductivity. In the implementation of thesemeasures the general body of MalaysiaAirlines staff came out in full support andare to be credited with a number ofcommendable initiatives. There was arenewed sense of pride and confidencethat manifested itself in a discernableimprovement of service on the ground andin the aircraft. Malaysia Airlines saw aresurgence of its credo of striving forexcellence. We can expect to see theresult in the further improvement in servicequality and in the bottom line.

I take this opportunity to thank theGovernment for the crucial decisions takenby it that enabled Malaysia Airlines toproceed with a restructuring plan bothradical and bold in its vision. I would like tocongratulate the various parties involved inputting together this innovative andcreative solution. I would also like to thankthe staff of Malaysia Airlines for rallying insupport of the recovery efforts. Theirenthusiasm and dedication augur well forthe airline.

May I thank members of the Board and themanagement for their dedication and hardwork and their faith in Malaysia Airlines’future. We are also appreciative of theloyalty shown by our shareholders. Ourthanks go to all who have made anemotional investment in the airline. It wasyour support that encouraged usthroughout, and proved a crucial factorbehind the effort to seek the best solutionto the task of rebuilding this nationalinstitution that has played a proud and vitalrole in the development of the nation, andto allow it to reassume its position as aworld class carrier.

Y.Bhg. Tan Sri Dato’ Seri Azizan Bin Zainul Abidin

Chairman

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manag ing d i rec to r ’s s ta tement

Last year was nothing if not eventful forus, climaxing as it did with the events ofSeptember 11. This constituted one ofthose mercifully rare, totally unforeseenand cataclysmic disasters whichdemonstrates how much we are exposedto externalities over which we have nocontrol, especially in a global business likeaviation. The aftermath heavily impactedairlines in particular. For us, coming as itdid, on top of an already deterioratingbalance sheet, it was critical, bringingMalaysia Airlines well within the definitionof crisis. Our financial position wasprecarious.

What matters in such a situation is not somuch the crisis but the response to it. Theyear became notable and will be recordedin our corporate history as an exercise incrisis management. I am happy today to beable to assure shareholders we have notonly come through but are now looking ata turnaround, having found what webelieve is a solution to our problems.We began strategising during the lastquarter of the year under review whichhas led to a radical plan for reorganisingour business model.

We did not seek the conventional remedy.Many airlines when similarly affected tookthe comparatively easy and obvious routeof downsizing their fleet. We wished topreserve Malaysia Airlines intact withoutsacrificing the scale of our operations. We succeeded.

I feel we have reason to be proud of whatwe did. It was a first for the airline and if itwas somewhat unconventional, it was wellwithin the recent tradition set by Malaysia(and abundantly vindicated) for financialunorthodoxy. Malaysia Airlines also in asmall way was able to demonstrate theability to think outside the box. I feel abletherefore to introduce the current reviewon a note of cautious optimism.

For the year ended 31 March 2002,Malaysia Airlines registered a loss after taxof RM835.6 million continuing the

dispiriting saga of 5 consecutive years ofheavy losses. The year had opened on asombre note with a deteriorating globaleconomy and a sluggish domesticeconomy. Fuel prices were volatile. Thencame the September setback. Operationswere severely disrupted. We saw a sharpcontraction in passenger numbers.Confidence in air travel had been sapped.The global aviation landscape had to beredrawn. We were facing an infinitely morechallenging operating and competitiveenvironment.

The plan was to rationalise both networkand fleet, enhance our revenues and boostefficiency. In August 2001, the first criticalstep was taken when we increaseddomestic fares within Peninsular Malaysia,a welcome move since the last farerevision went back to 1992.

This year’s loss on the face of it comparesunfavourably with that for the previousyear - RM835.6 million against RM417.4million which suggests we had deterioratedfurther. In both cases however, the resultswere skewed. In the previous year we hadbenefited from a windfall profit ofRM235.8 million through the sale ofaircraft and spares and from an insurancepayment of RM223.1 million (for damagedaircraft). If we adjust the results for theseexceptional gains then we would still be atpar in the present year.

By contrast moreover, and by an adverseturn of fortune, last year we had tocontend with the huge and unprecedentedsetback of September 11, the impact ofwhich, is analysed later. On balancetherefore, we may fairly claim to somedegree to have mitigated the worst.

Malaysia Airlines had already started theyear in a fairly grave position. The onset ofthe world economic slowdown saw theairline industry struggling under theweakened travel demand. A newManagement Committee was set up inJuly 2001. Its immediate priority was toaddress the company’s liquidity position to

prevent any disruption of operations.Short-terms funds amounting to RM1.6 billionwere raised through the issuance ofRedeemable Convertible PreferenceShares (RCPS) and short-termborrowings. A strategic blueprint wasdeveloped to turnaround the airline throughstringent cost-cutting measures whilstimproving productivity.

A month later everything was radicallychanged by September 11, the impact ofwhich, we now examine.

Malaysia Airlines’ system-wide passengertraffic, which had been growing steadily forthe last three years, now fell steeply andended the year down by 9.4% to34,708.5 million Revenue PassengerKilometres (“RPK”). The 2% decline priorto September dropped significantly to12.9% for the remaining seven months ofthis financial year. Capacity had to be cut.We had planned a 4.5% increase in overallseat capacity but in the end trimmed thisback to 2.6% to 52,594.9 million AvailableSeat Kilometres (“ASK”).

The toll on passenger uplift was not assevere as one may have feared. Totalpassengers carried stood at 15.7 million,a decline of some 6% over the previousyear. The figures in the domestic andinternational categories registered a fall of2.4% and 10.2% respectively. As aconsequence of this Malaysia Airlines’overall seat factor fell by 8.8 percentagepoints to 66%; the greatest reductionbeing experienced by the Asian/Africanand the Orient/North American regions at11.1 and 9.9 percentage pointsrespectively.

We were quick to respond. Weimmediately suspended flights to 12destinations. We lost no time in introducingfurther belt-tightening measures such ascutting overtime and reviewing out-sourcing contracts. These were by way ofemergency measure. But it is worth notingthat they had some early success incontaining operating losses. Despite the

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extreme speculation surroundingSeptember 11, as things worked out, theyear’s turnover at RM8.38 billion was only6.5% lower than last year’s RM8.96billion. Predictably, there had been a sharpcontraction in the last few months of 2001but in the last quarter of our financial yearwe are happy to report that the figuresreflected encouraging signs of a return oftravelling confidence.

These first measures that had been ourimmediate priority had been largelypalliative. We now began to focus on ourcore business. In December 2001, werevisited the blueprint to redraw ourstrategic plans. It was time to embark on amore fundamental turnaround initiative.Services to the suspended destinationswere gradually resumed.

We began some Balance Sheetrestructuring by entering into various saleand leaseback agreements of aircraft. Wealso commenced negotiations into sale andleaseback of our properties. We enteredinto negotiations to dispose of up to 70%of MAS Catering Sdn. Bhd.

In January 2002 we set up theRestructuring Task Force, tasked withrebuilding the airline. A vigorous audit ofour financial plight and all its repercussionssupplied the diagnosis. We now required aprescription to return to financial health.

The Task force, in the end, came up with atruly radical proposal. They first consideredan organisational restructuring. But theimpasse we had reached was mainlyfinancial. The remedy proposed was alsofinancial, a rather ingenious one at that,which deserves a place in managementliterature as a case study of corporateinnovation. We will know by this time nextyear whether it proves effective.

The Board has approved and has justformally announced the Reorganisation.Now at last we can see the light at theend of the tunnel.

It is my duty and pleasure to bringshareholders more fully into the picture.

The financial reordering involves separatingthe balance sheet from the operations, bya “virtual transfer” of assets, liabilities andfinancial responsibility for the perenniallyloss-making domestic service, all to aholding company. Malaysia Airlines willcontinue to operate the domestic sectorand will own and operate the internationaland cargo businesses. There will be nodislocation of operations and minimumdislocation to staff. Our social commitmentto our domestic obligations will besustained.

The net result is that the balance sheet iscleared. We have returned to zero gearing;which creates a platform for the moreimportant task of greater operationaleffectiveness.

Asset-light, Malaysia Airlines will now beable to operate as a fully-commercial entitybetter geared to face up to thecompetition. It will have the potential toimpact significantly on the airline’s financialhealth and enhance both its creditworthiness and shareholder value.

We have started the due process ofobtaining the formal approval of therelevant authorities and will submit the planto shareholders for final consideration andapproval in due course.

We are already heartened by hopeful signsof recovery sufficient for the Company toproject a return to profitability, albeitmodest, in the Financial Year ending 31 March 2003. Present projections seeus turning the net loss we suffered lastyear at, as now reported, RM835.6 million.to a gain of RM94.2 million resulting in anexpected Earning’s per Share of 9.3 sen.

In support of this we are pleased toannounce the first quarter results of thepresent Financial Year to June 2002. The net loss has been trimmed toRM80.8million, a drop of 75% from the

RM320.6million for the correspondingperiod last year. Earnings before interest,tax, depreciation, amortisation and rentalsrose 44% to RM408.9 million compared toRM283.3 million.

We have at the same time to recognisethat our financial condition is still serious,although the prognosis has improved. Weare relieved of the debt overhang but notof our obligation to discharge it. Theremission is for a stipulated time, pendingthe return to profitability. This we areconfident is going to happen.

The Reorganisation should not be seen asa reprieve but as having won for ourselvesa breathing space. It should in no waydeter us from shaping up to the nexturgent task of raising productivity andimproving our products, services andquality.

To this we pledge our best efforts in theyear ahead. Meanwhile, I thank theChairman Yang Berbahagia Tan Sri Dato’Seri Azizan Bin Zainul Abidin and Board fortheir support, the Management and stafffor their patience and their refusal to bedeterred by the hard times we have beenthrough, and to members of theRestructuring Task Force who have givenus fresh hope for the future.

And to shareholders, thank you for yourloyalty. We now invite you to share thecautious optimism we are permittingourselves.

Y.Bhg. Dato’ Md. Nor Bin Md. Yusof

Managing Director

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Passenger Operations

The airline industry, already strugglingunder the weak travel demand resultingfrom the onset of the world economicslowdown in 2001, suffered a furtherunprecedented setback as a result of theSeptember 11 incident in the UnitedStates of America. Malaysia Airlinessystem-wide passenger traffic, which hadbeen growing steadily for the 3-year periodprior to said incident, fell 9.4% to34,708.5 million Revenue-Passenger-Kilometers (RPK). The 2% decline prior toSeptember worsened significantly to12.9% for the last seven months ofFY2001/02. Against a decline in trafficdemand, overall seat capacity rose by2.6% to 52,594.9 million Available SeatKilometers (“ASK”), although it was lowerthan the initial planned increase of 4.5%for the year, due to a capacity cut followingthe September 11 event.

In terms of total passengers carried,Malaysia Airlines uplifted 15.7 millionpassengers in FY2001/02, a decline of6.0% over the previous year. Bothdomestic and international passenger upliftrecorded a decline of 2.9% and 8.7%respectively.

The impact of the domestic fare increase inAugust for Peninsular Malaysia was clearlyseen from the 12.6% reduction inpassengers for this region as opposed toan increase of more than 5% forPeninsular Malaysia-Sabah/Sarawak andinternal Sabah/Sarawak services.

As a consequence of the reducedpassenger uplift, Malaysia Airlines' overallseat factor fell by 8.8 % to 66% with thegreater reduction being experienced by theAsian & African and the Orient & NorthAmerican regions of 11.1 and 9.9percentage points respectively.

After a second consecutive year of strongdouble-digit recovery in 2000/01subsequent to the Asian economic crisisin 1997, system-wide passenger revenuefell by 5.0% in 2001/02 mainly due to theyear-on-year (y.o.y) decline of 8.1% inrevenue derived from international routes,which accounted for 80% of system-wide

passenger revenue in that year. The international revenue decline wasmainly due to y.o.y. contraction in loads,especially on long-haul routes to Europeand North America, which were alreadyexperiencing soft demand due to theglobal economic slowdown in thebeginning of 2001, even before tragedystruck in the third quarter.

Except for the Indian sub-continent, routes which recorded a revenue increaseof 25.6% due to the introduction of newservices to Mumbai, Bangalore andHyderabad and additional 2 times weekly services to Delhi, the remaininginternational route regions experienced a y.o.y decline in revenue from 3.7% to27.6%.

International revenue performanceworsened in the 2nd half of 2001, as aresult of the post-September 11 collapse in passenger traffic industry-wide andsuspension of the Kuala Lumpur-Dubai-Newark (KUL-DXB-EWR) vice-versa routeand services to the Middle East withrevenue and loads being lower than theprevious year on all the international routes.Yields remained stagnant/negativecompounded by the weakening trend offoreign currencies with the exception of theEuropean currency.

The domestic sector showed an increase of10.4% mainly due to yield improvementattributed to the fare revision in August2001. This was despite a load factor dropbelow 60% in Peninsular Malaysia routesbetween September to December 2001,caused by a combination of the farerevision as well as the related effects of thedecline in international passenger arrivals.It must be noted that the competition withAir Asia did not result in any significant lossin Malaysia Airlines' domestic marketshare, particularly on the major routes toPenang, Kota Kinabalu and Kuching.

Cargo Operations (MASkargo)

During the period under review, worldwidecustomer demand for imported goods andservices declined, leading to an 8.8%global shrinkage in aviation cargo handling.

r ev iew of opera t ions

3 3

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Stringent security measures introduced by the US Federation of AviationAdministration (FAA) further increasedimmediate costs. New opportunitiesemerged however, and MASkargomanaged to secure 22 charter flightsvalued at RM17 million, despite decliningyields and lowering of rates due to poordemand.

MASkargo contributed 18% of the totalturnover for Malaysia Airlines in 2001/02.Against a globally sluggish economicbackdrop in early 2001, furtherexacerbated by the September 11 tragedyand its aftermath, it is no surprise thatcargo revenue for the year registered anoverall decrease of 16.4% or RM293.1million to RM1,497.4 million as comparedto RM1,790.5 million the previous year.International operations contributed 96%of total revenue and domestic operationsthe remaining balance of 4%.

Overall yield dropped by 4% or 3 sen/Revenue Freight Tonne Kilometre (RFTK)from 75 sen/RFTK to 72 sen/RFTK asefforts were concentrated more on buildingup loads. In line with this, the load factorincreased to 59% as compared to 55.9%last year, an improvement of 5.5%. Thisimprovement in load factor surpassed theindustry increase of 5.0% as reported byAssociation of Asia Pacific Airlines (AAPA).The Orient & North American routes

registered a positive growth of 9.3% inrevenue against a backdrop of 12.9%decline in yield and 42.9% increase inAvailable Freight Tonne Kilometre (“AFTK”)due to the positioning of one B747-200Faircraft in South Korea solely to operate theKorea/United States of America vice-versaroutes, from April 2001 to December2001.

An 11.7% growth was recorded on theAsian & African routes although there wasa decrease of 4.8% in capacity providedfor this sector.

In line with the soft market conditions inthe industry, overall capacity in terms ofAFTK was reduced, prompting a decline of9.3% in 2001/02, and thereby causing asmaller decline in RFTK of 4.2%.

By region, the Orient and North Americanroutes recorded an increase of 25.5% inRFTK. This was due to increased servicesinto Kansai and the special arrangement offreighter services between South Koreaand the United States of America.

Cargo AFTK growth was also significantlyaffected by passenger aircraft deploymentstrategies as belly space contributesapproximately 64% of MASkargo capacity.RFTK grew significantly in FY 2000/01 by82% since 1997/98, but with extracapacity coming from the new passengeraircraft and three additional wet-leasedB747-200/400 freighters from Atlas AirInc. in October/November 1999, the loadfactor declined resulting in heavy losses. Inearly 2001, a programme was initiated torealign the freighter services so as to tapinto the growing market in the NorthernAsian and European sectors.

In the aftermath of September 11, a routerealignment exercise was enforced whichfurther cut down the capacity wheredemand was already declining due to theeconomic slowdown. The realignmentprogramme resulted in RM60 million dropin revenue.

The re-rationalisation of certain routes forprofitability and viability reasons and thecessation in usage of the B747-400Combi added further economic pressure.

The available capacity for the inboundEuropean leg post-September 11 wasfurther reduced due to the re-routing ofaircraft, which resulted in a morerestrictive cargo payload. A marginalincrease in load factor for 2001/02 wasrecorded compared to the previous year.

The establishment of cargo hubs inMelbourne for Australasia and Amsterdamfor Europe and the realignment of freighterscheduling in the Middle East to meetcustomer demand significantlystrengthened our strategic positioning inthese important markets. Increasedfreighter services introduced in the periodunder review to the key markets ofPenang, Shanghai and Melbourne havealso contributed strongly to ourperformance.

Network Development

In response to customer demand and toaddress changes in the aviation industry,there were substantial changes in thenetwork operations during the period underreview.

In April/May 2001, new services wereintroduced into Mumbai (4 times weekly),Bangalore (2 times weekly) andHyderabad (once a week) and thefrequency to Delhi was doubled from 2 to 4 times weekly. Services to Londonon B744s increased from 14 to 16 timesweekly on 1 June and to 18 times weeklybeginning 8 September 2001.

During the financial year, services toGuangzhou and Shanghai were increasedfrom 3 to 5 times weekly, Xiamen from 2 to 3 times weekly and Saigon from 4 to5 times weekly. Phuket services wereincreased from 10 times to 14 timesweekly while the Kuala Lumpur-Sydney-Melbourne-Kuala Lumpur service wasincreased from 6 to 7 times weekly. Thetwice-daily A330/B777 frequencies toJakarta were doubled to 4 times daily with the injection of 14 times B737-400aircraft services from January 2002. Services to Perth, Auckland, Brisbane and Surabaya were reduced from 14 to 8times, 7 to 5 times, 7 to 4 times and 10

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to 7 times weekly respectively inFY2001/02 while the services to Viennaand Zagreb were terminated in June 2001.The Hatyai and Chiangmai operations werecompletely withdrawn in April and May2001.

The indirect services from Tokyo, Nagoya,Hong Kong via Penang as well as fromTaipei via Langkawi were rerouted tooperate as non-stop flights into KualaLumpur from 28 October 2001. The routings for the two-time B777 KualaLumpur-Beirut-Cairo vice-versa and one-time A330 Kuala Lumpur-Penang-Chennai-Kuala Lumpur service were alsochanged to Kuala Lumpur-Cairo-Beirutvice-versa and Kuala Lumpur-Chennai vice-versa during the same period.

As part of Malaysia Airlines' turnaroundplan and in response to the impact ofeconomic and political events that occurredduring September 2001, the route networkwas further restructured. In this regard, 12destinations i.e. Karachi, Munich, Rome,Istanbul, Cairo, Beirut, Manchester, BuenosAires, Darwin, Cairns, Auckland and Zurichwere identified for withdrawal or suspensionduring the winter 2001 season.

However, in the wake of positivedevelopments in traffic demand arising froman improved global economy, MalaysiaAirlines gradually reinstated services to sixdestinations namely Manchester, Rome,Karachi, Istanbul, Beirut and Cairo.Meanwhile, the Auckland and Zurich flightsthat were originally planned for suspensionfrom March 2002 and April 2002 continuedoperation in the Summer 2002 schedules.Currently, most of the above services havebeen resumed with network expansionplanned for the next financial year as thepath to recovery becomes clearer.

Fleet Development

During FY 2001/02, Malaysia Airlines tookdelivery of one B777-200 in April 2001and two B747-400 aircraft in December2001 and March 2002 respectively. As partof the trade-in agreement, one B747-300

Combi aircraft was returned to Boeing inApril 2002 while another two B747-400Combi are scheduled to be returned laterthis year. Malaysia Airlines also sold oneDC10-30 aircraft on 25 September 2001.

Of the three B747 freighters leased byMASkargo, one B747-400 freighteraircraft was returned to Atlas Air inNovember 2001. Two B737-400 aircraftleased to Myanmar Airways were returnedin June and July 2001 respectively andredeployed in the service of MalaysiaAirlines while another, leased to Royal AirCambodge, was returned in October 2001.

As at 31 March 2002, the Malaysia Airlinesfleet stood at 101 aircraft, of which 41 arewide-body passenger aircraft comprising16 B747-400, two B747-400C, oneB747-300C, 13 B777-200 and nineA330-300. Fifty-six are narrow-bodyaircraft comprising 39 B737-400, oneB737-700 (BBJ), 10 F50, six DHC-6 andtwo B747-200 freighters. MASkargooperates a fleet of four B747-200freighters, including two B747-200freighters leased from Malaysia Airlines.

Code-share Agreements

In conjunction with the inauguration ofMalaysia Airlines' new services into Mumbaion 27 April 2001, Bangalore on 4 May2001 and Hyderabad on 5 May 2001, acode-share arrangement was signed withAir India covering these routes as well asthe Kuala Lumpur- Los Angeles flights. On17 December 2001 Malaysia Airlines alsoentered into a code-share agreement withQatar Airways on their 3 times weeklyDoha-Kuala Lumpur-Doha services.

Flight Management

In the FY 2001/02, flight punctualityimproved and was consistently above 87%as a result of focused monitoring of flighton-time performance (OTP) by means ofrefined Standard Operating Procedures(SOP), and by adopting the Six Sigma andChange Acceleration Process (CAP)

A N N U A L R E P O R T 2 0 0 1 / 2 0 0 2

3 5

methodologies. Based on this success, thetarget for the next FY 2002/03 has beenraised from 90% to 91%.

Engineering and Maintenance

As part of Malaysia Airlines' costrationalisation exercise, a subsidiary,

MAS Aerotechnologies Sdn. Bhd. (MASA)was re-integrated in July 2001 into theairline's engineering unit to form onedivision called Engineering andMaintenance (E&M). This has reducedconsiderable duplication of resources, workprocesses and equipment in line withE&M's initiatives to focus on improvingoperational efficiency, unit costs, servicelevels and staff productivity.

E&M identified and initiated a wide rangeof productivity improvements to cover costreduction in areas of engine and aircraftmaintenance, improvement in aircraft andcomponent turnaround time, reduction ofwastage, cost-effective inventorymanagement, improved utilisation ofresources and an expansion of in-houserepair capabilities. Of the total fortyinitiatives implemented, 25 (or 63%) havebeen satisfactorily concluded.

The engagement of Qantas ConsultingGroup to assist in the review of E&M'splanning and material processes sinceAugust 2001 resulted in 56recommendations, of which 35% havebeen implemented to date. Althoughtangible results such as improved turn-around time, lower unit costs and improvedproductivity in Heavy Maintenance inSubang will take some time to materialise,changes in the work culture and mindsetare already evident.

Proactive steps to contain factors thatdisrupted aircraft reliability have beenundertaken such as a more refinedreliability study, effective partsmodifications and by establishing closercooperation with the originating equipmentmanufacturers (OEM). This preventionsystem of maintenance has kept not onlythe fleet dispatch reliability consistentlyhigh, but also raised passenger-relateditems such as the Inflight EntertainmentSystem (IFE) serviceability rate to abovethe pre-set 99% control limit.

Sales and Marketing

The airline embarked upon an aggressiveadvertising campaign to rebuild publicawareness of it’s strength, highlighting thefrequency and destinations of its flights.The "Left for....." advertising andawareness campaign was well receivedand is the first of several conceived toboost confidence and attract newbusiness.

"Showcase Malaysia" a programmeconceived by MAS Golden Holidays,together with hoteliers in Malaysia, toentice international passengers to visitMalaysia or stopover in Malaysia while intransit to their final destinations, was asuccess. This initiative generated a total of8,126 visitors between January and March2002. Participation in the Malaysia TravelTrade Association (MATTA) Travel Fair 15 -17 March 2002 realised sales of 2,500holiday packages and over 5,000bookings, yielding a total of 21,781passengers.

Malaysia Airlines has addressed the needfor proactive promotion of Malaysia as atourist destination in line with the nationalagenda and has undertaken a variety ofinitiatives to achieve that goal. In the FY2001/02, the team cooperated closelywith the Malaysia Tourism PromotionBoard (MTPB), nationally and overseas, toenhance and develop strategies topromote tourism and build the domesticmarket.

Some of the activities undertaken in theyear under review were:

- Joint Road Show with MTPB toshowcase Malaysia as a premierdestination by co-organising the MalaysiaTruly Asia Travel Fair, Malaysia Food andCultural Promotion and major TravelTrade and Consumer Exhibitions.

- Malaysia Truly Asia Travel Fair wasorganised in 2001 in Auckland, NewZealand, and Australia cities such asSydney, Melbourne, Brisbane and Perth.

- Sponsoring overseas Travel Agents,Travel Media (Print & Electronic) toparticipate in the Mega FamiliarisationTour throughout the year and during themajor festivals in Malaysia such as HariRaya Puasa, Chinese New Year OpenHouse, the Citrawarna Festival and theMalaysia Shopping Carnival.

- Domestically, Malaysia Airlines workedwith the Sarawak Tourism Board, theSabah Tourism Promotion Corporation,Langkawi Development Authority (LADA)to promote domestic tourism throughattractive packages on offer by MASGolden Holidays.

Malaysia Airlines was the official airline forvarious sporting, arts and cultural eventsthroughout the year providing preferentialair fares or complimentary air tickets toposition Malaysia as a sporting andentertainment centre in the world. Some ofthe highlights of the year were the XXISEA Games Kuala Lumpur, theManchester United Asian Tour, the RotaxMax World Final, Langkawi, Le Tour DeLangkawi, the 10th Men's World CupHockey, Kuala Lumpur, the Malaysia GolfOpen and "Chang and Eng The Musical".

A N N U A L R E P O R T 2 0 0 1 / 2 0 0 2

3 6

Product Development

Malaysia Airlines is working towardsupgrading the First Class and BusinessClass cabin for B747s and B777s, as wellas enhancing and streamlining the InflightEntertainment System to provide in-seatAudio Video On-Demand (AVOD)facilities.

The establishment of a Visitor ServiceCentre at the Arrival Level of Kuala LumpurInternational Airport (KLIA), jointly staffedby Malaysia Airlines, Malaysia AirportsBerhad and the MTPB provides a newpoint of contact for visitors to the countryand a one-stop information service.

In August 2001, the Golden Lounge atKota Kinabalu was upgraded to incorporatethe new facilities inclusive of a bistro, achildren's nursery room, muslim prayerrooms and a business centre. The airline iscurrently upgrading its lounges in Sydneyand Los Angeles and has introduced a chefservice at its flagship Golden Lounge atKLIA.

An enhanced KLIA arrival inflight video wasintroduced in November 2001, providingadditional information for visitors andfurther promotion of the country. In thesame month an in-seat exercise video wasintroduced to raise awareness and addresspassenger concerns on Deep VeinThrombosis (DVT) Syndrome.

Frequent Flyer Programme

Malaysia Airlines' loyalty programme -'Enrich', which commenced in February1999 continues to be popular withpassengers and registered a 38%membership growth of 196,828 to271,482 by 31 March 2002. It has beenfurther enhanced by joint promotions withpremier credit card companies andincreased business partner participation.The Enrich programme has been extendedto all stations system-wide with call centreservices available 24 hours/day in KualaLumpur. The Enrich Platinum and otherenhancement programmes will beimplemented during the financial year2002/2003.

Call Centre

To further improve our services,considerable emphasis in the year underreview has been placed on Call Centreoperations. Following the successfulimplementation of call centres in KualaLumpur and Kuching, a third call centrewas established in Adelaide to handletelephone sales and services for Australiaand New Zealand. A phasedimplementation of the Adelaide Call Centrecommenced on 21 March 2001 and wascompleted on 1 May 2001. To date, theaverage number of calls per day received atthe various call centres are 11,000 (KualaLumpur), 4,000 (Kuching) and 1,800(Adelaide).

To upgrade accessibility to the KualaLumpur Call Centre, a toll-free number (1-300-88-3000) was launched on 23 November 2001, allowing Malaysiancallers to use a common number from anypart of the country. Evaluation is underwayto realize the vision of call centreglobalisation through diversion of calls fromASEAN countries to the Kuala Lumpur callcentre, diversion of USA calls to one of theexisting call centres and the establishmentof a UK/Europe call centre. Plans are alsoin progress to introduce Mandarin and Thaispeaking staff at the Kuala Lumpur callcentre to reach a larger and more diverseaudience.

Malaysia Airlines was placed second in therecent call centre competition held on 28 March 2002 by the Call CentreAssociation of Malaysia for the 'Best CallCentre of The Year Award' in the Over 50Staff Category.

Flight Operations

Malaysia Airlines signed a Memorandum ofUnderstanding with Garuda IndonesianAirlines for technical cooperation on CabinCrew deployment, especially on code-shareflights and the usage of training facilities,enhancing the smart partnership deal in theyear under review.

Another important event was the CrossPolar Trial Flight undertaken in April 2001

A N N U A L R E P O R T 2 0 0 1 / 2 0 0 2

3 7

using a B777 aircraft on delivery fromSeattle to Kuala Lumpur. Malaysia Airlineswas the first Asian airline to fly non-stopacross the North Pole using a twin engineaircraft. The potential opening of a CrossPolar route is a significant milestone incost and time saving for flights fromMalaysia or South East Asia.

In June 2001, in collaboration with theMinistry of Foreign Affairs, MalaysiaAirlines flew to Baghdad as part of the'Humanitarian and Friendship Mission'. InFebruary and March 2002, MalaysiaAirlines mounted Haj flights for pilgrimsfrom Malaysia operating a total of 28flights using Jumbo B747-400 aircraft.

Information Technology

In the period under review, MalaysiaAirlines successfully completed andintroduced Phase 1A of the IntegratedCrew Management System (ICMS)inaugurated in June 2001, enabling anincrease in productivity through crew leaveoptimisation and worldwide internet accessto the system by Malaysia Airlinestechnical and cabin crew. This isparticularly relevant to an industry wheremany employees are frequently in differentcountries and need immediate contact withthe home base.

The Inflight Catering Information System(ICIS) was introduced on 1 January 2002.The Multi-Airline Check-in System (MACS)in KL Sentral, was inaugurated forMalaysia Airlines and other airlines,becoming operational with the launch ofthe Ekspress Rail Link in April 2002. Theintroduction of the Market Information DataTransfer (MIDT) system provides access toother airlines' booking information andagents performance for use by MalaysiaAirlines' sales workforce for analysis andplanning purposes. MIDT will continue tobe rolled out at key stations.

ITPS embarked upon several major ITimprovement initiatives throughout theperiod of November 2001-February 2002to address IT service delivery issues and enable faster IT problem resolutionturnaround time and enhanced systemavailability. Specific projects include:- The IT infrastructure Upgrade Project -

this initiative has, to-date, finalised the award for Network and DesktopInfrastructure upgrade contracts andmobilised project resources. Upgrade work is expected to continue well into the next financial year.

- Project IT Align - this is an initiative to review and streamline the current IT application portfolio with the business to better support future businessrequirements. It entails reviewing the IT organisation and competencies tosupport the new IT architecture.

- A review of strategic IT partnershipoptions to leverage, improve and expedite the fulfillment of future ITrequirements in a more cost-effectivemanner. This exercise will be finalised in the next financial year.

MAS Gemilang

The "MAS Gemilang" Project was launchedin August 2001 to garner company-widesupport for the turnaround programme ofMalaysia Airlines. This project strives toenhance the airline’s performance on acontinuous basis by drawing expertise frompeople of different competencies using theSix Sigma and Quality Control Circlesmethodologies supported by the ChangeAcceleration Process. More than 100 Six

Sigma projects have so far beenundertaken and a total of 30 projectschosen for implementation. As a result,savings to Malaysia Airlines totalled RM10million last year.

Insurance

The Aviation Insurance Premium escalatedthreefold from RM37.1 million in 2001 toRM100.2 million in 2001/02. Thissubstantial increase was a direct result ofthe very difficult insurance marketworldwide, consequent upon theSeptember 11 incident.

Furthermore, Insurers globally would onlyprovide the Aviation Third Party LiabilityWar Risk coverage at a reduced limit ofUSD50 million, thus necessitating theGovernment of Malaysia to provideIndemnity to Malaysia Airlines for anamount in excess of US50 million up tomaximum US2 billion.

Catering Services

Inflight Catering at Kuala LumpurInternational Airport undertaken by MASCatering Sdn. Bhd. (MCSB) reducedoperating losses by implementingnumerous cost-saving measures like staffproductivity, maximising in-house capability,re-introducing active kitchen utilisation,wastage reduction and increased revenuefrom the sales of uplifted meals through amore dynamic marketing strategy. For theyear ended March 2002, the total loss wasthus reduced to RM35.2 million or anegative return on revenue of 18.74%from a total revenue of RM204.4 million.This was an improvement of RM34.5million or 49.48% over the previous year.

A N N U A L R E P O R T 2 0 0 1 / 2 0 0 2

3 8

8 March 2001Malaysia Airlines launched new GoldenLounge at Penang International Airport

15 March 2001Managing Director announced dynamicplan (blueprint) for Malaysia Airlines

25 March 2001MoU between Malaysia Airlines and FirstChoice Marine (Malaysia) signed

27 March 2001MASkargo launched direct freighter servicefrom Penang to Kansai

7 April 2001MAS Aerotechnologies Sdn. Bhd. hostedOpen Day

20 April 2001Launch of ‘Melaka Heritage Deals’ byMalaysia Airlines and Malacca StateGovernment

27 April 2001Inaugural Flight to Mumbai

4 May 2001Inaugural flight to Bangalore

5 May 2001Inaugural flight to Hyderabad

16 June 2001Alliance Coordination Agreement betweenMalaysia Airlines and KLM Royal DutchAirlines signed

June 2001Managing Director introduced MalaysiaAirlines Finance & Strategic Imperativesunder a turnaround programme

Managing Director unveiled new corporategovernance structure

17 July 2001MASkargo Mega Toners Awards 2000/01presented to agents

23 July 2001Managing Director announced that theGovernment has agreed to assist MalaysiaAirlines in raising domestic fares by 51.8%

1 August 2001Managing Director announced that theproceeds from issuance of 800 millionRCPS (Redeemable ConvertiblePreferential Shares) of one sen each at anissue price of RM1 were to be used to payfor the purchase of two new aircraft andact as working capital

Managing Director unveiled second levelcorporate management structure

25 September 2001Launch of MAS Gemilang

9 October 2001Malaysia Airlines participated in LangkawiInternational Maritime and AerospaceExhibition

26 November 2001Launch of Malaysia Airline’s enhancedwebsite

18 December 2001Malaysia Airlines & Qatar Airlines launchedjoint-operations services

7 January 2002Managing Director briefed staff, analystsand media on Malaysia Airlines’‘Financial Strategy and Network Revision’

Malaysia Airlines & Tourism Malaysialaunched Showcase Malaysia Phase 4

14 January 2002MAS Catering signed a CateringAgreement with Yemenia

15 January 2002Malaysia Airlines launched ShowcaseMalaysia in India

16 January 2002Malaysia Airlines launched ShowcaseMalaysia in Hong Kong

2 February 2002Malaysia Airlines launched Haj Operations

19 February 2002Signing ceremony between MalaysiaAirlines Engineering & Maintenance and Mandala Airlines on heavy maintenancecheck

15 March 2002Malaysia Airlines & Ministry of Culture, Artsand Tourism launched Matta Fair 2002

4 March 2002Signing of Agreement between KelabSukan MAS and International WARR onWorld Airline Road Race 2002

ca lendar o f events

A N N U A L R E P O R T 2 0 0 1 / 2 0 0 2

3 9

0

0.5

1.0

1.5

2.0

0.64

1.20

1.10

2.17

1.46

2.22

1.30

0.60

(0.0

4)

1.49

92/93 93/94 95/96 97/98 99/00 01/0294/95 96/97 98/99 00/01

Cash Flow Per Share (RM)

-120

-80

-40

0

40

92/93 93/94 95/96 97/98 99/00 01/0294/95 96/97 98/99 00/01

30.0

20.0

33.3

43.8

(33.

7)

(90.

9)

(33.

6)

(54.

2)

(108

.5)

1.0

Earnings/(Loss) Per Share (Sen)

d i rec to rs s tand inggroup f inanc ia l h igh l igh ts

0

2.0

4.0

6.0

92/93 93/94 95/96 97/98 99/00 01/0294/95 96/97 98/99 00/01

5.03

5.67

6.23

6.76

2.81

1.68

1.74

2.14

1.98

5.01

Net Tangible Assets Per Share (RM)

0

2

4

6

8

92/93 93/94 95/96 97/98 99/00 01/0294/95 96/97 98/99 00/01

10.0

7.0

7.5

10.0

2.0

2.0

2.0

0 02.0

Dividends Per Share (Sen)

A N N U A L R E P O R T 2 0 0 1 / 2 0 0 2

4 0

F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

f i n a n c i a l s t a t e m e n t s

42 Performance Highlights

43 Analysis of Airline Operations (including

freighter) by Geographical Route Region

44 Revenue Composition by Category 2001/02

45 Expenditure 2001/02

46 Ten-year Statistical Review of the Group

48 Corporate Charts

50 Directors’ Report

53 Statement by Directors

53 Statutory Declaration

54 Auditors’ Report

55 Balance Sheets

56 Income Statements

57 Statements of Changes in Equity

58 Consolidated Cash Flow Statement

60 Cash Flow Statement

62 Notes to the Financial Statements

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )

4 2

performance highlights

%Group 2001/02 2000/01 Change

FinancialTotal Revenue RM Million 8,695.2 9,712.1 - 10.5Total Expenditure RM Million 9,569.4 10,336.8 - 7.4Profit/(Loss) After Tax RM Million (835.6) (417.4) + 100.2Shareholders’ Funds RM Million 1,215.3 1,252.1 - 2.9

Earnings/(Losses) Per Share Sen (108.5) (54.2) + 100.2Dividend Per Share Sen - - -Cash Flow Per Share RM 1.49 (0.04) - 3,825.0

Operating StatisticsAvailable Tonne Kilometres Million 7,823.9 8,054.9 - 2.9Load Tonne Kilometres Million 5,149.9 5,379.1 - 4.3Overall Load Factor % 65.8 66.8 - 1.0 pointAvailable Seat Kilometres Million 52,594.9 51,237.5 + 2.6Passenger Kilometres Flown Million 34,708.5 38,312.6 - 9.4Passenger Load Factor % 66.0 74.8 - 8.8 points

Staff and ProductivityEmployee Strength 21,438 21,518 - 0.4Available Tonne Kilometres Per Employee 364,957 374,332 - 2.5Load Tonne Kilometres Per Employee 240,225 249,981 - 3.9

Company

Operating StatisticsAvailable Tonne Kilometres Million 6,750.1 6,705.4 + 0.7Load Tonne Kilometres Million 4,505.6 4,654.9 - 3.2Overall Load Factor % 66.7 69.4 - 2.7 pointsAvailable Seat Kilometres Million 52,594.9 51,237.5 + 2.6Passenger Kilometres Flown Million 34,708.5 38,312.6 - 9.4Passenger Load Factor % 66.0 74.8 + 8.8 pointsAircraft Utilisation (Average) Hours Per Day 10.1 10.2 - 1.0

Staff and ProductivityEmployee Strength 16,291 16,180 + 0.7Available Tonne Kilometres Per Employee 414,347 414,425 -Load Tonne Kilometres Per Employee 276,569 287,692 - 3.9

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

4 3

analysis of airline operations (including freighter) bygeographical route region

Route Revenue (RM Million) 2001/02 2000/01 % Change

Malaysia 1,326.5 1,210.5 + 9.6

Asia 2,610.7 2,707.0 - 3.6

Europe, Middle East & Africa 2,225.5 2,614.5 - 14.9

Australia & New Zealand 1,009.4 1,140.1 - 11.5

United States & Canada 524.9 476.8 + 10.1

7,697.0 8,148.9 - 5.5

Passenger Load Factor (%) 2001/02 2000/01 Points

Malaysia 69.8 79.2 - 9.4Asia 63.1 69.8 - 6.7Europe, Middle East & Africa 68.8 76.4 - 7.6Australia & New Zealand 65.8 73.9 - 8.1United States & Canada 59.9 79.2 - 19.3

66.0 74.8 - 8.8

Overall Load Factor (%) 2001/02 2000/01 Points

Malaysia 65.0 71.6 - 6.6Asia 60.3 66.1 - 5.8Europe, Middle East & Africa 67.7 67.3 + 0.4Australia & New Zealand 66.5 64.1 + 2.4United States & Canada 68.3 68.0 + 0.3

65.8 66.8 - 1.0

Route Revenue

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W ) F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

0

10

20

30

%

Malaysia Asia Europe, Middle East & Africa

Australia & New Zealand

United State &Canada

Group Company

17.3

14.9

33.9

33.2

28.9

32.1

13.1

14.0

6.8

5.8

4 4

revenue composition by category 2001/02

2001/02 2000/01 ChangeRM Million RM Million %

GroupPassenger & Excess Baggage 6,431.3 6,762.8 - 4.9Cargo & Mail 1,258.8 1,388.9 - 8.8Airport Services 92.0 103.4 - 11.0Charters 60.3 163.1 - 63.0Others 852.8 885.1 - 34.6

8,695.2 9,303.3 - 10.5

CompanyPassenger & Excess Baggage 6,431.3 6,762.8 - 4.9Cargo & Mail 900.3 768.0 + 17.2Airport Services 92.0 103.4 - 11.0Charters 39.1 10.6 + 268.9Others 547.4 1,012.2 - 45.9

8,010.1 8,657.0 - 7.5

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

Group Company

0

20

60

40

80

Passenger &Excess Baggage

Cargo & Mail Airport Services Charters Others

%

74.0

80.3

14.5

11.2

1.0

1.2

0.7

0.5

9.8

6.8

4 5

expenditure 2001/02

2001/02 2000/01 ChangeRM Million RM Million %

GroupStaff Costs 1,439.6 1,685.9 - 14.6Depreciation 1,105.5 1,066.4 + 3.7Fuel & Oil 1,945.2 2,320.5 - 16.2Ground Handling 1,105.6 1,256.3 - 12.0Hire of Aircraft 863.2 932.3 - 7.4Finance Charges 414.9 582.3 - 28.7Commission 501.7 583.0 - 13.9Others 2,193.7 1,910.1 + 14.8

9,569.4 10,336.8 - 7.4

2001/02 2000/01 ChangeRM Million RM Million %

CompanyStaff Costs 1,224.3 1,432.3 - 14.5Depreciation 1,039.4 998.5 + 4.1Fuel & Oil 1,789.4 2,041.5 - 12.3Ground Handling 1,164.6 1,217.1 - 4.3Hire of Aircraft 641.9 639.0 + 0.5Finance Charges 414.8 581.5 - 28.7Commission 444.0 517.4 - 14.2Others 1,878.3 1,598.3 + 17.2

8,596.7 9,025.6 - 4.8

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W ) F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

0

5

15

10

20

Staff Costs Depreciation Fuel & Oil GroundHandling

Hire ofAircraft

FinanceCharges

Commission Others

%

15.0

14.2

11.6

12.1

20.3

20.8

11.6

13.5

9.0

7.5

4.3

4.8

5.2

5.2

23.0

21.9

Group Company

4 6

ten-year statistical review of the group

2001/02 2000/01 1999/00

Financial *

Total Revenue (RM’000) 8,695,150 9,712,097 8,288,273 Total Expenditure (RM’000) 9,569,435 10,336,829 9,566,041 Taxation (RM’000) (14,898) 26,683 18,813 Profit/(Loss) After Tax And Exceptional Item (RM’000) (835,562) (417,428) (258,574)Shareholders’ Funds (RM’000) 1,215,290 1,252,148 3,222,276 Profit/(Loss) As A % Of Revenue (%) (9.6) (4.3) (3.1)Return On Shareholders’ Funds (%) (68.8) (33.3) (8.0)Earnings/(Loss) Per Share (sen) (108.5) (54.2) (33.6)

Production

Network Size (KM) 453,720 488,243 366,578 Time Flown (Hours) 340,741 349,352 330,205 Distance Flown (000 KM) 201,189 191,668 200,223 Available Capacity (000 TKM) 7,823,943 8,054,870 7,531,473 Available Passenger Capacity (000 Seat KM) 52,594,942 51,237,536 48,905,537

Traffic

Passenger Carried (000) 15,734 16,745 15,371 Passenger Carried (000 Pax KM) 34,708,514 38,312,570 34,930,136 Passenger Load Factor (%) 66.0 74.8 71.4 Cargo Carried (000 TKM) 1,759,209 1,837,426 1,664,600 Mail Carried (000 TKM) 2,014 1,830 2,828 Overall Load Carried (000 TKM) 5,149,942 5,379,101 4,853,377 Overall Load Factor (%) 65.8 66.8 64.5

Staff

Employee Strength (At 31 March) 21,438 21,518 21,587 Revenue Per Employee (RM’000) 406 451 384 Available Capacity Per Employee (TKM) 364,957 374,332 348,889 Load Carried Per Employee (TKM) 240,225 249,981 224,829

* Restated as per Audited Financial Statements for FY01/02 and FY00/01

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )

4 7

ten-year statistical review of the group

F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

7,536,510 7,154,024 6,563,799 5,766,365 4,902,800 4,136,800 3,802,100 8,647,874 7,991,746 6,258,561 5,515,895 4,756,600 4,132,300 3,981,700

26,961 31,277 15,434 18,131 10,623 8,456 12,471 (700,051) (259,851) 333,018 247,666 263,131 8,436 145,602

3,496,250 4,211,701 4,486,952 3,685,372 3,494,056 3,279,346 3,281,916 (9.3) (3.6) 5.1 4.3 5.4 0.2 3.8

(20.0) (6.2) 7.4 6.7 7.5 0.3 4.4 (90.9) (33.7) 43.8 33.3 19.9 1.2 30.1

361,203 362,997 352,703 353,443 308,878 294,228 264,482 306,949 303,569 291,418 279,416 242,466 224,702 210,065 189,754 174,659 166,777 156,795 130,441 118,925 111,328

6,649,146 5,528,737 5,246,353 5,381,925 4,184,923 3,509,192 3,316,09145,442,288 42,293,932 40,096,883 35,161,376 30,078,472 26,337,120 23,862,164

13,709 15,117 15,371 14,311 13,093 12,405 11,594 30,592,900 28,698,112 27,903,706 24,565,816 21,003,448 18,191,572 16,053,855

67.3 67.9 69.6 69.9 69.8 69.1 67.3 1,477,403 1,005,465 925,227 1,328,061 913,176 694,637 713,967

2,006 2,726 3,832 3,299 7,224 15,669 19,037 4,246,894 3,361,408 3,212,436 3,354,670 2,675,755 2,242,322 2,086,275

63.9 60.8 61.2 62.3 64.0 63.9 62.9

23,076 23,436 22,546 19,925 19,595 19,678 19,914 327 305 291 289 250 210 191

288,141 235,908 232,696 270,109 213,571 178,331 166,521 184,039 143,429 142,484 168,365 136,553 113,951 104,764

4 8

F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2 M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )

corporate charts

Revenue Tonne Kilometres

Overall Load Factor

Available Tonne Kilometres

0

2

4

8

6

10

Million

2001/02 2000/01 1999/00 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

7,82

4

5,15

0

8,05

5

5,37

9

7,53

1

4,85

3

6,64

9

4,03

0

6,41

1

3,88

8

6,14

9

3,70

7

5,38

2

3,35

5

4,18

5

2,67

6

3,50

9

2,24

2

3,31

6

0

2

4

8

6

10

%

2001/02 2000/01 1999/00 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

65.8

%

66.8

%

64.5

%

60.6

%

60.6

%

60.3

%

62.3

%

64.0

%

63.9

%

62.9

%

2,08

6

Overall Capacity and Demand

0

2

4

8

6

10

%

2001/02 2000/01 1999/00 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

66.0

%

74.8

%

71.4

%

67.3

%

67.9

%

69.6

%

69.9

%

69.8

%

69.1

%

67.3

%Revenue Passenger Kilometres Available Seat Kilometres

0

10

20

30

50

40

60

Million

2001/02 2000/01 1999/00 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

52,5

95

34,7

09

51,2

38

38,3

13

48,9

06

34,9

30

45,4

42

30,5

93

42,2

94

28,6

98

40,0

97

27,9

04

35,1

61

24,5

66

30,0

78

21,0

03

26,3

37

18,1

92

23,8

62

16,0

54

Passenger Load Factor

Passenger Capacity and Demand

F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

4 8

4 9

corporate charts

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W ) F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

0

1

2

3

5

4

6

RMMillion

2001/02 2000/01 1999/00 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

1,26

3

5,12

5

1,14

4

5,57

6

1,02

7

5,02

7

895

4,43

4

1,05

9

4,08

0

1,07

0

3,71

2

979

3,32

2

880

2,83

5

832

2,34

4

749

2,12

1

National Revenue International Revenue

Passenger Revenue for International and National Routes (excluding charters)

7,08

9

7,89

1

7,37

8

6,25

5

6,63

6

6,73

2

6,32

5

5,70

9

5,10

4

4,38

6

0

2

4

8

6

10

'000

2001/02 2000/01 1999/00 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

8,64

5

8,85

4

7,99

3

7,45

4

8,48

1

8,64

8

7,98

6

7,38

4

7,30

0

7,20

7

National Passengers International Passengers

Passengers Carried for International and National Routes

0

0.5

1.5

1.0

2.0

'000

2001/02 2000/01 1999/00 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94 1992/93

1,75

9

1,83

7

1,66

5

1,47

7

1,53

2

1,32

8

1,42

0

913

695

714

Cargo Carried Million Tonne Kilometres

5 0

directors’ report

The directors hereby submit their report together with the audited financial statements of the Group and the Company for the financialyear ended 31 March, 2002.

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 30 to the financial statements.

There were no significant changes in the nature of these activities during the financial year.

RESULTS

Group CompanyRM’000 RM’000

Net loss for the year (835,563) (875,901)

DIVIDENDS

No dividend was paid or declared by the Company since the end of the previous financial year. The directors do not recommend thepayment of any dividend for the current financial year.

RESERVES AND PROVISIONS

There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the statements ofchanges in equity.

BAD AND DOUBTFUL DEBTS

Before the income statements and balance sheets were made out, the directors took reasonable steps to ascertain that action had beentaken in relation to the writing off of bad debts and the provisioning for doubtful debts and satisfied themselves that all known bad debtshad been written off and that adequate provision had been made for doubtful debts.

At the date of this report, the directors are not aware of any circumstances which would render the amount written off as bad debts orprovided for as doubtful debts in the financial statements of the Group and the Company inadequate to any substantial extent.

CURRENT ASSETS

Before the income statements and balance sheets were made out, the directors took reasonable steps to ensure that any current assetswhich were unlikely to be realised in the ordinary course of business including their values as shown in the accounting records of theGroup and the Company have been written down to an amount which they might be expected so to realise.

At the date of this report, the directors are not aware of any circumstances which would render the values attributed to the currentassets in the financial statements of the Group and the Company misleading.

VALUATION METHODS

At the date of this report, the directors are not aware of any circumstances which have arisen which render adherence to the existingmethod of valuation of assets or liabilities of the Group and the Company misleading or inappropriate.

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directors’ report

CONTINGENT AND OTHER LIABILITIES

At the date of this report, there does not exist:

a) any charge on the assets of the Group or the Company which has arisen since the end of the financial year which secures theliabilities of any other person; or

b) any contingent liability of the Group or the Company which has arisen since the end of the financial year.

No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after theend of the financial year, which in the opinion of the directors, will or may substantially affect the ability of the Group or the Company tomeet their obligations when they fall due.

CHANGE OF CIRCUMSTANCES

At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or the financialstatements of the Group or the Company which would render any amount stated in the financial statements misleading.

ITEMS OF AN UNUSUAL NATURE

The results of the operations of the Group and the Company during the financial year were not, in the opinion of the directors,substantially affected by any item, transaction or event of a material and unusual nature other than as disclosed in Notes 20 and 23 tothe financial statements.

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of amaterial and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Group or theCompany for the financial year in which this report is made.

DIRECTORS

The directors who served since the date of the last report are:

Tan Sri Dato’ Seri Azizan Bin Zainul Abidin Tan Sri Dato’ Dr. Samsudin Hitam Dato’ Md Nor Bin Md Yusof Dato’ Zaharaah Shaari Datu Dr. Hatta Solhi Keong Choon Keat Martin Gilbert Barrow (appointed on 29 August, 2001)Dato’ Mohamed Azman Bin Yahya (appointed on 1 December, 2001)Dato’ N. Sadasivan a/l N.N. Pillay (appointed on 1 December, 2001)Datuk Kee Mustafa (appointed on 1 December, 2001)Datuk Wan Ali Tuanku Yubi (alternate to Datu Dr. Hatta Solhi)Jusof Bin Ismail (alternate to Tan Sri Dato’ Dr. Samsudin Hitam)Datuk Abdillah @ Abdullah B Hassan @ S Hassan (alternate director to Datuk Kee Mustafa;

appointed on 1 December, 2001)

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directors’ report

DIRECTORS’ BENEFITS

Other than those disclosed in this report and any benefit which may be deemed to have arisen by virtue of those contracts, agreementsand transactions for the rendering of services entered into in the ordinary course of business between the companies in the Group andcorporations in which certain directors are deemed to have an interest:

i) during and at the end of the financial year, no arrangements subsisted to which the Company or its subsidiaries is a party with theobject of enabling directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of theCompany or any other body corporate.

ii) since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than a benefitincluded in the aggregate amount of emoluments received or due and receivable by the directors as disclosed in Note 18 to thefinancial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of whichhe is a member, or with a company in which he has a substantial financial interest.

DIRECTORS’ INTERESTS

According to the register of directors’ shareholdings, none of the directors in office at the end of the financial year had any interests inthe shares of the Company and its related corporations during the financial year.

AUDITORS

Our auditors, Arthur Andersen & Co., retire and do not seek re-appointment. A resolution to appoint Ernst & Young will be proposed atthe forthcoming Annual General Meeting.

Signed on behalf of the Boardin accordance with a resolution of the directors

TAN SRI DATO’ SERI AZIZAN BIN ZAINUL ABIDIN

DATO’ MD NOR BIN MD YUSOF

Kuala LumpurDated: 30 July, 2002

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5 3

statement by directors

We, TAN SRI DATO’ SERI AZIZAN BIN ZAINUL ABIDIN and DATO’ MD NOR BIN MD YUSOF, being two of the directors ofMALAYSIAN AIRLINE SYSTEM BERHAD, do hereby state that, in the opinion of the directors, the financial statements set out onpages 55 to 100 give a true and fair view of the state of affairs of the Group and the Company as at 31 March, 2002 and of theirresults and their cash flows for the year then ended and have been properly drawn up in accordance with the provisions of theCompanies Act, 1965 and the applicable approved accounting standards in Malaysia.

Signed on behalf of the Board in accordance with a resolution of the directors

TAN SRI DATO’ SERI AZIZAN BIN ZAINUL ABIDIN

DATO’ MD NOR BIN MD YUSOF

Kuala LumpurDated: 30 July, 2002

statutory declaration

I, ONG LIANG HENG, the officer primarily responsible for the financial management of MALAYSIAN AIRLINE SYSTEMBERHAD, do solemnly and sincerely declare that the financial statements set out on pages 55 to 100 are, to the best of myknowledge and belief, correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of theprovisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the )abovenamed ONG LIANG HENG )at Kuala Lumpur in Wilayah Persekutuan )on 30 July, 2002 ) ONG LIANG HENG

Before me:

NADIMAH BINTI HAJI NIK ADEEB @ MAT ADEEBNo. W059Commissioner for OathsDated : 30 July, 2002

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5 4

auditors’ report

To the Shareholders ofMALAYSIAN AIRLINE SYSTEM BERHAD

We have audited the financial statements set out on pages 55 to 100. These financial statements are the responsibility of theCompany’s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with approved Standards on Auditing in Malaysia. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion:

a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and the applicableapproved accounting standards in Malaysia and give a true and fair view of:

i) the state of affairs of the Group and the Company as at 31 March, 2002 and of their results and their cash flows for the yearthen ended; and

ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and

b) the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have beenproperly kept in accordance with the provisions of the Act.

We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statementsare in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we havereceived satisfactory information and explanations required by us for these purposes.

The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and did not include anycomment made under subsection (3) of Section 174 of the Act.

Arthur Andersen & Co. Habibah bte AbdulNo. AF 0103 No. 1210/05/04(J) Chartered Accountants Partner of the Firm

Kuala LumpurDated: 30 July, 2002

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5 5

balance sheets31 march, 2002

Group CompanyNote 2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

NON-CURRENT ASSETSAircraft, property and equipment 3 12,043,892 11,430,739 11,491,067 10,898,693Investments 4 232,344 245,840 280,569 301,835Due from investee companies 5 3,524 7,750 185,185 206,213Deferred charges 6 34,984 37,591 34,984 37,591

12,314,744 11,721,920 11,991,805 11,444,332

CURRENT ASSETSInventories 7 352,127 346,345 346,753 337,872Receivables 8 1,671,051 1,584,816 1,624,034 1,519,598Cash and bank balances 9 416,376 335,950 385,304 300,655

2,439,554 2,267,111 2,356,091 2,158,125

CURRENT LIABILITIESBorrowings 10 4,287,720 1,321,002 2,860,720 1,321,002Payables 11 3,485,824 2,479,325 3,202,275 2,169,395Sales in advance of carriage 2(b)(i) 675,517 576,754 675,517 576,754Due to subsidiaries 12 - - 1,453,101 32,109Taxation 45,459 83,695 43,057 79,172

8,494,520 4,460,776 8,234,670 4,178,432

NET CURRENT LIABILITIES (6,054,966) (2,193,665) (5,878,579) (2,020,307)

6,259,778 9,528,255 6,113,226 9,424,025

REPRESENTED BY:Share capital 13 778,000 770,000 778,000 770,000Reserves 437,290 482,148 307,204 392,400

Shareholder’s equity 1,215,290 1,252,148 1,085,204 1,162,400Minority interest 13,779 12,347 - -

1,229,069 1,264,495 1,085,204 1,162,400

Due to subsidiaries 12 - - - 1,537,000Borrowings 10 4,680,289 7,829,873 4,680,289 6,292,873Deferred income 14 347,733 431,752 347,733 431,752Deferred taxation 15 2,687 2,135 - -

6,259,778 9,528,255 6,113,226 9,424,025

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The accompanying notes are an integral part of these balance sheets.

5 6

income statementsfor the year ended 31 march, 2002

Group CompanyNote 2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Revenue 16 8,377,901 8,956,145 7,718,562 7,887,927Expenditure 17 (9,154,563) (9,754,486) (8,181,866) (8,444,064)

Operating loss (776,662) (798,341) (463,304) (556,137)Finance costs - interest expense (414,872) (582,342) (414,774) (581,524)

(1,191,534) (1,380,683) (878,078) (1,137,661)Profit on sale of aircraft and spare engines 21,041 235,828 21,041 235,828Other income 19 317,249 755,952 291,521 769,100

(853,244) (388,903) (565,516) (132,733)Exceptional items 20 - - (329,000) (631,420)Share of profits of associated companies 6,751 2,268 - -

Loss before taxation (846,493) (386,635) (894,516) (764,153)Taxation 21 14,898 (26,683) 18,615 (24,178)

Loss after taxation before minority interests (831,595) (413,318) (875,901) (788,331)Minority interests (3,968) (4,109) - -

Net loss for the year (835,563) (417,427) (875,901) (788,331)

Basic loss per share (sen) 22 (108.5) (54.2)

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The accompanying notes are an integral part of these statements.

5 7

statements of changes in equityfor the year ended 31 march, 2002

Non-Distributable Distributable

Share Share General Accumulated TotalCapital Premium Reserve Losses Reserves Total

Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 April, 2000 as previously stated 770,000 1,925,214 501,530 25,532 2,452,276 3,222,276Prior year adjustments (Note 23) - - - (1,552,701) (1,552,701) (1,552,701)

At 1 April, 2000 as restated 770,000 1,925,214 501,530 (1,527,169) 899,575 1,669,575Net loss for the year - - - (417,427) (417,427) (417,427)

At 31 March, 2001 770,000 1,925,214 501,530 (1,944,596) 482,148 1,252,148

At 1 April, 2001 as previously stated 770,000 1,925,214 501,530 (1,308,290) 1,118,454 1,888,454Prior year adjustments (Note 23) - - - (636,306) (636,306) (636,306)

At 1 April, 2001 as restated 770,000 1,925,214 501,530 (1,944,596) 482,148 1,252,148Issue of share capital 8,000 790,705 - - 790,705 798,705Net loss for the year - - - (835,563) (835,563) (835,563)

At 31 March, 2002 778,000 2,715,919 501,530 (2,780,159) 437,290 1,215,290

Company

At 1 April, 2000 as previously stated 770,000 1,925,214 500,000 308,218 2,733,432 3,503,432Prior year adjustments (Note 23) - - - (1,552,701) (1,552,701) (1,552,701)

At 1 April, 2000 as restated 770,000 1,925,214 500,000 (1,244,483) 1,180,731 1,950,731Net loss for the year - - - (788,331) (788,331) (788,331)

At 31 March, 2001 770,000 1,925,214 500,000 (2,032,814) 392,400 1,162,400

At 1 April, 2001 as previously stated 770,000 1,925,214 500,000 (1,396,508) 1,028,706 1,798,706Prior year adjustments (Note 23) - - - (636,306) (636,306) (636,306)

At 1 April, 2001 as restated 770,000 1,925,214 500,000 (2,032,814) 392,400 1,162,400Issue of share capital 8,000 790,705 - - 790,705 798,705Net loss for the year - - - (875,901) (875,901) (875,901)

At 31 March, 2002 778,000 2,715,919 500,000 (2,908,715) 307,204 1,085,204

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The accompanying notes are an integral part of these statements.

5 8

consolidated cash flow statementfor the year ended 31 march, 2002

2002 2001RM’000 RM’000

CASH FLOW FROM OPERATING ACTIVITIES

Loss before taxation (846,493) (386,635)Adjustment for:Share of profit in associated companies (6,729) (2,268)Depreciation of aircraft, property and equipment 1,105,498 1,066,430Gain on sale of aircraft and spare engines (18,360) (235,828)(Gain)/loss on sale of property and equipment, other than aircraft and spare engines (538) 7,573Net claims on damaged aircraft - (223,150)Unrealised exchange gain (3,367) -Provision for doubtful debts 151,866 49,397Provision for diminution in value of investment in associated company 2,550 472Amortisation of deferred income (84,020) (85,796)Amortisation of deferred charges 2,607 2,607Aircraft spares written off 25,250 27,784Writeback of unavailed credits on sales in advance of carriage (26,328) (36,005)Interest income (50,345) (65,649)Dividend income (8,729) (10,060)Interest expense 414,872 582,343

Operating profit before working capital changes 657,734 691,215(Increase)/decrease in receivables (200,761) 142,609Increase in inventories (5,782) (9,602)Increase in payables 1,324,973 3,875Increase/(decrease) in sales in advance of carriage 125,091 (73,008)

Cash generated from operations 1,901,255 755,089Interest paid (431,904) (540,042)Taxes paid (21,256) (15,932)Aircraft maintenance paid (300,198) (233,547)

Net cash generated from/(used in) operating activities 1,147,897 (34,432)

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5 9

consolidated cash flow statementfor the year ended 31 march, 2002

2002 2001RM’000 RM’000

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of other investment (7,007) (2,190)Repayment by associated companies 4,714 5,069Proceeds from sale of other investments 25,723 28,786Purchase of aircraft, property and equipment (1,786,916) (1,130,729)Proceeds on sale of aircraft, property and equipment 61,913 1,013,108Proceeds from issuance of Redeemable Convertible Preference Shares 798,705 -Proceeds from claim on damaged aircraft - 355,217Interest received 10,763 43,694Dividend received 8,729 9,805

Net cash (used in)/generated from investing activities (883,376) 322,760

CASH FLOW FROM FINANCING ACTIVITIES

Drawdown of term loans 2,210,000 445,000Repayment of term loans (1,832,456) (782,901)Repayment of finance leases (558,285) (562,726)Dividend paid - (15,400)Dividend paid to minority interest in a subsidiary (2,536) (2,873)

Net cash used in financing activities (183,277) (918,900)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 81,244 (630,572)CASH AND CASH EQUIVALENTS AT 1 APRIL, 2001/2000 335,950 966,522

CASH AND CASH EQUIVALENTS AT 31 MARCH 417,194 335,950

CASH AND CASH EQUIVALENTS COMPRISE:

Cash and bank balances 113,057 98,222Short-term deposits 303,319 237,728

Cash and cash equivalents as previously reported 416,376 335,950Effect of exchange rate changes 818 -

Cash and cash equivalents as restated 417,194 335,950

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The accompanying notes are an integral part of this statement.

6 0

cash flow statementfor the year ended 31 march, 2002

2002 2001RM’000 RM’000

CASH FLOW FROM OPERATING ACTIVITIES

Loss before taxation (894,516) (764,153)Adjustment for:Depreciation of aircraft, property and equipment 1,039,380 998,531Gain on sale of aircraft and spare engines (18,360) (235,828)Gain on sale of property and equipment, other than aircraft and spare engines (547) (6,957)Net claims on damaged aircraft - (223,150)Gain on disposal of investment (4,746) -Loss on disposal of investment 2,050 -Unrealised exchange gain (112,550) (294,631)Provision for diminution in value of investment - 203,000Provision for doubtful debts- subsidiaries 329,000 428,420- others 148,172 44,188Amortisation of deferred income (84,020) (85,796)Amortisation of deferred charges 2,607 2,607Aircraft spares written off 25,250 27,784Transfer of property and equipment to subsidiaries 50,087 -Writeback of unavailed credits on sales in advance of carriage (26,328) (36,005)Interest income (49,383) (63,892)Dividend income (20,281) (24,570)Interest expense 414,774 581,524

Operating profit before working capital changes 800,589 551,072(Increase)/decrease in receivables (213,496) 164,791Increase in inventories (8,881) (9,992)Increase in payables 1,352,690 208,221Increase/(decrease) in sales in advance of carriage 125,091 (73,008)

Cash generated from operations 2,055,993 841,084Interest paid (431,731) (501,765)Taxes paid (17,500) (12,580)Aircraft maintenance paid (300,198) (233,547)

Net cash generated from operating activities 1,306,564 93,192

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6 1

cash flow statementfor the year ended 31 march, 2002

2002 2001RM’000 RM’000

CASH FLOW FROM INVESTING ACTIVITIES

Repayment by associated companies - 5,069Advances to subsidiaries (316,634) (211,509)Purchase of other investments - (2,085)Proceeds from sale of other investments 23,962 28,786Purchase of aircraft, property and equipment (1,749,770) (1,058,818)Proceeds on sale of aircraft, property and equipment 61,586 1,013,086Proceeds from issuance of Redeemable Convertible Preference Shares 798,705 -Proceeds from claims on damaged aircraft - 355,217Interest received 10,271 42,180Dividend received 20,281 24,315

Net cash (used in)/generated from investing activities (1,151,599) 196,241

CASH FLOW FROM FINANCING ACTIVITIES

Drawdown of term loans 2,210,000 445,000Repayment of term loans (1,721,213) (782,901)Repayment of finance leases (558,285) (562,726)Dividend paid - (15,400)

Net cash used in financing activities (69,498) (916,027)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 85,467 (626,594)CASH AND CASH EQUIVALENTS AT 1 APRIL, 2001/2000 300,655 927,249

CASH AND CASH EQUIVALENTS AT 31 MARCH 386,122 300,655

CASH AND CASH EQUIVALENTS COMPRISE:

Cash and bank balances 84,649 90,471Short-term deposits 300,655 210,184

Cash and cash equivalents as previously reported 385,304 300,655Effect of exchange rate changes 818 -

Cash and cash equivalents as restated 386,122 300,655

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The accompanying notes are an integral part of this statement.

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notes to the financial statements31 march, 2002

1 PRINCIPAL ACTIVITIES AND GENERAL INFORMATION

The Company is principally engaged in the business of air transportation and the provision of related services. The principal activitiesof the subsidiaries are described in Note 30. There were no significant changes in the nature of these activities during the financialyear.

The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Board of theKuala Lumpur Stock Exchange. The registered office of the Company is located at 33rd floor, Bangunan MAS, Jalan Sultan Ismail,50250 Kuala Lumpur.

The number of employees in the Group and the Company at the end of the financial year were 21,438 (2001 : 21,518) and 16,291(2001 : 16,180) respectively.

2 SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Accounting

i) The financial statements of the Group and the Company have been prepared under the historical cost convention unlessotherwise indicated in the accounting policies below and comply with the provisions of the Companies Act, 1965 andapplicable approved accounting standards in Malaysia.

The promulgated standard Malaysian Accounting Standards Board (“MASB”) 20: Provisions, Contingent Liabilities andContingent Assets has been adopted prior to its effective date. Early adoption of this standard resulted in adjustment to theprior year’s financial statements as shown in Note 23.

ii) As at 31 March, 2002, the Group and Company have net current liabilities of RM6,054,966,000 and RM5,878,579,000and incurred net loss for the year of RM835,563,000 and RM875,901,000 respectively.

The financial statements of the Group and the Company have been prepared on a going concern basis.

The directors have put in place the following plans to restructure the Group so as to address the Group’s obligations ashighlighted in Note 28 and 29.

b) Revenue Recognition

i) Passenger and Cargo Revenue

Passenger ticket and cargo airwaybill sales are recognised as revenue, net of discount, in the income statement when thetransportation services are rendered. The value of unutilised tickets and airwaybills is included in current liabilities as sales inadvance of carriage. Tickets and airwaybills that remain unutilised after 18 months subsequent to their respective expiry arecharged to the income statement as unavailed credits on sales in advance of carriage.

The commission on passenger ticket and airwaybill sales is charged to the income statement when the transportationservices are rendered.

ii) Engineering, Catering and Other Revenue

Engineering, catering and other revenue is recognised, net of discount, upon completion of services rendered.

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notes to the financial statements31 march, 2002

iii) Interest and Dividend Income

Interest income is recognised on an accrual basis whilst dividend income is recognised when the shareholders’ right toreceive payment is established.

c) Basis of Consolidation

Consolidated financial statements include the financial statements of the Company and all its subsidiaries. Subsidiaries are thosecompanies in which the Group has power to exercise control over the financial and operating policies so as to obtain benefitstherefrom. Companies acquired or disposed are included in the consolidated financial statements from the date of acquisition orto the date of disposal. Subsidiaries are consolidated using the acquisition method of accounting.

Intragroup transactions, balances and resulting unrealised gains are eliminated on consolidation and the consolidated financialstatements reflect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot berecovered.

The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s share of its netassets together with any unamortised balance of goodwill and exchange differences which were not previously recognised in theconsolidated income statement.

d) Associated Companies

The Group treats as associated companies those companies in which the Group has a long term equity interest and where itexercises significant influence over the financial and operating policies.

Investments in associated companies are accounted for in the consolidated financial statements by the equity method ofaccounting based on the audited or management financial statements of the associated companies.

The Group’s share of post-acquisition profits less losses of associated companies is included in the consolidated incomestatement and the Group’s interest in associated companies is stated at cost plus the Group’s share of post-acquisition retainedprofits or accumulated losses and reserves.

Unrealised gains on transactions between the Group and the associated companies are eliminated to the extent of the Group’sinterest in the associated companies. Unrealised losses are eliminated unless costs cannot be recovered.

The difference between the purchase consideration and the fair value of net assets acquired is reflected as goodwill or reserveon acquisition and is not amortised.

e) Investments

Investments in subsidiaries, associated companies, jointly controlled entities and other non-current investments are stated atcost less provision for any permanent diminution in value. Such provision is made when there is a decline other than temporaryin the value of investments and is recognised as an expense in the period in which the decline occurred. On disposal of aninvestment, the difference between net disposal proceeds and its carrying amount is charged or credited to the incomestatement.

f) Forward Contracts and Fuel Hedging

Gains or losses arising from forward contracts on foreign currencies and fuel are recognised upon maturity in the incomestatement as realised exchange differences and a component of fuel costs respectively.

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notes to the financial statements31 march, 2002

g) Currency Conversion and Translation

Transactions in foreign currencies are converted into Ringgit Malaysia at rates of exchange ruling at the transaction dates, unlesshedged by forward foreign exchange contracts in which case the rates specified in the forward contracts are used.

Monetary assets and liabilities in foreign currencies at the balance sheet date are translated into Ringgit Malaysia at rates ofexchange ruling at that date, unless hedged by forward foreign exchange contracts in which case the rates specified in suchforward contracts are used. All exchange differences are taken to the income statement other than those arising from thetranslation of long-term monetary liabilities in foreign currencies, the treatment of which is as described below.

In prior years, the Directors applied the transitional provisions of the MASB 6:The Effects of Changes in Foreign ExchangeRates, whereby for long-term monetary liabilities in foreign currencies, the unrealised exchange differences arising fromtranslation are transferred to an Exchange Fluctuation Account and are amortised over the remaining lives of the liabilities.

In the current financial year, the Group and the Company changed their accounting policy with respect to recognition ofexchange differences on translation of long-term monetary liabilities in foreign currencies whereby all exchange differences aretaken to the income statement. This change is in compliance with the requirement of MASB 6. This change in accounting policyhas been accounted retrospectively. The effects of this change are disclosed in Note 23.

The financial statements of foreign associated companies are translated at year-end exchange rates with respect to the balancesheet and at exchange rates at the dates of the transactions with respect to the income statement. All resulting translationdifferences are taken to the income statement.

The principal exchange rates for every unit of foreign currency ruling at balance sheet date are as follows:2002 2001

RM RM

United States Dollar 3.8004 3.8004Euro Dollar 3.3114 3.4569British Pound 5.4121 5.4293French Franc 0.5048 0.5111Japanese Yen 0.0285 0.0307Australian Dollar 2.2074 1.9943

h) Aircraft, Property and Equipment and Depreciation

Aircraft, property and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. Thecarrying values of aircraft, property and equipment are reviewed for impairment when there is an indication that the assets mightbe impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts.

An impairment loss is charged to the income statement immediately. Subsequent increase in the recoverable amount of an assetis treated as reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the assets thatwould have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal isrecognised in the income statement immediately.

Depreciation of aircraft, property and equipment is provided on a straight line basis to write-off the cost of each asset up to itsresidual value over the estimated useful life at the following annual rates:

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notes to the financial statements31 march, 2002

i) Aircraft and Spare Engines

Aircraft and spare engines are depreciated over their estimated useful commercial lives having regard to their plannedwithdrawal from service. Life-years and residual values are as follows:

Residual value as aLife-years percentage of cost

%

Boeing 777 15 20Boeing 747 7 - 15 20Boeing Business Jet 15 20Airbus A330-300 15 20DC10-30 7 - 15 20Boeing 737 10 20Fokker F50 10 20Twin Otter 7 20Spare engines 7 - 15 Nil

ii) Aircraft Spares

Repairable and rotable aircraft spares are depreciated over the estimated useful commercial lives of the aircraft to whichthey relate.

iii) Land and Buildings

Freehold land is not depreciated. Leasehold land is depreciated over the lease period.

Buildings are depreciated over periods ranging from 3 to 99 years.

Certain leasehold land and buildings of the Company were revalued by the Directors in 1985 based upon a valuation reportdated 15 November, 1984 prepared by the Government Valuers using the “Open Market Value” basis. The Directors havenot adopted a policy of regular revaluations of these assets. As permitted under the transitional provisions of InternationalAccounting Standard No. 16 (Revised): Property, Plant and Equipment as adopted by the Malaysian Accounting StandardsBoard, these assets continue to be stated at their 1985 valuation less accumulated depreciation.

iv) Operating Equipment, Office Equipment and Motor Vehicles

Depreciation of operating equipment, office equipment and motor vehicles is based on their estimated useful lives whichrange from 2 to 10 years.

v) Progress Payments on Aircraft, Simulators and Properties Under Construction

Progress payments on aircraft, simulators and properties under construction are stated at cost and are not depreciated untilthe respective assets are ready for their intended use.

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notes to the financial statements31 march, 2002

i) Inventories

Inventories comprising consumable aircraft spares and general and catering stores are stated at the lower of cost (determined ona weighted average basis) and net realisable value.

j) Deferred Taxation

Deferred taxation is provided under the liability method for all material timing differences except where there is reasonableevidence that these timing differences will not reverse.

k) Leases

i) Finance Lease

Leases of assets under which the Group assumes substantially all the benefits and risks of ownership are classified asfinance leases.

The cost of assets acquired under finance lease agreements is capitalised. The depreciation policy on these assets is similarto that of the Group’s other assets as set out in (h) above. Outstanding obligations due under the lease agreements afterdeducting finance expenses are included as liabilities in the financial statements. The finance expenses are charged to theincome statement over the period of the respective agreements using the sum-of-digit method.

ii) Operating Lease

Lease of assets under which all the risks and benefits of ownership are retained by the lessor are classified as operatingleases.

Lease rental payments on operating leases are charged to the income statement in the year in which they are incurred.

l) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and at bank and deposits at call and short-term highly liquid investments whichhave an insignificant risk of changes in value.

m) Deferred Income and Charges

The profits arising from the sale of aircraft leased back and upfront benefits arising from the defeasance of finance leases havebeen deferred and amortised over the primary periods of the respective leases on a straight line basis.

Interest prepaid on a term loan has been amortised over the primary period of the loan on a straight line basis.

n) Trade and Other Receivables

Trade and other receivables are carried at anticipated realisable values. Bad debts are written-off when identified. An estimate ismade for doubtful debts based on review of all outstanding amounts as at the balance sheet date.

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notes to the financial statements31 march, 2002

o) Provisions for Liabilities

Provisions for liabilities are recognised when the Group and the Company have a present obligation as a result of a past eventand it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and areliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect thecurrent best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value ofthe expenditure expected to be required to settle the obligation.

p) Aircraft Maintenance and Overhaul Costs

The costs of maintenance and overhaul conducted using the Group’s own resources are charged to the income statement asand when the costs are incurred. These include the costs of labour and replacement parts.

In prior years, provisions for the costs of heavy maintenance and overhaul conducted outside the Group were accrued on thebasis of the number of hours flown and estimated costs of maintenance and overhaul.

During the current financial year, the Group and the Company changed its accounting policy with respect to provision for heavyaircraft maintenance and overhaul costs. The Group and the Company have changed their accounting policy to recognise aircraftmaintenance and overhaul cost expenses based on the basis described in Note 2(o) pursuant to MASB 20 : Provisions,Contingent Liabilities and Contingent Assets. The change in accounting policy has been accounted for retrospectively and theeffects of this change are disclosed in Note 23.

q) Development and Training Costs

Development and training costs are charged to the income statement in the year in which they are incurred.

r) Capitalisation of Borrowing Costs

Interests on term loans obtained to finance progress payments for aircraft purchases and properties under construction arecapitalised as progress payments in the property, plant and equipment until the aircraft and buildings are ready for their intendeduse. Interest costs incurred thereafter, are charged to the income statement.

s) Frequent Flyer Programmes

The Company operates its own frequent flyer programme named “Enrich” which awards members based on accumulatedmileage. The Company accrues for the liability under the programme and charges to the income statement the amount equal tothe kilometres earned multiplied by the applicable rates. Upon redemption by members or expiration of the mileage awards, theaccrual is reduced accordingly.

t) Segmental Information

Operating profit resulting from revenue generated in each geographic area according to origin of sale is not disclosed in Note 24as it is neither practical nor meaningful to allocate operating costs on that basis.

The principal assets of the Group comprise the aircraft fleet. Since the Group’s aircraft fleet is employed flexibly across itsworldwide route network, there is no suitable basis of allocating such assets and related liabilities to geographical segments.

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6 8

notes to the financial statements31 march, 2002

3 AIRCRAFT, PROPERTY AND EQUIPMENT

Operatingequipment,

office Aircraft, equipment

Land and engines and motor Progress Group buildings and spares vehicles payments Total

RM’000 RM’000 RM’000 RM’000 RM’000

Cost/Valuation

At 1 April, 2001 2,119,507 13,973,122 1,504,311 1,237,813 18,834,753Additions 3,613 57,088 29,307 1,696,908 1,786,916Disposals (2,433) (106,931) (10,865) - (120,229)Transfers 177,729 1,148,790 103,982 (1,430,501) -Write-offs - (35,456) - - (35,456)

At 31 March, 2002 2,298,416 15,036,613 1,626,735 1,504,220 20,465,984

Accumulated Depreciation

At 1 April, 2001 462,882 5,985,509 955,623 - 7,404,014Charge for the year 139,218 809,019 157,261 - 1,105,498 Disposals (658) (66,128) (10,428) - (77,214)Write-offs - (10,206) - - (10,206)

At 31 March, 2002 601,442 6,718,194 1,102,456 - 8,422,092

Net Book Value

At 31 March, 2002At cost 1,646,931 8,318,419 524,279 1,504,220 11,993,849At valuation 50,043 - - - 50,043

1,696,974 8,318,419 524,279 1,504,220 12,043,892

At 31 March, 2001At cost 1,603,689 7,987,613 548,688 1,237,813 11,377,803At valuation 52,936 - - - 52,936

1,656,625 7,987,613 548,688 1,237,813 11,430,739

Depreciation charge for 2001 64,041 876,704 125,685 - 1,066,430

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6 9

notes to the financial statements31 march, 2002

Operatingequipment,

office Aircraft, equipment

Land and engines and motor Progress Company buildings and spares vehicles payments Total

RM’000 RM’000 RM’000 RM’000 RM’000

Cost/Valuation

At 1 April, 2001 2,113,673 13,973,122 817,983 1,088,256 17,993,034Additions 3,606 57,088 17,716 1,671,360 1,749,770Disposals (2,433) (106,931) (4,432) - (113,796)Transfers 177,729 1,148,790 61,114 (1,437,720) (50,087)Write-offs - (35,456) - - (35,456)

At 31 March, 2002 2,292,575 15,036,613 892,381 1,321,896 19,543,465

Accumulated Depreciation

At 1 April, 2001 459,678 5,985,509 649,154 - 7,094,341Charge for the year 138,980 809,019 91,381 - 1,039,380Disposals (657) (66,128) (4,332) - (71,117)Write-offs - (10,206) - - (10,206)

At 31 March, 2002 598,001 6,718,194 736,203 - 8,052,398

Net Book Value

At 31 March, 2002At cost 1,644,531 8,318,419 156,178 1,321,896 11,441,024At valuation 50,043 - - - 50,043

1,694,574 8,318,419 156,178 1,321,896 11,491,067

At 31 March, 2001At cost 1,601,059 7,987,613 168,829 1,088,256 10,845,757At valuation 52,936 - - - 52,936

1,653,995 7,987,613 168,829 1,088,256 10,898,693

Depreciation charge for 2001 62,493 876,704 59,334 - 998,531

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7 0

notes to the financial statements31 march, 2002

a) Land and Buildings

Freehold LeaseholdGroup land land Buildings Total

RM’000 RM’000 RM’000 RM’000

Cost/Valuation

At 1 April, 2001 6,721 54,675 2,058,111 2,119,507Additions - - 3,613 3,613Disposals - - (2,433) (2,433)Transfers - - 177,729 177,729

At 31 March, 2002 6,721 54,675 2,237,020 2,298,416

Representing: At cost 6,721 54,675 2,106,915 2,168,311At valuation - - 130,105 130,105

6,721 54,675 2,237,020 2,298,416

Accumulated Depreciation

At 1 April, 2001 - 9,454 453,428 462,882Charge for the year - 605 138,613 139,218Disposals - - (658) (658)

At 31 March, 2002 - 10,059 591,383 601,442

Representing:At cost - 10,059 511,321 521,380At valuation - - 80,062 80,062

- 10,059 591,383 601,442

Net Book Value

At 31 March, 2002At cost 6,721 44,616 1,595,594 1,646,931At valuation - - 50,043 50,043

6,721 44,616 1,645,637 1,696,974

At 31 March, 2001At cost 6,721 45,221 1,551,747 1,603,689At valuation - - 52,936 52,936

6,721 45,221 1,604,683 1,656,625

Depreciation charge for 2001 - 625 63,416 64,041

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notes to the financial statements31 march, 2002

Freehold LeaseholdCompany land land Buildings Total

RM’000 RM’000 RM’000 RM’000

Cost/Valuation

At 1 April, 2001 6,721 54,675 2,052,277 2,113,673Additions - - 3,606 3,606Disposals - - (2,433) (2,433)Transfers - - 177,729 177,729

At 31 March, 2002 6,721 54,675 2,231,179 2,292,575

Representing:At cost 6,721 54,675 2,101,074 2,162,470At valuation - - 130,105 130,105

6,721 54,675 2,231,179 2,292,575

Accumulated Depreciation

At 1 April, 2001 - 9,454 450,224 459,678Charge for the year - 605 138,375 138,980Disposals - - (657) (657)

At 31 March, 2002 - 10,059 587,942 598,001

Representing:At cost - 10,059 507,880 517,939At valuation - - 80,062 80,062

- 10,059 587,942 598,001

Net Book Value

At 31 March, 2002At cost 6,721 44,616 1,593,194 1,644,531At valuation - - 50,043 50,043

6,721 44,616 1,643,237 1,694,574

At 31 March, 2001At cost 6,721 45,221 1,549,117 1,601,059At valuation - - 52,936 52,936

6,721 45,221 1,602,053 1,653,995

Depreciation charge for 2001 - 604 61,889 62,493

Certain buildings of the Group and the Company have been constructed on Federal and State Government land in which thelease arrangements are being formalised.

Included in leasehold land is leasehold land with an unexpired period of less than 50 years with net book value of RM741,000(2001 : RM761,000).

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notes to the financial statements31 march, 2002

b) Aircraft, Engines and Spares

Group and Company

Aircraft Leasedand aircraft

spare and spare Aircraft2002 engines engines spares Total

RM’000 RM’000 RM’000 RM’000

Cost

At 1 April, 2001 5,798,631 7,390,646 783,845 13,973,122Additions - - 57,088 57,088Disposals (91,666) (15,265) - (106,931)Transfers 1,148,790 - - 1,148,790Reclassifications 597,845 (597,845) - -Write-offs - - (35,456) (35,456)

At 31 March, 2002 7,453,600 6,777,536 805,477 15,036,613

Accumulated Depreciation

At 1 April, 2001 2,372,432 3,214,895 398,182 5,985,509Charge for the year 309,575 440,785 58,659 809,019Disposals (66,128) - - (66,128)Reclassifications 397,525 (397,525) - -Write-offs - - (10,206) (10,206)

At 31 March, 2002 3,013,404 3,258,155 446,635 6,718,194

Net Book Value

At 31 March, 2002 4,440,196 3,519,381 358,842 8,318,419

At 31 March, 2001 3,426,199 4,175,751 385,663 7,987,613

Depreciation charge for 2001 370,425 449,043 57,236 876,704

Leased aircraft and spare engines represent the capitalised value of aircraft and spare engines acquired through finance leases(Note 2(k)).

Certain of the Company’s aircraft with the net book value of RM1,354,419,000 (2001 : RM1,501,962,000) are pledged assecurity against the term loans disclosed in Note 10 (a).

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notes to the financial statements31 march, 2002

c) Operating Equipment, Office Equipment and Motor Vehicles

OfficeOperating furnitureplant and and Motor

Group equipment equipment vehicles TotalRM’000 RM’000 RM’000 RM’000

Cost

At 1 April, 2001 1,114,548 309,712 80,051 1,504,311Additions 6,650 15,191 7,466 29,307Disposal (7,110) (939) (2,816) (10,865)Transfers 69,935 34,047 - 103,982

At 31 March, 2002 1,184,023 358,011 84,701 1,626,735

Accumulated Depreciation

At 1 April, 2001 632,238 255,209 68,176 955,623Charge for the year 99,855 48,027 9,379 157,261Disposal (6,767) (888) (2,773) (10,428)

At 31 March, 2002 725,326 302,348 74,782 1,102,456

Net Book Value

At 31 March, 2002 458,697 55,663 9,919 524,279

At 31 March, 2001 482,310 54,503 11,875 548,688

Depreciation charge for 2001 97,088 23,320 5,277 125,685

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notes to the financial statements31 march, 2002

OfficeOperating furnitureplant and and Motor

Company equipment equipment vehicles TotalRM’000 RM’000 RM’000 RM’000

Cost

At 1 April, 2001 509,729 256,518 51,736 817,983Additions 1,772 9,385 6,559 17,716Transfers 27,067 34,047 - 61,114Disposal (1,026) (873) (2,533) (4,432)

At 31 March, 2002 537,542 299,077 55,762 892,381

Accumulated Depreciation

At 1 April, 2001 389,154 214,492 45,508 649,154Charge for the year 41,916 43,036 6,429 91,381Disposal (1,006) (823) (2,503) (4,332)

At 31 March, 2002 430,064 256,705 49,434 736,203

Net Book Value

At 31 March, 2002 107,478 42,372 6,328 156,178

At 31 March, 2001 120,575 42,026 6,228 168,829

Depreciation charge for 2001 37,805 18,889 2,640 59,334

d) Progress PaymentsProperties

Aircraft and underGroup simulators construction Total

RM’000 RM’000 RM’000

At Cost

2002

At 1 April, 2001 830,802 407,011 1,237,813Additions 1,635,600 61,308 1,696,908Transfers (1,148,791) (281,710) (1,430,501)

At 31 March, 2002 1,317,611 186,609 1,504,220

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notes to the financial statements31 march, 2002

PropertiesAircraft and under

Company simulators construction TotalRM’000 RM’000 RM’000

At cost

2002

At 1 April, 2001 830,802 257,454 1,088,256Additions 1,635,600 35,760 1,671,360Transfers (1,148,790) (288,930) (1,437,720)

At 31 March, 2002 1,317,612 4,284 1,321,896

Included in the progress payments of properties under construction is a piece of land costing approximately RM63,903,000(2001 : RM62,343,000) whereby the transfer of the land title is still pending approval of the relevant authorities.

There is no interest on term loans capitalised during the financial year (2001 : RM21,716,053).

e) Had the revalued land and buildings been carried at historical cost less accumulated depreciation, the net book value of the landand buildings that would have been included in the financial statements are as follows:

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Leasehold land 1,183 1,256 1,183 1,256Buildings 42,780 44,740 42,780 44,740

4 INVESTMENTS

The investment of the Group and the Company are as follows:

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Investment in subsidiaries (Note a) - - 45,365 45,365Investment in associated companies (Note b) 75,750 70,530 101,354 103,904Other investments (Note c) 156,594 175,310 133,850 152,566

232,344 245,840 280,569 301,835

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notes to the financial statements31 march, 2002

a) Investment in subsidiaries

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Unquoted shares, at cost - - 257,498 257,498Less: Provision for diminution in value - - (212,133) (212,133)

- - 45,365 45,365

The list of subsidiaries is disclosed in Note 30.

b) Investment in associated companies

Unquoted shares, at cost 104,673 104,673 101,354 103,904Less: Provision for diminution in value (472) (472) - -

104,201 104,201 101,354 103,904

Group’s share of reserves and post acquisition retained profits less losses (28,451) (33,671) - -

75,750 70,530 101,354 103,904

Represented by:

Share of net assets 45,270 38,631Share of intangible assets 29,425 30,844

74,695 69,475Goodwill on acquisition 1,055 1,055

75,750 70,530

The list of associated companies is disclosed in Note 31.

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notes to the financial statements31 march, 2002

c) Other investments

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Quoted shares, at cost:- in Malaysia 32 32 - -- outside Malaysia 1,377 1,377 1,377 1,377

1,409 1,409 1,377 1,377

US Government Treasury Strips 76,770 102,493 76,770 102,493

Unquoted shares, at cost:- in Malaysia 30,325 30,325 16,600 16,600- outside Malaysia 47,900 40,884 38,913 31,898

78,225 71,209 55,513 48,498Other Government and Municipal Bonds 120 129 120 128Others 70 70 70 70

78,415 71,408 55,703 48,696

Total 156,594 175,310 133,850 152,566

Market value of quoted shares:- in Malaysia 66 72 - -- outside Malaysia 32,128 54,791 32,128 54,791

The US Government Treasury Strips have been pledged as substituted collateral for certain borrowings disclosed in Note 10.

5 DUE FROM INVESTEE COMPANIES

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Due from subsidiariesInterest bearing at rate of Nil (2001 : 10%) per annum - - - 613,158Interest free - - 939,436 14,080

- - 939,436 627,238Less: Provision for doubtful debts - - (757,775) (428,775)

- - 181,661 198,463Due from associated company 3,524 7,750 3,524 7,750

3,524 7,750 185,185 206,213

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7 8

notes to the financial statements31 march, 2002

6 DEFERRED CHARGES

Group and Company2002 2001

RM’000 RM’000

Interest prepaid on a term loan 37,591 40,198Less: Amount amortised (2,607) (2,607)

34,984 37,591

7 INVENTORIES

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

At cost

Catering and general stores 62,221 70,089 56,962 63,283

At net realisable value:

Catering and general stores - 1,667 - -Consumable aircraft spares 289,906 274,589 289,791 274,589

289,906 276,256 289,791 274,589

352,127 346,345 346,753 337,872

8 RECEIVABLES

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Trade receivables 1,762,741 1,567,136 1,696,164 1,493,589Less: Provision for doubtful debts (472,179) (331,787) (441,538) (304,085)

1,290,562 1,235,349 1,254,626 1,189,504

Other receivables 391,887 349,957 380,591 330,558Less: Provision for doubtful debts (11,398) (490) (11,183) (464)

380,489 349,467 369,408 330,094

1,671,051 1,584,816 1,624,034 1,519,598

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

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notes to the financial statements31 march, 2002

9 CASH AND BANK BALANCES

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Cash and bank balance 113,057 98,222 105,147 90,471Term deposits with:

Licensed banks 290,298 215,661 280,157 206,184Licensed finance companies 13,021 18,067 - -Other corporations - 4,000 - 4,000

416,376 335,950 385,304 300,655

10 BORROWINGS

The borrowings of the Group and the Company are as follows:

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Secured:Loans (Note a) 1,668,369 1,948,858 1,668,369 1,948,858Lease payables (Note b) 4,196,138 4,755,221 4,196,138 4,755,221

Unsecured:Loans (Note a) 1,676,502 909,796 1,676,502 909,796

Unsecured:Guaranteed Bonds and Floating Rate Notes (Note c) 1,427,000 1,537,000 - -

8,968,009 9,150,875 7,541,009 7,613,875Less: Repayable within one year (4,287,720) (1,321,002) (2,860,720) (1,321,002)

4,680,289 7,829,873 4,680,289 6,292,873

Group and Company2002 2001

a) Loans RM’000 RM’000

SecuredRepayable within one year 1,668,369 1,948,858Repayable after one year (378,038) (280,104)

1,290,331 1,668,754

UnsecuredRepayable within one year 1,676,502 909,796Repayable after one year (1,524,617) (481,720)

151,885 428,076

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8 0

notes to the financial statements31 march, 2002

The loans are secured against certain of the Company’s aircraft as disclosed in Note 3 (b). Interest rates vary between 3.84%and 4.85% (2001: 2.5% and 7.8%) per annum.

The Group’s loans mature as follows:Group and Company2002 2001

RM’000 RM’000

Within one year 1,902,655 761,824Between one and two years 992,010 1,459,138Between two and five years - -After five years 450,206 637,692

3,344,871 2,858,654

b) Lease payables

Repayable within one year 958,065 559,178Repayable after one year 3,238,073 4,196,043

4,196,138 4,755,221

The future lease payments under the finance leases are as follows:

Due within one year 1,275,112 929,397Due between two and five years 2,985,788 3,862,852Due after five years 1,252,191 1,650,219

5,513,091 6,442,468Amount representing future finance charges (1,316,953) (1,687,247)

4,196,138 4,755,221

As at 31 March, 2002, the Company has lease obligations amounting to RM2,027,890,000 (2001 : RM3,284,874,000) whichare covered by funds amounting to RM1,196,764,421 (2001 : RM2,317,261,000) placed with and payments made to financialinstitutions at the inception dates of the respective lease agreements under defeasance arrangements. The defeased leaseobligations, together with the related fund placements and payments, are therefore not included in these financial statements.

The Company has in operation 16 aircraft and 28 engines under operating leases. Of this, 9 aircraft and 9 engines are underfloating rate leases whose lease rentals are linked to interest rates. The remaining leases have fixed rentals. None of theoperating agreements confer to the Company any options to purchase the related aircraft or engine. Sub-leasing is allowedunder all the lease arrangements.

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notes to the financial statements31 march, 2002

Group2002 2001

RM’000 RM’000

c) Guaranteed Bonds and Floating Rate Notes

Repayable within one year 1,427,000 -Repayable after one year - 1,537,000

1,427,000 1,537,000

The Guaranteed Bonds and Floating Rate Notes issued by a wholly-owned subsidiary of the Company which bears interestrates between 0.33% to 2.55% (2001 : 0.39% to 2.55%) per annum is unconditionally and irrevocably guaranteed by theCompany. The Guaranteed Bonds will mature on 29 May, 2002 and the Guaranteed Floating Rate Notes will mature on 28May, 2002.

11 PAYABLES

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Trade payables 1,368,509 1,132,207 1,169,103 923,114Other payables 436,578 917,314 372,120 824,378Accruals 509,171 429,804 489,486 421,903Deposit received for sale of aircraft 1,171,566 - 1,171,566 -

3,485,824 2,479,325 3,202,275 2,169,395

12 DUE TO SUBSIDIARIES (Unsecured)

Current

The amount is unsecured, interest-free and has no fixed term of repayment except for RM1,427,000,000 which is unsecured,bears interest ranging between 0.33% to 2.55% and is repayable by 29 May, 2002.

Non-current

In the prior year, the amount was unsecured, bore interest ranging between 0.39% to 2.55% for the year and is repayable by 29 May, 2002.

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notes to the financial statements31 march, 2002

13 SHARE CAPITAL

Number of Shares Amount2002 2001 2002 2001‘000 ‘000 RM’000 RM’000

Authorised

Ordinary shares of RM1.00 At 1 April, 2001/2000 5,000,000 5,000,000 5,000,000 5,000,000Created during the year 4,000,000 - 4,000,000 -

At 31 March 9,000,000 5,000,000 9,000,000 5,000,000

One Special Rights Redeemable Preference Share of RM1.00 (Note a)

At 1 April, 2001/2000 and 31 March * * * *

Redeemable ConvertiblePreference Shares of RM0.01 (Note b)At 1 April, 2001/2000 - - - -Created during the year 100,000,000 - 1,000,000 -

At 31 March 100,000,000 - 1,000,000 -

109,000,000 5,000,000 10,000,000 5,000,000

Issued and fully paid

Ordinary shares of RM1.00At 1 April, 2001/2000 and 31 March 770,000 770,000 770,000 770,000

One Special Rights Redeemable Preference Share of RM1.00 (Note a)

At 1 April, 2001/2000 and 31 March * * * *

Redeemable ConvertiblePreference Shares of RM0.01 (Note b)At 1 April, 2001/2000 - - - -Created during the year 800,000 - 8,000 -

At 31 March 800,000 - 8,000 -

1,570,000 770,000 778,000 770,000

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notes to the financial statements31 march, 2002

* RM1

a) The Special Rights Redeemable Preference Share (Special Share) would enable the Government through the Minister ofFinance (Incorporated) to ensure that certain major decisions affecting the operations of the Company are consistent with theGovernment’s policy. The Special Share, which may only be held by the Minister of Finance (Incorporated) (“MoF”) or itssuccessors or any Minister, representative, or any person acting on behalf of the Government of Malaysia, carries certain specialrights as provided by Article 5 of the Company’s Articles of Association (as amended at the Extraordinary General Meeting heldon 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.

iii) the right to require the Company to redeem the Special Share at par at any time.

Certain matters, in particular the alterations of specified Articles of Association of the Company, require the prior approval ofthe holder of the Special Share. The Special Share does not carry any right to vote at General Meetings but the holder isentitled to attend and speak at such meetings.

b) The Redeemable Convertible Preference Share (“RCPS”) at nominal value of RM0.01 is constituted by the SubscriptionAgreement dated 29 August, 2001. The issue price of the RCPS is at RM1.00.

The RCPS Investors will have the benefits of a put/call option arrangement granted by MoF as follows:

i) MoF will be entitled to exercise the call option to purchase all the RCPS from the RCPS Investors seven days prior to thefifth anniversary from the date of the issue of the RCPS (“Call Option”) at an exercise price as set out below; and

ii) conversely, the RCPS Investors will be entitled to exercise the put option to dispose all the RCPS at a selling price as set outbelow at the end of the five years from the date of issuance of the RCPS (“Put Date”) if and only if the Call Option is notexercised (“Put Option”).

Under the put/call arrangement, the exercise price for the RCPS payable by MoF will be at a premium on the issue price ofthe RCPS to be calculated to give the RCPS Investors an equivalent return similar to 5-year zero-coupon fixed incomepapers issued or guaranteed by the Government that are issued or trading at around the time when the RCPS are issued(“Put Price”).

Subsequently, the Company can redeem the RCPS at its discretion within thirty (30) days immediately after the Put Date ata price equivalent to the Put Price plus interest accrued from the Put Date to the actual date of redemption by the Companycalculated using one month Treasury Bills.

On 27 August, 2001, the Company announced that the conversion price of the RCPS has been fixed at RM3.45 per RCPS.

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notes to the financial statements31 march, 2002

14 DEFERRED INCOME

Group and Company2002 2001

RM’000 RM’000

Profit on sale of aircraft leased back 428,923 510,113Less: Amount amortised (81,190) (81,190)

347,733 428,923

Upfront benefits from defeasance of finance leases 2,829 7,435Less: Amount amortised (2,829) (4,606)

- 2,829

347,733 431,752

15 DEFERRED TAXATION

Group2002 2001

RM’000 RM’000

At 1 April, 2001/2000 2,135 1,433Transfer from income statement (Note 21) 552 702

At 31 March 2,687 2,135

16 REVENUE

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Traffic revenue:

Scheduled services- passenger and baggage 6,364,742 6,668,838 6,364,742 6,668,838- cargo and mail 1,258,774 1,379,769 900,264 767,987

7,623,516 8,048,607 7,265,006 7,436,825Non-scheduled services 66,596 100,313 66,596 94,043

7,690,112 8,148,920 7,331,602 7,530,868

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

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notes to the financial statements31 march, 2002

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Other revenue:

Lease of aircraft and engines 26,125 61,158 90,617 126,144Airport handling services 91,971 103,397 91,971 103,397Unavailed credits on sales in advance of carriage 26,328 36,005 26,328 36,005Catering & cleaning services 44,868 59,284 - -Charter services 60,339 163,116 39,086 10,589Others* 438,158 384,265 138,958 80,924

8,377,901 8,956,145 7,718,562 7,887,927

* Included in ‘Others’ for the Group are revenues from the provision of component repair services, computerised reservationservices, coach transportation, trucking and warehousing services, retailing of goods, terminal charges, tour and travel relatedactivities.

17 EXPENDITURE

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Fuel and oil 1,945,152 2,320,452 1,789,413 2,041,533Staff costs 1,439,560 1,685,875 1,224,339 1,432,328Handling, enroute charges, catering and other related costs 1,105,588 1,256,293 1,164,596 1,217,086Depreciation 1,105,498 1,066,430 1,039,380 998,531Hire of aircraft, operating plant and equipment 918,939 991,524 694,901 694,768Aircraft maintenance and overhaul 786,487 546,624 835,456 579,456Landing, parking and other related costs 320,440 335,931 305,979 309,155Sales commission and incentives 501,674 583,004 444,038 517,420Realised foreign exchange loss 3,816 - 5,256 -Rental of land and buildings 98,601 97,518 97,078 96,826Operating inventories used 241,467 226,650 121,040 115,166Bad and doubtful debts 151,866 49,397 148,172 44,188Provision for diminution in value of associated companies - 472 - -Loss on sale of property and equipment 236 7,573 - 6,957Aircraft spares written-off 25,250 27,784 25,250 27,784Amortisation of deferred charges 2,607 2,607 2,607 2,607Directors’ remuneration (Note 18) 988 856 844 721Auditors’ remuneration

- audit fees 649 530 430 360- other professional fees 2,258 336 2,258 56

Others 503,487 554,630 280,829 359,122

9,154,563 9,754,486 8,181,866 8,444,064

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notes to the financial statements31 march, 2002

18 DIRECTORS’ REMUNERATION

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Directors of the Company

Executive:Salaries and other emoluments 600 77 600 77Benefits-in-kind 10 4 10 4

610 81 610 81

Non-executive:Fees 258 34 234 34

Former directors of the Company

Executive:Salaries and other emoluments - 521 - 521

Non-executive:Fees - 85 - 85

Former directors of a subsidiary

Non-executive:Salaries and emoluments 120 - - -

Directors of a subsidiary

Non-executive:Salaries and other emoluments - 135 - -

Total 988 856 844 721

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

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notes to the financial statements31 march, 2002

The number of directors of the Company whose total remuneration during the year fall within the following bands is as follows:

Number of Directors2002 2001

Executive directors:

RM50,001 to RM100,000 - 1RM500,001 to RM550,000 - 1RM600,001 to RM650,000 1 -

Non-executive directors:

Below RM50,000 8 11RM50,001 to RM100,000 1 -

19 OTHER INCOME

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Interest income- subsidiaries - - - 40,336- third parties 50,345 65,649 49,383 63,892

Gain on disposal of investment 500 - - -Bad debts recovered 175 - - -Rental income 42,490 43,640 15,126 12,450Dividend income

- subsidiaries - - 12,255 14,510- quoted shares 8,729 10,060 8,026 10,060

Net claims on damaged aircraft - 223,150 - 223,150Foreign exchange gain

- unrealised 112,584 294,631 112,584 294,631- realised - 19,401 - 13,017

Gain on sale of property and equipment 538 - 546 -Amortisation of deferred income 84,019 85,796 84,019 85,796Others 17,869 13,625 9,582 11,258

317,249 755,952 291,521 769,100

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notes to the financial statements31 march, 2002

20 EXCEPTIONAL ITEMS

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Provision for diminution in value of subsidiaries - - - (203,000)Provision for doubtful debts - subsidiaries - - (329,000) (428,420)

- - (329,000) (631,420)

21 TAXATION

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Current year’s provision:Malaysian 1,579 19,699 - 17,890Foreign 3,316 6,288 3,316 6,288

4,895 25,987 3,316 24,178

Transfer to deferred taxation (Note 15) 552 702 - -

5,447 26,689 3,316 24,178Overprovision in prior years (21,875) (354) (21,931) -

(16,428) 26,335 (18,615) 24,178Share of taxation of associated companies 1,530 348 - -

(14,898) 26,683 (18,615) 24,178

There is no provision for Malaysian taxation for the Company in the current financial year as the Company has been granted anextension of the tax exemption status by the Ministry of Finance on its chargeable income in respect of all sources of income videthe Income Tax (Exemption) (No. 25) Order 2001. Approval for the extension was received on 8 January, 2002 and is valid for aperiod of five years from year of assessment 2001 up to year of assessment 2005.

In the prior year, the Company provided for its Malaysian taxation in respect of non -business sources on the grounds of prudencewhilst awaiting for the extension of the tax exemption status which expired in year of assessment 2001.

The disproportionate Malaysian taxation charge of the Group is due principally to the losses in certain companies for which no grouprelief is available.

As at 31 March, 2002, the Company has a tax-exempt income account of approximately RM8,124,552,000 (2001 :RM7,772,689,000) available to pay a tax-exempt dividends up to two levels of shareholders, subject to agreement with the InlandRevenue Board.

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notes to the financial statements31 march, 2002

22 BASIC LOSS PER SHARE

The basic loss per share is calculated by dividing the loss after taxation and minority interests of RM835,563,000 (2001 :RM417,427,000) by the weighted average number of ordinary shares in issue during the year of 770,000,000 (2001 :770,000,000) shares.

The diluted loss per share is not presented in the financial statements as the effect of the assumed conversion of the redeemableconvertible preference shares during the financial year is anti-dilutive.

23 PRIOR YEAR ADJUSTMENTS

The prior year adjustments represent the effects of the changes in accounting policies for exchange differences on translation oflong-term monetary liabilities and provision for aircraft maintenance as referred to in Note 2(g) and 2(p) respectively. These changeshave been accounted for retrospectively and comparatives have been restated to conform with the change in accounting policies.

The change in accounting policies has the effect of reducing loss before taxation for the year by RM409,391,000 (2001 :RM916,395,000) for the Group and Company. The effects relating to periods prior to 1 April, 2000 of RM1,552,701,000 for theGroup and the Company have been adjusted against the opening retained profits for the year ended 31 March, 2001.

The effects of the prior year adjustments due to the change in accounting policies to the respective years’ results are as follows:

Group and Company

Prior tofinancial

year endedFinancial year ended 31 March

2002 2001 2001RM’000 RM’000 RM’000

a) Exchange differences on translation of long-term monetary liabilities 418,476 765,227 (2,360,495)b) Provision for aircraft maintenance (9,085) 151,168 807,794

409,391 916,395 (1,552,701)

These two standards must be adopted by 1 April, 2002. Should these standards be adopted in financial year ended 31 March2003, the effects would have been similar for financial year ended 31 March 2002.

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9 0

notes to the financial statements31 march, 2002

24 SEGMENTAL INFORMATION

a) Analysis by Business Activity:

Profit/(Loss) TotalBefore Assets

Turnover Taxation EmployedRM’000 RM’000 RM’000

2002Airline operations 6,753,927 (575,637) 14,015,992Cargo services 1,469,728 (242,857) 184,904Engineering services 62,768 2,296 64,818Catering services 43,472 (37,371) 163,471Others 48,006 326 245,839

8,377,901 (853,243) 14,675,024Share of associated companies:

- profits - 6,751 -- assets - - 79,274

8,377,901 (846,492) 14,754,298

2001

Airline operations 7,022,055 (147,401) 13,246,975Cargo services 1,759,929 (170,020) 205,243Engineering services 53,397 (6,399) 79,705Catering services 59,284 (75,770) 144,494Others 61,480 10,686 234,580

8,956,145 (388,904) 13,910,997Share of associated companies:

- profits - 2,268 -- assets - - 78,034

8,956,145 (386,636) 13,989,031

b) Analysis by Geographical Location:

Turnover2002 2001

RM’000 RM’000

Malaysia 2,007,486 2,017,673Asia, other than Malaysia 2,610,658 2,707,009Europe, Middle East and Africa 2,225,475 2,614,535Australia and New Zealand 1,009,418 1,140,140United States and Canada 524,864 476,788

8,377,901 8,956,145

M A L A Y S I A N A I R L I N E S Y S T E M B E R H A D ( 1 0 6 0 1 - W )F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

9 1

notes to the financial statements31 march, 2002

25 SIGNIFICANT RELATED PARTY TRANSACTIONS

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Engine maintenance services rendered by an associated company, GE Engine Services Malaysia Sdn. Bhd. 235,039 162,775 235,039 162,671

Cleaning and inspection services rendered to an associated company, GE Engine Services Malaysia Sdn. Bhd. (833) (1,246) - -

Consultancy fees to an associated company, Signforce Sdn. Bhd. - 115 - -Purchase of raw materials from an associated company, Aerofine Meat Sdn. Bhd. 889 4,494 - -

Catering services paid to an associated company, Taj Madras Flight Kitchen 405 1,394 405 1,394

Transit and cabin services paid to an associated company, Pan Asia Pacific Aviation Services Limited 4,122 4,284 4,122 4,284

Catering services paid to Evergreen Sky Catering Corporation, a company in which the Company has a substantial shareholding 8,060 7,295 8,060 7,295

Catering services paid to Maiscor Catering Services Corporation, a company in which the Company has a substantial shareholding 1,041 1,068 1,041 1,068

Computer reservation system access fee paid to Abacus International Holding Limited, a company in which the Company has a substantial shareholding 38,988 38,968 38,988 36,898

Catering services paid to a subsidiary, MAS Catering (Sarawak) Sdn. Bhd. - - 17,982 16,444

Booking commission paid to a subsidiary, Abacus Distribution Systems (Malaysia) Sdn. Bhd. - - 5,379 3,836

Cleaning services paid to a subsidiary, Aerokleen Services Sdn. Bhd. - - 5,574 5,343Belly cost, hire of aircraft and maintenance costs charged to a wholly-owned subsidiary - - 988,432 865,881

Purchase of meals and beverages from a wholly-owned subsidiary - - 183,738 134,830Maintenance services paid to a wholly-owned subsidiary - - 97,310 83,882

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Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Transactions with former director

Technology Resources Industries Berhad and subsidiaries*Sales to Celcom (M) Sdn. Bhd. - (3,153) - (3,153)Rental of premises charged to Celcom (M) Sdn. Bhd. (2,855) (2,348) (2,855) (2,348)Telecommunication charges paid to Celcom (M) Sdn. Bhd. 1,077 239 1,077 227

Naluri Berhad and subsidiaries*Rental of premises paid to Technology Resources Properties Sdn. Bhd. - 248 - 248

Ground handling services rendered by ACL Advanced Cargo Logistic GmbH (incorporated in the Republic of Germany) 897 28,570 - -

Kauthar Sdn. Bhd. and subsidiaries*Maintenance charges by Edar ALS Sdn. Bhd. 899 4,394 30 565

Edaran Digital Systems Berhad*Hire of equipment and maintenance charges by Edaran Komputer Sdn. Bhd. 507 4,382 507 4,382

Progress payment made to Edaran Komputer Sdn. Bhd.** 1,913 1,392 1,913 1,392

* Groups of companies in which a former director and previous beneficial shareholder of the Company, Tan Sri Dato’ Tajudin Ramli,has an interest.

** On 30 May, 2000, the Company entered into a product and services agreement with Edaran Komputer Sdn. Bhd. in relation tothe Crew Management System for a contract value of RM13,920,186. Progress payments towards the said agreementcommenced on this date in accordance with the terms and conditions of the said agreement.

The directors are of the opinion that the transactions have been entered into on a negotiated basis.

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notes to the financial statements31 march, 2002

26 COMMITMENTS

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

a) Capital commitments:

Due within one year- approved and contracted for 1,129,010 2,506,959 958,958 2,506,606- approved but not contracted for 58,635 - - -

1,187,645 2,506,959 958,958 2,506,606

Due within two to five years- approved and contracted for 1,212,843 1,790,539 1,212,843 1,790,539

Due after five years- approved and contracted for 1,651,823 1,651,823 1,651,823 1,651,823

Total capital commitments- approved and contracted for 3,993,676 5,949,321 3,823,624 5,948,968- approved but not contracted for 58,635 - - -

4,052,311 5,949,321 3,823,624 5,948,968

b) Forward contracts:

Fuel contracts 7,400 115,226 7,400 115,226Foreign currency contracts 16,176 6,206 16,176 6,206

23,576 121,432 23,576 121,432

c) Operating lease commitments:

Due within one year 698,291 901,977 698,283 901,516Due between one and five years 2,590,380 2,498,795 2,590,380 2,498,690Due after five years 2,960,161 2,687,542 2,960,161 2,687,542

6,248,832 6,088,314 6,248,824 6,087,748

The outstanding capital commitments for the current year primarily relate to the acquisition of aircraft and major capital projects.

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notes to the financial statements31 march, 2002

27 CONTINGENT LIABILITIES

Group Company2002 2001 2002 2001

RM’000 RM’000 RM’000 RM’000

Guarantees (Unsecured)

Corporate guarantees given to third parties in respect of credit facilities provided to an associated company 5,504 5,559 5,504 5,559

Bank guarantee given to third parties in respect of service facilities provided to the Group and Company 64,877 65,584 64,877 65,584

Performance bonds given to third parties in respect of training of technical crew 640 640 640 640

71,021 71,783 71,021 71,783

Litigations

As reported in the prior financial year, legal action commenced against the Company for the following:

a) Alleged influence to a breach of contract. The Plaintiff had previously claimed for the amount of approximately USD25 millionplus other general damages against all the defendants. However, the defendant has subsequently amended its claims fordamages amounting to USD5.5 million plus costs. The Company is denying the claim. Hearing in the English High Court wascompleted on 25 July, 2002. However no judgement has been issued to date.

b) Alleged breach of contract. The Plaintiff is claiming approximately USD26 million or alternatively damages, including interestsand costs. The Company denies any and all liability. The case has not reached the stage of first hearing.

As at the date of this report, the following legal action commenced against the Company for the following:

c) The Plaintiff, a former agent in Dhaka is claiming approximately TK83,21,61,319 (RM54.7 million) in respect of passenger andcargo sales commissions purportedly due to them as well as loss of business and goodwill. The hearing date has been set for 31July, 2002 in Dhaka.

d) The Plaintiff, a former agent in Dhaka is claiming approximately TK267,00,00,000 (RM175.7 million) in respect of commissioncharges purportedly due to them as well as loss of business and goodwill. The hearing date has been fixed for 14 August, 2002in Dhaka.

The Directors are of the opinion that the likelihood of the above claims crystallising is remote and as such, no provision has beenset aside.

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28 SIGNIFICANT EVENTS

a) On 11 September, 2001, the Company issued RM800 million Zero Dividend Redeemable Convertible Preference Shares(“RCPS”) of RM0.01 each at an issue price of RM1.00 each to Intelek Perkasa Berhad, pursuant to the subscription agreementdated 29 August, 2001. The RCPS is redeemable by the Company within thirty days of its fifth anniversary (11 September,2006) after which it will be automatically converted into ordinary shares. Further details of the RCPS is disclosed in Note 13.

b) On 5 February, 2002, the Company entered into a conditional agreement with Aircraft Business Malaysia Sdn. Bhd., a wholly-owned subsidiary of the Ministry of Finance Incorporated (“MoF Inc.”), for the sale and leaseback of 5 new and 3 existingaircrafts for a total consideration of approximately RM3.867 billion. As at 28 May, 2002, the Company had received a partialpayment of RM3.260 billion.

29 SUBSEQUENT EVENTS

a) On 30 July, 2002, the Company announced its intention to enter into the following agreements with Assets Global NetworkSdn. Bhd. (formerly known as Terusan Timur Barat Sdn. Bhd.) (“AGN”), a special purpose vehicle wholly-owned by the Ministryof Finance Inc. (“MOF”):

• A conditional sale and purchase agreement (“SPA”) for the proposed sale of a 35-storey office building located at 1194,Section 57, Jalan Sultan Ismail, 50250 Kuala Lumpur known as Bangunan MAS for a total cash consideration ofRM99,500,000;

• A conditional SPA for the proposed sale of a computer centre and a hostel and training school forming Malaysia AirlinesAcademy located at No. 2, SS7/13, 47301, Kelana Jaya, Petaling Jaya; (“Kelana Jaya Complex Building”) for a total cashconsideration of RM137,000,000;

• A conditional Reimbursement Agreement for the reimbursement of the value of the existing 24 office and workshopbuildings forming MAS Office Complex located at Sultan Abdul Aziz Shah Airport, 47200, Subang (“Subang ComplexBuildings”) for a cash amount of RM233,000,000;

• A conditional Reimbursement Agreement for the reimbursement of the value of the existing 32 buildings forming MASComplex located at HS(D)07435-PT19, Southern Support Zone, Kuala Lumpur International Airport (KLIA), 64000,Sepang, Selangor (“KLIA Complex Buildings”) for a cash amount of RM1,010,600,000; and

• Conditional Lease Agreements for the subsequent lease of Bangunan MAS, Kelana Jaya Complex Building, SubangComplex Buildings and KLIA Complex Buildings by MAS from AGN.

The proposed SPAs, Reimbursement Agreements and lease agreements are subject to approval by the relevant authorities andthe shareholders of the Company.

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notes to the financial statements31 march, 2002

b) On 30 July, 2002, the Company entered into several conditional agreements with Penerbangan Malaysia Berhad (“PMB”), toundertake a proposed widespread asset unbundling (“the Proposed WAU”) incorporating:-

i) WAU Agreement

This agreement provides a general description of each of the agreements of the Proposed WAU restructuring scheme andthus provides a linkage between all the other agreements to one another.

ii) Agreement for Aircraft and Finance Agreements Unbundling

Under this agreement, PMB agrees to make payments to the Company which the Company is obliged to make to therelevant counterparts in relation to the aircraft assets which are subject to finance leases, operating leases or term loansgranted to the Company (“Encumbered Aircraft Assets”) and other specifically identified liabilities ‘unbundled’, (“theLiabilities”). The Company also agrees to pay PMB certain payments it receives in respect of its aircraft assets, includingproceeds from any sale by the Company of the aircraft assets and any compensation for loss of aircraft assets. PMB willcharge the Company a rental charge for the use of the Encumbered Aircraft Assets (“WAU charge”).

As an integral part of this agreement, the Company undertook to redeem its RCPS upon maturity, thereby changing thesubstance of the RCPS from equity to debt. PMB then undertook to pay or procure the payment of RM1.03 billion to theCompany for the redemption of the RCPS.

This agreement also gives the Company the right to receive 80% of the profit arising from the eventual realisation of theaircraft assets through, inter-alia sale to third parties or loss of an aircraft asset covered by insurance. The profit will becomputed based on the excess of the value realised over the decayed cost of the aircraft. The decayed cost for each aircraftat future dates is stipulated by the WAU agreement.

iii) Aircraft and Engine Purchase Agreement

Pursuant to the Aircraft and Engine Purchase Agreement, the Company agrees to sell and transfer title of theUnencumbered Aircraft Assets vested in the Company to PMB in consideration of PMB’s assumption of the paymentobligations of the Company relating to the Encumbered Aircraft Assets above. Upon delivery of the Unencumbered AircraftAssets, PMB will lease the Unencumbered Aircraft Assets back to the Company. The signing of the lease agreements inrespect of the Unencumbered Aircraft is a condition precedent of the Proposed WAU.

iv) Domestic Business Unbundling Agreement

Under this agreement, the Company agrees to pay PMB the revenue generated from its domestic flights (“DomesticBusiness”) and PMB agrees to pay the Company expenditure incurred by the Company in respect of the Domestic Business.Included in this agreement are the details of the cost allocation of both variable and fixed costs/overheads of the Company tothe Domestic Business, including costs of operating and managing the Domestic Business. This agreement also sets out theterms and arrangements under which the Company will operate the Domestic Business for PMB.

v) Common Terms Agreement

The Common Terms Agreement contains certain common terms, conditions and provisions that will be incorporated byreference into each of the agreements relating to the Proposed WAU.

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notes to the financial statements31 march, 2002

vi) Governance Agreement

The Governance Agreement will be entered into by the Company with PMB, ABM and AGN (“the Asset Owners”) to complywith a corporate and contractual governance code in regards to the conduct between the Asset Owners and the Companyas the Asset Operator on matters referred to in the Proposed WAU agreements.

vii) Proposed share issue

In consideration of PMB entering into the Aircraft Assets Unbundling, the Aircraft and Engine Purchase Agreement, theDomestic Business Unbundling Agreement, the Common Terms Agreement and Governance Agreement, the Companyshall issue up to 490 million new ordinary shares of RM1 each to PMB at an issue price of RM3.85 per share.

The proposed WAU is subject to the approval of the relevant authorities and the Company’s shareholders.

c) On 30 July, 2002, the Company announced that it had entered into a conditional Share Sale Agreement (“SSA”) withGubahan Saujana Sdn. Bhd. (“GSSB”), LSG Asia GmbH (“LSG Asia”) and Fahim Capital Sdn. Bhd. (“FCSB”) for thedisposal of 70% equity interest in MAS Catering Sdn. Bhd. (“MCSB”) for cash consideration of RM175 million to GSSB.Prior to the completion date, all inter-company loans due from MCSB to the Company are to be converted to RedeemablePreference Shares (“RPS”).

The completion of the SSA is conditional upon, inter-alia:-

• appointment of MCSB as the Company’s exclusive sub-contractor for the provision of airline catering services to thirdparties who have entered into ground handling agreements with the Company;

• the Company and MCSB entering into a Concession Agreement, Catering Agreement, Service Level Agreement, SharedServices Agreement and License Agreement;

• the Company and GSSB entering into a Shareholders Agreement;

• GSSB increasing its issued and paid-up ordinary share capital to RM1,000,000 and LSG Asia and FCSB subscribing to49% and 51% of the enlarged ordinary share capital of GSSB respectively;

• MCSB making an offer to employees of the Company on secondment to MCSB on MCSB’s standard terms ofemployment; and

• Approval by the relevant authorities.

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notes to the financial statements31 march, 2002

30 SUBSIDIARIES

The subsidiaries, all of which are incorporated in Malaysia, are:

Effective InterestName of Company 2002 2001 Principal Activities

% %

Abacus Distribution Systems (Malaysia) 80 80 Promotion, development, operation andSdn. Bhd. marketing of computerised reservations

systems and related services

Aerokleen Services Sdn. Bhd. 51 51 Provision of laundry and cleaning services

Pengangkutan Kargo Udara MAS Sdn. Bhd. 100 100 Provision of trucking, clearance and warehousing services

Syarikat Pengangkutan Senai Sdn. Bhd. 100 100 Provision of coach transportation services

MAS Catering Sdn. Bhd. 100 100 Catering related services, cabin handling and cleaning services

MAS Catering (Sarawak) Sdn. Bhd. 60 60 Provision of catering and cabin handling services

MAS Golden Boutiques Sdn. Bhd. 100 100 Retail of inflight goods and boutique operations

MAS Golden Holidays Sdn. Bhd. 100 100 Tour and travel-related operations

Malaysia Airlines Cargo Sdn. Bhd. 100 100 Air cargo operations, charter freighter and all warehousing activities relating to air cargo operations

MAS Aerotechnologies Sdn. Bhd. 100 100 Maintainance, repair, overhaul and testing of aeroplanes, helicopters and aircraft

Macnet CCN (M) Sdn. Bhd. 56.7 56.7 Ceased operations

Aircraft Engine Repair and Overhaul 100 100 Dormant(Malaysia) Sdn. Bhd.

MAS Hotel & Boutiques Sdn. Bhd. 100 100 Provision of hotel and boutique facilities and at pre-operating stage

MAS Academy Sdn. Bhd. 100 100 Dormant

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Effective InterestName of Company 2002 2001 Principal Activities

% %

MAS Properties Sdn. Bhd. 100 100 Dormant

MAS Wings of Gold Sdn. Bhd. 100 100 Dormant

Tiara Malaysia Airlines Sdn. Bhd. 100 100 Investment holding and inactive

Kelas Services Sdn. Bhd. 100 100 Dormant

MIR Technologies Sdn. Bhd. 100 100 Dormant

Sepang Berhad 100 100 Dormant

Malaysia Airlines Capital (L) Limited 100 100 Investment holding

31 ASSOCIATED COMPANIES

The details of the associated companies are:

Name of Company Country of Effective Interest[Financial Year End] Incorporation 2002 2001 Principal Activities

% %

Asian Frequent Flyer Singapore 33.3 33.3 Ceased operations and under members’Pte. Ltd.[31 December] voluntary liquidation

Hamilton Sunstrand Customer Malaysia 49 49 Repair and overhaul of selected aircraftSupport Centre (M) Sdn. Bhd. environmental control systems, aircraft [31 December] pneumatic components and propeller

system

MTU Maintenance Malaysia Malaysia - 31.1 Manufacture, repair and assembling ofSdn. Bhd. (formerly known as civil aircraft turbine engine component partsAirfoil Service Sdn. Bhd.) [31 March]

Pan Asia Pacific Aviation Hong Kong 23.5 23.5 Provision of aircraft maintenance servicesServices Limited[31 March]

GE Engine Services Malaysia Malaysia 30 30 Repair and overhaul of aircraft enginesSdn. Bhd.[31 December]

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1 0 0

notes to the financial statements31 march, 2002

Name of Company Country of Effective Interest[Financial Year End] Incorporation 2002 2001 Principal Activities

% %

Aerofine Meat Sdn. Bhd. Malaysia 49 49 Provision of catering related supplies[31 March]

Signforce Sdn. Bhd. Malaysia 25 25 Hotel planning assistance and management[31 December] services

Honeywell Aerospace Malaysia 30 30 Repair, servicing, overhaul and Services (M) Sdn. Bhd. testing of aircraft auxiliary power units[31 December]

Taj Madras Flight Kitchen Limited India 20 20 Inflight catering of food and beverages[31 March]

32 COMPARATIVE FIGURES

Certain comparative figures have been adjusted due to the prior year adjustments as described in Note 23. The following balancesheets comparatives have been reclassified to conform with the current year’s presentation:

Group CompanyAs As

As previously As previouslyamended reported amended reported

2002 2001 2002 2001RM’000 RM’000 RM’000 RM’000

Deferred charges 37,591 1,632,859 37,591 1,632,859Other liabilities 576,754 1,535,716 576,754 1,535,716

33 CURRENCY

All amounts are stated in Ringgit Malaysian, unless otherwise stated.

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statistics on shareholdings as at 31 july, 2002

Statement of Shareholdings

Share CapitalAuthorised Share Capital : 109,000,000,001Issued and Fully Paid-up Capital : 1,570,000,001 Class of Shares : 770,000,000 ordinary shares of RM1.00 each;

1 (one) Special Rights Redeemable Preference Share of RM1.00; and 800,000,000 Redeemable Convertible Preference Shares of RM0.01 each

Voting Rights : One vote per ordinary share.The Special Share has no voting right other than that referred to in note 13(a) of the Financial Statements. The Redeemable Convertible Preference Shares have no voting right.

Analysis of Shareholdings

A. Distribution of Shareholdings

Size of Shareholdings No. of Holders Total Holdings %

Less than 1,000 152 19,406 0.001,000 to 10,000 13,327 31,107,727 4.05 10,001 to 100,000 749 21,431,272 2.78100,001 to less than 5% of issued shares 203 162,238,545 21.075% and above of issued shares 4 555,203,050 72.10

Total 14,435 770,000,000 100.00

B. List of Thirty (30) Largest Shareholders

Name of Shareholders No. of Shares Held %

1. Minister of Finance 224,000,000 29.092. Kumpulan Wang Amanah Pencen 161,713,367 21.003. Employees Provident Fund Board 100,743,000 13.084. Amanah Raya Nominees (Tempatan) Sdn. Bhd. 68,289,000 8.87

<Skim Amanah Saham Bumiputera>5. State Financial Secretary Sarawak 34,000,000 4.426. Warisan Harta Sabah Sdn. Bhd. 30,042,000 3.907. Bank Simpanan Nasional 6,388,000 0.838. AM Nominees (Tempatan) Sdn. Bhd. 4,280,000 0.56

<Employees Provident Fund Board>9. Amanah Raya Nominees (Tempatan) Sdn. Bhd. 3,590,000 0.47

<Skim Amanah Saham Nasional>10. Amanah Raya Nominees (Tempatan) Sdn. Bhd. 3,086,000 0.40

<Amanah Saham Wawasan 2020>11. Universal Trustee (Malaysia) Berhad 2,183,000 0.28

<BHLB Pacific High Growth Fund>

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statistics on shareholdings as at 31 july, 2002

Name of Shareholders No. of Shares Held %

12. Amanah Raya Nominees (Tempatan) Sdn. Bhd. 2,086,000 0.27<Public Index Fund>

13. HSBC Nominees (Asing) Sdn. Bhd. 1,860,000 0.24<Chase Lux for Schroder International Selection Fund (Pacific Equity)>

14. HSBC Nominees (Asing) Sdn. Bhd. 1,750,000 0.23<BNY Brussels for JF Asean Fund >

15. Citicorp Nominees (Tempatan) Sdn. Bhd. 1,692,000 0.22<ING Insurance Berhad (Inv-IL Par)>

16. HSBC Nominees (Asing) Sdn. Bhd. 1,638,000 0.21<Chase Manhattan Bank (Ireland) Plc. For Invesco GT Asean Fund>

17. Permodalan Nasional Berhad 1,594,000 0.2118. Citicorp Nominees (Asing) Sdn. Bhd. 1,400,000 0.18

<CB LDN For Stichting Shell Pensioenfonds>19. Cartaban Nominees (Asing) Sdn. Bhd. 1,395,000 0.18

<Dexia BQ Intl. a Lux for CDC International Fund : CDC Emerging Asia>20. Universal Trustee (Malaysia) Berhad 1,309,000 0.17

<Mayban Balanced Trust Fund>21. AM Nominees (Tempatan) Sdn. Bhd. 1,291,000 0.17

<Pertubuhan Keselamatan Sosial>22. HSBC Nominees (Asing) Sdn. Bhd. 1,257,000 0.16

<MTDL For Schroder Pacific Fund>23. HSBC Nominees (Asing) Sdn. Bhd. 1,250,000 0.16

<HSBCIT HK For JF Malaysia Fund>24. Cartaban Nominees (Asing) Sdn. Bhd. 1,242,000 0.16

<Credit Agricole Indosuez Luxembourg For Credit Agricole Funds Asian Growth>

25. RHB Nominees (Tempatan) Sdn. Bhd. 1,222,000 0.16<Rashid Hussain Asset Management Sdn. Bhd.For Kumpulan Wang Simpanan Pekerja>

26. HSBC Nominees (Tempatan) Sdn. Bhd. 1,200,000 0.16<HSBC (M) Trustee Bhd For OSK-UOB Equity Trust (3175)>

27. HSBC Nominees (Asing) Sdn. Bhd. 1,190,000 0.16<Pictet and Cie For Ingelstorp Investments>

28. HSBC Nominees (Asing) Sdn. Bhd. 1,096,000 0.14<Fidelity Institutional Emerging Markets Fund>

29. HSBC Nominees (Asing) Sdn. Bhd. 1,084,000 0.14<Chase Manhattan Bank (Ireland) Plc. For Invesco Asia Alpha Fund>

30. HSBC Nominees (Asing) Sdn. Bhd. 1,080,000 0.14<Pictet and Cie For Djursholm Investments>

Total 665,408,050 86.42

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statistics on shareholdings as at 31 july, 2002

C. Substantial Shareholders (as shown in the register of substantial shareholders)

Name of Substantial Shareholders No. of shares held % NotesDirect Indirect

1. Minister of Finance, Incorporated 224,000,000 - 29.09

2. Kumpulan Wang Amanah Pencen 155,583 ,367 - 20.21

3. Employees Provident Fund Board 109,256,000 - 14.19 A

Notes:

A The following are the registered holders of the 109,256,000 ordinary shares:

Name of registered holder No. of shares held %

- Employees Provident Fund Board 100,743,000 13.08- Rashid Hussain 1,217,000 0.16- AMMB Asset Management 4,315,000 0.56- Nomura Asset Management 1,865,000 0.24- Amanah SSCM 1,116,000 0.15

D. Directors' Shareholding (as shown in the register of directors' shareholding)

Name of Directors No. of shares held %Direct Indirect

1. Y.Bhg. Tan Sri Dato’ Seri Azizan Bin Zainul Abidin - - -2. Y.Bhg. Dato’ Md. Nor Bin Md. Yusof - - -3. Y.Bhg. Tan Sri Dato' Dr. Samsudin Bin Hitam - - -4. Y.Bhg. Dato’ Zaharaah Binti Shaari - - -5. Y.Bhg. Datu Dr. Hatta Bin Solhi - - -6. Mr. Keong Choon Keat - - -7. Mr. Martin Gilbert Barrow - - -8. Y.Bhg. Dato’ N. Sadasivan a/l N. N. Pillay - - -9. Y.Bhg. Dato’ Mohamed Azman Bin Yahya - - -10. Y.Bhg. Datuk Kee Mustafa - - -11. Y.Bhg. Datuk Wan Abdul Kadir Bin Wan Yubi @ Datuk Wan Ali Tuanku Yubi - - -

(Alternate Director to Y.Bhg. Datu Dr. Hatta Bin Solhi)12. Encik Jusof Bin Ismail - - -

(Alternate Director to Y.Bhg. Tan Sri Dato’ Dr. Samsudin Bin Hitam)13. Y.Bhg. Datuk Abdillah @ Abdullah B Hassan @ S Hassan - - -

(Alternate Director to Y.Bhg. Datuk Kee Mustafa)

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properties owned as at 31 march, 2002

Location Description Tenure Approx. Approx. Net bookarea in age in value as atsq. feet (years) 31.3.2002

(RM'000)

1. Federal Territory 35 storey office building Leasehold Land - 80,586 17 43,385of Kuala Lumpur Bangunan MAS, 99 years Built-up - 662,978 47,740

Lot 1194, Section 57, expiringJalan Sultan Ismail, 7 Feb, 208150250 Kuala Lumpur

2. Federal Territory Residential building. Leasehold Land - 3,440 17 159of Labuan Lot 24, Taman Jasa, 999 years Built-up - 2,062

Off Jalan Tun Mustapha, expiringLabuan 31 Dec, 2867

3. State of Selangor 36 office and workshop Leasehold of Land - 4,617,360 3-30 348,008buildings forming the 80 years being Built-up - 2,284,309MAS office complex at consideredSultan Abdul Aziz Shah Airport, 47200 Subang

Computer centre, hostel Freehold Land - 358,869 8 107,909and training school at Built-up - 732,010No. 2, Jalan SS7/13,47301 Kelana Jaya,Petaling Jaya

21 buildings forming Leasehold Land - 9,583,200 4 1,002,398the MAS Campus at 50 years Built-up - 3,306,111P.T.19, K L International approved by Airport (KLIA), 64000 Federal Govt.Sepang, Selangor

4. State of Penang 13 shoplot units at Leasehold Built-up - 8,690 25 1,658A1.04 - A1.07 & 99 years A1.11 - A1.14 level 1, expiringA4.05 - A4.08 & 2075B114.03, level 4,Kompleks KOMTAR,Penang Road, George Town,10000 Penang

Residential building at Freehold Land - 6,234 21 156No. 3 Changkat Built-up - 3,085Minden, Lorong 8,Penang

8 buildings at Penang Yearly Built-up - 331,154 22 33,774International Airport, tenancy11900 Bayan Lepas,Penang

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properties owned as at 31 march, 2002

Location Description Tenure Approx. Approx. Net bookarea in age in value as atsq. feet (years) 31.3.2002

(RM'000)

5. State of Perak 2 shoplots at Freehold Built-up - 4,102 21 562Lots G-01 & 1-08,Bangunan Sri Kinta,Jalan Sultan Idris Shah,30000 Ipoh

6. State of Pahang Vacant land at Leasehold Land - 52,816 21 48Lot 51, Taman Bukit 60 yearsKayangan, Bukit expiringFraser, Pahang 04 Dec, 2041

2 condominium units at Leasehold Built-up - 5,226 16 173K67 & B16 Pine Resort, 99 years 18449000 Bukit Fraser, expiringPahang 23 May, 2082

Residential building at Freehold Land - 4,400 17 107No. 4, Lorong 49, Built-up - 2,286Taman Tas Mahkota,Bukit Sekilau,25200 Kuantan

7. State of 1 engineering workshop Yearly tenancy Built-up - 4,500 17 0Terengganu at Sultan Mahmud Airport,

21300 Kuala Trengganu

8. State of Kedah 1 engineering building Yearly tenancy Land - 2,065 10 148at Sultan Abdul Halim Built-up - 5,950Airport, 06200 Alor Setar

Residential building at Freehold Land - 2,519 14 80No. 45 Taman Sri Built-up - 2,324Negeri, Jalan Penarak, Kuah, Langkawi

1 cargo shed at Yearly tenancy Built-up - 1,632 7 35Langkawi International Airport, 07100 Padang Matsirat, Langkawi

Office lot Leasehold Built-up - 3,210 12 438No. 74 Kompleks 99 yearsAlor Setar, Jalan expiring Lebuhraya Darul Aman, 208805100 Alor Setar

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properties owned as at 31 march, 2002

Location Description Tenure Approx. Approx. Net bookarea in age in value as atsq. feet (years) 31.3.2002

(RM'000)

Residential building at Freehold Land - 6,663 9 260No. 2630, Jalan Syed Built-up - 3,791Sheh Shahbuddin,Taman Lumba Kuda,Alor Setar

9. State of Johor Residential building at Freehold Land - 4,241 21 102No. 34, Jalan Sutera 5, Built-up - 2,064Taman Sentosa, Johor Bharu

1 engineering workshop 3-year Land - 16,000 10 520at Sultan Ismail Airport, tenancy Built-up - 1,20081250 Senai, expiring 2001Johor Bahru (renewable)

1 cargo building at 3-year Built-up - 10,911 9 0Sultan Ismail Airport, tenancy81250 Senai, expiring 2001Johor Bahru (renewable)

10. State of 5 condominium units at Leasehold Built-up - 5,657 14 690Negeri Sembilan A-6-10, A-7-5, A-5-3, 99 years

A-5-5 & A-4-2, expiring 2086Tanjung Tuan Resort,Port Dickson

11. State of Kelantan Residential building at Leasehold Land - 8,383 14 127Lot 1791, Taman Sari, 99 years Built-up - 2,595off Jalan Hospital, expiringKota Bharu 06 Mar, 2088

Office lots at Leasehold Built-up - 4,350 12 777Ground Floor, Wisma Yakin, 99 yearsJalan Gajah Mati, expiring 208815050 Kota Bharu

12. State of Sabah 2 lots of vacant land, Both leasehold Land - 17,898 30 77CL015104864 & 999 years015338977, expiringJalan Mat Salleh, 07 Mar, 2915Kota Kinabalu

Residential building at Leasehold Land - 7,220 19 231No. 44, Taman Luyang 999 years Built-up - 3,316Phase 8, Kota Kinabalu expiring

19 Mar, 2922

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properties owned as at 31 march, 2002

Location Description Tenure Approx. Approx. Net bookarea in age in value as atsq. feet (years) 31.3.2002

(RM'000)

2 office lots at Leasehold Built-up - 3,614 17 1,142G030 & G038 Grd Floor, 999 yearsKompleks Karamunsing, expiring 2983Jalan Tuaran/ Selatan,Kota Kinabalu

1 office lot at Leasehold Built-up - 2,472 17 348CF02, 10th Floor 999 years Block C, Kompleks expiring 2983Karamunsing, Jalan Tuaran/Selatan, Kota Kinabalu

Engineering & Leasehold Land - 16,000 12 & 21 9,684Administration buildings 20 and 60 years Built-up - 135,246at Kota Kinabalu expiring 2006International Airport, and 204488740 Kota Kinabalu respectively

Residential building on Leasehold Land - 82,204 10 414Lot CL105241807, 999 years Built-up - 3,587 181Km 2.5 Jalan Datuk Abu expiringBakar Titingan, Tawau 06 Mar, 2904

1 cargo warehouse at Yearly tenancy Built-up - 8,945 10 204Tawau Airport, Tawau

1 engineering/cargo Yearly tenancy Built-up - 1,240 22 0building at Lahad Datu Airport, Lahad Datu

Residential building at Leasehold Land - 4,450 11 186No. 144, Taman Fajar, 999 years Built-up - 1,800Lahad Datu expiring 2991

13. State of Sarawak 5-storey office building at Leasehold Land - 5,397 16 693Lot 215, Jalan Song 60 years Built-up - 38,478 3,057Thian Cheok, expiring93100 Kuching 19 Feb, 2041

Residential building at Leasehold Land - 5,758 19 139No. 339, Fortune Garden, 60 years Built-up - 2,777Lorong Stampin Timur 5, expiring Kuching 19 Sep, 2042

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properties owned as at 31 march, 2002

Location Description Tenure Approx. Approx. Net bookarea in age in value as atsq. feet (years) 31.3.2002

(RM'000)

Catering and workshop Yearly tenancy Land - 67,662 12-20 901buildings at Kuching International Airport,Kuching

1 cargo warehouse / Yearly tenancy Land - 40,864 16 1,040engineering building at Built-up - 19,375Miri Airport, Miri

4-storey office building at Leasehold Land - 1,800 22 356Lot 239, Beautiful Jade 60 years Built-up - 4,900Garden, 98000 Miri expiring

27 Jun, 2039

Residential building at Leasehold Land - 5,478 18 141No. 126, Hilltop Garden, 60 years Built-up - 2,368Jalan Riam, Miri expiring

07 Sep, 2043

Residential building at Leasehold Land - 4,049 17 114830A, Countrywood 60 years Built-up - 1,700Estate, Off Jalan expiringHussein Onn, Bintulu 20 Dec, 2044

4-storey office building at Freehold Built-up - 5,102 16 484No. 129, Taman Sri Dagang, Jalan Mesjid,97000 Bintulu

4-storey office building at Leasehold Land - 1,199 18 356No. 61, Jalan Tuanku 60 years Built-up - 5,200Osman, 96000 Sibu expiring

26 Oct, 2043

Residential building at Leasehold Land - 4,583 19 77No. 16B, Jalan Kang 60 years Built-up - 2,242Kong, 96000 Sibu expiring

24 Sep, 2042

1 cargo/engineering Yearly tenancy Land - 41,592 8 1,188building at Sibu Airport, Built-up - 8,151Km 23 Sibu/Durin Road ,96000 Sibu

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properties owned as at 31 march, 2002

Location Description Tenure Approx. Approx. Net bookarea in age in value as atsq. feet (years) 31.3.2002

(RM'000)

14. Singapore Office lots at Leasehold Built-up - 15,241 22 5,802190, Clemenceau Avenue, 99 yearsNo. 0209-11, Singapore expiringShopping Centre, 30 Apr, 2047Singapore 239924

1 apartment at Freehold Built-up - 2,238 18 522Unit 5-01 Block 3, Hawaii Tower, No. 77,Meyer Road, Singapore

15. Thailand 1 condominium unit at Freehold Built-up - 2,713 21 168No. 3, Block B, Tai Ping Tower, Ekamai Road,Bangkok

16. Indonesia Residential building at Leasehold Land - 13,680 29 18No. 1, Jalan Babura, 10 years Built-up - 2,932Medan expiring

29 April, 2009

Residential building at Leasehold Land - 18,890 29 0No. 1A, Jalan Tunku 10 years Built-up - 7,376Cik Detro, Medan expiring

13 Jun, 2005

17. The Phillipines 1 apartment at Freehold Built-up - 2,260 28 95Unit 11-D, The Makati Tuscany Condo, Ayala Avenue,Makati City, Manila

1 office lot at Freehold Built-up - 3,240 24 164Unit F, Ground Floor, Legaspi Tower 300, Vito Cruz Street, Malate, Metro Manila

18. Hong Kong 1 apartment at Leasehold Built-up - 1,874 23 0No. 58 - 60 Sakura Court 75 yearsFlat A, 5th Floor, expiringKennedy Road, 20 June, 2070Hong Kong

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properties owned as at 31 march, 2002

Location Description Tenure Approx. Approx. Net bookarea in age in value as atsq. feet (years) 31.3.2002

(RM'000)

19. Australia Residential building at Freehold Land - 7,390 26 156Unit 1, Westminister Built-up - 2,300Street, Balwyn,Victoria 3103

Residential building at Freehold Land - 8,086 24 19040, Edgewater Road, Built-up - 4,162Manning, Perth, WA 6152

5-storey office building at Freehold Land - 2,422 11 6,00556, William Street, Built-up - 14,100Perth, WA 6000

10-storey office building at Freehold Built-up - 35,000 9 15,28816 Spring Street,Sydney, N.S.W 2000

20. England 7-storey office building Freehold Land - 29,977 6 34,368Nos. 247 - 249, Cromwell Built-up - 24,169Road, London SW5 9GA

4 storey office building at Freehold Built-up - 6,950 14 5,649No. 2-191A Ravens Court, Askew Road,Hammersmith,London W12 9AX

Residential apartment at Freehold Built-up - 3,300 5 5,873 No. 12 St Mary's Place,Kensington Green,Marloes Road, London

21. The Netherlands Office building at Freehold Land - 8,116 11 6,453Westeringchans 24A, Built-up - 4,2841017-SG Amsterdam

22. China 1 apartment at Leasehold Built-up - 1,652 5 588Unit C703A, Roman 70 yearsGardens, Beijing expiring 2063

1 apartment at Leasehold Built-up - 1,652 5 588Unit C1403A, Roman 70 yearsGardens, Beijing expiring 2063

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form of proxy

I/We, ............................................................................................................. NRIC No./Co. No. ...............................................[FULL NAME IN CAPITAL LETTERS]

of .................................................................................................................................................................................................[ADDRESS]

being a member(s) of MALAYSIAN AIRLINE SYSTEM BERHAD (“the Company”), hereby appoint .............................................

..................................................................................................................................... NRIC No. ...............................................[FULL NAME]

of .................................................................................................................................................................................................[FULL ADDRESS]

or failing him/her, ......................................................................................................... NRIC No. ...............................................[FULL NAME]

of .................................................................................................................................................................................................[FULL ADDRESS]

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 First AnnualGeneral Meeting of the Company to be held at Dewan Tun Hussein Onn, Level 2, Putra World Trade Centre, 41, Jalan Tun Ismail,50480 Kuala Lumpur on Monday, 30 September, 2002 at 10.00 am and at any adjournment thereof in the manner indicated below:-

Please indicate with an "X" in the space provided below how you wish your votes to be cast. If no specific direction as to voting is given,the proxy will vote or abstain at his/her discretion.

Resolutions For Against

Resolution No. 1 Adoption of Audited Accounts for the financial year ended 31 March, 2002 and the Reports of the Directors and Auditors.

Resolution No. 2 Approval of Directors’ fees.

Resolution No. 3 Re-election of Y.Bhg. Dato’ Zaharaah Binti Shaari as Director.

Resolution No. 4 Re-election of Y.Bhg. Datu Dr. Hatta Bin Solhi as Director.

Resolution No. 5 Re-election of Mr. Martin Gilbert Barrow as Director.

Resolution No. 6 Re-election of Y.Bhg. Dato’ N. Sadasivan a/l N. N. Pillay as Director.

Resolution No. 7 Re-election of Y.Bhg. Dato’ Mohamed Azman Bin Yahya as Director.

Resolution No. 8 Re-election of Y.Bhg. Datuk Kee Mustafa as Director.

Resolution No. 9 Appointment of Messrs. Ernst & Young as Auditors and to authorise the Directors to fix the Auditors’ remuneration.

Resolution No. 10 Authority under Section 132D of the Companies Act, 1965 for Directors to issue shares.

As witness my/our hands this .......... day of ....................., 2002

........................................................No. of ordinary shares held ................... 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 and the provisions of Section 149(1)(6) 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 officers or attorney, duly authorised in that behalf.

3. Where a member appoints two 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 SecuritiesIndustry (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. SuchDepositors whose shares exceed the Company's 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 tovote. 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 the Registered Office of the Company at 33rd Floor, Bangunan MAS, Jalan Sultan Ismail, 50250 Kuala Lumpur, not less than 48 hours beforethe time for holding the Meeting or at any adjournment thereof.

6. Shareholders' attention is hereby drawn to the Listing Requirements of the Kuala Lumpur Stock Exchange, which allows a member of the Company who is an authorise nominee as defined under theSecurities Industry (Central Depositories) Act, 1991, to appoint at least one (1) proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of thesaid securities account.

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Shareholding represented by proxy

1 1 2

F I N A N C I A L S T A T E M E N T S 2 0 0 1 / 2 0 0 2

Malaysian Airline System Berhad (10601-W)33rd Floor, Bangunan MAS,Jalan Sultan Ismail,50250 Kuala Lumpur,Malaysia

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