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55Annual Report 2009

Kota Kinabalu

Manila

Cebu

Canberra

Sydney Newcastle

Coffs Coast

Ballina Byron

Gold Coast

Sunshine Coast Fraser Coast Rockhampton

Mackay Hamilton Island

Townsville Cairns

Brisbane

Port Elizabeth

Durban

Bahrain

Athens

Rome Madrid

Barcelona

Geneva

Brussels

Frankfurt London

Gothenburg

Stavenger Oslo

Stockholm

Helsinki

Copenhagen

Bergen

Sandefjord

Aberdeen

Manchester

Edinburgh

Dublin

Belfast Glasgow

Medan

Phuket

Perth Adelaide

Melbourne

Amsterdam

Langkawi

Denpasar

Launceston Habart

Darwin

Broome

Beijing Seoul

Tokyo

Fukuoka

Kansai

Vienna

Munich

Nagoya

Guangzhou Cairo

Bangalore

Mumbai

Delhi Abu Dhabi Doha

Muscat

Mauritius

Tashkent

Shanghai

Kuwait

Chennai Hyderabad

Penang

Jakarta

Colombo

Bandar Seri Begawan

Yogyakarta

Koh Samui

Tehran

Istanbul

Male

Johannesburg

Mataram

Kristiansand

Guiling Chongsha

Chengdu

Wuhan

Nanning

Banda Acheh

Beirut

Amman

Legend - Operated by Malaysia Airlines - Operated by All Nippon Airways - Operated by Alitalia - Operated by Cathay Pacific - Operated by South African Airways - Operated by Etihad Airways - Operated by Virgin Blue - Operated by Garuda Indonesia - Operated by British Midland - Operated by Air Mauritius - Operated by Gulf Air - Operated by Qatar Airways - Operated by KLM - Operated by Uzbekistan Airways - Operated by Egypt Air - Operated by Firefly - Operated by Jet Airways - Operated by China Southern - Operated by Thai Airways - Operated by Sri Lankan - Operated by Iran Air - Operated by Turkish Airline - Operated by Oman Air - Operated by Royal Jordanian

Cape Town

KUALA LUMPUR

Surabaya

Pekan Baru

Batam

Yangon Hong Kong

Bangkok

Hub and Spoke Network

Servingourguestsacross100destinations.

ROUTENETWORK

MALAYSIANAIRLINESYSTEMBERHAD(10601-W)56


INFLIGHT

OfferingMalaysianHospitalityatitsbestwiththe“World’sBestCabinStaff”.


Details of Board of Directors’ Meeting

DATE OF MEETING TIME OF MEETING NATURE OF MEETING VENUE

26 February 2009 10.00a.m. BoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.01-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

16 March 2009 9.30a.m. BoardofDirectors’Meeting Meranti1,GroundFloor,MASAcademy, [No.02-09] No.2JalanSS7/13,KelanaJaya, 47301PetalingJaya,SelangorDarulEhsan

20 April 2009 9.30a.m. BoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.03-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

18 May 2009 9.30a.m. BoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.04-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

12 June 2009 8.30a.m. SpecialBoardofDirectors’Meeting Meranti1,GroundFloor,MASAcademy, [No.05-09] No.2JalanSS7/13,KelanaJaya, 47301PetalingJaya,SelangorDarulEhsan

22 June 2009 2.30p.m. BoardofDirectors’Meeting Meranti1,GroundFloor,MASAcademy, [No.06-09] No.2JalanSS7/13,KelanaJaya, 47301PetalingJaya,SelangorDarulEhsan

20 July 2009 9.30a.m. BoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.07-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

6 August 2009 10.30a.m. SpecialBoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.08-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

28 August 2009 11.10a.m. SpecialBoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.09-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

28 September 2009 9.30a.m. BoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.10-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

19 October 2009 9.30a.m. BoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.11-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

25 November 2009 9.45a.m. BoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.12-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

14 December 2009 11.30a.m. SpecialBoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.13-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan

28 December 2009 9.30a.m. SpecialBoardofDirectors’Meeting BoardRoom,3rdFloor,AdministrationBuilding1, [No.14-09] MASComplexA,SultanAbdulAzizShahAirport, 47200Subang,SelangorDarulEhsan


TheBoardAuditCommittee(BAC)ofMalaysianAirlineSystemBerhad(MASor theCompany) ispleasedtopresent theAuditCommitteeReport for thefinancialyearended31December2009.

A. ESTABLISHMENT AND COMPOSITION OF BOARD AUDIT COMMITTEE

InaccordancetotheMalaysianCodeofCorporateGovernance(MCCG)andPara15.10ofBursaMalaysiaSecuritiesBerhad(BMSB)ListingRequirements(LR),theBACcomprisesthedirectorslistedbelow:

Name of Directors DirectorshipKeongChoonKeat(Chairman) IndependentNon-ExecutiveDirectorDato’N.Sadasivana/lN.N.Pillay IndependentNon-ExecutiveDirectorDatukAmarWilsonBayaDandot IndependentNon-ExecutiveDirector(appointed on 19 October 2009)

TanSriDatukSeriDr.WanAbdulAzizBinWanAbdullahandDatukHajiYusoffBinDatukHajiMohamedKassimresignedasmembersofBACon10July2009and19October2009,respectively.

TheBACwasappointedamongstMASBoardofDirectors(Board)andfulfilsthefollowingLR/MCCG: Comprisenofewerthanthree(3)members Majorityareindependentdirectors Allmembersarenon-executivedirectors Atleastoneshouldbeamemberofanaccountingassociation Noalternatedirectorappointedasamemberofauditcommittee.

AppointmenttotheBACisreferredtotheNominationCommittee,priortoapprovalbytheBoard.TheBoardthenshallensurethatthecompositionoftheBACmeetstheindependenceandexperiencerequirementssetoutbyLR/MCCG.

ThetermofofficeofamemberoftheBACshallbethree(3)years,afterwhichheorshemaybere-nominatedandappointedbytheBoard.TheBoardshallreviewtheperformanceoftheBACanditsmembersatleastonceeverythree(3)years.

TheChairmanoftheBACwaselectedbymembersofBACandisamemberoftheMalaysianInstituteofAccountants.TheprofilesoftheChairmanandBACmembersaresetoutonpages14to19intheAnnualReport.

B. QUORUM OF BAC

Quorumshallcompriseatleasttwo(2)members,majorityofwhomareindependentdirectors.

C. MEETINGS OF THE BAC

TheBACshallmeetatleastfour(4)timesannually,ormorefrequentlyascircumstancesdictate.TheCommitteeheldnine(9)meetingsduringthefinancialyear,andtheattendancerecordofeachmemberisasfollows:

Name of Directors AttendedKeongChoonKeat 9/9Dato’N.Sadasivana/lN.N.Pillay 9/9DatukAmarWilsonBayaDandot 0/1(appointedon19October2009)DatukHajiYusoffbinDatukHajiMohamedKassim 1/8(resigned on 19 October 2009)TanSriDatukSeriDr.WanAbdulAzizbinWanAbdullah 1/5(resigned on 10 July 2009)Note: The first figure above denotes the number of meetings attended while the second figure denotes the number held. The number of meetings held refers to the applicable meetings for each Director and varies based on their dates of appointment.

Audit Committee Report

AUDITCOMMITTEEREPORT


Representativesof SeniorManagement,Chief InternalAuditor andExternalAuditors’ representatives attend themeetingsasandwhenappropriate.Additionally, theBACconducted2meetingswiththeexternalauditorswithoutthepresenceofexecutivedirectors.

MinutesofeachmeetingarekeptanddistributedtoeachmemberoftheBACaswellastotheothermembersoftheBoard.TheChairmanoftheBACmakesareportoneachmeetingtotheBoard.

D. OBJECTIVES

TheprincipalobjectivesoftheBACaretoassisttheBoardindischargingitsstatutorydutiesandresponsibilitiesrelatingtoaccountingandreportingpracticesoftheholdingcompanyandeachofitssubsidiaries.Inaddition,theBACshall: evaluatethequalityoftheauditsperformedbytheinternalandexternalauditors; provideassurancethatthefinancialinformationpresentedbymanagementisrelevant,reliableandtimely; overseecompliancewithrelevantlawsandregulationsandobservanceofapropercodeofconduct;and determineandreviewthequality,adequacyandeffectivenessoftheGroup’ssystemofinternalcontrol.

E. TERMS OF REFERENCE

TheBACwasestablishedin1992withwrittentermsofreferenceapprovedbytheBoardwhichdealswithBACauthorityandduties.Thesetermsofreferenceareperiodicallyreviewed.

i. Authority TheBACshall,inaccordancewithproceduresdeterminedbytheBoardandattheexpenseoftheCompany: Investigateanyactivitywithinitstermsofreference; Havefullandunlimited/unrestrictedaccesstoallinformationanddocuments/resourcesrequiredtoperformitsduties; Obtainindependentprofessionaladviceorotheradviceandtosecuretheattendanceofexternalpartieswithrelevant experienceandexpertiseifitdeemsnecessary; Convenemeetingswithexternalauditors, internalauditorsorboth,without theattendanceofotherdirectorsand employeesifdeemednecessary.However,atleasttwiceayeartheBACshallmeetwiththeexternalauditorswithout anyexecutiveboardmemberpresent; MakerelevantreportswhennecessarytotherelevantauthoritiesifabreachoftheLRhasoccurred.

ii. Duties and ResponsibilitiesTheAudit andBusinessAdvisoryDepartment (ABA) shall report directly to theBAConallmatterswithin its scopeofactivities.ThedutiesandresponsibilitiesoftheBACaretoundertakethefollowingandreportaccordinglytotheBoard:

a) External Auditors Reviewtheauditplanandauditreports,includingtheevaluationoftheinternalcontrolsystemwiththeexternal auditors; Reviewthequalityoftheexternalauditorsandtomakerecommendationsontheirappointment,terminationand remuneration.Inanyresignation/terminationanyletter/representationsbytheexternalauditorswouldbereported totheBoardandBMSB; Review the liaison between the external auditors, Management and the Board, and the assistance given by Managementtotheexternalauditors.

b) Financial Reporting Review ReviewthequarterlyreportingtoBMSBandyear-endannualfinancialstatementsbeforesubmissiontotheBoard,

focusingon: majoraccountingpolicychanges;

significantauditissuesinrelationtotheestimatesandjudgmentalareas; significantandunusualevents; compliancewithaccountingstandardsandotherlegalrequirements.


c) Internal Audit Assesstheadequacyofthescope,functions,competencyandresourcesoftheinternalauditfunctionandensure

thatinternalauditorshavethenecessaryauthoritytocarryoutitswork; Reviewthe internalauditprogrammeprocessesandresultsoftheauditandassesswhetherappropriateactions

havebeentakenontherecommendationsoftheinternalauditors; Reviewanyappraisalorassessmentoftheperformanceoftheinternalauditfunction,and; Review theperformanceof senior staffmembersof internal audit functionsandapprove their appointmentor

termination.

d) Related Party Transactions MonitoranyrelatedpartytransactionsthatmayarisewithintheGroupandtoreport,ifany,transactionsthatmay

arisewithintheGroupandanyrelatedpartyoutsidetheGroupthatarenotbasedonarms-lengthtermsandare disadvantageoustotheGroup;

ReviewtheprocessandallocationofoptionspursuanttotheEmployeesShareOptionScheme(ESOS)attheendof eachfinancialyearasbeingincompliancewiththetermsandconditionsundertheESOSscheme;

ReviewanyrelatedpartytransactionandconflictofinterestsituationthatmayarisewithintheGroupincludingany transaction,procedureorcauseofconductthatmayraisequestionsofmanagementintegrity.

F. ACTIVITIES IN THE FINANCIAL YEAR

TheactivitiesoftheBACduringthefinancialyear2009wereasfollows:-

i. Risks and Controls Reviewed the progress of the risk management functions and its on-going activities for identifying, evaluating, monitoringandmanagingrisks;and Reviewedtheadequacyandeffectivenessofthesystemofinternalcontrolsthroughtheevaluationofresultsofwork performed by internal and external auditors, committees as well as through discussion with Management and representationbyManagement.

ii. Internal Audit Approvedtheauditplan,scopeandbudgetforthefinancialyear; Reviewed the results of internal auditors’ work and monitor the implementation of management action plans in addressingandresolvingissues; ReviewedtheadequacyofresourcesandthecompetenciesofstaffwithintheABAtoexecutetheplan;and ReviewedtheperformanceoftheABAandrecommendimprovements.

iii. External Audit Approvedtheexternalauditorstermsofengagement,auditplanandscopeforthefinancialyear; Reviewedtheresultsandissuesarisingfromtheirauditofthefinancialyearandtheresolutionofissueshighlightedin theirreporttotheBACandManagementresponse;and MaderecommendationstotheBoardontheappointmentandremunerationoftheexternalauditors.

iv. Financial Reporting ReviewedanddeliberatedontheQuarterlyFinancialAnnouncementsandAnnualFinancialStatementstoBMSBand recommendthemforapprovalbytheBoard.

v. Related Party Transactions ReviewedrelatedpartytransactionsforcompliancewiththeLRofBMSBandtheadequacyofthereviewproceduresfor relatedpartytransactions.

AUDITCOMMITTEEREPORT


The internal audit function of MAS Group is performed by ABA that reports to the BAC. IA function is governed by anapprovedMASInternalAuditCharterthatprovidesforitsindependenceinevaluatingandreportingonadequacy,integrityandeffectivenessoftheoverallinternalcontrolsystem,riskmanagementandcorporategovernanceusingasystematicanddisciplinedapproach.

ABAadoptsestablishedauditingstandardsandperformsperiodicself-assessmentagainstapplicableguidelinestomaintainitsproficiencyandensuredueprofessionalcare.ABAadoptsCOSObasedauditmethodologyinaligningitselftotheinternalcontrolframeworkandspearheadedinitiativecalledBusinessAssuranceControlAssessment(BACA),aControlSelfAssessmentmethodologywhichwasrolledouttoallstationsystem-wideandkeydepartmentsinCorporateOffice.BACAaimstoinstillaccountabilityonbusinessownerstoperformselfassessmentontheirinternalcontrolandreporttomanagementonperiodicbasis. The Chief Internal Auditor is a Chartered Accountant and MAS is a Corporate Member of the Institute of InternalAuditors.

TheriskbasedauditplanapprovedbytheBACisdevelopedtocoverkeycommercial,operationalandfinancialactivitiesthataresignificanttotheoverallperformanceoftheMASGroup.Theprioritisationofauditassignmentsisbasedontheresultsfromtheriskmanagementexercise,pastauditresultsanddiscussionswithSeniorManagement.KeyprocessesintheMASGroupareclusteredintoaudituniversesthathavebeenalignedtofivekeythrusts(the“MASWay”)againstthefollowingobjectives:

Revenueenhancementandprotection;

Operationaleffectivenessandefficiency,includingcostcontainment;

Assetsandservicesmanagement,includingeffectivenessofmanagementassurancefunctions;

Humanresourcemanagement;

FinancialReportIntegrity;and

Informationsystemmanagement.

InternalauditactivitiescoveringalltheaboveobjectivesareundertakenforbothpassengerandcargobusinessesatCorporateHeadquarters,StationSystemwideandMASSubsidiaries.TheABAalsoconductsspecialauditsonanad-hocbasisbasedonspecificrequestseitherfromtheBoard,BAC,SeniorManagementorarisingfromtheWhistleBlowerProgramme.

TheBACreceivesregularreportsfromtheChiefInternalAuditorontheresultsofactivitiesperformed.TheABAcontinuouslymonitorstheexecutionoftheauditrecommendations,externalandinternalthroughperiodicfollowup.TheManagementAuditActionCommitteeheadedbytheManagingDirectordiscussesanddeliberatesonauditissueseveryquartertoensureeffective implementationofrecommendationsandactionitemsarisingfromtheBACmeetingsandauditworkperformed.Duringthefinancialyear,theABAundertook91auditassignmentsand16advisoryassignments.

TheBACreviewsandapprovestheABA’sannualbudgettoensurethatthefunctionisadequatelyresourcedwithcompetentandproficientinternalauditors.Asat31December2009,theABAhad36internalauditorsofvariousmixofexpertiseandexperienceswithapproximately47,500availableman-hoursperannum.Duringtheyear,theABAalsooutsourcedcertaintypesofworkwhereABAclearlybenefitsfromtheirexpertiseandinvolvement.ThetotalexpenditureincurredbytheABAforthefinancialyear2009isapproximatelyRM6million.

G. GROUP INTERNAL AUDIT (IA) FUNCTION


Statement of Internal Control

INTRODUCTION

TheMalaysianCodeofCorporateGovernance (theCode) requires theBoardofDirectors (Board) tomaintainasoundsystemof internalcontroltosafeguardshareholders’ investmentsandtheGroup’sassets.PursuanttoPara15.27(b)ofBursaMalaysiaSecuritiesBerhad (BMSB)ListingRequirements (LR)andStatementon InternalControl:Guidance forDirectorsofPublicListedCompanies,theBoardispleasedtopresenttheStatementonInternalControlwhichoutlinesthenatureandscopeofinternalcontroloftheGroupduringthefinancialyearunderreview.

BOARD RESPONSIBILITIY

TheBoardassertsitsoverallresponsibilityonMalaysianAirlineSystemBerhad’s(MAS)group-widesystemsofinternalcontrolandriskmanagementaswellasreviewingitseffectiveness,adequacyandintegrity.Boardacknowledgesthatthesystemofinternalcontrol isdesignedtomanageanacceptableandtolerable leveloftheGroup’sriskratherthaneliminatetheriskoffailuretoachievebusinessobjectives.Therefore,thesystemsonlyprovidereasonablebutnotabsoluteassuranceagainstoccurrenceofanymaterialmisstatementorloss.

Concertedeffortfromallbusinessunitsareneededtoensureasoundsystemof internalcontrols.Management isresponsiblefor implementing the Board’s policies on risk management and internal controls. All employees have a responsibility towardsmaintainingasoundinternalcontrolsystemaspartoftheiraccountabilityinachievingtheGroup’soverallobjectives.

Thesystemofinternalcontrolcomprisesthefollowingkeyelements: ControlEnvironment ControlActivities Information&Communication Monitoring RiskAssessment

ThekeyelementsinMAS’internalcontrolsystemsareasfollows:

1. CONTROL ENVIRONMENT

TheBoardofDirectorsiscommittedtomaintainastronggovernancestructureandenvironmentfortheproperconductoftheGroup’sbusinessoperations.

A. Governance Structure

BoardofDirectors(Board) TheBoardassumesresponsibilitieswhichfacilitatethedischargeofBoard’sstewardshipthroughtheadoptionof

strategicplanfortheGroup,overseetheconductoftheGroupsbusinessandreviewtheadequacyandintegrityoftheinternalcontrolsystemsandcompliancetoapplicableregulations.TheBoardalsoreviewstheoperationalandfinancialperformanceoftheGroup.Thescopeofthisreviewcoversanysignificantinternalcontrolissuesidentifiedinthemonthlyperformancereports.

STATEMENTOFINTERNALCONTROL


BoardAuditCommittee(BAC) TheBACcomprisedmajorityofindependentnonexecutivedirectors,dulyexecutestheirdutiesasdefinedinthe

Code.TheBACregularlyreviews,onbehalfoftheBoard,internalcontrolissuesreportedbytheAuditandBusinessAdvisoryDepartment (ABA) andexternal auditors, including any significant internal control issues affecting thefinancialstatements.TheBACalsoperformsannualreviewontheadequacyofscope,authorityandresourcesofABAandappraisestheperformanceofABA.

Audit&BusinessAdvisory(ABA) Internalaudit functionsarecarriedoutbyABAwhichperformssystematic reviewsofkeyprocesses inhigh-risk

areasandassessestheeffectivenessofinternalcontrols.AnInternalControlPerformanceScorecardisprovidedineveryauditreporttohighlightthestateofinternalcontrolfortheareasaudited.Onamonthlybasis,ABAsubmitsauditreportstotheBACthroughtheMonthlyAuditReportingPackage.ABApresentskeyauditfindingstoBAConquarterlybasiswhicharealsodeliberatedattheSeniorManagementlevel.StartingfromJune2009,follow-upreviewsareconductedonquarterlybasistomonitorthestatusofallinternalcontrolissuesraised.

QualityAssurance(QA)Functions 16internalQAfunctionsestablishedundervariousdivisionssuchastheRiskandPolicyAdvisoryServices(RPAS)

Department, ITGovernance,FinancialCompliance,ServiceQualityUnit,Engineering&MaintenanceQA,AirportOperationsQAandothersareaimedtoimprovetheGroup’sservicesstandardsandmeetregulatoryrequirements.

Operatingstructurethatdefinesresponsibility&authority Acomprehensiveorganisationstructure,whichalignstobusinessandoperationalrequirementsandledbyDivision

Headswithdefinedresponsibility,accountabilityanddelegationofauthority,isinplace.

B. Conduct

CodeofEthics(COE) TheCodeprovidesgeneralprinciplesandspecificguidelinesapplicabletobusinessconductsinMASinculcatingbest

practicesinconductandcompliancewiththelaw.COEcoversamongothersconductsonbusinessethics,behaviour,conflictofinterest,privilegedinformationandcompliancetolaw.

ConsequentManagement Commend&ReprimandProgramme (CaRP) serves as a consequentmanagement tool to instil discipline in the

organisation,reiteratetheimportanceofcomplyingwithGroup’spoliciesandproceduresandtodealwithunethicalpractices.Italsoservestorecogniseareaswhichhaveshowntohaveputinplaceandappliedconsistentlygoodcorporategovernancepractices.

C. Organisational Values

InternalControlEnhancement(ICE)Programmecontinuestobeagroup-wideeffortputinplacetoincreaseawarenessamongstbusinessunitsontheimportanceofeffectiveinternalcontrols. BusinessAssurance&ControlAssessment(BACA) A key initiative under ICE programme is the Control Self Assessment, an approach to instil accountability for

businessunitownerstoconducthalfyearlyassessmentontheirinternalcontrolsandcommunicatetheresultstomanagement.Allsystem-widestationsandsomekeydepartmentsatthecorporateofficehavestartedperformingselfassessmentandreportedtheirresultsin2009.In2010,thescopeofBACAwillbeextendedtowholly-ownedsubsidiariesin2010.


WhistleBlowerProgramme(WBP) TheWBPis inplacetoprovideaninternalmechanismforemployeestoraisetheirconcernsaboutmalpractices,

irregularities andnegligenceaffectingMASwithout fearof adverse repercussions andwith their confidentialityprotected.TheWhistleBlowerIndependentCommittee(WIC)chairedbytheChiefInternalAuditorisresponsibletoreviewandmonitorconcernschannelledthroughWBP.InvestigationsandreviewsarecarriedoutbytheIntegrityUnitunderABAoranyappointedactionparties,tabledtotheWICandsubsequentlyreportedtotheManagingDirectoronaperiodicbasis.Appropriateactionsaretakenbasedonthestrengthsandmeritsofthefindings.

EmployeePerformanceMeasurement&Competency ThePerformanceMeasurementSystem(PMS)isalignedtoStrategiesandKeyBusinessActivitiessetforthinBusiness

TransformationPlan2(BTP2).KeyPerformanceIndicators(KPI)areusedtomeasurestaffperformanceonahalfyearlybasis.

TheLeadershipandManagementDevelopmentProgrammeisconductedaspartoftheTalentManagementandDevelopmentProgramme.Continuouseducation,developmentandtrainingareprovidedtothestaff throughawidevarietyofschemesandprogrammes. In2010,a talentmanagementprogrammecalled theGuestAuditorProgramme,willbeimplementedbyABAwiththeobjectiveofbuildingfutureleadersinMASwhoappreciatecross-functionalteamworkandpossessstrongcorporategovernanceknowledge.TheGuestAuditorprogrammeprovidestheplatformforon-thejobtrainingwithexposureongovernance,riskandcontrol.

2. CONTROL ACTIVITIES

A. Authority and Accountability

Policyguidelinesandauthority limitsare imposedinrespectofday-to-dayoperations inaformofCorporatePolicy,CorporateApprovingAuthorityManual(CAAM),StationApprovingAuthorityManual(SAAM)andSystemwideStationInternal Control Manual (SSICM). Subsidiaries are guided by the Subsidiary Governance Framework. These policiescomplementeachotherindefiningtheauthorityandaccountabilityforkeydecisionmakingareas.Thesepoliciesarecontinuouslyreviewedtoalignwithorganisationalandindustrychanges.

B. Policies and Procedures

PoliciesandprocedureswithembeddedinternalcontrolsaredocumentedinaseriesofStandardOperatingManuals.Custodianshipofthesemanuals isbestowedupontheRPASDepartment.Manualsareregularlyreviewedtoensurethatmorealigned,standardisedandcomprehensiveproceduresareinplace.RPASassistsManagementtoestablishandreviewcorporatepolicies,whennecessary,toimprovetheGroup’scorporategovernanceprofile.RPASalsoconductsregularbriefingstovariouslevelsofemployeesonkeypoliciesandprocedures,includingthoserelatingtoauthorisation,accountability,monitoringandreconciliationprocesses.

TheSSICMEducationProgramme(SEP)wasfurtherenhancedwiththedevelopmentofaSSICMQualificationAssessment(SQA)toensureourmanagementteamsthroughouttheregionsareconversantwithgovernancerequirementswhendischargingtheirdailydutiesandresponsibilities.TheSQAwaslaunchedinNovember2009withthefirstassessmentcompletedinJanuary2010.

Keymanualsat thecorporate levelareperiodically reviewedand subject toadherenceby theemployees.UpdatedversionsofthekeycorporatepoliciesaremaintainedandmadeavailableviatheGroup’sintranet.



3. INFORMATION AND COMMUNICATION

A. Planning

BusinessPlanandBudgetarereviewedandapprovedbytheBoardonanannualbasis.Anintegratedbusinessplanisproduced that isdrivenbycommercialobjectivesand translated intoanoperationalbudget.There is continuousenhancementoftheplanningandbudgetingprocessesthrougharefinedassignmentofdrivers thatalignwiththeprofitandlossoftheGroup.

B. Information Dissemination

ManagementCommitteeMeetings chairedby theManagingDirectorare conductedona regularbasis tomonitorbusinessperformanceandtodiscussotherrelatedissues.

BusinessCouncilMeetingsattendedbyGeneralManagers andaboveare conductedperiodically todiscuss results,performance,initiativesandissuesencountered.ItisalsoaforumtocascadestrategicplansanddirectivesoftheGroup.

Townhallsessionsareconductedonquarterlybasisforstaffsasavenueforsharingofoperationalresults,performanceandissues.

4. MONITORING

Budgetsaremonitoredbyeachbusinessunitandformspartoftheunit’skeyperformanceindicator.ExpenditureVarianceReport(EVS)isgeneratedonmonthlybasisforeachbusinessunit’svalidationandmonitoringcontrolofactualcostincurredoverbudget.

OtherthanregularreportingofinternalcontrolissuestoBAC,theeffectivenessofinternalcontrolsystemisconsistently

monitoredandreviewedthroughthefollowings:

ManagementAuditActionCommittee(MAAC) MAACchairedby theManagingDirectormeetseveryquarter todiscussconcernsand issuesarising fromaudit

activitiesandensurestheimplementationofactionshighlightedinBACmeetings. Itfocusesonclosureofauditactionitemsandensuresappropriateactionsaretakenontheauditrecommendations.

BACA BACAthroughquestionnaireapproach isassessedandratedbyheadofficeandstationssystem-wideonahalf

yearlybasis.ABAperformsvalidationontheselfassessedresultsandreportsthefindingstoBAConperiodicbasis.5. RISK ASSESSMENT

The MAS Enterprise Risk Management (ERM) Framework is aligned to the Group’s business planning activities, andincorporatesvariousdisciplinesincludingsafetyandsecuritymanagement,revenueandfinancialmanagement,networkmanagement,crisismanagementandbusinesscontinuitymanagement.RPASismandatedbytheBoardtoimplementandsustainaconsistentandintegratedERMFrameworkfortheGroup.WithinthisFramework,astandardprocessisappliedtoidentify,evaluate,monitorandmanagerisks.Businessunitsreviewthecorporateriskregistertoensurenewandemergingrisksareevaluatedandanyfurtheractionsidentified.

Theriskmanagementprocessprovidesopportunitiesforrigorousdiscussionanddebate,andtheoutcomeincludesaheat


mapwhichplotseachriskonanimpactandlikelihoodscale.ThecorporateriskprofileisreviewedbytheManagementCommitteetoprovideatopdownperspectiveattheGrouplevel,andstrategicandkeynon-strategicrisksaresurfacedtotheBACandtheBoardfortheirreviewoftherisksandcorrespondingcontrols.ManagementescalatestotheBoardanymatterspertainingtoincreasinglikelihoodandimpactofrisksthatmaysignificantlyaffecttheGroup’sriskexposure.Effectivenessofcontrolsaremonitoredandindependentlyverifiedthroughrisk-basedauditsbyvariousassuranceunits.

Riskmanagementactivities Intheperiodunderreview,theannualriskreviewwascompletedbybusinessunits,includingsubsidiariesandregional

officesinEurope,ChinaandNorthAsia,toensurerisksandcontrolshavebeenrevisedtoreflecttheglobaleconomicsituationandtraveldemandaswellasenvironmental,safetyandsecurityrequirements,amongstothers.Theoutcomewasreportedtotherelevantstakeholdersanddulyconsideredinthedevelopmentofbusinessplans.Theprogressoftheactionplansisalsoreportedattheappropriatelevelstoensurethatadequateattentionandresourcesaregrantedtomanagetheserisks.Managementhasbeencommittedtoreducingtheriskexposurethroughvariousprojectsandinitiatives.Majorprojectsweresubjectedtotheprojectriskmanagementprocesstoensureprojectobjectivesaremet.

TheEnterpriseBusinessContinuityManagement(BCM)Programmewasrolledoutinearly2009tocomplementtheCrisisManagement framework and furthermitigateour risks.ABCMLabwas conducted todevelop and reviewBusinessContinuityPlanswiththeobjectiveofenhancingtheoperationalreadinessofMASoperationsinKLIAforidentifiedscenarios.SelectedBCPsweretestedinternallyandajointtabletopBCPtestwasconductedincollaborationwiththeairportauthorities.

InordertoembedandoperationaliseriskmanagementwithintheGroup,risktraining,briefingsandawarenessprogrammeswerealsoconductedthroughouttheyeartoinculcateunderstandingofriskmanagementanditsimportancetoalllevelsofstaff.

DESIGN OF INTERNAL CONTROL SYSTEM

MAS’internalcontrolsystemdoesnotapplytoitsassociatedcompaniesandjointventureswhichhavenotbeendealtwithaspartoftheGroup.Nonetheless,theinterestsofMASareservedthroughitsrepresentativesontheBoardoftherespectiveassociatedcompaniesandjointventuresaswellasthroughthereviewofmanagementaccountsreceived.TheseprovidetheBoardwithperformance-relatedinformationtoenabletimelydecisionswithregardstotheGroup’sinvestmentsinsuchcompanies.

TheBoardconfirmsthatthesystemofinternalcontrol,withthekeyelementshighlightedabove,isinplaceduringthefinancialyear.ThesystemissubjecttoregularreviewsbytheBoard.



Statement of Corporate Governance

Malaysian Airline System Berhad (MAS or the Company) has, apart fromadhering to the principles and best practices of the Malaysian Code onCorporateGovernance(theCode),alsoabidedbytheGuidelinestoEnhanceBoardEffectivenesssetbythePutrajayaCommitteeonGLCHighPerformance(PCG).

TheBoardofDirectors(theBoard)ofMASstrivestomaintainasoundlevelofcorporategovernanceintheGroup.TheyhavebeenunequivocalintheircommitmenttoensurethatthehigheststandardsofcorporateculturearepractisedthroughouttheGroup,bothlocallyandworldwideintheinterestofshareholdersandstakeholders.AWhistleBlowingProgrammewasestablishedinFebruary2006toprovideaninternalmechanismforemployeestoraisetheirconcernsresponsiblyaboutmalpractices,irregularitiesandnegligenceaffectingMAS,withoutanyfearofadverserepercussions.AnappropriatelymanagedwhistleblowingsystemfunctionsasaninternalcontrolmechanismallowingforeffectiveactiontobetakenandtoprovidepreventivemeasuresinordertoensurethattheintegrityoftheCompanyismaintained.

Are-compilationoftheexistingCorporateApprovingAuthorityManual(CAAM)foreaseofreferenceandcompliancewasmade.TheCAAMiscontinuouslybeingreviewedtokeepupwithorganisationalandindustrychanges.TheStationApprovingAuthorityManual(SAAM)andtheSystemwideStationInternalControlManual(SSICM)complementtheCAAMindefiningtheauthorityandtheaccountabilityforbusinessactivitiesatthestations.Asapivotalinternalcontrolmechanism,theCAAMwillpromotegreatermanagerialdiscipline,accountabilityandtransparencyintheperformanceoftheidentifiedoperationalandmanagementdecision-makingactivities.

MAScontinuestoreviewtheinitiativesthatwereidentifiedundertheGovernmentLinkedCompaniesTransformationProgrammethroughout the year. TheBoardhadadopted theBoardCharter as recommendedby the ‘GreenBook’ toensure thatall themembersoftheBoardareawareoftheirfiduciarydutiesandresponsibilitiesasdirectorsandthevariouslegislationsandregulationsaffectingtheirconductandthatthehigheststandardsofcorporategovernanceareappliedinalltheirdealingsinrespect,andonbehalfoftheCompany.

TheBoardispleasedtooutlinebelowthemannerinwhichMAShasstrengtheneditsapplicationoftheprinciplesandtheadoptionofcorporategovernancebestpracticeslaiddownintheCode.BestpracticesoverandabovetherecommendationscontainedintheCodeadoptedbytheGrouparethoserecommendedbyPCGandotherglobalstandardswhichtheBoardhasconsideredtobesuitablefortheGroup.

69Annual Report 2009 STATEMENTOFCORPORATEGOVERNANCE

THEBOARDOFDIRECTORS(Board)

ROLES AND RESPONSIBILITIES OF THE BOARD

Firstandforemost,theBoardisresponsiblefordeterminingtheCompany’slong-termdirection,businessobjectivesandstrategy.TheBoard,indischargingitsduties,ensuresthattheCompanyhasadequateresourcestomeetitsobjectivesandthatitmaintainsaneffectivesafetyandriskmanagementsystem.TheBoardismindfulinmonitoringtheCompany’sperformanceandensuringthatitactsethicallyandmeetsitsresponsibilitiestoshareholdersandotherstakeholders.

Apart from theabove responsibilities, theBoardadopteda formal schedule todecideonmatters requiringapproval coveringlong-termstrategyandobjectives,capitalandoperatingplans,majorinvestmentsanddisposals,fundinganddividend,successionplanningforseniormanagement,andannualfinancialstatements.

BOARD BALANCE, STRUCTURE AND COMPOSITION

Boardstructureandcompositionisthefoundationofboardeffectiveness.TheBoardisledbyaChairmanwithstrongleadershipandmanagementskillstoleadandmanagediscussionsamongDirectorswithdifferingbackgrounds.Asat31December2009,theBoardcomprisesthefollowing10memberswhichcompliedwiththerequirementon IndependentDirectorsoftheListingRequirements(LR)ofBursaMalaysiaSecuritiesBerhad(BMSB):-

Category Number

Non-IndependentandNon-ExecutiveChairman 1ExecutiveDirector 1Non-IndependentandNon-ExecutiveDirectors 2IndependentandNon-ExecutiveDirectors 6

TheBoardcompositioncompliedwiththerequirementonIndependentDirectorsoftheLRofBMSB.

AbriefprofileofeachDirectorappearsonpages14to19ofthisannualreport.

ThereisacleardivisionofresponsibilitiesbetweentheChairmanoftheBoardandtheManagingDirector.TherequirementoftheCodeforabalancedboardisfulfilledwithIndependentDirectorsconstitutingmorethanone-thirdoftheBoard.ThepresenceofIndependentDirectorsensuresanadditionalelementofbalancetotheBoardastheyprovideunbiasedandindependentviews,adviceandjudgementtoallBoarddeliberations.

TheNon-ExecutiveDirectors provide amixof related industry-specific knowledge aswell as broadgovernment, business andcommercialexperience.AllNon-ExecutiveDirectorsdonotparticipateintheday-to-daymanagementoftheCompanyandarefreefromanyrelationshipthatcouldinterferewiththeirabilitytoexerciseindependentjudgementandactinthebestinterestsoftheCompanyanditsshareholders.InsituationswhereitwouldbeinappropriateforconcernstobedealtwithbytheChairmanortheManagingDirector,suchconcernswouldbeconveyedtotheDeputyChairmanwhoisalsotheSeniorIndependentNon-ExecutiveDirector.

TheBoardbelievesthatitspresentstructureandcompositionsatisfactorilyreflecttheinvestmentsofitsshareholdersandisabletoprovideclearandeffectiveleadershiptotheGroup.


BOARD MEETINGS AND SUPPLY OF INFORMATION TO THE BOARD

BoardmeetingsfortheensuingfinancialyeararescheduledinadvancebeforetheendofeachfinancialyearsoastoenableDirectorstoplanaheadandfittheyear’sBoardmeetingsintotheirrespectiveschedules.Boardmeetingsareconductedinaccordancewithastructuredagenda.TheagendaforeachBoardmeetingandpapersrelatingtotheagendaitemsareforwardedtoallDirectorsbeforetheBoardmeeting.ThisistofacilitatetheBoardtoperusetheboardpapersandreviewtheissuestobedeliberatedattheBoardmeetingwellaheadofthemeetingdatetoenabledirectorstomakeinformeddecisions.

IntheeventthatanyoftheDirectorshasaninterestinproposalsconsideredbytheBoard,theDirectorconcernedwilldisclosetothateffectattheBoardmeeting.TheinterestedDirectorwillthereuponabstainfromdeliberationsanddecisionsoftheBoardontheproposal.

MinutesofeachBoardmeetingarecirculatedtoallDirectorsfortheirperusalpriortoconfirmationoftheminutesbeforethecommencementofthefollowingBoardmeeting.TheDirectorsmayrequestforclarificationorraisecommentsontheminutespriortotheconfirmationoftheminutes.

TheBoardhasfullandunrestrictedaccesstoallinformationwithintheGroup,individuallyorcollectively,andhasdirectaccesstotheadviceandservicesoftheCompanySecretary.TheDirectorsareregularlyupdatedandadvisedbytheCompanySecretaryonnewstatutoryandregulatoryrequirements,andtheimpactandimplicationtotheCompanyandDirectorsincarryingouttheirfiduciarydutiesandresponsibilities.TheCompanySecretaryorganisesandattendsallBoardmeetingsandensuresthataccurateandproperrecordsoftheproceedingsofBoardmeetingsandresolutionspassedarerecordedandkeptinthestatutoryregisterattheregisteredofficeofMAS.

TheDirectorsarefree,attheCompany’sexpense,toseekindependentprofessionaladviceshouldtheyconsideritnecessary,infurtheranceoftheirduties.TheBoardhasanestablishedprocedureforDirectorstotakeindependentprofessionaladvice.


Directors Meeting Attendance

TanSriDr.Mohd.MunirbinAbdulMajid 14/14Chairman

Dato’N.Sadasivana/lN.N.Pillay 14/14Deputy ChairmanDato’SriIrisJala@IdrisJala 9/9(resigned on 28 August 2009)

TengkuDato’AzmilZahruddinbinRajaAbdulAziz 14/14Managing Director

KeongChoonKeat 13/14

MartinGilbertBarrow 12/14

Dato’MohamedAzmanbinYahya 12/14

TanSriDatukSeriDr.WanAbdulAzizbinWanAbdullah 9/14

Dato’PutehRukiahbintiAbdulMajid 2/14 [Alternate Director to Tan Sri Datuk Seri Dr. Wan Abdul Aziz bin Wan Abdullah ]

DatukSeriPanglimaMohd.AnnuarbinZaini 12/14

DatukHajiYusoffbinDatukHajiMohamedKassim 7/14

Dato’AbdulRahmanbinAbdulGhani 5/14 [Alternate Director to Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim]

DatukAmarWilsonBayaDandot 9/14

DatukAmarHajiMohamadMorshidibinAbdulGhani 1/14 [Alternate Director to Datuk Amar Wilson Baya Dandot]

Atotalof14Boardmeetingswereheldduringyear2009andtheBoardattendancerecordisasfollows:

Note: The first figure above denotes the number of meetings attended while the second figure denotes the number held. The number of meetings held refers to the applicable meetings for each Director and varies based on their dates of appointment. The attendance record of the Alternate Directors must be read in conjunction with the attendance record of the Principal Director.


APPOINTMENT OF BOARD MEMBERS

Nomination to theBoardofMAS ismadeeitherby theSpecial Shareholder inaccordancewithArticle5(2)orby theBoardpursuanttoArticle136oftheCompany’sArticlesofAssociation.

TheNominationandRemunerationCommitteesscrutinisethesourcingandnominationofsuitablecandidatesforappointmentasDirectorinMASanditssubsidiarycompanies.TheseCommitteeswillensuretheselectionofBoardmemberswiththerightskillset,expertiseandindustryknowledgethusstrengtheningthecompositionoftheBoardandcontributingsignificantlytotheeffectivenessoftheBoard.

DIRECTORS’ TRAINING

AllDirectorshaveattendedandsuccessfullycompletedtheMandatoryAccreditationProgrammemandatedbyBMSB.Duringthefinancialyear, theCompanyhasarranged in-housetrainingprogrammesontopicsrelevanttotheCompany,whichwereattendedbyboththemembersoftheBoardandSeniorManagement.Besides,theDirectorshaveattendedvariousconferencesandseminarsorganisedbyexternalorganiserswhichassistedtheminthedischargeoftheirduties.

Conferences,seminarsandtrainingprogrammesattendedbyDirectorsin2009areasfollows:-

AcceleratedDevelopmentProgrammeWorkshop DirectorsandOfficersLiabilities 5thAnnualAustraliaPacificAviationOutlookSummit FRS–FinancialInstruments:RecognitionandMeasurement,FRS112–IncomeTaxes&UpdatesonUpcomingFRSsandICs Directors’BriefingofFRS139andCorporateGovernance Insurance&RiskConference

RE-ELECTION OF DIRECTORS

PursuanttotheLRofBMSBandtheCompany’sArticlesofAssociation,allDirectorsaresubjecttore-electionbyrotationonceatleasteverythree(3)yearsandare-electionofDirectorsshalltakeplaceateachAnnualGeneralMeeting.ExecutiveDirectorisalsorankedforre-electionbyrotation.Thepurposeofsuchre-electionistoensurethatshareholdershavearegularopportunitytoreassessthecompositionoftheBoard.TheDirectorsstandingforre-electionaresetoutintheStatementaccompanyingtheNoticeofAnnualGeneralMeeting.

DIRECTORS REMUNERATION

TheremunerationoftheExecutiveandNon-ExecutiveDirectors is reviewedagainstmarketpractices.TheExecutiveDirectors’remunerationconsistsofbasicsalary,otheremolumentsandothercustomarybenefitsasappropriatetoaseniormanagementmember.Salary reviews take intoaccountmarket ratesand theperformanceof the individualand theGroup.TheExecutiveDirectorsarenotpaidtheDirectors’feesnoraretheyentitledtoreceiveanymeetingallowancefortheBoardandBoardCommitteemeetingstheyattend.TheNon-ExecutiveDirectors’remunerationisbasedonstandardfixedfeesandallowancesthatreflecttheirnumberofmeetingsattendedduringtheyear.


ThenumberofDirectorsoftheCompanywhosetotalremunerationduringthefinancialyearfellwithinthefollowingbandsisasfollows:-

No. of DirectorsExecutive Directors:RM500,000toRM1,000.000 1RM1,000,001toRM1,500,000 1

Non-Executive Directors:BelowRM50,000 7RM50,001toRM100,000 2RM150,001toRM200,000 3

TheBoardhaschosennottodisclosetheremunerationofDirectorsonanindividualbasis,assuggestedbytheCode,astheBoardbelievesthatsuchinformationwillnotaddsignificantlytotheunderstandingandevaluationoftheGroup’sstandardsofcorporategovernance.

BOARD COMMITTEES

The Board delegates certain responsibilities to Board committees with specified terms of reference and responsibilities. TheChairmenofvariouscommitteesreporttheoutcomeofthecommitteemeetingstotheBoardandtheminutesofthecommitteemeetingsarecirculatedtotheBoardfortheirinformation.Wherethecommitteeshavenoauthoritytomakedecisionsonmattersreservedfor theBoard, recommendationswouldbehighlighted in their respective reports for theBoard’sendorsement.Thesecommitteesarethe:

1. BoardAuditCommittee2. NominationCommittee3. RemunerationCommittee4. BoardSafetyandSecurityCommittee5. BoardTenderCommittee6. ESOSCommittee

ExecutiveDirectors 2,434 51 2,485Non-ExecutiveDirectors 770 - 770Total 3,204 51 3,255

Salaries & Other Emoluments Benefits Total RM’000 RM’000 RM’000

Detailsofthetotalremunerationduringthefinancialyeardisclosedbycategoryareasfollows:


Board Audit Committee (BAC)

AfullBACreportenumeratingitsmembership,itstermsofreferenceanditsactivitiesduringtheyearappearsonpages59to62.ofthisAnnualReport.

TheChairmanoftheBACreportstheoutcomeofitsmeetingstotheBoardandsuchreportsareincorporatedaspartoftheagendaoftheBoardmeetings.

Nomination Committee (NC)

Membershipasat31December2009:-Chairman: TanSriDr.Mohd.MunirbinAbdulMajidMembers: Dato’N.Sadasivana/lN.N.Pillay Dato’MohamedAzmanbinYahya KeongChoonKeat

Objective:- ToassisttheBoardintheirresponsibilitiesinnominatingnewnomineestotheBoard.TheNCshallalsoassesstheperformance oftheDirectorsonanon-goingbasis.

Duties and Responsibilities:- TorecommendtotheBoard,candidatesforalldirectorshipstobefilledbytheShareholdersortheBoard. Toconsider,inmakingitsrecommendations,candidatesfordirectorshipproposedbytheManagingDirector/ChiefExecutive Officerand,withintheboundsofpracticability,byanyotherseniorexecutiveoranyDirectororShareholder. TorecommendtotheBoardthenomineestofilltheseatsonBoardCommittees. ToassesstheeffectivenessoftheBoardasawholeandeachindividualDirectors/committeesoftheBoard. ToactinlinewiththedirectionsoftheBoard. Toreviewandapprovetheappointmentofseniormanagement. ToconsiderandexaminesuchothermattersastheNCconsidersappropriate.

Authority:- TheNC,inaccordancewithaprocedureorprocesstobedeterminedbytheBoardandattheexpenseoftheCompany,

a) shall annually review the requiredmixof skills andexperience andotherqualities, including core competencieswhichnon-executiveandexecutivedirectorsshouldhave.

b) shallassessonannualbasis,theeffectivenessoftheBoardasawhole,thecommitteesoftheBoardandthecontributionofeachindividualDirector.

c) shallbeentitledtotheservicesofaCompanySecretarywhomustensurethatallappointmentsareproperlymade,thatallnecessaryinformationisobtainedfromDirectors,bothforthecompany’sownrecordsandforthepurposesofmeetingstatutoryobligations,aswellasobligationsarisingfromtheLRoftheBMSBorotherregulatoryrequirements.


Remuneration Committee (RC)

Membershipasat31December2009:-Chairman: Dato’MohamedAzmanbinYahyaMembers: KeongChoonKeat Dato’N.Sadasivana/lN.N.Pillay

Objective:- ToassisttheBoardintheirresponsibilitiesinassessingtheremunerationpackagesofthedirectorsreflectingtheresponsibilities

andcommitmentundertaken.

Duties and Responsibilities:- To reviewand assess the remuneration packages of thedirectors and seniormanagement in all forms,with independent

professionaladvice,ifnecessary. Toensure the levelsof remunerationbe sufficientlyattractiveandbeable to retaindirectorsneeded to run theCompany

successfully. Tostructurethecomponentpartsofremunerationsoastolinkrewardstocorporateandindividualperformanceandtoassess

theneedsoftheCompanyfortalentatBoardlevelataparticulartime. TorecommendtotheBoardtheremunerationpackagesofthedirectors. ToactinlinewiththedirectionsoftheBoard. ToconsiderandexaminesuchothermattersastheRCconsidersappropriate.

Authority:- TheRCshall,inaccordancewithaformalandtransparentprocedureorprocessorpolicyondirectors’remunerationpackages

tobedeterminedandestablishedbytheBoardandattheexpenseoftheCompany:a) review,accessandrecommendtotheBoardtheremunerationpackagesofthedirectors.b) shallbeentitledtotheservicesoftheCompanySecretarywhomustensurethatalldecisionsmadeontheremuneration

packagesofthedirectorsbeproperlyrecordedandminutedintheminutesbook.

Board Safety and Security Committee (BSSC)

Membershipasat31December2009:-Chairman: MartinGilbertBarrowMembers: DatukAmarWilsonBayaDandot TengkuDato’AzmilZahruddinbinRajaAbdulAziz GeorgeSnyder,SeniorTechnicalConsultant OthermembersoftheBSSCincludedrelevantSeniorManagement.

Objective:- ToprovideassurancetotheBoardthattheCompanyiscomplyingfullywithitssafetyresponsibilitiesundertheAirOperator’s

Certificate(AOC),andtoprovidetheBoardwithanassessmentofrisktotheCompanyarisingfromitsmanagementofsafetyandsecurity.Thisincludesanassessmentofthereputationalexposurefromassociatedoperationssuchascodeshares,sub-contractedoperationsunderotherAOCs,andsubsidiariesholdingtheirownregulatoryapprovals.CurrentlythesecompriseMASkargo,FireflyandMASwingsbutmayinthefutureincludeotheroperatingdivisions.


The BSSC on behalf of the Board has endorsed the Safety Management System (SMS) of the Company, and agrees with itsprogrammetosafeguardthesafetyandsecurityofitsoperations.Itendorsestheprinciplesofopennessandencouragescontinuousimprovement.

Role and Scope:- ReviewstheoverallsafetyandsecurityperformanceofoperationsundertheMASAOC,byconsideringsignificantoperational

incidents,andtrends. Considerstheeffectivenessofcontrolsbyreviewing:-

(a) Resultsofaudits,inspectionsandinvestigations(b) Significantqualitylapses(c) Processconformance(d) Statusofcorrectiveandpreventiveactions(e) Followupactionsfrompreviousmanagementreviews(f) Regulatoryviolationsandconcessions

Reviewsoccurrencereportsaswellastrendanalysesandensuresthatcorrectiveactionsaretakeninatimelymanner. PeriodicallyreviewstheSafetyandSecurityperformanceofMASkargo,FireflyandMASwings. Considerrelevantincidentsofotheroperators,payingparticularattentiontothosewithwhomMAShascontractualrelationships. Reviewsrecommendationsformanagementsystemimprovement. Regularlybriefedonchangesinregulatorypolicyorcivilaviationlegislation. Monitorsafetymanagementprocessesinflightoperations,engineering,security,cargoandgroundoperations,andensures

thattheseareinlinewiththeGroup’squalitystandards. Encouragesgoodcommunicationbetweenthevariousdepartmentswithregardstotheaboveprocessessothatanyproblem

areasarequicklyhighlightedandcorrectiveactionstaken. Ensuresthatcontingencyplanningandcrisismanagementproceduresareinplace.

The Chairman of BSSC and General Manager Corporate Safety, Security, Health and Environment report the outcome of itsmeetingstotheBoardandsuchreportsareincorporatedaspartoftheagendasoftheBoardmeetingsandtheminutesofeachBSSCmeetingisdistributedtoallBoardmembers.

Board Tender Committee (BTC)

Membershipasat31December2009:-Chairman: Dato’N.Sadasivana/lN.N.PillayMember: TengkuDato’AzmilZahruddinbinRajaAbdulAziz DatukSeriPanglimaMohd.AnnuarbinZaini OthermembersoftheBTCincludedrelevantSeniorManagement.

Objective:-ToassisttheBoard,initscapacitytoapprovetenderswithcontractvalueofRM5millionandabove.


Duties, Responsibilities and Authority:- TodeliberateonandapprovetenderswithcontractvalueofRM5millionandabove. SuchtendersshallfirstbeendorsedbytheTenderCommitteepriortothedeliberationoftendersatBTC. MakeotherdecisionsifrequiredtoeffectthecontractbetweenMASandtheappointedcontractors/suppliers. ToactinlinewiththedirectionoftheBoard. ToconsiderandexaminesuchothermattersastheBTCconsidersappropriate.

IntheeventaBTCmeetingcannotbeheldtodeliberateanurgenttender,approvalofresolutionbycirculationcanbedone.

SuchcircularisedresolutionandapprovalwouldthenbeconfirmedatthenextavailableBTCmeeting.

BTCwoulddesignateanauthorisedpersonneltoexecutetheLetterofAwardor/andcontractAgreementuponsuchapproval.

ESOS Committee

Membershipasat31December2009:-Chairman: Dato’MohamedAzmanbinYahyaMembers: KeongChoonKeat TengkuDato’AzmilZahruddinbinRajaAbdulAziz

OthermembersoftheESOSCommitteeincludedrelevantSeniorManagement.

Objective:- ToimplementandadministertheMASESOSinaccordancewiththeBy-LawsapprovedbytheshareholdersoftheCompany; Todetermineparticipationeligibility,optionoffersandshareallocations;and Toattendtosuchothermattersasmayberequired.

Duties and Responsibilities :- responsiblefortheESOSplandesignandamendments; assume responsibility for administrative oversight of the plan including reviewing ESOS procedures and ensuring they are

adheredtoproperly; deliberateanddecideonareassuchas:-

participationandeligibility numberofnewsharesgranted criteriaandmethodofallocation termination

todecideonthetenureofplan; administrationoftheSellingFlexibilityScheme;and responsibleforallotherareasoftheESOS,including,butnotlimitedto,theareasspecifiedundertheESOSBy-Laws.

Authority:- TheMASESOSshallbeadministeredbytheESOSCommittee;

TheESOSCommitteeshallbevestedwithsuchpowersanddutiesasareconferreduponitbytheBoardofMAStoadminister theSchemeinsuchmanneritshallinitsdiscretiondeemfit.


TheESOSCommitteemay,forthepurposeofadministeringtheScheme,doallactsandthingsandenterintoanytransactions,agreements,deeds,documentsorarrangements,andmakerules,regulationsorimposetermsandconditionsordelegatepartofitspowerrelatingtotheSchemewhichtheESOSCommitteemayinitsdiscretionconsidertobenecessaryordesirableforgivingfulleffecttotheScheme.Fortheavoidanceofdoubt,theESOSCommitteeshallhavetheauthoritytoadministertheSellingFlexibilitymechanism.

AnylibertyorpowerwhichmaybeexercisedoranydeterminationwhichmaybemadehereunderbytheESOSCommitteemaybeexercisedattheESOSCommittee’sdiscretion.

ThedecisionoftheESOSCommitteeshallbefinalandbinding.

SHAREHOLDERS

TheCompanycommunicatesregularlyandproactivelywithshareholdersandinvestorstoensurethattheyarekeptappropriatelyinformedofmajordevelopmentswithintheGrouponatimelybasis.

Relationship and Communication with Shareholders and Investors

ItiscustomaryfortheGrouptobrieftheanalystsandthemediaimmediatelyaftertheGroup’squarterlyfinancialresultsarepubliclyannounced.TheManagingDirectorandSeniorManagementarepresentatthesebriefingstoclarifyissuesraisedbytheanalystsandmembersofthemedia.ItisalsotheGroup’spracticetoholdspecialbriefingswithanalystsandthemediawithregardtoanyspecialdevelopmentrelatingtotheGroup,afterthenecessaryapprovalshavebeenobtainedand,whereapplicable,theprescribedannouncementstoBMSBhavebeenmade.

Inaddition,theManagingDirectorholdsbriefingsforinstitutionalinvestorsasandwhenrequired.

Todevelopalong-termrelationshipwithshareholdersandinstitutionalinvestors,theInvestorRelationsDepartment,enablesthemaintenanceofanopenchannelofcommunicationbetweenMASanditsshareholdersandinstitutionalinvestors.Towardsthisend,adedicatede-mailaddress([email protected])hasbeensetup,towhichshareholderscandirecttheirqueries.ShareholdersandinvestorsmayalsoaccesstheGroup’swebsite(www.malaysiaairlines.com)formoreinformation.

Annual General Meeting (AGM)

TheAGMisanimportantforumforcommunicationanddialoguewithshareholders.NoticeoftheAGMandtheAnnualReportaresentouttoshareholdersatleast21daysbeforethedateofthemeeting.TheAnnualReportprovidesdetailedandcomprehensiveinformationon theGroup’sbusinessandactivities tohelpshareholdersmake informeddecisionson their investment inMAS.ShareholdersmayalsoaccesstheGroup’swebsite(www.malaysiaairlines.com)formoreinformation.

DuringtheAGM,theBoardtakestheopportunitytopresentacomprehensivereviewoftheprogressandperformanceoftheGroup.Thisreviewissupportedbyvisualandgraphicalpresentationofkeypointsandfinancialfigures.Theshareholdersaregivenboththeopportunityandthetimetoseekclarificationsorraisequestionsontheagendaitemsofthegeneralmeetings,wheretheBoardwouldrespondwiththeappropriateanswers.Toenableshareholderstogainfullunderstandingandevaluatetheissuesinvolved,explanatorystatementsareprovidedtothemonitemsofspecialbusinessthatmaybeincludedintheNoticeofMeeting.


AttheAGM,shareholdershavedirectaccesstoBoardmemberswhoareonhandtoanswertheirquestions,eitheronaspecificresolutionorontheCompanygenerally.

WhiletheCompanyendeavourstoprovideasmuchinformationaspossibletoitsshareholdersandstakeholders,itisawareofthelegalandregulatoryframeworkgoverningthereleaseofmaterialandsensitiveinformationandaccordinglyworkswithinsuchrestrictionstoattainabalancebetweenprovidingtimelyandaccurateinformationwhichisnotmisleadingtoitsshareholdersandstakeholders.

ACCOUNTABILITY AND AUDIT

Financial Reporting

TheBoardismindfultoprovideandpresentabalancedandfairassessmentoftheGroup’sfinancialperformanceandprospectsthrough itsannualfinancial statements,quarterly resultsandAnnualReport tobothBMSBandshareholders.TheBACassiststheBoardtoscrutiniseinformationtoensureadequatedisclosuresaremadeinsuchreportsandtheoverallqualityoftheGroupfinancialreportingismaintained.

Statement of Directors’ Responsibility in relation to the Financial Statements

InthepreparationoftheFinancialStatementsassetoutonpages112to231ofthisAnnualReport,theDirectorsareoftheviewthat:

TheGrouphasusedappropriateaccountingpoliciesthatwereconsistentlyapplied; Reasonableandprudentjudgementsandestimatesweremade;and AllapplicableFinancialReportingapprovedaccountingstandardsinMalaysiahavebeenfollowed.

TheDirectorsareresponsibleforensuringthattheCompanymaintainsaccountingrecords,whichdisclosewithreasonableaccuracythefinancialpositionoftheCompanyandtheGroup,andthattheFinancialStatementscomplywiththeCompaniesAct1965.

TheStatementofDirectorspursuanttoSection169oftheCompaniesAct1965issetoutonpage109ofthisAnnualReport.

Internal Control

TheBoardacknowledgesitsoverallresponsibilityformaintainingasoundsystemofinternalcontroltosafeguardshareholders’investmentandtheGroup’sassets.IncompliancewiththeLRofBMSBunderPara15.27(b)andguidedbytheStatementofInternalControl:GuidanceforDirectorsofPublicListedCompanies,thereportontheGroup’sinternalcontrolispresentedintheStatementonInternalControlonpages63to67ofthisAnnualReport.

Relationship with Auditor

TheBoardhas,throughtheBAC,establishedandmaintainedaformal,transparentandappropriaterelationshipwiththeGroup’sauditors.Theauthority,rolesandresponsibilitiesoftheCommitteearepresentedintheAuditCommitteeReportsetoutonpages59to62ofthisAnnualReport.

TheGrouphasalwaysmaintainedacloseandtransparentrelationshipwithitsauditorsinseekingprofessionaladviceandensuringcompliancewiththerelevantaccountingstandards.


ThisStatementismadeinaccordancewiththeresolutionoftheBoardofDirectorsdated19April2010.

Additional Compliance Statement

IncompliancewiththeLRofBMSBunderPara9.25,theBoardisalsopleasedtoprovidedisclosureonthefollowinginformation:-

1. Imposition of Sanctions/Penalties:- Therewereno sanctionsand/orpenalties imposedon theCompanyand its subsidiaries,DirectorsorManagementby the

relevantregulatorybodiesduringthefinancialyear.

2. Material Contracts:- Saveasdisclosedbelow,therearenoothermaterialcontractsenteredintoorsubsistingbytheCompanyoritssubsidiaries,

involving directors and major shareholders interests, either still subsisting at the end of the financial year or, if not thensubsisting,enteredintosincetheendofthepreviousfinancialyear:-

(i) Supplemental Agreement dated 28 May 2002 between the Company and Aircraft Business Malaysia Sdn.

Bhd. (ABM), a wholly-owned subsidiary of Penerbangan Malaysia Berhad (PMB), to amend certain clausesstated in the Master Aircraft Purchase Agreement dated 5 February 2002 between the aforesaid parties.

(ii) Eight(8)OperatingLeaseAgreements,one(1)ofwhichisdated6June2002andseven(7)ofwhicharedated28May2002,betweentheCompanyandABM,awholly-ownedsubsidiaryofPMB,inrelationtotheleaseoftheeight(8)aircraftforaleaseperiodnotexceeding12years.

(iii) Eight(8)SupplementalAgreementsdated30July2002betweentheCompanyandABM,awholly-ownedsubsidiaryofPMB,toamendthetermsofrentalrate/formulastatedintheOperatingLeaseAgreementsbetweentheaforesaidpartiesreferredtoinparagraph(ii)above.

(iv) SeveralAgreementsdated30July,2002betweentheCompanyandPMBsuchas:

(a) Widespread Asset Unbundling (WAU) Agreement which describes the general structure of the Agreement forAircraft and FinanceAgreementsUnbundling, theAgreement forDomesticBusinessUnbundling, theCommonTermsAgreement,theGovernanceAgreementandtheAircraftandEnginesPurchaseAgreement.

(b) AgreementforAircraftandFinanceAgreementsUnbundlingwhichsetsoutthetermsandarrangementsunderwhichPMBandMalaysiaAirlinesmustmakepaymentstoeachother,inrelationtotheaircraftassetswhicharesubjecttofinanceleases,loanagreementsoroperatingleasesenteredintobyMalaysiaAirlines(EncumberedAircraftAssets)andcertainpaymentswhichMalaysiaAirlinesreceivesinrespectofitsaircraftassets,andinrelationtospecificallyidentifiedliabilitiesofMalaysiaAirlineswhichareunbundled.ThisagreementprovidesPMBwithanoptiontopurchasetheEncumberedAircraftAssetsbecomingunencumberedtoMalaysiaAirlines,uponwhichsuchaircraftwillbeleasedbacktoMalaysiaAirlinesonthesametermsastheleasebackagreementsforUnencumberedAircraftAssetsreferredtounderparagraph2(iv)(c).

(c) AircraftandEnginesPurchaseAgreementwhichsetsoutthetermsandarrangementsunderwhichMalaysiaAirlinesagreestosellandtransfertitletotwentyfour(24)aircraftandeight(8)spareenginesownedbyMalaysiaAirlines(Unencumbered Aircraft Assets), to PMB, in consideration of PMB’s obligation to pay Malaysia Airlines certainpaymentsundertheAgreementForAircraftandFinanceAgreementsUnbundling.Thesigningofthe leasebackagreementsfortheUnencumberedAircraftAssetsisaconditionprecedenttotheProposedWAU.


(d) CommonTermsAgreementwhichsetsout thecommonterms,conditionsandprovisions thatare incorporatedby reference into eachof theAgreement forAircraft and FinanceAgreementsUnbundling, theAgreement forDomesticBusinessUnbundling,theGovernanceAgreementandtheWAUAgreement.Includedinthisagreementisadescriptionofeventsofdefaultwhichapplytothesaidagreements.

(e) GovernanceAgreementwhich constitutes anagreementbetweenMalaysiaAirlines, as theAssetOperator andPMB,ABMandAssetsGlobalNetworkSdn.Bhd. (AssetOwners) tocomplywiththecorporateandcontractualgovernancecodeinrelationtotheconductbetweenMalaysiaAirlinesandtheAssetsOwnersonmatterreferredto in the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic BusinessUnbundling,theGovernanceAgreement,theAircraftandEnginesPurchaseAgreementandtheWAUAgreement.

(v) SupplementalAgreementdated11October2002betweenMalaysiaAirlinesandPMB,toamendcertainprovisionsoftheAgreementforAircraftandFinanceAgreementsUnbundlingandtheAgreementforDomesticBusinessUnbundling.

(vi) SupplementalAgreementdated11October2002betweenMalaysiaAirlinesandPMB,toamendcertainprovisionsoftheAircraftandEnginesPurchaseAgreement.

(vii) TheLeaseAgreementdated6November2002betweenMalaysiaAirlinesandPMBinrelationtotheleaseofeight(8)spareenginessoldbyMalaysiaAirlinestoPMBundertheAircraftandEnginesPurchaseAgreement,foraperiodwhichexpireson30September2005orsuchotherlaterdateagreedbytheparties.

(viii) Sub-LeaseAgreement(InRespectofKLIABuildings)dated26March2003betweenMalaysiaAirlinesandAssetsGlobalNetworkSdn.Bhd.(“AGN”),awholly-ownedsubsidiaryoftheMinisterofFinance,Incorporatedinrelationtothesub-leaseofthelandandthebuildingsandinfrastructureasthereindefinedforfiftyseven(57)yearsatayearlyrentpayablebyMalaysiaAirlinestoAGNinaccordancewiththeRentScheduleappendedtotheSub-LeaseAgreement.

(x) AircraftProcurementandLeaseAgreementdated21November2003inrespectoftheprocurementofsixnewAirbus380-800aircraftbyPMBforsubsequentleasetoMalaysiaAirlinesasoperatorbetweenPMBandMalaysiaAirlines.

(xi) AircraftOperating LeaseAgreementofOne (1) BoeingB777-200ERAircraft bearingManufacturer’s SerialNumber28421MalaysianRegistrationMark9M-MRP,dated29November2004betweenPMB(Lessor)andMalaysiaAirlines(Lessee).

(xii) AircraftOperating LeaseAgreementofOne (1) BoeingB777-200ERAircraft bearingManufacturer’s SerialNumber28422MalaysianRegistrationMark9M-MRQ,dated13December2004betweenPMB(Lessor)andMalaysiaAirlines(Lessee).

(xiii) PurchaseAgreementAssignmentandNovationofTwoBoeingModel747-4H6underPurchaseAgreementNo.1390dated17June2005betweenMalaysiaAirlinesasAssignorandPMBasPurchaser.

(xiv) Aircraft Sub-Lease Agreement of One (1) Boeing B747-4H6 Aircraft bearing Manufacturer’s Serial Number 28434

MalaysianRegistrationMark9M-MPR,dated20March2006betweenPMB(Lessor)andMalaysiaAirlines(Lessee).

(xv) General Terms Agreement dated 29 March 2006 together with Side Letter Agreement Number One, Side LetterAgreementNumberTwoandSideLetterAgreementNumberThreebetweenRolls-Royce,PMBandMalaysiaAirlines.

(xvi) Aircraft Sub-Lease Agreement of One (1) Boeing B747-4H6 Aircraft bearing Manufacturer’s Serial Number 29902MalaysianRegistrationMark9M-MPS,dated30May2006betweenPMB(Lessor)andMalaysiaAirlines(Lessee).


(xvii) SeveralAgreementsdated22December2009betweenPMBandtheCompanysuchas:-

(a) AircraftLeaseAgreementinrelationtotheleaseofone(1)BoeingmodelaircraftB747-400bearingManufacturer’sSerialNumber27043andMalaysianRegistrationMark9M-MPF fromPMBto theCompany foraperiodwhichexpireson7June2012orsuchotherdateasagreedbetweentheparties.

(b) AircraftLeaseAgreementinrelationtotheleaseofone(1)BoeingmodelaircraftB747-400bearingManufacturer’sSerialNumber27044andMalaysianRegistrationMark9M-MPHfromPMBtotheCompanyforaperiodwhichexpireson20September2011orsuchotherdateasagreedbetweentheparties.

(c) AircraftLeaseAgreementinrelationtotheleaseofone(1)BoeingmodelaircraftB777-200bearingManufacturer’sSerialNumber28408andMalaysianRegistrationMark9M-MRAfromPMBtotheCompanyforaperiodwhichexpireson1November2015orsuchotherdateasagreedbetweentheparties.

(d) AircraftLeaseAgreementinrelationtotheleaseofone(1)AirbusmodelaircraftA330-300bearingManufacturer’sSerialNumber77andMalaysianRegistrationMark9M-MKEfromPMBtotheCompanyforaperiodwhichexpireson29April2014orsuchotherdateasagreedbetweentheparties.

(xviii) NovationAgreementdated22December2009betweenPMB,MalaysiaAirlinesandAirbusS.A.Sandletteragreementbetween PMB and Malaysia Airlines for the acquisition of six (6) undelivered Airbus aircraft under the terms andconditionsofthepurchaseagreementdated24November2003betweenPMBandAirbus.

(xix) SupplementalLeaseAgreementdated22December2009betweenPMBandMalaysiaAirlinesfortherevisionoftheexisting operating lease rentals for one (1) B777-200ER aircraft bearing Manufacturer’s Serial Number 28421 andMalaysianRegistrationMark9M-MRPpayabletoPMBandtheconditionalsaleandpurchaseagreementbetweenPMBandMalaysiaAirlinesforthesameaircraft.

(xx) SupplementalLeaseAgreementdated22December2009betweenPMBandMalaysiaAirlinesfortherevisionoftheexisting operating lease rentals for one (1) B777-200ER aircraft bearing Manufacturer’s Serial Number 28422 andMalaysianRegistrationMark9M-MRQpayabletoPMBandtheconditionalsaleandpurchaseagreementbetweenPMBandMalaysiaAirlinesforthesameaircraft.

(xxi) Supplemental Lease Agreement dated 22 December 2009 between PMB and Malaysia Airlines for the revision oftheexistingoperatingleaserentalsforone(1)B747-400FaircraftbearingManufacturer’sSerialNumber28434andMalaysianRegistrationMark9M-MPRpayabletoPMBandtheconditionalsaleandpurchaseagreementbetweenPMBandMalaysiaAirlinesforthesameaircraft.

(xxii) Supplemental Lease Agreement dated 22 December 2009 between PMB and Malaysia Airlines for the revision oftheexistingoperatingleaserentalsforone(1)B747-400FaircraftbearingManufacturer’sSerialNumber29902andMalaysianRegistrationMark9M-MPSpayabletoPMBandtheconditionalsaleandpurchaseagreementbetweenPMBandMalaysiaAirlinesforthesameaircraft.


3. Utilisation of Proceeds from Corporate Proposal During thefinancial year 2009, part of theproceeds from theCompany’s rights issueof ordinary shares and redeemable

convertiblepreferenceshareswhichwascompletedon5November2007wereutilisedtofinanceacquisitionofnewaircraft,passengerservicessystemandupgradingofcurrentfacilitiesandinfrastructure.

4. Non-audit fees Theamountofnon-auditfeespaidandpayabletotheexternalauditorsbytheGroupforthefinancialyearended31December

2009isRM679,000.

5. Revaluation Policy on Landed Properties RevaluationoflandedpropertieswillonlybeundertakenbytheCompanyupontheapprovaloftheBoardofDirectorsofthe

Companyorshouldtherebeanintendedsaleorthemarketvaluesweremateriallychanged.

6. Profit Guarantee TheCompanydidnotgiveanyprofitguaranteeduringthefinancialyear.

7. Share Buyback TherewasnosharebuybackschemeundertakenbytheCompany.

8. Options, Warrants or Convertible Securities TheCompanyhasnot issuedanyoptions,warrantsorconvertiblesecuritiesduringthefinancialyear2009other thanthe

grantingofoptionsundertheMASEmployees’ShareOptionSchemeasdisclosedinNote25totheFinancialStatements.

9. American Depository Receipt (“ADR”) or Global Depository receipt (“GDR”) Programme (as at 31 December 2009) TheCompanydidnotsponsoranyADRorGDRprogrammeduringthefinancialyear.

10. Variation in Results Therewasnovarianceof10%ormoreintheresultsintheunauditedquarterlyresultandtheauditedfinancialstatement.


Statement of Corporate Social Responsibility

MalaysiaAirlinesrecognisesthatbeingaresponsiblecorporatecitizen encompasses ethics, integrity, and transparency inour business practices with customers, employees, suppliers,businesspartners,shareholdersandotherstakeholders.Asanorganisation,wecontinuetorefineourprocessesandpolicies,focusingonthe3mainthrusts:

1. Workplace,2. Community,and3. Environment.

WORKPLACE

Witha19,000-strongemployeebase,MalaysiaAirlinesfocuseson providing a safe and conducive working environment. Anumber of initiatives have been, and continue to be, put inplace towards transformingMAS into anemployerof choiceandoneofthebestplacestoworkin.

Employee EngagementThere is a strong culture of employee volunteerism withinMalaysia Airlines, and activities are organised to provideemployees an avenue to contribute their time to a goodcause.AnumberofMHCharity initiativeswereorganised toraisemoneyfor3organisations-Women’sAidOrganization,Rumah Kebajikan Anak Yatim dan Miskin Al Munirah, KlangandTenaganita.Inaddition,cabincrewvolunteers,undertheirWelkins peer support group, organised activities such as acharitywalkathonforcrewonextendedmedicalleave,SeniorCitizen’sAppreciationDay and theDurian Festwhichhelpedraise funds for the Children’s Wish Society. These initiativesbringdifferentunitsanddivisionstogetherasoneMH.Againsta tough operating environment, such efforts strengthen theteamspiritwhilstactivelycontributingtotheenvironmentweoperatein.

ChannelssuchastheMHPulse intranet,BeritaMH(in-housebulletin)andU-voice(aninternalelectronicmemo)areusedtoproactivelysharecompanyupdates.Inthespiritoftransparency,face-to-facesessionsbetweenmanagementandemployeesareconducted through the annual Town Hall session, quarterlyfinancial staff briefings and departmental cascade sessionssystem-wide. These are platforms for management to sharefinancial performance and company updates and rallyemployeestowardsacommonvision.

Unleashing TalentsInlinewiththeBTP2focustounleashtalent,MalaysiaAirlinesremainsfocussedonhelpingemployeesreachtheirmaximumpotential-asindividualsandteams.

In the year 2009, the company fully implemented thePerformance Management System (PMS) and anchoredemployees’ job responsibilities against a structured methodof performance tracking and evaluation. With the fullimplementationofthePMS,employeesatalllevelsarerewardedbasedontheirperformance.

Employees are provided various on-the-job developmentalopportunitieswhichassisttheminacquiringnewskills.Throughempowerment and brainstorming sessions, employees areencouraged to take on additional responsibilities whilereviewingcurrentprocesses.Exampleprogrammesinclude:jobrotations, boot camps and labs, and customised workshopsaroundReports,Activities,Meetings&Processes (RAMP)andDisciplineofAction(DOA),andtheGuestAuditorprogramme.Intotal,closeto2,000privilegedemployeeswereinvolvedintheseinitiatives.

In addition to unleashing its own talents, Malaysia Airlinessupportsthegovernment’seffortsindevelopinghumancapital


by providing quality training and job opportunities throughvariouscollaborativeprogrammes.Intheyear2009,87traineesweretakenintoundergotheJuniorTechnicianprogramme.

Through the New Graduate Hire (NGH) Programme,Management Trainees (MTs) were recruited and assigned tovariousdepartmentswithin theGroup. In addition, studentsfrom various local universities were provided internshipplacementsatvariousoperationalunits.

The year 2009 also marked the second year of MalaysiaAirlines’ participation in the Cross Assignment Across GLCProgramme.This initiative,which targets staff atmanageriallevels from all Government Linked Companies(GLC) andselectedorganisations, seeks to facilitateandpromote inter-organisationalmobility, transferofknowledgeandexpertise.Inaddition,itisdesignedtohelpacceleratethedevelopmentoftopperformersthroughatailoredexperiencethatstretchestheircapabilitiesinadifferentcompanyculture,industryand/orfunction.

Safe Work EnvironmentMalaysiaAirlinesfocussedonsafetyactivitiestoaddresskeysafetyriskstoensurethatBTP2waspursuedwithoutcompromisetosafetyandquality.TheSafetySecurityHealthandEnvironmentfor2009Programmeaddressedkeyrisksthroughthe“RaisetheSafetyBar” (RSB)programme.Safetydevelopmentplanswere implemented to continuously enhance the proactivesafety capabilities of the Domains. Flight data analysis,risk assessments and line operations change programmeswere reviewed and further tweaked for timely feedback.Open reporting was actively promoted and managementand board safety reports were regularly provided forsafety oversight. Passenger profiling was regularlyconducted on specific routes to enhance operationalsecurity. Occupational health and safety committees werereviewed to ensure full compliance to OSHA requirements.MAScontinuestoensurethattheNoCompromisetoSafetyPolicy is fully understood and strongly supported by policiesandprocessesacrosstheCompany.

COMMUNITY INVOLVEMENT

Education and Youth

Project PINTARThe PINTAR Project is a joint community project by GLCsaimedtopromotetheimportanceofeducationasameansof

improvingsocio-economicimbalancesamongstunderprivilegedstudents.Todate,MalaysiaAirlineshasa totalof17 schoolsunderitswings.

The initiatives that were carried out for all adopted schoolsthroughout the year encompass both academic and co-curricularactivities.This includestuitionclassesforexamyearstudents,seminars,educationalvisits toMalaysiaAirlinesandcareertalksbyMASprofessionals.Inaddition,MalaysiaAirlinesalsoorganisedasummercamp,motivationaltalks,chesstuitionand tournament and an inter-school futsal tournament. Aforumbetweenschoolprincipals,headmastersandthedistricteducationofficeswasfacilitatedbyMalaysiaAirlinestobetterunderstand the needs of the schools and its students andhelpingthemsucceed.

AnumberofprogrammeswerealsoorganisedincollaborationwithKhazanah.ThePINTARMobileUnit,abusconvertedintoa

STATEMENTOFCORPORATESOCIALRESPONSIBILITY


mobilelibraryandcontainingeducationalmaterialsaswellasaflightsimulator,visitsschoolsonanon-goingbasis.

Inaddition,aseminaronDisasterPreparednessincollaborationwith Khazanah and MERCY Malaysia was conducted. Thisseminar sought to create awareness amongst students onnaturaldisastersandcalamitiesthatmayaffectsomeareasinthecountry.ThePINTARBattleBotChallenge,anotherprogrammerun incollaborationwithKhazanahNasional,wascarriedoutat all schools under the PINTARProject in2009. The contestisaimedatdevelopingstrong-structuredrobotsandpromotescreativityandknowledgeof scienceamongst studentsof thePINTARProjectschools.

Social Initiatives

Humanitarian - Change for CharityIntheyear2009,MalaysiaAirlinesembarkedonafundraisingcampaignnamed“ChangeforCharity”withMERCYMalaysiato generate contributions from passengers on-board MASaircraft. The proceeds from this programme are channelledto selected aid organisations and charitable trusts and allowboth organisations to establish a framework for strategiccollaborationinhumanitarianassistance.

BesidestheChangeforCharityproject,MalaysiaAirlinesalsosupportedMERCYMalaysia on emergency andhumanitarianmissions.

Programme SejahteraProgramme SEJAHTERA is a project under the KhazanahNasionalumbrellawhichpromotessustainable livingamongstvulnerable communities. The objective of this programme istoensureallMalaysiansmeetthebasicstandardoflivingandenjoyatleasttheminimumqualityoflife.ThesupportofGLCsandCorporateMalaysiaplaysanimportantroleineradicatingthehardcorepoorinthecountry.

MASlendsitsupporttotheprogrammebyprovidingnecessarytools, skills, infrastructure and opportunities to vulnerablecommunitiestobreakoutofitsviciouspovertycircle.Plannedactivitiessuchassewingandcookinglessons,religiousteaching,computertrainingarecarriedoutonanongoingbasis. KhazanahNasionalplanstoextendthisprojecttootherstatesinthecountryandMASremainscommittedinlendingitssupport.

MASkargoMASkargoadoptedanorphanageinBantingwhichhousescloseto70childrenagedbetween7-17yearsold.Apartfrommonthlycashcontributionstowardsthechildren’stuition,MASkargohasalsoprovidedtheorphanageacomputerlabwithprintingandinternet facilities toassist themwith their studies. In supportof theconservationofprotectedwildlife,MASkargohasalsoadopted a 5-year old Indochinese tiger named ‘Lobo’ at theZooMelaka,and2009markedthefourthyearofthisinitiative.


2010 marks the commencement of the monitoring andreportingrequirementandactivitiesofallaffectedairlinesthatreachtheEUregion.MalaysiaAirlineshasalsoplacedorderfornewfleetsofaircraftswhich,aswithallnewtechnologies,willbemoreefficientandthushavereducedimpactontheenvironmentthanolderfleetsofaircraft.

Voluntary Carbon OffsetThe Voluntary Carbon Offset (VCOS) programme kicked offin June2008aspartof the company’s commitment towardsenvironmental responsibility. Through this programme,passengersflyingwithMalaysiaAirlines,MASwingsandFirefly,havetheoptiontoparticipate ineffortstoreducetheeffectsof carbon dioxide emission by pledging a small contributiontowards carbon offsetting. Malaysia Airlines has pledged tooffset carbon emissions generated from all employee dutytravel.Fundscollectedthroughthisscheme,willbechannelledtoselectedUnitedNations-sanctionedprogrammestoprotectrainforestsinMalaysia.

Responsible TourismResponsible Tourism aims to engage and encourage tourismoperatorsintheregiontodomorefortheirowndestinationsby evaluating the positive and negative environmental andculturalimpacts,thepromotionofrecycling,energyefficiency,water conservation, and creation of economic opportunitiesfor local communities. In the year 2009, Malaysia Airlinescollaboratedwithalocalsocialenterprise,WildAsia,inpavingthewayforResponsibleTourisminMalaysia.

Environmental ManagementMalaysia Airlines continues its efforts in “greening” theorganisation with awareness campaigns on conservation andthe“reduce, reuse, recycle”mindsetwithengagementswithspecificdepartmentsandfacilitiesmanagementinintroducinggreen practices and compiling training material for use anddisseminationthroughoutthecompany.MalaysiaAirlinesalsoparticipatedintheglobalEarthHourcampaigninMarch2009,andshutdownnon-essentialpowersupplyatall itsbuildingsforanhourbeginning8.30pm.

Since theyear2008,MalaysiaAirlineshasadoptedpaperlessticketingacrosstheboard,andhasfurtherimprovedonthisbyintroducingmobilecheck-inintheyear2009,eliminatingtheneedtoprintmillionsofpaperticketsannually.

MASwingsMASwings continued with its “Wings for Children” ruraloutreachprogrammein2009.

TheAllforthePeopleandEnvironment(APE)wasintroducedinMASwingsaspartofitseffortstoenhancethecommunity’squality of life through education. The objective of APE is toinculcatehealthyreadinghabitsamongstthechildreninruralareasaswellastoencouragethemtoreadbooksinEnglish.

Throughout the year, MASwings carried out a number ofcommunity service activities including specially-arrangedjoyrides for children from selected. In addition, MASwingscontinued its annual initiative to bring Christmas cheer totheCancerPatientChildrenat theSarawakGeneralHospitalOncologyWard.

THE ENVIRONMENT

Fuel and Carbon Emission2009 saw international airlinespreparing for the compliancedeadlinesand impendingcommencementof themonitoring,reporting and verification (MRV) of the European UnionEmissionTradingScheme(EUETS).With the objective of managing the consumption and costof fuel use, Malaysia Airlines already has a system in placethattracksfuelconsumptionfromanaccountingstandpoint.Meeting the EU ETS’ requirement of monitoring carbonemission involved the task of extending this functionalityandfine tuning the fueldatacollection to focusonlyon thespecificrelevantroutesonthenetwork,theaircraftsused,andthe passenger and cargo loads of these flights. Processes ofhowthesemeasurementswerecollectedandtheintegrityandaccuracyofitsdatawerealsosharedwiththeUKagency.Thisinvolvedrevisitingtheprocessesthatwerealreadyinplacethatsupport the fuel management system, converting these intotheappropriateunitsandre-documentingtheseforcomplyingwithETS’requirements.

STATEMENTOFCORPORATESOCIALRESPONSIBILITY


1. Stateof 32officeandworkshopbuildings Occupationoffederal Land-4,617,360 11-38 245,595,563 Selangor formingMASofficecomplexat landpending Builtup–2,284,309 SultanAbdulAzizShahAirport, formalisationofalease 47200Subangand 1pedestrianbridge IndustriallandatPT44562 Leasehold99years 10.972acres 6 15,495,425 MkmSgBuloh,47200Subang expiring2102 Hangar6 30yrs+13 Builtup–41,058sqm 3 276,192,956 renewalperiod-subject tofinalisationoflease agreementwithMAB 2. Stateof 13unitsofshoplots Leasehold99years Builtup–8,690 33 753,015 Penang A1.04-A1.07&A1.11-A1.14Level1; expiring2075 A4.05-A4.08&B114.03Level4, KompleksKOMTAR,JalanPenang, GeorgeTown,10000PulauPinang 8buildingsatPenangInternational Monthlytenancypending Builtup–331,154 40 26,555,314 Airport,11900BayanLepas,Penang renewaloftenancyby MABwef1August2006 3. State 4shoplotsLotG-01and1-06,1-07 Freehold Builtup–4,102 29 149,086 ofPerak &1-08,BangunanSriKinta, JalanSultanIdrisShah,30000Ipoh

4. State VacantLand Leasehold60years Land–52,816 29 36,040 of Lot51,TamanBukitKayangan, expiring2041 Pahang 49000BukitFraser 2unitscondominiumat Leasehold99years Builtup–5,226 24 241,717 K67&B16PineResort expiring2082 49000BukitFraser 5. State 1engineeringworkshopat Monthlytenancy Builtup–4,500 25 1 of SultanMahmudAirport, pendingrenewal Terengganu 21300KualaTerengganu oftenancybyMAB wef1August2006

List of Company PropertiesAs at 31 December 2009

Location Description Tenure Approximate Approximate Net Book Area Age Value (sq feet) (years) as at 2009 (RM)


6. State 1engineeringbuildingatSultan Monthlytenancy Land–2,065 18 109,378 of AbdulHalimAirport, pendingrenewal Builtup–5,950 Kedah 06200AlorSetar oftenancybyMAB wef1August2006

1cargostoreat Monthlytenancy Builtup–1,632 15 1 LangkawiInternationalAirport, pendingrenewal 07100PadangMatsirat,Langkawi oftenancybyMAB wef1August20067. State 1engineeringworkshop Tenancycommencing Land–16,000 18 380,327 of atSultanIsmailAirport, 1November2005and Johor Senai,81250JohorBahru expiring31October2008

1cargobuildingat Tenancycommencing Builtup–10,911 17 3 SultanIsmailAirport,Senai, 1November2005and 81250JohorBahru expiring31October2008

8. State 5unitscondominiumat Leasehold99years Builtup–5,657 22 472,224 of A-6-10,1-7-5,1-5-3,A-5-5,A-4-2, expiring2086 Negeri TanjungTuanResort,Batu5, Sembilan JalanPantai,71050, PortDickson,NegeriSembilan

9. State Officelots Leasehold99years Builtup–4,350 20 365,186 of GroundFloor,WismaYakin, expiring2088 Kelantan JalanGajahMati, 15050KotaBharu 10.State Hangar&Cargoand Engineering&Cargo: Engineering&Cargo: 20 5,287,271 of Administrationbuildingsat Leaseholdexpiring2044 Land–152,460 Sabah KotaKinabaluInternationalAirport, Builtup–118,207 88100KotaKinabalu AdministrationBuilding: Administration 29 1,301,619 Monthlytenancy Building: pendingrenewal Land–16,000 oftenancybyMAB Builtup–31,104 wef1October2006 1hangar/cargobuilding Monthlytenancy Builtup–16,625 8 2,248,758 atTawauAirport, pendingrenewal 91000Tawau oftenancybyMAB wef30November2006


LISTOFCOMPANYPROPERTIES


11.State Cateringandworkshopbuildings Monthlytenancy Land–67,662 20-28 607,256 of atKuchingInternationalAirport, pendingrenewal Builtup–25,171 Sarawak 93250Kuching oftenancybyMAB wef1August2006 1cargowarehouse/ Monthlytenancy Land–40,864 24 647,357 engineeringbuildingat pendingrenewal Builtup–19,588 MiriAirport, oftenancybyMAB 98000Miri wef1August2006 Cargo/engineeringbuilding Monthlytenancy Land–52,474 6 2,169,981 atBintuluAirport,JalanBintulu, pendingrenewal 97000Bintulu oftenancybyMAB wef1January2007

1cargo/engineering Monthlytenancy Land–39,654 16 880,084 buildingatSibuAirport, pendingrenewal Builtup–10,926 23kmSibu/DurinRoad, oftenancybyMAB 96000Sibu wef1August2006 12.Singapore Officelots#2-01to#02-11, Leasehold99 Builtup–7,061 30 1,453,506 Level2,190,ClemenceauAvenue yearsexpiring2047 No0209-11,SingaporeShopping Centre,239924Singapore 13.England 7storeyofficebuildingat Freehold Land–29,977 14 26,226,100 No247-249,CromwellRoad, Builtup–24,169 LondonSW59GA



Analysis of Shareholdings

STATEMENT OF SHAREHOLDINGS AS AT 15 APRIL 2010

Share Capital

Ourauthorised,andissuedandfullypaid-upsharecapitalasat15April2010areasfollows:

TypeNo. of shares

Par value

RMTotal

RM

Authorised

OrdinaryShares 9,000,000,000 1.00 9,000,000,000

SpecialRightsRedeemablePreferenceShare 1 1.00 1

RedeemableConvertiblePreferenceShares-Redeemed 100,000,000,000 0.01 1,000,000,000

RedeemablePreferenceShares 1,000,000 0.10 100,000

RedeemableConvertiblePreferenceShares 418,000,000 0.10 41,800,000

Total 10,041,900,001

Issued and paid-up

OrdinaryShares 3,342,156,240 1.00 3,342,156,240

SpecialRightsRedeemablePreferenceShare 1 1.00 1

RedeemablePreferenceShares 500 0.10 50

RedeemableConvertiblePreferenceShares 415,127,155 0.10 41,512,715.50

Total 3,383,669,006.50

VotingRights : OnevoteperOrdinaryShare TheSpecialSharehasnovotingrightotherthanthosereferredtoinnote 31(a)ofthefinancialstatements

ANALYSISOFSHAREHOLDINGS


Ordinary Share

03.04.71 2 1.00 Subscribers’shares 2

02.08.71 5,000,000 1.00 Cash 5,000,002

13.09.71 12,500,000 1.00 Cash 17,500,002

08.11.71 8,500,000 1.00 Cash 26,000,002

18.02.72 14,000,000 1.00 Cash 40,000,002

18.10.72 2,167,982 1.00 Cash 42,167,984

22.11.72 21,999,998 1.00 Cash 64,167,982

28.12.76 2,416,009 1.00 Cash 66,583,991

29.07.77 2,416,009 1.00 Cash 69,000,000

09.04.79 1,000,000 1.00 Cash 70,000,000

12.09.85 210,000,000 1.00 Bonusissueonthebasisof3 280,000,000 newsharesforevery1share

21.11.85 70,000,000 1.00 PublicissueatRM1.80per 350,000,000 share

13.11.92 350,000,000 1.00 Rightsissueonthebasisof1 700,000,000 newshareforevery1 shareatRM5.00perShare

22.05.96 70,000,000 1.00 PrivateplacementatRM8.00 770,000,000 pershare

STATEMENT OF SHAREHOLDINGS AS AT 15 APRIL 2010 (CONTINUED)

Changes in our Share Capital

Thechangesinourissuedandpaid-upsharecapitalsincethedateofincorporationupto15April2010areasfollows:

Date ofallotment

No. ofsharesallotted

Par valueRM Consideration/Type of issue

Total issuedand paid-upshare capital

RM

93Annual Report 2009 ANALYSISOFSHAREHOLDINGS


Changes in our Share Capital(Continued)

Date ofallotment




RM

15.01.03 483,243,865 1.00 Insatisfactionofthesurplusof 1,253,243,865 theliabilitiesunbundledby MAStoPMBoverthetotal aggregatevalueofthe aircraftassetstobe unbundledbyMASto PMBatRM3.85pershare

05.11.07 417,747,955 1.00 Rightsissueonthebasisof1 1,670,991,820 newshareforevery 3sharesatRM2.70pershare06.08.08 2,000 1.00 BywayofMASESOSallotment 1,670,993,820

20.08.08 8,300 1.00 BywayofMASESOSallotment 1,671,002,120

04.02.09 60,000 1.00 Allotmentofshares 1,671,062,120 bywayofRCPSconversion

13.07.09 16,000 1.00 Allotmentofsharesbywayof 1,671,078,120 RCPSconversion

11.03.10 1,671,078,120 1.00 RightsIssueonthebasisof1 3,342,156,240 newshareforevery1shareat RM1.60pershareSpecial Rights Redeemable PreferenceShare (SRRPS) 12.09.85 1 1.00 SpecialShare-IssuedtoMoFforcash 1



Changes in our Share Capital(Continued)

Date ofallotment




RM

Redeemable Convertible Preference Shares (RCPS) 11.09.01 800,000,000 0.01 RCPS-IssuedatRM1.00each 8,000,000.00 toIntelekPerkasaBerhadforcash

11.09.06 (800,000,000) 0.01 RCPS-Redeemed -

05.11.07 417,747,955 0.10 RCPS-Rightsissueonthe 41,774,795.50 basisof1RCPSsharefor every3ordinaryshares atRM1.00perRCPS

08.01.09 (680,400) 0.10 Redemptionbywayofcash 41,706,755.50 settlement



04.02.09 (243,000) 0.10 Conversionbywayofissuance 41,612,795.50 ofordinaryshares

13.07.09 (64,800) 0.10 Conversionbywayofissuance 41,606,315.50 ofordinaryshares

06.08.09 (3,000) 0.10 Redemptionbywayof 41,606,015.50 cashsettlement

14.01.10 (933,000) 0.10 Redemptionbywayof 41,512,715.50 cashsettlementRedeemable Preference Shares (RPS)

31.01.07 500 0.10 RPS-IssuedatRM1.00each 50.00 toCIMBBankBerhad


No. Name No. of shares %

Ordinary Share 1 PENERBANGANMALAYSIABERHAD 1,747,780,143 52.29 2 KHAZANAHNASIONALBERHAD 470,438,174 14.08 3 EMPLOYEESPROVIDENTFUNDBOARD 439,181,620 13.14 4 CIMSECNOMINEES(TEMPATAN)SDNBHD 100,259,510 3.00 <KHAZANAHNASIONALBERHAD(MASESOSPOOL)> 5 AMANAHRAYATRUSTEESBERHAD 89,184,367 2.67 <SKIMAMANAHSAHAMBUMIPUTERA> 6 WARISANHARTASABAHSDNBHD 80,112,000 2.40 7 STATEFINANCIALSECRETARYSARAWAK 45,833,333 1.37 8 CITIGROUPNOMINEES(TEMPATAN)SDNBHD 22,596,900 0.68 <EXEMPTANFORAMERICANINTERNATIONAL ASSURANCEBERHAD> 9 CARTABANNOMINEES(ASING)SDNBHD 8,986,400 0.27 <STATESTREETFORISHARESMSCIEMERGING MARKETSINDEX> 10CARTABANNOMINEES(ASING)SDNBHD 8,451,834 0.25 <STATESTREETLONDONFUNDMATFFOR MARATHONNEWGLOBALPLC> 11ECMLNOMINEES(ASING)SDN.BHD 8,000,000 0.24 <DMG&PARTNERSSECURITIESPTELTDFOR KEENCAPITALINVESTMENTSLTD(N2-60391)(009)> 12HSBCNOMINEES(ASING)SDNBHD 7,759,800 0.23 <BBHANDCOBOSTONFORVANGUARD EMERGINGMARKETSSTOCKFUND> 13HSBCNOMINEES(ASING)SDNBHD 6,917,338 0.21 <EXEMPTANFORJPMORGANCHASEBANK, NATIONALASSOCIATION(U.A.E.)> 14MEGAFIRSTHOUSINGDEVELOPMENTSDNBHD 6,369,800 0.19 15CARTABANNOMINEES(ASING)SDNBHD 5,657,466 0.17 <GOVERNMENTOFSINGAPOREINVESTMENT CORPORATIONPTELTDFORGOVERNMENT OFSINGAPORE(C)> 16CARTABANNOMINEES(ASING)SDNBHD 5,421,000 0.16 <STATESTREETFORISHARES,INC.>

LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 15 APRIL 2010 InaccordancewiththeRegisterofDepository,thelistofthirtylargestshareholdersoftheCompanyisasfollows:-




Ordinary Share(Continued)

17 ALLIANCEGROUPNOMINEES(TEMPATAN)SDNBHD 5,376,866 0.16 <PHEIMASSETMANAGEMENTSDNBHDFOR EMPLOYEESPROVIDENTFUND> 18 SBBNOMINEES(TEMPATAN)SDN.BHD 5,113,800 0.15 <EMPLOYEESPROVIDENTFUNDBOARD> 19 AMANAHRAYATRUSTEESBERHAD 4,786,667 0.14 <SEKIMAMANAHSAHAMNASIONAL> 20 HSBCNOMINEES(ASING)SDNBHD 4,392,900 0.13 <EXEMPTANFORTHEHONGKONGAND SHANGHAIBANKINGCORPORATIONLIMITED (HBFS-ICLTACCT)> 21 HSBCNOMINEES(ASING)SDNBHD 3,993,496 0.12 <EXEMPTANFORTHEBANKOFNEWYORK MELLON(BNYMASE&A)> 22 RCIVENTURESSDNBHD 3,935,000 0.12 23 CARTABANNOMINEES(ASING)SDNBHD 3,811,100 0.11 <SSBTFUNDMK30FORMARATHON INTERNATIONALGROUPTRUST (LDNEMPBENPLS)> 24 CIMSECNOMINEES(TEMPATAN)SDNBHD 3,415,800 0.10 CIMBBANKBERHAD(ETP) 25 HSBCNOMINEES(ASING)SDNBHD 3,356,358 0.10 <EXEMPTANFORTHEBANKOFNEWYORK MELLON(MELLONACCT)> 26 CARTABANNOMINEES(ASING)SDNBHD 3,305,866 0.10 <SSBTFUNDJ728FORSPDRS&PEMERGING ASIAPACIFICETF> 27 CARTABANNOMINEES(ASING)SDNBHD 3,241,048 0.10 <STATESTREETFORMSCIEQUITYINDEXFUND BMALAYSIA(BARCLAYSGINV)> 28 HSBCNOMINEES(ASING)SDNBHD 3,182,866 0.10 <BBHANDCOBOSTONFORVANGUARD GLOBALEQUITYFUND> 29 KUMPULANWANGSIMPANANPEKERJA 3,000,000 0.09 30 CITIGROUPNOMINEES(TEMPATAN)SDNBHD 2,986,900 0.09 <INGINSURANCEBERHAD(INV-ILPAR)>

LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 15 APRIL 2010


LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 15 APRIL 2010(CONTINUED) No. Name No. of shares %

Redeemable Convertible Preference Share

1 KHAZANAHNASIONALBERHAD 289,652,500 69.77

2 EMPLOYEESPROVIDENTFUNDBOARD 48,117,298 11.59

3 AMANAHRAYATRUSTEESBERHAD 19,316,467 4.65 <SKIMAMANAHSAHAMBUMIPUTERA> 4 WARISANHARTASABAHSDNBHD 10,014,000 2.41

5 HOCHUCHAI 3,060,700 0.74

6 KE-ZANNOMINEES(ASING)SDN.BHD 2,424,000 0.58 <KIMENGSECURITIESPTE.LTD.FORCYL

INVESTMENSLIMITED>

7 MAYBANNOMINEES(TEMPATAN)SDNBHD 1,540,000 0.37 <TINGPOILING> 8 CITIGROUPNOMINEES(TEMPATAN)SDNBHD 1,364,200 0.33 <INGINSURANCEBERHAD(INV-ILPAR)> 9 MAYBANNOMINEES(TEMPATAN)SDNBHD 1,320,300 0.32 <MAYBANTRUSTEESBERHADFORMAAKL

VALUEFUND(950290)>

10 AMANAHRAYATRUSTEESBERHAD 1,196,667 0.29 <SEKIMAMANAHSAHAMNASIONAL>

11 LIMKUEEPOH 910,000 0.22

12 CIMSECNOMINEES(TEMPATAN)SDNBHD 880,000 0.21 <CIMBFORCHAIKIMSIN(PB)> 13 CHAIKIMSIN 850,000 0.20

14 SAWSAUKIN 800,000 0.19

15 KURNIAINSURANS(MALAYSIA)BERHAD 700,400 0.17

16 CIMSECNOMINEES(TEMPATAN)SDNBHD 700,000 0.17 <PLEDGEDSECURITIESACCOUNTFOR

TOHEANHAI(PENANG-CL)>




Redeemable Convertible Preference Share (Continued)

17 TITEOWCHOO 511,800 0.12

18 HSBCNOMINEES(ASING)SDNBHD 490,445 0.12 <EXEMPTANFORTHEBANKOFNEWYORK

MELLON(MELLONACCT)>

19 PUBLICINVESTNOMINEES(ASING)SDNBHD 455,100 0.11 <EXEMPTANFORPHILLIPSECURITIES

PTELTD(CLIENTS)>

20 TEOAHSENG 441,900 0.11

21 LOWCHEEYONG@SHOONGCHEEYONG 426,400 0.10

22 CHEAHPOHKENG 420,000 0.10

23 LEEAHBENG 418,500 0.10

24 PUBLICNOMINEES(TEMPATAN)SDNBHD 410,000 0.10 <PLEDGEDSECURITIESACCOUNTFOR

WONGTOHKWONG(E-PDG)>

25 HSBCNOMINEES(TEMPATAN)SDNBHD 405,000 0.10 <HSBC(M)TRUSTEEBHDFOR

MAAKLGROWTHFUND(4074)>

26 LEONGKAMCHEE 400,000 0.10

27 GOHSWEEMOI 400,000 0.1028 LIMBOONCHENG 390,000 0.09

29 TENGSWEELAN@FONGSWEELAN 383,700 0.0930 HOCHOOING 315,800 0.08

LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 15 APRIL 2010(CONTINUED)


ANALYSIS OF SHAREHOLDINGS AS AT 15 APRIL 2010

Ordinary Share

Category Shareholders % Shareholdings % Lessthan100 132 0.94 2,396 0.00100to1,000 2,469 17.67 2,239,193 0.071,001to10,000 8,858 63.40 36,863,544 1.1010,001to100,000 2,176 15.57 61,532,292 1.84100,001tolessthan5%ofissuedshares 336 2.40 584,118,878 17.485%andaboveofissuedshares 3 0.02 2,657,399,937 79.51 TOTAL 13,974 100.00 3,342,156,240 100.00


Category Shareholders % Shareholdings % Lessthan100 48 1.18 2,156 0.00100to1,000 2,467 60.69 1,551,760 0.371,001to10,000 1,168 28.73 3,777,856 0.9110,001to100,000 284 6.99 9,614,302 2.32100,001tolessthan5%ofissuedshares 96 2.36 62,411,283 15.035%andaboveofissuedshares 2 0.05 337,769,798 81.37 TOTAL 4,065 100.00 415,127,155 100.00



LIST OF SUBSTANTIAL SHAREHOLDERS (5% AND ABOVE) AS AT 15 APRIL 2010

Ordinary share

No. Name Direct Indirect Direct Indirect

1. PenerbanganMalaysiaBerhad 1,747,780,143 - 52.29 -

2. KhazanahNasionalBerhad 570,697,684 1,747,780,143* 17.08 52.29*

3. EmployeesProvidentFundBoard 456,634,086 - 13.65 -


No. Name Direct Indirect Direct Indirect

1. KhazanahNasionalBerhad 289,652,500 - 69.77 -

2. EmployeesProvidentFundBoard 48,117,298 - 11.60 -

* Khazanah Nasional Berhad (Khazanah) is deemed interested by virtue of its shareholding in Penerbangan Malaysia Berhad under Section 6A

of the Act

Share Held Percentage %

Share Held Percentage %


DIRECTORS’ DIRECT AND DEEMED INTERESTS IN THE COMPANY AS AT 15 APRIL 2010

InaccordancewiththeRegisterofDirectors’Shareholdings,thedirectors’directanddeemedinterestsinsharesintheCompanyareasfollows:-

Ordinary Share

No Names No. of Shares % Direct Indirect 1. TANSRIDR.MOHD.MUNIRBINABDULMAJID - - 0.00 2 DATO’N.SADASIVANA/LN.N.PILLAY - - 0.00 3 TENGKUDATO’AZMILZAHRUDDIN 2,707,438* - 0.08 BINRAJAABDULAZIZ 4 KEONGCHOONKEAT - - 0.00 5 DATO’MOHAMEDAZMANBINYAHYA - - 0.00 6 MARTINGILBERTBARROW - - 0.00 7 DATUKSERIPANGLIMAMOHD.ANNUARBINZAINI - - 0.00 8 DATUKHAJIYUSOFF - - 0.00 BINDATUKHAJIMOHAMEDKASSIM 9 TANSRIDATUKSERIDR.WANABDULAZIZ - - 0.00 BINWANABDULLAH 10 DATUKAMARWILSONBAYADANDOT - - 0.00 11 DATO’ABDULRAHMANBINABDULGHANI - - 0.00 12 DATO’PUTEHRUKIAHBINTIABDMAJID - - 0.00 13 DATUKAMARMOHAMADMORSHIDI - - 0.00 BINABDULGHANI

* Share options granted under MAS ESOS




EMBARKATIONDIS

Ensuringpassengersarrivesafelyandon-timeattheirdestination.

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)104

The directors present their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2009.

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 15 to the financial statements.

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

RESuLTS

Group Company RM’000 RM’000Profit for the year 493,106 598,683

Attributable to: Equity holders of the Company 490,197 598,683Minority interests 2,909 - 493,106 598,683

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

In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature other than the effects arising from the changes in accounting policies with the early adoption of FRS 139: Financial Instruments, Recognition and Measurement. The effects of early adoption of FRS 139 to the Group and Company’s financial statements are disclosed in Note 2.2(i) to the financial statements.

DIVIDENDS

No dividend has been paid or declared by the Company since the end of the previous financial year. The directors do not recommend any dividend in respect of the financial year ended 31 December 2009.

Directors’ Report

105Annual Report 2009 DIRECTORS’ REPORT

DIRECTORS

The directors of the Company in office since the date of the last report and at the date of this report are:

Tan Sri Dr. Mohd. Munir bin Abdul Majid

Dato’ N. Sadasivan a/l N.N. Pillay

Datuk Seri Panglima Mohd. Annuar bin Zaini

Dato’ Mohamed Azman bin Yahya

Keong Choon Keat

Martin Gilbert Barrow

Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz

Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim

Tan Sri Datuk Seri Dr. Wan Abdul Aziz bin Wan Abdullah

Datuk Amar Wilson Baya Dandot

Dato’ Haji Abdul Rahman bin Haji Abdul Ghani(Alternate to Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim)

Dato’ Puteh Rukiah binti Abd Majid(Alternate to Tan Sri Datuk Seri Dr. Wan Abdul Aziz bin Wan Abdullah)

Datuk Amar Haji Mohamad Morshidi bin Haji Abdul Ghani(Alternate to Datuk Amar Wilson Baya Dandot)

Dato’ Sri Iris Jala @ Idris Jala (resigned on 28 August 2009)

DIRECTORS’ BENEFITS

Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate, other than those arising from the share options granted under the Employee Share Option Scheme (“ESOS”).

Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as disclosed in Note 9 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.


DIRECTORS’ INTERESTS

According to the register of directors’ shareholdings, the interest of directors in office at the end of the financial year in options over shares in the Company during the financial year were as follows:

Number of Options over Ordinary Shares* 1.1.2009 Granted 31.12.2009The CompanyTengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz 1,155,066 1,192,191 2,347,257

*Share options granted under ESOS

None of the other directors in office at the end of the financial year had any interest in shares in the Company or its related corporation during the financial year.

ISSuE OF SHARES

During the financial year, the Company increased its issued and paid-up capital from RM1,671,002,121 to RM1,671,078,121 by way of issuance 76,000 ordinary shares of RM1.00 each pursuant to the conversion of 307,800 Redeemable Convertible Preference Shares (“RCPS”) of RM0.10 in the Company.

EMPLOYEE SHARE OPTION SCHEME

The Malaysian Airline System Berhad (“MAS”) ESOS is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 23 April 2007. The ESOS was launched on 21 May 2007 and is to be in force for a period of 5 years from the effective date.

The salient features and other terms of the ESOS are disclosed in Note 25 to the financial statements.

107Annual Report 2009 DIRECTORS’ REPORT

EMPLOYEE SHARE OPTION SCHEME (CONTINUED)

The Company has been granted exemption by the Companies Commission of Malaysia from having to disclose the names of the option holders, other than directors, who have been granted options to subscribe for less than 600,000 ordinary shares of RM1 each. The names of option holders granted options to subscribe for 600,000 or more ordinary shares of RM1 each during the financial year are as follows:

Grant Expiry Exercise Number of Share OptionsName Date Date Price 1.1.2009 Granted Expired 31.12.2009 RM

Tengku Dato’ Azmil Zahruddin 29.6.2007 31.12.2011 5.09 604,066 - - 604,066 bin Raja Abdul Aziz 20.6.2008 31.12.2011 3.71 551,000 - - 551,000 4.12.2009 31.12.2001 3.20 - 1,192,191 - 1,192,191

Dr. Mohd Amin Khan 29.6.2007 31.12.2011 5.09 323,567 - - 323,567 20.6.2008 31.12.2011 3.71 344,000 - - 344,000

Mohd Roslan bin Ismail 29.6.2007 31.12.2011 5.09 323,567 - - 323,567 20.6.2008 31.12.2011 3.71 344,000 - - 344,000

Dato’ Captain Mohd 29.6.2007 31.12.2011 5.09 323,567 - - 323,567 Nawawi bin Awang 20.6.2008 31.12.2011 3.71 316,000 - - 316,000

Dato’ Captain Ahmad 29.6.2007 31.12.2011 5.09 323,567 - - 323,567 Zuraidi bin Dahalan 20.6.2008 31.12.2011 3.71 287,000 - - 287,000 Dato’ Bernard Francis 29.6.2007 31.12.2011 5.09 323,567 - - 323,567 a/l G Francis 20.6.2008 31.12.2011 3.71 316,000 - - 316,000

Angaepattae Indira 29.6.2007 31.12.2011 5.09 323,567 - - 323,567 a/p R Ponnan Nair 20.6.2008 31.12.2011 3.71 344,000 - - 344,000

Effendi bin Abdul Rahman 29.6.2007 31.12.2011 5.09 323,567 - - 323,567 20.6.2008 31.12.2011 3.71 316,000 - - 316,000

Dato’ Sri Iris Jala @ Idris Jala 29.6.2007 28.8.2009 5.09 755,358 - 755,358 - (resigned on 28.8.2009) 20.6.2008 28.8.2009 3.71 688,000 - 688,000 -

Dato’ Abdul Rashid Khan 29.6.2007 30.9.2010 5.09 452,773 - - 452,773 bin Abdul Rahim Khan 20.6.2008 30.9.2010 3.71 379,000 - - 379,000 (retired on 30.9.2009)

Dato’ Tajuden bin Abu Bakar 29.6.2007 31.12.2010 5.09 323,567 - - 323,567 (retired on 31.12.2009) 20.6.2008 31.12.2010 3.71 344,000 - - 344,000


OTHER STATuTORY INFORMATION

(a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps:(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision

for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and

(ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

(b) At the date of this report, the directors are not aware of any circumstances which would render:(i) the amount written off for bad debts or the amount of the provision for doubtful debts in the financial statements of

the Group and of the Company inadequate to any substantial extent; and(ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

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

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

(e) As at the date of this report, there does not exist:(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which

secures the liabilities of any other person; or(ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year.

(f) In the opinion of the directors:(i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve

months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and

(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made.

SIGNIFICANT EVENTS

Details of the significant events are disclosed in Note 42 to the financial statements.

SuBSEQuENT EVENTS

Details of the subsequent events are disclosed in Note 43 to the financial statements.

AuDITORSThe auditors, Ernst & Young, have expressed their willingness to continue in office.

Signed on behalf of the Board in accordance with a resolution of the directors dated 22 February 2010.

Tan Sri Dr. Mohd. Munir bin Abdul Majid Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz


We, Tan Sri Dr. Mohd. Munir bin Abdul Majid and Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz being two of the directors of Malaysian Airline System Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 112 to 231 are drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2009 and of the results and the cash flows of the Group and of the Company for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 22 February 2010.

Tan Sri Dr. Mohd. Munir bin Abdul Majid Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz

STATEMENT BY DIRECTORS

Statement by DirectorsPursuant to Section 169(15) of the Companies Act, 1965


Statutory DeclarationPursuant to Section 169(16) of the Companies Act, 1965

I, Mohd Azha bin Abdul Jalil, being the officer primarily responsible for the financial management of Malaysian Airline System Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 112 to 231 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared bythe abovenamed Mohd Azha bin Abdul Jalilat Kuala Lumpur in Wilayah Persekutuanon 22 February 2010. Mohd Azha bin Abdul Jalil

Before me,

Lot 350, 3rd Floor, Wisma MPL,Jalan Raja Chulan,50200 Kuala Lumpur


Independent Auditors’ ReportTo the members of Malaysian Airline System Berhad (Incorporated in Malaysia)

Report on the financial statementsWe have audited the financial statements of Malaysian Airline System Berhad, which comprise the balance sheets as at 31 December 2009 of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 112 to 231.

Directors’ responsibility for the financial statementsThe directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibilityOur 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2009 and of their financial performance and cash flows of the Group and of the Company for the year then ended.

Report on other legal and regulatory requirementsIn accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its

subsidiaries have been properly kept in accordance with the provisions of the Act.(b) We are satisfied that the accounts of the subsidiaries that have been consolidated with the financial statements of the

Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.

(c) The auditors’ reports on the accounts of the subsidiaries were not subject to any qualification and did not include any comment required to be made under Section 174(3) of the Act.

Other mattersThis report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

Ernst & Young Ong Chee WaiAF: 0039 No. 2857 / 07 / 10 (J)Chartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia22 February 2010

INDEPENDENT AUDITORS’ REPORT


Continuing operations Operating revenue 3 11,309,855 15,035,303 9,826,049 13,247,237 Operating expenditure (12,202,716) (15,198,257) (10,594,409) (13,404,533) Other operating income 264,601 466,001 289,710 447,969 Gain on sale of properties 4 - 2,410 - 2,410(Loss)/Profit from operations 5 (628,260) 305,457 (478,650) 293,083 Derivative gain 6 1,163,133 - 1,163,133 - Finance costs 7 (84,523) (60,770) (84,047) (59,258) Share of results of associated companies 13,381 19,974 - - Share of results of jointly controlled entity (1,741) - - -Profit before taxation 461,990 264,661 600,436 233,825 Taxation 10 31,116 (19,086) (1,753) (5,804)Profit for the year from continuing operations 493,106 245,575 598,683 228,021 Discontinued operations Profit for the year from discontinued operations 11 - 122 - - Profit for the year 493,106 245,697 598,683 228,021 Attributable to: Equity holders of the Company 490,197 244,312 598,683 228,021Minority interests 2,909 1,385 - - 493,106 245,697 598,683 228,021 Earnings per share attributable to equity holders of the Company (sen): Basic, for profit for the year 12 29.3 14.6 Diluted, for profit for the year 12 28.6 14.6

The accompanying notes form an integral part of the financial statements.

Income Statements

For the year ended 31 December 2009

Group Company Note 2009 2008 2009 2008 RM’000 RM’000 RM’000 RM’000

113Annual Report 2009 BALANCE SHEETS

Group Company Note 2009 2008 2009 2008 RM’000 RM’000 RM’000 RM’000 (Restated) (Restated)Non-current assets Aircraft, property, plant and equipment 13 3,111,973 2,464,823 2,659,439 2,138,312 Prepaid lease payments on land 14 17,243 17,431 15,531 15,699 Investments in subsidiaries 15 - - 39,637 53,372 Investments in associates 16 78,976 73,268 81,274 81,274 Investments in jointly controlled entity 17 1,798 - - - Other investments 18 53,952 64,946 53,952 64,946 Negotiable instruments of deposit 19 - 250,000 - 250,000 Intangible assets 20 110,041 106,253 95,743 86,831 Other receivables 22 386,537 485,925 830,977 768,149 Deferred tax assets 33 34,026 1,348 - - 3,794,546 3,463,994 3,776,553 3,458,583 Current assetsInventories 21 384,916 379,730 378,073 370,655 Trade and other receivables 22 1,395,889 1,861,129 1,356,227 1,835,392Negotiable instruments of deposit 19 287,466 795,000 287,466 795,000 Cash and bank balances 23 2,664,859 3,571,743 2,612,204 3,529,222 4,733,130 6,607,602 4,633,970 6,530,269

Current liabilities Sales in advance of carriage 24 1,451,401 1,222,410 1,451,401 1,222,410 Trade and other payables 26 2,246,542 2,408,825 2,162,287 2,460,720Provisions 27 902,295 817,703 887,938 803,245 Borrowings 28 315,518 433,411 314,248 433,411 Derivative financial instruments 41(b) 584,788 - 584,788 - Taxation 3,696 5,001 2,683 4,814 5,504,240 4,887,350 5,403,345 4,924,600

Net current (liabilities)/assets (771,110) 1,720,252 (769,375) 1,605,669 3,023,436 5,184,246 3,007,178 5,064,252

Financed by: Equity attributable to equity holders of the Company: Share capital 31 1,671,078 1,671,002 1,671,078 1,671,002 Reserves 32 (935,351) 2,514,696 (933,888) 2,407,673 735,727 4,185,698 737,190 4,078,675 Minority interests 11,869 11,278 - - Total equity 747,596 4,196,976 737,190 4,078,675 Non-current liabilities Borrowings 28 2,004,062 985,577 1,998,210 985,577 Derivative financial instruments 41(b) 271,778 - 271,778 - Deferred tax liabilities 33 - 1,693 - - 2,275,840 987,270 2,269,988 985,577 3,023,436 5,184,246 3,007,178 5,064,252


Balance Sheets

As at 31 December 2009


Attributable to equity holders of the Company

Non-Distributable Equity Share Share Share Component Option Note Capital Premium of RCPS Reserve RM’000 RM’000 RM’000 RM’000

GROuP At 1 January 2008 1,670,992 4,007,510 58,076 27,880 Net profit for the year - - - - Dividends 44 - - - - Net expenses recognised directly in equity - (97) - - ESOS - Grant of ESOS 25 - - - 48,327 - Exercise of options 25 10 28 - - - ESOS provision reversal 25 - 5 - (5) At 31 December 2008 1,671,002 4,007,446 58,076 76,202 At 1 January 2009 1,671,002 4,007,446 58,076 76,202 Effects of adopting FRS 139 2.2(i) - - - -At 1 January 2009 (restated) 1,671,002 4,007,446 58,076 76,202 Net profit for the year - - - - Dividends 44 - - - - Conversion of RCPS 29 76 232 - - Grant of ESOS 25 - - - 11,550 At 31 December 2009 1,671,078 4,007,678 58,076 87,752 COMPANY At 1 January 2008 1,670,992 4,007,510 58,076 27,880 Net profit for the year - - - - Dividends 44 - - - - Net expenses recognised directly in equity - (97) - - ESOS - Grant of ESOS 25 - - - 48,327 - Exercise of options 25 10 28 - - - ESOS provision reversal 25 - 5 - (5)

At 31 December 2008 1,671,002 4,007,446 58,076 76,202 At 1 January 2009 1,671,002 4,007,446 58,076 76,202 Effects of adopting FRS 139 2.2(i) - - - - At 1 January 2009 (restated) 1,671,002 4,007,446 58,076 76,202 Net profit for the year - - - - Conversion of RCPS 29 76 232 - -Grant of ESOS 25 - - - 11,550 At 31 December 2009 1,671,078 4,007,678 58,076 87,752


Statements of Changes in Equity


115Annual Report 2009 STATEMENTS OF CHANGES IN EQUITY

Minority Total Interests Equity

Distributable General Accumulated Total Reserve Losses Reserves Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 501,530 (2,331,095) 2,263,901 3,934,893 11,056 3,945,949 - 244,312 244,312 244,312 1,385 245,697 - (41,775) (41,775) (41,775) (1,163) (42,938) - - (97) (97) - (97) - - 48,327 48,327 - 48,327 - - 28 38 - 38 - - - - - - 501,530 (2,128,558) 2,514,696 4,185,698 11,278 4,196,976 501,530 (2,128,558) 2,514,696 4,185,698 11,278 4,196,976 - (3,952,026) (3,952,026) (3,952,026) - (3,952,026) 501,530 (6,080,584) (1,437,330) 233,672 11,278 244,950 - 490,197 490,197 490,197 2,909 493,106 - - - - (2,318) (2,318) - - 232 308 - 308 - - 11,550 11,550 - 11,550

501,530 (5,590,387) (935,351) 735,727 11,869 747,596

500,000 (2,420,297) 2,173,169 3,844,161 - 228,021 228,021 228,021 - (41,775) (41,775) (41,775) - - (97) (97) - - 48,327 48,327 - - 28 38 - - - - 500,000 (2,234,051) 2,407,673 4,078,675 500,000 (2,234,051) 2,407,673 4,078,675 - (3,952,026) (3,952,026) (3,952,026) 500,000 (6,186,077) (1,544,353) 126,649 - 598,683 598,683 598,683 - - 232 308 - - 11,550 11,550 500,000 (5,587,394) (933,888) 737,190


Cash Flow Statements

Group Company Note 2009 2008 2009 2008 RM’000 RM’000 RM’000 RM’000CASH FLOwS FROM OPERATING ACTIVITIES Profit before taxation from: Continuing operations 461,990 264,661 600,436 233,825 Discontinued operations - 122 - - Adjustments for: Derivative gain 6 (1,163,133) - (1,163,133) - Provision for: - aircraft maintenance and overhaul costs 27 489,901 498,964 490,002 496,371 - short term accumulating compensated absences 8 13,040 35,207 13,040 34,993 Aircraft, property, plant and equipment: - depreciation 5 315,888 327,858 286,286 294,086 - loss/(gain) on disposal, net 5 158 16 (274) 113 - provision for/(writeback) of impairment losses, net 5 8,685 (45,254) 8,263 (45,254) - written off, net 5 10,069 35,287 9,004 35,283 Gain on disposal of: - investment 5 - (24,732) - (24,732) - non-current assets held for sale 5 - (2,410) - (2,410) Writeback of: - unavailed credit on sales in advance of carriage 3 (334,804) (324,078) (333,813) (324,078) - doubtful debts, net 5 (26,695) (58,165) (30,141) (59,752) - inventories obsolescence, net 5 (690) (2,374) (690) (2,374) Amortisation of: - prepaid lease payments on land 5 188 182 168 162 - intangible assets 5 26,657 24,359 20,895 16,104Operating (loss)/profit before working capital changes carried forward (198,746) 729,643 (99,957) 652,337



CASH FLOw STATEMENTS (CONTINUED)


Operating (loss)/profit before working capital changes brought forward (198,746) 729,643 (99,957) 652,337 ESOS expense 8 11,550 48,327 10,805 45,102 Share of results of: - associated companies (13,381) (19,974) - - - jointly controlled entity 1,741 - - - Unrealised foreign exchange (gain)/loss 5 (4,290) 90,424 (4,290) 90,424 Interest income 5 (58,132) (222,746) (88,773) (221,993) Dividend income 5 (28,056) (16,586) (41,912) (30,166) Interest expense 7 83,413 58,595 83,876 58,595 Operating (loss)/profit before working capital changes (205,901) 667,683 (140,251) 594,299 Increase in inventories (4,497) (12,090) (6,727) (10,185) Decrease/(Increase) in trade and other receivables 630,563 (201,082) 593,407 (189,709) Increase/(Decrease) in amount owing to holding company 115,282 (90,848) 115,282 (90,848) Increase/(Decrease) in sales in advance of carriage 563,795 (16,905) 562,804 (16,905) Decrease in trade and other payables (481,235) (564,477) (568,173) (522,560) Decrease in provisions 27 (405,309) (363,089) (405,309) (363,089)Cash generated from/(used in) operating activities 212,698 (580,808) 151,033 (598,997) Net cash settlement on derivatives (1,150,516) - (1,150,516) - Premium paid on derivatives (593,111) - (593,111) - Interest paid (43,001) (28,363) (42,576) (28,363) Taxes paid (4,560) (14,480) (3,884) (5,224)Net cash used in operating activities (1,578,490) (623,651) (1,639,054) (632,584)


CASH FLOW STATEMENTS




CASH FLOwS FROM INVESTING ACTIVITIES

Purchase of: - aircraft, property, plant and equipment 13 (982,587) (763,813) (969,250) (760,797) - intangible assets 20 (30,445) (27,450) (29,807) (17,086) - investments in jointly controlled entity (3,539) - - - - other investments (2,284) - (2,284) - Withdrawal/(placement) of - negotiable instruments of deposits 760,000 (220,000) 760,000 (220,000) - deposits pledged with banks 415,623 (631,120) 415,623 (631,120)Proceeds from disposal of: - aircraft, property, plant and equipment 637 42,236 1,086 41,812 - non-current assets held for sale - 4,875 - 4,875 - other investments 13,278 26,112 13,278 26,112 Interest received 18,342 187,708 48,985 172,623 Dividend received 35,731 21,739 41,913 30,166 Net cash generated from/ (used in) investing activities 224,756 (1,359,713) 279,544 (1,353,415)





CASH FLOwS FROM FINANCING ACTIVITIES Proceeds from: - long term borrowings 640,092 - 400,000 - - short term borrowings 324,119 425,000 300,000 425,000 - finance lease 397,445 120,651 654,980 120,651 - issuance of shares - 38 - 38 Repayment of: - short term borrowings (465,000) - (465,000) - - finance lease (31,347) - (31,347) - Settlement of RCPS 29 (518) (474) (518) (474)Expenses incurred on issuance of Rights share exercise - (96) - (96)Dividends paid to: - shareholders 44 - (41,775) - (41,775) - RCPS holders 29 - (12,532) - (12,532) - minority shareholders in subsidiaries (2,318) (1,163) - - Net cash generated from financing activities 862,473 489,649 858,115 490,812

Net decrease in cash and cash equivalents (491,261) (1,493,715) (501,395) (1,495,187)Cash and cash equivalents at beginning of year 2,940,623 4,434,338 2,898,102 4,393,289 Cash and cash equivalents at end of year 2,449,362 2,940,623 2,396,707 2,898,102 Cash and cash equivalents comprise: Cash on hand and at banks 23 845,724 613,190 819,542 588,917 Short term deposits 23 1,819,135 2,958,553 1,792,662 2,940,305 Cash and cash equivalents 2,664,859 3,571,743 2,612,204 3,529,222 Less: Deposits pledged with banks 23 (215,497) (631,120) (215,497) (631,120)Cash and cash equivalents 2,449,362 2,940,623 2,396,707 2,898,102



CASH FLOW STATEMENTS


Notes to the Financial Statements

1. CORPORATEINFORMATION

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

The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Board of Bursa Malaysia Securities Berhad. The registered office of the Company is located at 3rd floor, Administration Building 1, MAS Complex A, Sultan Abdul Aziz Shah Airport, 47200 Subang, Selangor Darul Ehsan.

The immediate and ultimate holding companies are Penerbangan Malaysia Berhad (“PMB”) and Khazanah Nasional Berhad (“KNB”) respectively, both of which are incorporated and domiciled in Malaysia.

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 22 February 2010.

2. SIGNIFICANTACCOUNTINGPOLICIES

2.1Basisofpreparation

The financial statements of the Group and of the Company have been prepared under the historical cost convention unless otherwise indicated in the accounting policies below and comply with Financial Reporting Standards (“FRSs”) and the Companies Act, 1965 in Malaysia.

At the beginning of the current financial year, the Group and the Company had early adopted FRS 139: Financial Instruments : Recognition and Measurement (“FRS 139”) and IC Interpretation 9: Reassessment of Embedded Derivatives (“IC 9”) as described fully in Note 2.2(i).

2.2ChangesinaccountingpoliciesandeffectsarisingfromadoptionofnewandrevisedFRSs (i)EarlyAdoptionofFRS139andIC9

FRS 139 and IC 9 will be effective in Malaysia on 1 January 2010. However, the Group has voluntarily early adopted FRS 139 and IC 9 effective from 1 January 2009.

31 December 2009

121AnnualReport2009NoTES To THE FINANCIAL STATEMENTS

2. SIGNIFICANTACCOUNTINGPOLICIES (CoNTINUED)

2.2ChangesinaccountingpoliciesandeffectsarisingfromadoptionofnewandrevisedFRSs(continued)

(i)EarlyAdoptionofFRS139andIC9(continued)

FRS 139 sets out the new requirements for the recognition and measurement of the Group’s financial instruments. It also sets out the requirements for the application of hedge accounting. The adoption of FRS 139 resulted in significant changes in the accounting policies of the Group.

on 1 January 2009, financial instruments are recorded initially at fair value. Subsequent measurement of those instruments at the balance sheet date reflects the designation of the financial instrument. The Group determines the classification at initial recognition and re-evaluates this designation at each year end except for those financial instruments measured at fair value through profit or loss. FRS 139 prescribes prospective application for first time adoption. Significant accounting policies adopted have been summarised in Note 2.4(t) to Note 2.4(aa).

The application of IC Interpretation 9 did not result in any significant impact on the financial results and financial position of the Group.

(a)FinancialAssets

LoansandReceivables

Prior to 1 January 2009, loans and receivables were stated at gross proceeds receivable less provision for doubtful debts. Under FRS 139, loans and receivables are initially measured at fair value and subsequently at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated income statement when the loans and receivables are derecognised, impaired or through the amortisation process.

Available-for-Sale

Prior to 1 January 2009, available-for-sale financial assets such as other investments were accounted for at cost less impairment losses. Under FRS 139, available-for-sale financial asset is measured (i) at fair value initially and subsequently with unrealised gains or losses recognised directly in equity until the investment is derecognised or impaired or (ii) at cost if the unquoted equity instrument is not carried at fair value because its fair value cannot be reliably measured.


2. SIGNIFICANTACCOUNTINGPOLICIES (CoNTINUED)



(a)FinancialAssets(continued)

Held-to-Maturity

Prior to 1 January 2009, held-to-maturity financial assets such as non-derivative financial assets with fixed or determinable payments and fixed maturity were accounted for at cost less impairment losses. Under FRS 139, held-to-maturity financial asset is initially measured at fair value and subsequently at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated income statement when the investments are derecognised, impaired or through the amortisation process.

FinancialAssetsatFairValueThroughProfitorLoss Prior to 1 January 2009, derivatives were not recognised in the financial statements. Under FRS 139, derivatives are required to be initially recognised at fair value on the date the derivative contract is entered into and subsequently at fair value at each balance sheet date. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are recognised in the income statement.

(b)FinancialLiabilities

Borrowings

Prior to 1 January 2009, borrowings were stated at the proceeds received less directly attributable transaction costs. Under FRS 139, borrowings are initially measured at fair value and subsequently at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised or through the amortisation process.


2. SIGNIFICANTACCOUNTINGPOLICIES(continued)


(i)EarlyAdoptionofFRS139andIC9(continued)(c)ImpairmentofFinancialAssets

Prior to 1 January 2009, trade and other receivables are carried at anticipated realisable value. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date. FRS 139 requires the Group to assess, at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occured after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

(d)DerivativeFinancialInstrumentsandHedgeAccounting

Prior to 1 January 2009, derivatives were not recognised in the financial statements. Under FRS 139, derivatives are initially recognised at fair value on the date the derivative contract is entered into and subsequently re-measured at fair value at each balance sheet date. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Any gains or losses arising from changes in fair value on derivatives but do not qualify for hedge accounting and the ineffective portion of an effective hedge are recognised in the income statement.

However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of item being hedged as follows:

Cashflowhedge

The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while an ineffective portion is recognised immediately in the income statement. Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when the hedged financial expense is recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of non-financial asset or liability.


2. SIGNIFICANTACCOUNTINGPOLICIES(CoNTINUED)


(i)EarlyAdoptionofFRS139andIC9 (continued)

(d)DerivativeFinancialInstrumentsandHedgeAccounting(continued)

Cashflowhedge (continued)

If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

(e)Transitionalprovisionsandeffectsonfinancialstatements

In accordance with the transitional provisions of FRS 139, the Group is required to remeasure the financial assets and liabilities as appropriate. Any adjustment of the previous carrying amount of the financial assets and liabilities shall be recognised as an adjustment to the balance of retained earnings at the beginning of the financial year in which FRS 139 is initially applied. The above changes are applied prospectively and the comparatives as at 31 December 2008 are not restated. Instead, the changes have been accounted for by restating the following opening balances in the balance sheet as at 1 January 2009.

GroupandCompany Increase/ (Decrease) RM’000

Trade and other Receivables 1 67,722 Negotiable Instruments of Deposit 2 (33,147)Derivative Financial Assets 3 (35,624)Trade and other Payables 1 105,608 Derivative Financial Liabilities 3 3,840,803 Short Term Borrowings 4 6,664 Accumulated Losses (3,952,026)





The following table provides the extent to which each of the line items in the balance sheets and income statement for the year ended 31 December 2009 is higher or lower than it would have been had the previous policies been applied in the current year.

(a)Effectsonbalancesheetsasat31December2009

Increase/ (Decrease) RM’000Group

Trade and other Receivables 1 2,421 Negotiable Instruments of Deposit 2 (2,466)Trade and other Payables 1 300,021 Derivative Financial Instruments (Current and Non-Current Liabilities) 3 856,565 Borrowings 4 12,580 Accumulated Losses (1,169,121)

Company Investment in subsidiaries 5 (643) Trade and other Receivables 1 2,421Negotiable Instruments of Deposit 2 (2,466) Trade and other Payables 1 300,417 Derivative Financial Instruments (Current and Non-Current Liabilities) 3 856,565 Borrowings 4 12,136 Accumulated Losses (1,168,430)




(i)EarlyAdoptionofFRS139andIC9 (continued)

(b)EffectsonIncomeStatementasat31December2009 Increase/ (Decrease) RM’000Group Derivative gain 6 1,163,133 Interest expense 4 (5,008) operating expenses 7 1,624,780

Company Derivative gain 6 1,163,133 Interest expense 4 (4,500)operating expenses 7 1,624,963

1 Derecognition of premium paid on Derivatives Financial Instruments into Income Statements in compliance with FRS 139.

2 This is in respect of adjustments made for Negotiable Instruments of Deposits using effective interest rate method in compliance with FRS 139.

3 Recognition of Derivative Financial Instuments based on Mark-to-Market (“MTM”) position as at 1 January 2009/31 December 2009 in compliance with FRS 139.

4 This is in respect of adjustments made for Borrowings using effective interest rate method in compliance with FRS 139.

5 This is in respect of fair value adjustment made for amount due from a subsidiary in compliance with FRS 139.

6 This is in respect of derivative gain from hedging contracts as disclosed in Note 6.

7 This is in respect of realised hedging contracts accounted in Derivative Financial Instruments in compliance with FRS 139.



2.2ChangesinaccountingpoliciesandeffectsarisingfromadoptionofnewandrevisedFRSs (continued)

(ii)StandardsandInterpretationsissuedbutnoteffective At the date of authorisation of these financial statements, the MASB had issued the following FRSs, Amendments to FRSs and Interpretations but not yet effective and have not been applied by the Group and the Company: Effectivefor financialperiods beginningon orafter

FRS 1 (Revised): First time adoption of Financial Reporting Standards 1 July 2010 FRS 3 (Revised): Business Combination 1 July 2010FRS 4: Insurance Contracts 1 January 2010FRS 7: Financial Instruments: Disclosures 1 January 2010FRS 8: operating Segments 1 July 2009FRS 101 (Revised): Presentation of Financial Statements 1 January 2010FRS 123 (Revised): Borrowing Cost 1 January 2010FRS 127 (Revised): Consolidated and Separate Financial Statements (amended) 1 July 2010IC Interpretation 10: Interim Financial Reporting and Impairment 1 January 2010IC Interpretation 11: FRS 2: Group and Treasury Share Transactions 1 January 2010 IC Interpretation 12: Service Concession Arrangements 1 July 2010IC Interpretation 13: Customer Loyalty Programmes 1 January 2010IC Interpretation 14: FRS 119: The Limit on a Defined Benefit Asset, Minimum Funding Requirement & their Interaction 1 January 2010IC Interpretation 15: Agreements for the Construction of Real Estate 1 July 2010IC Interpretation 16: Hedges of Net Investments in a Foreign operation 1 July 2010IC Interpretation 17: Distributions of Non-cash Assets to owners 1 July 2010




(ii)StandardsandInterpretationsissuedbutnoteffective(continued)

Effectivefor financialperiods beginningon orafter

The amendments to the FRS: FRS 1 First time adoption of Financial Reporting Standards, and and Consolidated and Separate Financial Instruments: Cost FRS 127: of an Investments in a Subsidiary, Jointly Controlled Entity or Associate 1 January 2010FRS 2: Share-based Payment - Vesting Conditions and Cancellations 1 January 2010FRS 2: Share-based Payment 1 July 2010FRS 5: Non-current Assets Held for Sale and Discontinued operations 1 July 2010FRS 132: Financial Instruments: Presentation 1 January 2010FRS 138: Intangible Assets 1 July 2010FRS 139, Financial Instruments: Recognition and Measurement, FRS 7 Financial Instruments: Disclosures and Reassessment of and IC 9: Embedded Derivatives 1 January 2010IC Interpretation 9: Reassessment of Embedded Derivatives 1 July 2010Improvements to FRSs (2009) 1 January 2010

The new FRS and Interpretations above are expected to have no significant impact on the financial statements of the Group and the Company upon initial application except for the followings:

FRS101(Revised):PresentationofFinancialStatements

The revised FRS 101 requires owner and non-owner changes in equity to be presented separately. The statement of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line labelled as total comprehensive income. In addition, the revised standard introduces the statement of comprehensive income: it presents all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements.




(ii)StandardsandInterpretationsissuedbutnoteffective(continued) FRS101(Revised):PresentationofFinancialStatements(continued)

The Group is currently evaluating the presentation to adopt for the statement of comprehensive income. A statement of financial position is required at the beginning of the earliest comparative period following a change in accounting policy, the correction of an eror or the reclassification of items in the financial statements.

This is a disclosure standard with no impact on the financial position or financial performance of the Group and the Company.

FRS117:Leases

FRS 117: Leases clarifies on the classification of leases of land and buildings. The Group is still assessing the potential implication as a result of the reclassification of its unexpired leases as operating leases or finance leases. For those land element held under operating leases that are required to be reclassified as finance leases, the Group shall recognise a corresponding asset and liability in the financial statements which will be applied retrospectively upon initial application.

However, in accordance with transitional provision, the Group is permitted to reassess lease classification on the basis of the facts and circumstances existing on the date it adopts the amendments; and recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date; any difference between those fair values is recognised in retained aernings. The Group is currently in the process of assessing the impact of this amendment.

FRS3:BusinessCombinations(revised)andFRS127:ConsolidatedandSeparateFinancialStatements (amended)

FRS 3 (revised) introduces a number of changes to the accounting for business combinations occurring on or after 1 July 2010. These include changes that affect the valuation of non-controlling interest, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results.

FRS 127 (amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as transaction with owners in their capacity as owners and to be recorded in equity. Therefore, such transaction will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended Standard changes the accounting for losses incurred by the subsidiary as well as loss of control of subsidiary.

The changes by FRS 3 (revised) and FRS 127 (amended) will be applied prospectively and only affect future acquisition or loss of control of subsidiaries and transactions with non-controlling interests.




(ii)StandardsandInterpretationsissuedbutnoteffective (continued)

FRS7:FinancialInstruments-Disclosures

FRS 7 applies to all risks arising from all financial instruments. However, the extent of disclosure required depends on the extent of the Group’s use of financial instruments and of its exposure to risk.

The FRS requires disclosure of: (a) the significance of financial instruments for the Group’s financial position and performance. These disclosures

incorporate many of the requirements previously in FRS 132.

(b) qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The qualitative disclosures describe management’s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the group is exposed to risk based on information provided internally. Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposures to risks they create.

The Group is exempted from disclosing the possible impact, if any, to the financial statements upon the initial application of FRS 7.

FRS8:OperatingSegments

FRS 8 replaces FRS 1142004:Segment Reporting and requires a ‘management approach’, under which segment information is presented on a similar basis to that used for internal reporting purposes. As a result, the Group’s external segmental reporting will be based on the internal reporting to the “chief operating decision maker”, who makes decisions on the allocation of resources and assess the performance of the reportable segments.

This is a disclosure standard with no impact on the financial position or financial performance of the Group and the Company.

ICInterpretation13:CustomerLoyaltyProgrammes

The interpretation addresses accounting for loyalty award credits granted to customers who buy other goods or services, and the accounting for the Company’s obligations to provide free or discounted goods or services to customers when the award credits are redeemed.

IC Interpretation 13 requires loyalty award credits granted to customers under the Enrich programme in connection with a sale transaction to be accounted as a separate component of the sales transaction. The amount allocated to the loyalty award credit is determined by reference to the fair value and is deferred until the awards are redeemed or the liability is extinguished. The current accounting treatment for loyalty awards is stated in Note 2.4(o). This standard will be applied retrospectively with an estimated decrease of RM60 million to the retained earnings upon initial adoption on 1 January 2010.



2.3Significantaccountingestimatesandjudgements

Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an ongoing basis and are based on experience and other relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.

Actual results may differ from these estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

(a)Criticaljudgementsmadeinapplyingaccountingpolicies

The following are judgements made by management while applying the Group’s accounting policies that have the most significant effect on the amounts recognised in the financial statements. (i) Contingentliabilities-litigations

As disclosed in Note 38 to the financial statements, the Group has several pending litigations with various parties as at the current financial year end. The Board of Directors, after due consultation with the Group’s solicitors, assess the merits of each case, and make the necessary provision for liabilities in the financial statements if their crystallisation are deemed as probable.

(ii) Operatingleasecommitments

The Group entered into commercial lease arrangements with its immediate holding company and other third parties with regards to passenger aircraft and freighters. The Group has determined that it does not retain all the significant risks and rewards of ownership of these assets and hence, the aircraft and freighters do not form part of the aircraft, property, plant and equipment of the Group.



2.3Significantaccountingestimatesandjudgments(continued)

(b) Keysourcesofestimationuncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet

date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Impairmentofintangibleassets-landingslots

The Group determines whether the landing slots which have indefinite useful lives, are tested for impairment either annually or on a more frequent interval, depending on events or changes in circumstances that indicate that the carrying value may be impaired. This requires an estimation of the “value in use” of the cash generating units (“CGU”) to which the landing slots belong. In assessing value in use, the management is required to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate to their present value of those cash flows. The details are as disclosed in Note 20.

(ii) Provisionsforaircraftrelateddirectoperatingexpenses

The operation of air transportation services inevitably involves the making of various provisions on direct expenses, such as fuel, ground handling charges, landing and parking charges, inflight meals, computer reservation systems booking fees and information technology related expenses. The estimates and associated assumptions used are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making provisions for carrying values of liabilities as at the financial year end.

(iii) Deferredtaxassets

Deferred tax assets are recognised for all unused tax losses and unabsorbed capital allowances to the extent that it is probable that taxable profit will be available against which the losses and capital allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The details are as disclosed in Note 33.



2.3Significantaccountingestimatesandjudgments(continued)

(b) Keysourcesofestimationuncertainty(continued)

(iv) Depreciationofaircraft,property,plantandequipment

The cost of aircraft, aircraft modifications/retrofits, spare engines, property and equipment are depreciated on a straight line basis over the assets’ useful lives up to its residual value. Management reviews the residual values, useful lives and depreciation method at the end of each financial year and ensures consistency with previous estimates and patterns of consumptions of the economic benefits that embodies the items in these assets. Changes in useful lives and residual values of these assets may result in revision of future depreciation charges.

(v) Provisionforaircraftmaintenanceandoverhaulcosts

The Company is obligated to carry out heavy duty maintenance check on the airframe, engines, landing gears and auxiliary power units, being part of the return conditions of its leased aircraft under contract. Provision for heavy duty maintenance cost is made progressively in the financial statements based on the number of flight hours or cycles. In arriving at the provision, assumptions are made on the estimated condition of the asset at the time of check, the material and overhead costs to be incurred, and the timing of when the check is to be carried out. These assumptions are formed based on past experience, and are regularly reviewed to ensure they approximate to the actual. Any revision in assumptions and estimations that causes a material effect to the provision would be adjusted prospectively in the financial statements.

(vi) Unutilisedtickets

Unutilised tickets are subsequently recognised as revenue using estimates regarding the timing of recognition based on the terms and conditions of the tickets and historical trends. Changes in travel patterns, economic environment, variables and estimations used have an impact on the financial statements of the Group and the Company. The details are disclosed in Note 24.

(vii) Fairvalueoffinancialinstruments

Where the fair value of the financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.



2.4Summaryofsignificantaccountingpolicies

(a) Revenuerecognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the revenue can be measured reliably. (i) Revenuefromservices

Passenger ticket and cargo airway bill sales including the related administration fees and various surcharges are recognised as revenue, net of discount, in the income statement when the transportation services are rendered. The value of unutilised tickets is included in current liabilities as sales in advance of carriage.

Tickets, other service fees and surcharges that remain unutilised after 12 months subsequent to their respective date of issue are recognised in the income statement as unavailed credits on sales in advance of carriage.

Revenue from other services such as airport handling and engineering services, are recognised in the income statement when services are rendered.

(ii) Catering,charterandotherrevenue

Catering, charter and other revenue are recognised, net of discount, upon completion of services rendered.

(iii) Dividendincome

Dividend income is recognised when the Group’s rights to receive payment are established.

(iv) Rentalincome

Rental income is recognised on an accrual basis over the term of lease.

(v) Interestincome

Interest income is recognised on an accrual basis using the effective interest method.

(vi) Disposalofassets

The gain or loss on the disposal of assets is recognised at the date the significant risks and rewards of ownership of the asset passes to the buyer, usually when the buyer takes delivery of the asset.



2.4Summaryofsignificantaccountingpolicies(continued)

(b) Subsidiariesandbasisofconsolidation

(i) Subsidiaries

Subsidiaries are entities over which the Group has the ability to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity.

In the Company’s separate financial statements, investments in subsidiaries are stated at cost less impairment losses. on disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in the income statement.

(ii) Basisofconsolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the Company.

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances.

Acquisitions of subsidiaries are accounted for using the purchase method. The purchase method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition.

Any excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill.

Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, commonly known as negative goodwill, is recognised immediately in the income statement.

Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. It is measured at the minorities’ share of the fair value of the subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ equity since then.




(c) Associates

Associates are entities in which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not in control or joint control over those policies.

Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Under the equity method, the investment in associate is carried in the consolidated balance sheet at cost adjusted for post-acquisition changes in the Group’s share of net assets of the associate. The Group’s share of the net profit or loss of the associate is recognised in the consolidated income statement. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes. In applying the equity method, unrealised gains and losses on transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the associate. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associate. The associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate.

Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s profit or loss in the period in which the investment is acquired.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any long-term interests that, in substance, form part of the Group’s net investment in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

The most recent available management financial statements of the associates are used by the Group in applying the equity method. Where the dates of the financial statements used are not coterminous with those of the Group, the share of results is arrived at from the last audited financial statements available and management financial statements to the end of the accounting period. Uniform accounting policies are adopted for like transactions and events in similar circumstances.

In the Company’s separate financial statements, investments in associates are stated at cost less impairment losses.

on disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in the income statement.




(d) Jointlycontrolledentity

The Group has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual agreement that establishes joint control over the economic activities of the entity.

Investments in jointly controlled entity is accounted for in the consolidated financial statements using the equity method of accounting as described in Note 2.4(c).

In the Company’s separate financial statements, investment in jointly controlled entity is stated at cost less impairment losses. on disposal of such investment, the difference between net disposal proceeds and its carrying amounts is included in the income statement.

(e) Aircraft,property,plantandequipmentanddepreciation

All aircraft, property, plant and equipment are initially recorded at cost. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Subsequent to recognition, aircraft, property, plant and equipment except for freehold land and buildings are stated at cost less accumulated depreciation and any accumulated impairment losses.




(e) Aircraft,property,plantandequipmentanddepreciation(continued)

Depreciation of aircraft, aircraft modifications/retrofits, spare engines, property and equipment is provided for on a straight line basis to write off the cost of each asset up to its residual value over the estimated useful life at the following annual rates:

(i) Fokker 50 and ATR 72-500 are depreciated over a period of 10 to 18 years.

(ii) Aircraft modifications/retrofits are depreciated over 7 years or the remaining lease period of the aircraft to which they relate, whichever is the shorter.

(iii) Spare engines are depreciated over their estimated useful commercial lives, which range from 7 to 20 years, having regard to their planned withdrawal from services.

(iv) Maintenance and overhaul costs incurred on spare engines owned by the Group are depreciated over a period of 4 years.

(v) Repairable and rotable aircraft spares are depreciated over 7 to 18 years or the remaining lease period of the aircraft to which they relate, whichever is the shorter.

(vi) Freehold land is not depreciated. Buildings are depreciated over periods ranging from 5 to 40 years.

Certain buildings of the Company were revalued by the directors in 1985 based on a valuation report dated 15 November 1984 prepared by the Government Valuers using the “open Market Value” basis. The directors have not adopted a policy of regular revaluations of these assets and no later valuation has been recorded. As permitted under the transitional provisions of International Accounting Standard No. 16 (Revised): Property, Plant and Equipment adopted by the Malaysian Accounting Standards Board, these assets continue to be stated at their 1985 valuation less accumulated depreciation and accumulated impairment losses.

(vii) operating equipment, office equipment and motor vehicles are depreciated over periods ranging from 2 to 10 years.

(viii) Progress payments represent aircraft, property, plant and equipment under construction. They are stated at cost and are not depreciated until the respective assets are ready for their intended use.




(e) Aircraft,property,plantandequipmentanddepreciation(continued)

The residual values, useful lives and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of aircraft, property, plant and equipment.

An asset is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in the income statement and the unutilised portion of the revaluation surplus on that item is taken directly to retained earnings.

(f) Intangibleassets

Intangible assets comprise software costs and aircraft landing slots at airports.

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives such as software costs, are amortised on a straight-line basis over the estimated economic useful lives of not more than 10 years and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date.

Intangible assets with indefinite useful lives such as aircraft landing slots, are not amortised but tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the CGU level. The useful life of an intangible asset with an indefinite life is also reviewed annually to determine whether the useful life assessment continues to be supportable. The useful life of aircraft landing slots is estimated to be indefinite because based on the current landing slots arrangements, management believes there is no foreseeable limit to the period over which the aircraft landing slots are expected to generate net cash flows to the Group. Aircraft landing slots are stated at cost less any impairment loss.




(g) ImpairmentofNon-FinancialAssets

The carrying amounts of non-financial assets, other than inventories and deferred tax assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated to determine the amount of impairment loss.

For intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date or more frequently when indicators of impairment are identified.

For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the Cash Generating Unit (“CGU”) to which the asset belongs.

An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

An impairment loss is recognised in the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for as a revaluation decrease to the extent that the impairment loss does not exceed the amount held in the asset revaluation reserve for the same asset.

An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.




(h) Foreigncurrencies

(i) Functionalandpresentationcurrency

The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Ringgit Malaysia (“RM”), which is also the Company’s functional currency.

(ii) Foreigncurrencytransactions

Transactions in foreign currencies are initially recorded in RM at exchange rates ruling at the transaction dates. At each balance sheet date, monetary items denominated in foreign currencies are translated into RM at exchange rates ruling at that date unless hedged by forward foreign exchange derivatives, in which case the rates specified in such derivatives are used. Non-monetary items initially denominated in foreign currencies, which are carried at historical cost are translated using the historical rate as of the date of acquisition and non-monetary items which are carried at fair value are translated using the exchange rate that existed when the fair value was determined. All exchange differences are taken to the income statement.

(iii) Foreignentities

Financial statements of foreign associated companies that have a functional currency different from the presentation currency of the consolidated financial statements are translated at year-end exchange rates with respect to the assets and liabilities, and at average exchange rates for the year, which approximate the exchange rates at the dates of the transactions, with respect to the income statement. All resulting translation differences are taken to equity.

(i) Inventories

Inventories comprising consumable aircraft spares, catering and general stores are stated at the lower of cost and net realisable value.

Cost is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.




(j) Leases

(i) Classification

A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. All leases that do not transfer substantially all the risks and rewards are classified as operating leases.

(ii) Financeleases-theGroupaslessee

Assets acquired by way of hire purchase or finance leases are stated at an amount equal to the lower of their fair values and the present value of the minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Company’s incremental borrowing rate is used. Any initial direct costs are also added to the carrying amount of such assets.

Lease payments are apportioned between the finance costs and the reduction of the outstanding liability.

Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in the profit or loss over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

The depreciation policy for leased assets is in accordance with depreciable aircraft, property, plant and equipment as described in Note 2.4(e).

(iii) Financeleases-theCompanyaslessor

When assets are leased out under finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method so as to reflect a constant periodic rate of interest on the balance outstanding.

(iv) Operatingleases-theGroupaslessee

operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease.

In the case of a lease of land and buildings, the minimum lease payments or the up-front payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payment represents prepaid lease payments and are amortised on a straight-line basis over the lease term.

(v) Operatingleases-theCompanyaslessor

Assets leased out under operating leases are presented on the balance sheet according to the nature of the assets. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.




(k) Incometax

Income tax for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the balance sheet date.

Deferred tax is provided for, using the liability method. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which these can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised as income or expenses and included in the income statement for the period, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or the amount of any excess of the acquirer in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the combination.

(l) Employeebenefits

(i) Shorttermbenefits

Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when the absences occur.

(ii) Definedcontributionplans

Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Such contributions are recognised as an expense in the income statement as incurred. As required by law, companies in Malaysia make such contributions to the Employees Provident Fund (“EPF”). Some of the Group’s foreign operations also make contributions to their respective country’s statutory pension schemes. Retirement plans for employees of overseas stations are accrued for in accordance with the provisions of those foreign countries’ retirement scheme and are charged to the income statement in the period to which they relate.




(l) Employeebenefits(continued)

(iii) Share-basedcompensation

The MAS ESoS, an equity-settled, share-based compensation plan, allows the Group’s employees to acquire ordinary shares of the Company. The total fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in the share option reserve within equity over the vesting period and taking into account the probability that the options will vest. The fair value of share options is measured at grant date, taking into account, if any, the market vesting conditions upon which the options were granted but excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable on the vesting date.

At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable on the vesting date. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognised in the share option reserve until the option is exercised, upon which it will be transferred to share capital and share premium, or until the option expires, upon which it will be transferred directly to retained earnings.

The proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.

(m) Provisionsforliabilities

Provisions for liabilities are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to passage of time is recognised as finance cost.




(n) Aircraftmaintenanceandoverhaulcosts

Where the Group is required to return the aircraft held under operating lease with adherence to certain maintenance conditions contained in the lease agreements, provision is made during the lease term. This provision is based on the present value of the expected future costs of maintenance of airframes, engines, landing gears, auxiliary power units and life-limiting parts, calculated by reference to the number of hours flown in accordance with the contractual terms.

other maintenance costs are recognised on an incurred basis, except for engine maintenance costs covered by “power-by-the-hour” third party maintenance agreements, whereby expenses are accrued on the basis of hours flown in accordance with the contractual terms as there is a transfer of risk and legal obligation to the third party maintenance provider.

(o) Frequentflyerprogramme

The Company operates its own frequent flyer programme named “Enrich” which awards members based on accumulated points. The Company accrues for the liability under the programme and recognises in the income statement the amount equal to the points earned multiplied by the applicable rates. Upon redemption by members or expiration of the points awards, the accrual is reduced accordingly.

(p) Borrowingcosts

Borrowing costs are recognised in the income statement in the period in which they are incurred.

(q) Cashandcashequivalents

For the purpose of the cash flow statements, cash and cash equivalents include cash on hand and at banks, deposits at call and short term highly liquid investments which have an insignificant risk of changes in value, net of outstanding bank overdrafts.




(r) Equityinstruments

ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.

The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided.

(s) Redeemableconvertiblepreferenceshares(“RCPS”)

The RCPS are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated by discounting the future contractual cash flows at the prevailing market interest rate available to the Company. The difference between the proceeds of issue of the RCPS and the fair value assigned to the liability component, representing the conversion option is accounted in the shareholders’ equity. The liability component is subsequently stated at amortised cost using the effective interest rate method until extinguished on conversion or redemption whilst the value of the equity component is not adjusted in subsequent periods except on exercise and conversion to ordinary shares.

Under the effective interest rate method, the dividend expense on the liability component is calculated by applying the prevailing market interest rate. The difference between this amount and the dividend paid is added to the carrying value of the RCPS.

(t) FinancialAssets

Initialrecognition

Financial assets within the scope of FRS 139 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to maturity financial assets, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

Financial assets are recognised on the balance sheet when, and only when the Group becomes a party to the contracted provisions of the financial instruments.




(t) FinancialAssets(continued)

Financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way purchases) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

The Group’s financial assets include cash and term deposits, negotiable instruments of deposits, trade and other receivables, unquoted investments and net derivative financial instruments.

SubsequentMeasurement

The subsequent measurement of financial assets depends on their classification as follows:

(i) FinancialAssetsatFairValueThroughProfitorLoss

Financial assets at fair value through profit and loss includes financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by FRS 139. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the balance sheet at fair value with changes in fair value recognised in the income statement.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value when their risks and characteristics are not closely related to those of the host contracts that are not carried at fair value. These embedded derivatives are measured at fair value with gains or losses arising from changes in fair value recognised in the income statement. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

During the financial year ended 31 December 2009, the Group has designated derivatives that do not qualify for hedge accounting as at fair value through profit or loss.





(ii) LoansandReceivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are subsequently measured at amortised cost using the effective interest rate (“EIR”) method less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. The losses arising from impairment are recognised in the income statement in finance costs.

The Group has designated its Negotiable Instruments of Deposits, trade receivables, refundable security deposit, staff loan and amount due from a subsidiary as loans and receivables.

(iii) Held-to-MaturityFinancialAssets

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity financial assets are subsequently measured at amortised cost using the EIR method less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. The losses arising from impairment are recognised in the income statement in finance costs.

The Group has not designated any financial assets as held-to-maturity during the financial year ended 31 December 2009.

(iv) Available-for-SaleFinancialAssets

Available-for-sale financial assets are non-derivative financial assets that are not classified in any of the three preceding categories. After initial measurement, available-for-sale financial assets are subsequently measured at fair value with unrealised gains or losses recognised directly in equity until the investment is derecognised, at which time the cumulative gain or loss recorded in equity is recognised in the income statement, or determined to be impaired, at which time the cumulative loss recorded in equity is recognised in the income statement. Available-for-sale financial assets are measured at cost if the fair value of the unquoted equity instrument cannot be reliably measured.





(iv) Available-for-SaleFinancialAssets(continued)

The Group has designated its investment in associates, jointly controlled entity and other investments as available-for-sale financial assets.

(u) FinancialLiabilities

InitialRecognition

Financial liabilities within the scope of FRS 139 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, borrowings and net derivative financial instruments.

SubsequentMeasurement

The subsequent measurement of financial liabilities depends on their classification as follows:

(i) FinancialLiabilitiesatFairValueThroughProfitorLoss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit and loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by FRS 139.

Gains or losses on liabilities held for trading are recognised in the income statement.

During the financial year ended 31 December 2009, the Group has designated derivatives that do not qualify for hedge accounting as at fair value through profit or loss.




(u) FinancialLiabilities(continued)

SubsequentMeasurement (continued) (ii) LoansandBorrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (“EIR”) amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are integral part of the EIR. The EIR amortisation is included in finance cost in the income statement.

(v) ImpairmentofFinancialAssets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(i) Assetscarriedatamortisedcost

The Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred). The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in income statement.




(v) ImpairmentofFinancialAssets(continued)

(i) Assetscarriedatamortisedcost(continued)

Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in the income statement.

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

(ii) Assetscarriedatcost

If there is objective evidence that an impairment loss on financial assets that are not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.

(iii) Available-for-SaleFinancialAssets

For available-for-sale financial assets, the Group assesses at each balance sheet whether there is objective evidence that an asset or a group of assets is impaired.

In the case of equity investments classified as available-of-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement is transferred from equity and recognised in the income statement. Impairment losses on equity investment are not reversed through the income statement; increase in their fair value after impairment are recognised directly in equity.

Certain unquoted equity instruments are stated at cost less impairment as the fair value cannot be reliably measured.




(w) OffsettingofFinancialInstruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheets if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

(x) FairValueofFinancialInstruments

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.

(y) AmortisedCostofFinancialInstruments

Amortised cost is computed using the effective interest rate method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

(z) DerecognitionofFinancialInstruments

(i) FinancialAssets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

- the rights to receive cash flows from the asset have expired; or

- the Group has transferred its right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the assets, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognised to the extent of the Group’s continuing involvement in the asset. Hence, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.




(z) DerecognitionofFinancialInstruments (continued)

(i) FinancialAssets(continued)

Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

When continuing involvement takes the form of written and/or purchased option (including a cash settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

(ii) FinancialLiabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

(aa) DerivativeofFinancialInstrumentsandHedgeAccounting

(i) Initialrecognitionandsubsequentmeasurement

The Group uses derivative financial instrument such as fuel hedging contracts, foreign currency hedging contracts and interest rate hedging contracts to hedge its fuel price risks, foreign exchange risks and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.




(aa) DerivativeofFinancialInstrumentsandHedgeAccounting(continued)

(i) Initialrecognitionandsubsequentmeasurement(continued)

Any gains or losses arising from changes in fair value on derivatives during the financial year that do not qualify for hedge accounting and the ineffective portion of an effective hedge, are taken directly to the income statement.

The fair value of fuel hedging contracts is the difference between the fuel forward curve price and the

contract price. The fuel forward curve price is referenced to fuel price at reporting date for contracts with similar maturity profiles. The fair value of foreign currency hedging contracts is the difference between the forward exchange rate and the contract rate. The forward exchange rate is referenced to forward exchange rates at reporting date for contracts with similar maturity profiles. The fair value of interest rate hedging contracts is determined by reference to market values for similar instruments.

For the purpose of hedge accounting, hedges are classified as cash flow hedges i.e when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value of cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

CashFlowHedges

The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the income statement.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

The Group did not enter into any fair value hedge or net investment hedge as at the financial year end.




(aa) DerivativeofFinancialInstrumentsandHedgeAccounting (continued)

(ii) Classification

Derivative instruments that are not designated and effective hedging instruments are classified as current or non-current or separated into current and non-current portion based on an assessment of the facts and circumstances.

- Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting), for a period beyond 12 months after the balance sheet date, the derivative is classified as non-current (or separate into current and non-current potions) consistent with the classification of the underlying item.

- Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.

- Derivative financial instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative financial instruments are separated into current and non-current portion only if a reliable allocation can be made.


Group Company 2009 2008 2009 2008 RM’000 RM’000 RM’000 RM’000 Trafficrevenue: Scheduled services - passenger and baggage 6,754,630 8,668,496 6,530,534 8,546,526 - cargo and mail 1,191,744 1,615,274 650,981 1,031,161 7,946,374 10,283,770 7,181,515 9,577,687 Non-scheduled services 18,458 59,620 18,458 59,620 7,964,832 10,343,390 7,199,973 9,637,307 Fuel surcharge 1,617,128 2,767,528 1,265,387 2,086,073 Insurance surcharge 181,515 156,479 164,861 149,369 Security surcharge 94,104 120,929 - - Administration fees 255,756 268,167 220,893 248,234 Unavailed credits 334,804 324,078 333,813 324,078 10,448,139 13,980,571 9,184,927 12,445,061

Otherrevenue: Lease of aircraft and engines 33,810 1,981 26,460 11,972 Airport handling and engineering services 234,083 407,200 209,623 395,269 Catering and cleaning services 9,385 13,082 9,385 13,103 Intercompany engineering services - - 137,539 99,566 Charter services 227,008 197,605 165,979 165,164 Others* 357,430 434,864 92,136 117,102 11,309,855 15,035,303 9,826,049 13,247,237

* Included herein are revenues from the provision of computerised reservation services, trucking and warehousing services, retailing of goods, terminal charges, tour and travel related activities. 4. GAINONSALEOFPROPERTIES

There is no disposal of local and overseas properties during the financial year.

In 2008, several local and overseas properties were disposed off during the financial year resulting in a gain on disposal of RM2.4 million to the Group and to the Company.

3. OPERATINGREVENUE

157AnnualReport2009NOTES TO THE FINANCIAL STATEMENTS

The following amounts have been debited/(credited) in arriving at (loss)/profit from operations: Group Company 2009 2008 2009 2008 RM’000 RM’000 RM’000 RM’000 Fuel and oil 3,497,308 6,531,595 2,874,457 5,732,101 Employee benefits expenses (Note 8) 2,089,213 2,171,879 1,870,145 1,960,879 Handling, enroute charges, catering and other related costs 1,388,754 1,404,425 1,290,718 1,267,482 Hire of aircraft, operating plant and equipment 1,866,771 1,905,998 1,488,515 1,569,729 Aircraft maintenance and overhaul 1,484,039 1,146,425 1,484,039 1,146,425 Landing, parking and other related costs 246,595 312,833 211,953 276,472 Aircraft, property, plant and equipment: - depreciation (Note 13) 315,888 327,858 286,286 294,086 - loss/(gain) on disposal, net 158 16 (274) 113 - provision for/(writeback) of impairment losses 8,685 (45,254) 8,263 (45,254) - written off, net (Note 13) 10,069 35,287 9,004 35,283 Gain on disposal of: - non-current assets held for sale - (2,410) - (2,410) - other investment - (24,732) - (24,732) Sales commission and incentives 440,727 507,725 418,907 484,662 Foreign exchange (gain)/losses: - realised (22,330) (7,771) (22,561) (8,118) - unrealised (4,290) 90,424 (4,290) 90,424 Advertising and promotions 93,795 110,549 84,798 100,491 Computerised reservation system booking fees 171,652 160,964 170,714 160,362

5. (LOSS)/PROFITFROMOPERATIONS


Group Company 2009 2008 2009 2008 RM’000 RM’000 RM’000 RM’000

Rental of land and buildings 163,651 164,428 158,521 159,060 Writeback of: - inventories obsolescence, net (690) (2,374) (690) (2,374) - doubtful debts (26,695) (58,165) (30,141) (59,752) Amortisation of : - prepaid lease payments on land (Note 14) 188 182 168 162 - intangible assets (Note 20) 26,657 24,359 20,895 16,104 Other engineering expenses 44,935 37,426 44,738 37,426 Hull and legal liability insurance 63,552 63,447 59,193 60,397 Directors’ remuneration (Note 9) 3,204 4,278 3,204 4,278 Auditors’ remuneration: - audit fees 875 869 535 535 - other professional fees 679 214 671 134 Interest income - third parties (58,132) (222,746) (57,628) (221,993) Interest income - subsidiary - - (31,145) - Rental income (69,549) (75,967) (39,317) (42,457) Dividend income - subsidiaries - - (4,075) (2,132) - associated companies - - (9,781) (11,448) - unquoted shares (28,056) (16,586) (28,056) (16,586)

Included in (loss)/profit from operations of the Group and of the Company are the operating inventories used of RM242,565,000 and RM240,372,000 (2008: RM355,195,000 and RM352,380,000) respectively.

6. DERIVATIVESGAIN GroupandCompany 2009 2008

RM’000 RM’000 Gain from fuel hedging contracts 1,150,502 - Gain from foreign currency hedging contracts 576 -Gain from interest rate hedging contracts 12,055 - 1,163,133 - Derivative gain consists of realised gain on settlement of hedging contracts during the year and fair value changes due to movement in mark-to-market (MTM) position on outstanding hedging contracts.

5. (LOSS)/PROFITFROMOPERATIONS(CONTINUED)



Interest expense on: - Revolving credit 14,155 8,166 14,155 8,166 - Term loan 26,444 22,592 25,208 22,592 - RCPS 23,530 26,670 23,530 26,670 - Finance Leases - third party 19,284 1,167 - - - subsidiary - - 20,983 1,167 83,413 58,595 83,876 58,595 Other finance costs 1,110 2,175 171 663 84,523 60,770 84,047 59,258

7. FINANCECOSTS


Salaries and wages 1,326,835 1,326,423 1,182,650 1,181,623 Contribution to defined contribution plan 166,596 143,702 150,868 129,023 Social security contributions 9,409 9,111 7,908 7,718 Share options granted under ESOS (Note 25) 11,550 48,327 10,805 45,102 Provision for short term accumulating compensated absences 13,040 35,207 13,040 34,993 Subsistence allowance 300,480 349,208 275,678 329,918 Other staff related expenses 261,303 259,901 229,196 232,502 Total (Note 5) 2,089,213 2,171,879 1,870,145 1,960,879

Included in employee benefits expense of the Group and of the Company are executive directors’ remuneration of RM2,434,000 (2008: RM3,526,000) as further disclosed in Note 9.

8. EMPLOYEEBENEFITSEXPENSES


9. DIRECTORS’REMUNERATION

GroupandCompany 2009 2008 RM’000 RM’000 Executive directors’ remuneration: Salaries and other emoluments 1,819 1,344 Bonus 80 790 Defined contribution plan 323 380 Share options granted under ESOS 212 1,012 2,434 3,526

Non-executive directors’ remuneration: Fees 497 517 Other allowances 273 235 770 752 Total directors’ remuneration (Note 5) 3,204 4,278 Estimated money value of benefits-in-kind 51 83 Total directors’ remuneration including benefits-in-kind 3,255 4,361 The number of directors of the Company whose total remuneration during the financial year fell within the following bands is as follows:

Numberofdirectors 2009 2008 Executivedirectors: RM500,000 to RM1,000,000 1 - RM1,000,001 to RM1,500,000 1 2 Non-executivedirectors: Below RM50,000 7 9 RM50,001 to RM100,000 2 2 RM150,001 to RM200,000 3 2


The following amounts have been debited/(credited) in arriving at total tax expense/(reversal):

Group Company 2009 2008 2009 2008 RM’000 RM’000 RM’000 RM’000 Current income tax: Malaysian income tax 2,020 11,117 - - Foreign tax 4,880 7,392 4,880 7,392 6,900 18,509 4,880 7,392 Overprovision in prior years: Malaysian income tax (518) (1,872) - - Foreign tax (3,127) (1,588) (3,127) (1,588) 3,255 15,049 1,753 5,804 Deferred taxation (Note 33): Relating to origination and reversal of temporary differences (35,255) 651 - - Relating to changes in tax rates 9 (21) - - Underprovision in prior years 875 3,407 - - (34,371) 4,037 - -

Total income tax (reversal)/expense (31,116) 19,086 1,753 5,804

There is no provision for Malaysian taxation for the Company in the current financial year as the Company has been granted an extension of the tax exemption status by the Ministry of Finance on its chargeable income in respect of all sources of income. The extension is valid for a period of ten years from year of assessment 2006 up to year of assessment 2015. As at 31 December 2009, the Company has tax exempt income account of approximately RM12,196,549,000 (2008: RM11,205,855,000) available for payments of tax exempt dividends subject to agreement with the Inland Revenue Board. Domestic current income tax is calculated at the Malaysian statutory tax rate of 25% (2008: 26%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rate prevailing in the respective jurisdictions. During the financial year, there are no subsidiaries of the Group which qualify for tax incentive applicable to small-medium enterprises by virtue of having an issued and paid up share capital which is below RM2,500,000 and not under control by an other company with a paid-up capital exceeding RM2,500,000. Under this incentive, the subsidiaries enjoy a preferential tax rate of 20% on the first RM500,000 of the estimated assessable profit.

10. TAXATION


A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows:

Group 2009 2008 RM’000 RM’000 Profit before taxation from: Continuing operations 461,990 264,661 Discontinued operations (Note 11) - 122 461,990 264,783 Taxation at Malaysian statutory tax rate of 25% (2008: 26%) 115,498 68,844 Tax incentive obtained from preferential tax rate of 20% - (60) Effect of changes in tax rates on opening balance of deferred tax - (246) Effect of changes in tax rates 9 (1,276) Effects of share of profits of associates (3,346) (5,193) Effects of share of profits of joint ventures 435 - Foreign income tax 4,880 7,392 Effect of tax exemption status (237,411) (107,118) Income not subject to tax (22,422) (36,114) Expenses not deductible for tax purposes 84,392 75,230 Deferred tax assets not recognised on: - other deductible temporary differences 29,631 17,680 - current year’s tax losses not recognised 15 - - current year’s tax capital allowance not recognised (27) - Underprovision of deferred tax in prior years 875 3,407 Overprovision of tax expense in prior years (3,645) (3,460) Tax (reversal)/expense for the year (31,116) 19,086 Company Profit before taxation 600,436 233,825 Taxation at Malaysian statutory tax rate of 25% (2008: 26%) 150,109 60,795 Foreign income tax 4,880 7,392 Effect of tax exemption status (237,411) (107,118) Income not subject to tax (13,953) (35,096) Expenses not deductible for tax purposes 71,624 75,439 Deferred tax assets not recognised on other deductible temporary differences 29,631 5,980 Overprovision of tax expense in prior years (3,127) (1,588) Tax expense for the year 1,753 5,804

10. TAXATION(CONTINUED)


Syarikat Pengangkutan Senai Sdn. Bhd. (“SPS”) ceased its operations since 15 August 2007 and the disposal of assets in SPS was completed as at 31 December 2008.

An analysis of the result of SPS is as follows: 2009 2008 RM’000 RM’000 Revenue - - Expenses - (1) Gain on disposal of discontinued operations - 123 Profit for the period from discontinued operations - 122 The following amounts have been included in arriving at profit before tax of SPS: 2009 2008 RM’000 RM’000 Staff costs - 1 The cash flows attributed to SPS is as follows: Operating cash flows - (4) 12. EARNINGSPERSHARE (a) Basic

The basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the financial year. Group 2009 2008

Profit attributable to equity holders of the Company (RM’000) - Continuing operations 490,197 244,190 - Discontinued operations - 122 490,197 244,312

11. DISCONTINUEDOPERATIONSANDDISPOSALGROUPCLASSIFIEDASHELDFORSALE


(a)Basic(Continued) Group 2009 2008 Weighted average number of ordinary shares in issue (‘000) 1,671,065 1,670,996 Basic earnings per share for (sen): 29.3 14.6 (b)Diluted For the purpose of calculating diluted earnings per share, the profit for the year attributable to ordinary equity holders of

the Company and the weighted average number of ordinary shares in issue during the financial year have been adjusted for the dilutive effects of all potential ordinary shares, i.e. RCPS and share options granted to employees. Group

2009 2008 Weighted average number of ordinary shares in issue (‘000) 1,671,065 1,670,996 Effects of dilution resulting from RCPS (‘000) 102,531 - Adjusted weighted average number of ordinary shares in issue and issuable (‘000) 1,773,596 1,670,996 Diluted earnings per share for (sen): 28.6 14.6 The share options granted under ESOS have not been included in the calculation of diluted earnings per shares because they are anti-dilutive for the current and previous financial years.

As at 31 December 2008, the RCPS have not been included in the calculation of diluted earnings per share because they are anti-dilutive.

12. EARNINGSPERSHARE (CONTINUED)


Aircraft,aircraft Operating modifications/ equipment,office Group retrofits,engines equipmentand Progress Buildings andspares motorvehicles payment Total At31December RM’000 RM’000 RM’000 RM’000 RM’000 2009 (Note13(a)) (Note13(b)(i)) (Note13(c)(i)) (Note13(d)(i)) Cost/Valuation At 1 January 1,053,986 2,564,948 1,229,447 368,158 5,216,539 Additions 1,120 228,201 17,753 735,513 982,587 Disposals - - (34,165) - (34,165) Write-offs - (25,189) (1,065) - (26,254) Reclassifications 1,669 494,370 10,703 (506,742) - At 31 December 1,056,775 3,262,330 1,222,673 596,929 6,138,707 Representing: At cost 1,046,608 3,262,330 1,222,673 596,929 6,128,540 At valuation 10,167 - - - 10,167 1,056,775 3,262,330 1,222,673 596,929 6,138,707 Accumulated depreciationand impairmentlosses At 1 January 422,369 1,246,617 1,082,730 - 2,751,716 Charge for the year 27,807 234,514 53,567 - 315,888 Impairment losses 51 8,212 422 - 8,685 Disposals - - (33,370) - (33,370) Write-offs - (16,185) - - (16,185) At 31 December 450,227 1,473,158 1,103,349 - 3,026,734 Netbookvalue At cost 604,192 1,789,172 119,324 596,929 3,109,617 At valuation 2,356 - - - 2,356 At 31 December 606,548 1,789,172 119,324 596,929 3,111,973

13. AIRCRAFT,PROPERTY,PLANTANDEQUIPMENT


Aircraft,aircraft Operating modifications/ equipment,office Group(continued) retrofits,engines equipmentand Progress Buildings andspares motorvehicles paymentTotal At31December RM’000 RM’000 RM’000 RM’000RM’000 2008 (Note13(a)) (Note13(b)(i)) (Note13(c)(i)) (Note13(d)(i)) Cost/Valuation At 1 January 1,006,041 2,186,099 1,646,695 172,738 5,011,573 Additions 1,244 156,128 34,510 571,931 763,813 Disposals - (46,097) (29,764) - (75,861) Transfers from Non-Current Assets Held for Sale - - 624 - 624 Write-offs (119) (89,088) (391,824) (2,579) (483,610) Reclassifications 46,820 357,906 (30,794) (373,932) - At 31 December 1,053,986 2,564,948 1,229,447 368,158 5,216,539 Representing: At cost 1,043,819 2,564,948 1,229,447 368,158 5,206,372 At valuation 10,167 - - - 10,167 1,053,986 2,564,948 1,229,447 368,158 5,216,539 Accumulated depreciationand impairmentlosses At 1 January 374,678 1,128,245 1,447,532 - 2,950,455 Charge for the year 30,575 208,128 89,155 - 327,858 Writeback of impairment losses - (18,262) (26,992) - (45,254) Disposals - (6,420) (27,189) - (33,609) Transfers from Non-Current Assets Held for Sale - - 589 - 589 Write-offs (90) (65,074) (383,159) - (448,323) Reclassifications 17,206 - (17,206) - - At 31 December 422,369 1,246,617 1,082,730 - 2,751,716 Netbookvalue At cost 629,007 1,318,331 146,717 368,158 2,462,213 At valuation 2,610 - - - 2,610 At 31 December 631,617 1,318,331 146,717 368,158 2,464,823

13. AIRCRAFT,PROPERTY,PLANTANDEQUIPMENT (CONTINUED)


Aircraft,aircraft Operating modifications/ equipment,office Company retrofits,engines equipmentand Progress Buildings andspares motorvehicles payment Total At31December RM’000 RM’000 RM’000 RM’000 RM’000 2009 (Note13(a)) (Note13(b)(ii)) (Note13(c)(ii)) (Note13(d)(ii)) Cost/Valuation At 1 January 1,038,783 2,266,012 794,532 368,156 4,467,483 Additions 390 228,201 13,255 727,404 969,250 Disposals - - (32,901) - (32,901) Transfers to a subsidiary - - - (143,758) (143,758) Write-offs - (25,189) - - (25,189) Reclassifications 1,669 331,161 10,704 (343,534) - At 31 December 1,040,842 2,800,185 785,590 608,268 5,234,885 Representing: At cost 1,030,675 2,800,185 785,590 608,268 5,224,718 At valuation 10,167 - - - 10,167 1,040,842 2,800,185 785,590 608,268 5,234,885 Accumulated depreciationand impairmentlosses At 1 January 419,013 1,242,445 667,713 - 2,329,171 Charge for the year 27,651 214,592 44,043 - 286,286 Impairment losses 51 8,212 - - 8,263 Disposals - - (32,089) - (32,089) Write-offs - (16,185) - - (16,185) At 31 December 446,715 1,449,064 679,667 - 2,575,446 Netbookvalue At cost 591,771 1,351,121 105,923 608,268 2,657,083 At valuation 2,356 - - - 2,356 At 31 December 594,127 1,351,121 105,923 608,268 2,659,439

13. AIRCRAFT,PROPERTY,PLANTANDEQUIPMENT(CONTINUED)


Aircraft,aircraft Operating modifications/ equipment,office Company(continued) retrofits,engines equipmentand Progress Buildings andspares motorvehicles payment Total At31December RM’000 RM’000 RM’000 RM’000 RM’000 2008 (Note13(a)) (Note13(b)(ii)) (Note13(c)(ii)) (Note13(d)(ii)) Cost/Valuation At 1 January 990,978 2,186,099 1,213,277 172,736 4,563,090 Additions 1,104 156,128 31,635 571,930 760,797 Disposals - (46,097) (27,765) - (73,862) Transfers to a subsidiary - - - (298,935) (298,935) Write-offs (119) (89,088) (391,821) (2,579) (483,607) Reclassifications 46,820 58,970 (30,794) (74,996) - At 31 December 1,038,783 2,266,012 794,532 368,156 4,467,483 Representing: At cost 1,028,616 2,266,012 794,532 368,156 4,457,316 At valuation 10,167 - - - 10,167 1,038,783 2,266,012 794,532 368,156 4,467,483 Accumulated depreciationand impairmentlosses At 1 January 371,389 1,128,245 1,060,966 - 2,560,600 Charge for the year 30,508 203,956 59,622 - 294,086 Writeback of impairment losses - (18,262) (26,992) - (45,254) Disposals - (6,420) (25,517) - (31,937) Write-offs (90) (65,074) (383,160) - (448,324) Reclassifications 17,206 - (17,206) - - At 31 December 419,013 1,242,445 667,713 - 2,329,171 Netbookvalue At cost 617,160 1,023,567 126,819 368,156 2,135,702 At valuation 2,610 - - - 2,610 At 31 December 619,770 1,023,567 126,819 368,156 2,138,312



During the financial year, the Group and Company acquired aircraft, property, plant and equipment at aggregate costs of RM982,587,000 (2008: RM763,813,000) and RM969,250,000 (2008: RM760,797,00) which RM517,609,000 (2008: RM115,631,000) were acquired by means of finance lease arrangements. Net carrying amounts of aircraft, property, plant and equipment held under finance lease arrangements are as follows:

GroupandCompany 2009 2008 RM’000 RM’000 Aircraft 476,150 113,222

The net carrying amounts of aircraft, property, plant and equipment pledged as securities for term loan (Note 28) are

as follows:

Group 2009 2008

RM’000 RM’000 Aircraft 293,234 -

(a) Buildings

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

Certain buildings at a carrying value of RM2,356,000 (2008: RM2,610,000) were revalued by directors in 1985, as disclosed in Note 2.4(e)(vi). Had the revalued buildings been carried at historical cost less accumulated depreciation, the net book value of those buildings would have been as follows:

GroupandCompany

2009 2008 RM’000 RM’000

Leasehold buildings 1,834 1,848



(b) (i) Aircraft,aircraftmodifications/retrofits,enginesandspares Aircraft modifications Aircraft andspare retrofits Group Aircraft engines andspares Total At31December2009 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 364,734 704,787 1,495,427 2,564,948 Additions - 182,869 45,332 228,201 Write-offs - - (25,189) (25,189) Reclassifications 494,370 - - 494,370 At 31 December 859,104 887,656 1,515,570 3,262,330 Accumulateddepreciation andimpairmentlosses At 1 January 6,173 447,894 792,550 1,246,617 Charge for the year 33,238 92,341 108,935 234,514 Impairment losses - - 8,212 8,212 Write-offs - - (16,185) (16,185) At 31 December 39,411 540,235 893,512 1,473,158 Netbookvalue At 31 December 819,693 347,421 622,058 1,789,172



(b) (i) Aircraft,aircraftmodifications/retrofits,enginesandspares (continued) Aircraft modifications Aircraft andspare retrofits Group Aircraft engines andspares Total At31December2008 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 15,531 713,639 1,456,929 2,186,099 Additions 133 85,660 70,335 156,128 Disposals (8,801) (37,296) - (46,097) Write-offs - (57,216) (31,872) (89,088) Reclassifications 357,871 - 35 357,906 At 31 December 364,734 704,787 1,495,427 2,564,948 Accumulateddepreciation andimpairmentlosses At 1 January 935 400,046 727,264 1,128,245 Charge for the year 6,567 102,248 99,313 208,128 Disposals (1,329) (5,091) - (6,420) Writeback of impairment losses - (3,600) (14,662) (18,262) Write-offs - (45,709) (19,365) (65,074) At 31 December 6,173 447,894 792,550 1,246,617 Netbookvalue At 31 December 358,561 256,893 702,877 1,318,331



(b) (ii) Aircraft,aircraftmodifications/retrofits,enginesandspares Aircraft modifications Aircraft andspare retrofits Company Aircraft engines andspares Total At31December2009 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 65,798 704,787 1,495,427 2,266,012 Additions - 182,870 45,331 228,201 Write-offs - - (25,189) (25,189) Reclassifications 331,161 - - 331,161 At 31 December 396,959 887,657 1,515,569 2,800,185 Accumulateddepreciation andimpairmentlosses At 1 January 2,001 447,894 792,550 1,242,445 Charge for the year 13,316 92,341 108,935 214,592 Impairment losses - - 8,212 8,212 Write-offs - - (16,185) (16,185) At 31 December 15,317 540,235 893,512 1,449,064 Netbookvalue At 31 December 381,642 347,422 622,057 1,351,121



(b) (ii) Aircraft,aircraftmodifications/retrofits,enginesandspares (continued) Aircraft modifications Aircraft andspare retrofits Company Aircraft engines andspares Total At31December2008 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 15,531 713,639 1,456,929 2,186,099 Additions 133 85,660 70,335 156,128 Disposals (8,801) (37,296) - (46,097) Write-offs - (57,216) (31,872) (89,088) Reclassifications 58,935 - 35 58,970 At 31 December 65,798 704,787 1,495,427 2,266,012 Accumulateddepreciation andimpairmentlosses At 1 January 935 400,046 727,264 1,128,245 Charge for the year 2,395 102,248 99,313 203,956 Disposals (1,329) (5,091) - (6,420) Writeback of impairment losses - (3,600) (14,662) (18,262) Write-offs - (45,709) (19,365) (65,074) At 31 December 2,001 447,894 792,550 1,242,445 Netbookvalue At 31 December 63,797 256,893 702,877 1,023,567



(c) (i) Operatingequipment,officeequipmentandmotorvehicles Office Operating furniture plantand and Motor Group equipment equipment vehicles Total At31December2009 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 831,089 362,306 36,052 1,229,447 Additions 7,906 9,175 672 17,753 Disposals (25,927) (6,080) (2,158) (34,165) Write-offs (972) (93) - (1,065) Reclassifications 905 9,747 51 10,703 At 31 December 813,001 375,055 34,617 1,222,673 Accumulateddepreciation andimpairmentlosses At 1 January 722,929 328,248 31,553 1,082,730 Charge for the year 29,769 22,063 1,735 53,567 Impairment losses 239 183 - 422 Disposals (25,408) (5,900) (2,062) (33,370) At 31 December 727,529 344,594 31,226 1,103,349 Netbookvalue At 31 December 85,472 30,461 3,391 119,324



(c) (i) Operatingequipment,officeequipmentandmotorvehicles (continued) Office Operating furniture plantand and Motor Group equipment equipment vehicles Total At31December2008 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 1,106,144 478,454 62,097 1,646,695 Additions 18,519 14,812 1,179 34,510 Disposals (16,459) (7,731) (5,574) (29,764) Transfers from Non-Current Assets Held for Sale - - 624 624 Write-offs (242,875) (126,557) (22,392) (391,824) Reclassifications (34,240) 3,328 118 (30,794) At 31 December 831,089 362,306 36,052 1,229,447 Accumulateddepreciation andimpairmentlosses At 1 January 959,055 430,124 58,353 1,447,532 Charge for the year 59,278 28,392 1,485 89,155 Writeback of impairment losses (17,456) (8,746) (790) (26,992) Disposals (14,774) (7,141) (5,274) (27,189) Transfers from Non-Current Assets Held for Sale - - 589 589 Write-offs (237,815) (123,251) (22,093) (383,159) Reclassifications (25,359) 8,870 (717) (17,206) At 31 December 722,929 328,248 31,553 1,082,730 Netbookvalue At 31 December 108,160 34,058 4,499 146,717



(c) (ii) Operatingequipment,officeequipmentandmotorvehicles Office Operating furniture plantand and Motor Company equipment equipment vehicles Total At31December2009 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 477,870 287,567 29,095 794,532 Additions 7,857 5,050 348 13,255 Disposals (25,576) (6,045) (1,280) (32,901) Reclassifications 330 10,272 102 10,704 At 31 December 460,481 296,844 28,265 785,590 Accumulateddepreciation At 1 January 384,145 257,549 26,019 667,713 Charge for the year 22,987 19,748 1,308 44,043 Disposals (25,066) (5,806) (1,217) (32,089) At 31 December 382,066 271,491 26,110 679,667 Netbookvalue At 31 December 78,415 25,353 2,155 105,923



(c) (ii) Operatingequipment,officeequipmentandmotorvehicles (continued) Office Operating furniture plantand and Motor Company equipment equipment vehicles Total At31December2008 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 754,420 403,495 55,362 1,213,277 Additions 16,698 14,139 798 31,635 Disposals (16,133) (6,839) (4,793) (27,765) Write-offs (242,875) (126,556) (22,390) (391,821) Reclassifications (34,240) 3,328 118 (30,794) At 31 December 477,870 287,567 29,095 794,532 Accumulateddepreciation andimpairmentlosses At 1 January 645,129 362,557 53,280 1,060,966 Charge for the year 34,095 24,456 1,071 59,622 Writeback of impairment losses (17,456) (8,746) (790) (26,992) Disposals (14,449) (6,339) (4,729) (25,517) Write-offs (237,815) (123,250) (22,095) (383,160) Reclassifications (25,359) 8,871 (718) (17,206) At 31 December 384,145 257,549 26,019 667,713 Netbookvalue At 31 December 93,725 30,018 3,076 126,819



(d) (i) ProgressPayments Aircraft equiment Properties and under Group simulators construction Total At31December2009 RM’000 RM’000 RM’000 Cost At 1 January 314,116 54,042 368,158 Additions 720,576 14,937 735,513 Reclassifications (494,370) (12,372) (506,742) At 31 December 540,322 56,607 596,929 At31December2008 Cost At 1 January 135,383 37,355 172,738 Additions 538,784 33,147 571,931 Write-offs (2,180) (399) (2,579) Reclassifications (357,871) (16,061) (373,932) At 31 December 314,116 54,042 368,158 (d) (ii) Company At31December2009 Cost At 1 January 337,521 30,635 368,156 Additions 712,466 14,938 727,404 Transfers to a subsidiary (143,758) - (143,758) Reclassifications (331,161) (12,373) (343,534) At 31 December 575,068 33,200 608,268 At31December2008 Cost At 1 January 158,788 13,948 172,736 Additions 538,783 33,147 571,930 Write-offs (2,180) (399) (2,579) Transfers to a subsidiary (298,935) - (298,935) Reclassifications (58,935) (16,061) (74,996) At 31 December 337,521 30,635 368,156




Netbookvalue At 1 January 17,431 17,613 15,699 15,861 Amortisation for the year (Note 5) (188) (182) (168) (162)At 31 December 17,243 17,431 15,531 15,699 Analysedas: Long term 17,207 17,394 15,495 15,662 Short term 36 37 36 37

17,243 17,431 15,531 15,699

Certain land at carrying value of RM36,000 (2008: RM37,000) were revalued by directors in 1985, as disclosed in Note 2.4 (e)(vi). Had the revalued leasehold land been carried at historical cost less accumulated depreciation, the net book value of those leasehold land would have been as follows: 20092008

RM’000 RM’000 Leasehold land 42 44

15. INVESTMENTSINSUBSIDIARIES Company 2009 2008 RM’000 RM’000 Unquoted shares, at cost 177,788 191,523 Less: Accumulated impairment losses (138,151) (138,151) 39,637 53,372

14. PREPAIDLEASEPAYMENTSONLAND

GroupandCompany


During the current financial year, the movement in investment in subsidiaries are due to the following: (a) Subscriptionofadditionalsharesinsubsidiaries

During the current financial year, the Company increased its investment in the following wholly owned subsidiaries by subscribing to additional ordinary shares as follows:

No.of additional Additional shares Costof acquired Investment RM’000 RM‘000

MAS Golden Boutiques Sdn. Bhd. 9,000 9,000

MASKargo Logistics Sdn. Bhd. 1,000 1,000 10,000 10,000

The above increase in investments were funded through the conversion of existing loan from the company to the respectives subsidiaries.

(b) Waiverofintercompanybalanceswithsubsidiaries (Reduction)/Additional CostofInvestment RM’000

MAS Aerotechnologies Sdn. Bhd. (24,765) MAS Golden Holidays Sdn. Bhd. (488) MAS Academy Sdn. Bhd. (27) Syarikat Pengangkutan Senai Sdn. Bhd. 141 Malaysia Airlines Capital (L) Limited 16 (25,123) (c) Others RM’000 Fair value of ESOS granted to certain subsidiaries 745 Fair value of amount due from a subsidiary 643 1,388

15. INVESTMENTSINSUBSIDIARIES(CONTINUED)


Details of the subsidiaries are as follows: NameofCompany Countryof incorporation 2009 2008 Principalactivities % % HeldbytheCompany: Abacus Distribution Malaysia 80 80 Promotion, development, Systems (Malaysia) operation and marketing of Sdn. Bhd. computerised reservations systems and related services Aerokleen Services Malaysia 51 51 Sdn. Bhd. FlyFirefly Sdn. Malaysia 100 100 Bhd. Malaysia Airlines Malaysia 100 100 Cargo Sdn. Bhd. MAS Catering Malaysia 60 60 (Sarawak) Sdn. Bhd. MAS Golden Malaysia 100 100 Boutiques Sdn. Bhd. MASkargo Malaysia 100 100 Logistics Sdn. Bhd. Malaysia Airlines Capital Malaysia 100 100 (L) Limited MASwings Malaysia 100 100 Sdn. Bhd. Kelip-Kelip Malaysia 100 100 Labuan Limited

Kelip-Kelip II Malaysia 100 - Labuan Limited


Provision of laundry and cleaning related services

Air transportation and the provision of related services

Air cargo operations, charter freighter and all warehousing activities relating to air cargo operations

Provision of catering and cabin handling services

Retailing of inflight goods and boutique operations

Provision of trucking, clearance and warehousing services

Investment holding

Air transportation and the provision of related services

Business of purchase, sale, lease, obtaining lease finance and refinancing of commercial aircraft

Offshore leasing business

Effectiveinterest


Details of the subsidiaries are as follows: (continued) NameofCompany Countryof incorporation 2009 2008 Principalactivities % % HeldbytheCompany: Kelip-Kelip II Cayman 100 - Cayman Limited Islands MAS Golden Malaysia 100 100 Holidays Sdn. Bhd. MAS Aerotechnologies Malaysia 100 100 Sdn. Bhd. Syarikat Pengangkutan Malaysia 100 100 Senai Sdn. Bhd. Malaysian Aerospace Malaysia 100 100 Engineering Sdn. Bhd.

Macnet CCN (M) Malaysia 100 100 Sdn. Bhd. MAS Academy Malaysia 100 100 Sdn. Bhd.

Heldthroughasubsidiary: FlyFirefly Holiday Malaysia 100 100 Sdn. Bhd.*

* (Firefly owns 100% equity in FlyFirefly Holiday Sdn. Bhd.) Subscriptionofsharesinsubsidiaries

(i) On 31 December 2009, the Company subscribed for an additional 9,000,000 ordinary shares of RM1 each in the capital of

MAS Golden Boutiques Sdn. Bhd., a wholly-owned subsidiary by way of loan capitalisation.

(ii) On 25 November 2009, the Company subscribed for an additional 1,000,000 ordinary shares of RM1 each in the capital of MASkargo Logistics Sdn. Bhd., a wholly-owned subsidiary by way of loan capitalisation.

(iii) On 25 May 2009, the Company has incorporated an off-shore company, Kelip-Kelip II Labuan Limited with a paid-up capital of USD1.00 (equivalent to RM3.62). With effect from that date, Kelip-Kelip II Labuan Limited became a fully owned subsidiary of the Company.

(iv) On 7 May 2009, the Company subscribed a total of 250 ordinary shares of USD 1 of Kelip-kelip II Cayman Limited, an off-shore company, for a cash consideration of USD250 (equivalent to RM875). The subscription of shares have no material impact to the Group. With effect from that date, Kelip-kelip II Cayman Limited became a fully owned subsidiary of the Company.


Investment holding

Dormant

Dormant

Dormant

Dormant

Under Members’ Voluntary Winding Up

Tour and travel related operations

Dormant

Effectiveinterest

183Annual Report 2009 notes to the financial statements

Group Company 2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000 Unquoted shares, at cost 124,919 124,919 124,919 124,919 less: accumulated impairment losses - - (43,645) (43,645) 124,919 124,919 81,274 81,274 share of post acquisition losses (45,943) (51,651) - - 78,976 73,268 81,274 81,274

Details of the associated companies are:

Name of Company Country of [Financial incorporation 2009 2008 Principal activities year end] % % hamilton sundstrand malaysia 49 49 customer support centre (m) sdn. Bhd. [31 December] lsG sky malaysia 30 30 chefs-Brahim’s sdn. Bhd. [31 December] Ge engine services malaysia 30 30 malaysia sdn. Bhd. [31 December] honeywell aerospace malaysia 30 30 services (m) sdn. Bhd. [31 December]

16. INVESTMENTS IN ASSOCIATES

Repair and overhaul of selected aircraft environmental control systems, aircraft pneumatic components and propeller system.

Repairing, servicing, overhauling and testing of aircraft auxiliary power.

catering related services, cabin handling and cleaning services.

Repair and overhaul of aircraft engine.

Effective interest

malaYsian aiRline sYstem BeRhaD (10601-W)184

Name of Company Country of Principal activities[Financial incorporation 2009 2008 year end] % % Pan asia Pacific hong Kong 24 24 Provision of aircraft aviation maintenance services limited services [31 march] taj madras india 20 20 inflight catering of flight Kitchen food and limited beverages [31 march] the financial statements of Pan asia Pacific aviation services limited and taj madras flight Kitchen limited are made up to 31 march, each year. for the purpose of applying the equity method of accounting, the last audited financial statements available and management financial statements to the end of the accounting period of these companies for the financial period ended 31 December 2009 have been used, and appropriate adjustments have been made for the effects of significant transactions between that date and 31 December 2009.

the summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group, is as follows:

2009 2008 RM’000 Rm’000 Assets and liabilities current assets 534,491 432,958 non-current assets 282,946 188,781 total assets 817,437 621,739 current liabilities 489,241 352,658 non-current liabilities 88,461 52,541 total liabilities 577,702 405,199 Results Revenue 1,407,150 1,291,670 Profit for the year 36,588 59,558

16. INVESTMENTS IN ASSOCIATES (continUeD)

Effective interest


Group 2009 2008 RM’000 Rm’000 Unquoted shares, at cost 3,539 - less: share of post acquisition losses (1,741) - 1,798 -

Details of the jointly controlled entity is as follows: Name of Company Country of Effective interest [Financial year end] incorporation 2009 2008 Principal activities % %

Held through a subsidiary: mas GmR aerospace india 50 -

engineering Pte.ltd.# [31 march] # malaysian aerospace engineering sdn Bhd (“mae”) owns 50% in mas GmR aerospace engineering Pte. ltd.

the financial statements of the above jointly controlled entity are made up to 31 march, each year. for the purpose of applying the equity method of accounting, the last audited financial statements available and management financial statements to the end of the accounting period of the jointly controlled entity for the financial period ended 31 December 2009 have been used, and appropriate adjustments have been made for the effects of significant transactions between that date and 31 December 2009.

the Group’s aggregate share of the current assets, non-current assets, current liabilities, income and expenses of the jointly controlled entity is as follows:

Group 2009 2008 RM’000 Rm’000

Assets and liabilities current assets 3,428 -non-current assets 865 - total assets 4,293 - current liabilities 5,584 -

Results loss for the year (4,852) -

17. INVESTMENT IN A JOINTLY CONTROLLED ENTITY

aircraft maintenance, repair and overhaul.


Group and Company 2009 2008 RM’000 Rm’000 Unquoted shares, at cost: - in malaysia 10,825 24,100 - outside malaysia 43,017 40,733 53,842 64,833 other Government and municipal Bonds 110 113 total 53,952 64,946

the Group and the company has designated its unquoted equity investments as available-for-sale financial assets. investments in unquoted equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.

18. OTHER INVESTMENTS

Group and Company 2009 2008 RM’000 Rm’000

negotiable instruments of deposit 287,466 1,045,000 the maturity structure of negotiable instruments of deposit are as follows: Group and Company 2009 2008 RM’000 Rm’000 maturing within one year 287,466 795,000 one year to two years - 250,000 287,466 1,045,000

negotiable instruments of deposit (niDs) are deposits placed for its yield and are held to maturity. the principal of the instrument is protected if held to maturity. if the niDs are redeemed or sold prior to maturity, certain amount from the initial deposits may be forfeited.

19. NEGOTIABLE INSTRUMENTS OF DEPOSIT


Software and Landing Group related costs slots Total At 31 December 2009 RM’000 RM’000 RM’000 Costs at 1 January 2009 120,735 25,314 146,049 additions 30,445 - 30,445 at 31 December 2009 151,180 25,314 176,494 Accumulated amortisation at 1 January 2009 39,796 - 39,796 charge for the year (note 5) 26,657 - 26,657 at 31 December 2009 66,453 - 66,453 Net book value 84,727 25,314 110,041 Group At 31 December 2008 Costs at 1 January 2008 93,285 25,314 118,599 additions 27,450 - 27,450 at 31 December 2008 120,735 25,314 146,049 Accumulated amortisation at 1 January 2008 15,437 - 15,437 charge for the year (note 5) 24,359 - 24,359 at 31 December 2008 39,796 - 39,796 Net book value 80,939 25,314 106,253

20. INTANGIBLE ASSETS


Software and Landing Company related costs slots Total At 31 December 2009 RM’000 RM’000 RM’000 Costs at 1 January 2009 89,887 25,314 115,201 additions 29,807 - 29,807 at 31 December 2009 119,694 25,314 145,008 Accumulated amortisation at 1 January 2009 28,370 - 28,370 charge for the year (note 5) 20,895 - 20,895 at 31 December 2009 49,265 - 49,265 Net book value 70,429 25,314 95,743 Company At 31 December 2008

Costs at 1 January 2008 72,801 25,314 98,115 additions 17,086 - 17,086 at 31 December 2008 89,887 25,314 115,201 Accumulated amortisation at 1 January 2008 12,266 - 12,266 charge for the year (note 5) 16,104 - 16,104 at 31 December 2008 28,370 - 28,370 Net book value 61,517 25,314 86,831

Impairment tests for landing slots

(a) Impairment test for assets with indefinite useful life

the carrying amount of intangible assets with indefinite useful life is as follows: 2009 2008 RM’000 Rm’000 landing slots 25,314 25,314

the recoverable amount of the landing slots is based on value in use calculations, using information on current year and preceding year route results. Value in use for Year 2010 is derived from present value of future cash flows expected to be derived from the landing slots or budgeted route results which have been extrapolated using certain estimates and reasonable approximations.

20. INTANGIBLE ASSETS (continUeD)

Group and Company


Group Company 2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000

At cost: catering and general stores 9,704 12,208 2,861 3,133 consumable aircraft spares 8,931 8,937 8,931 8,937 18,635 21,145 11,792 12,070 At net realisable value: catering and general stores 48,104 60,715 48,104 60,715 consumable aircraft spares 318,177 297,870 318,177 297,870 366,281 358,585 366,281 358,585 384,916 379,730 378,073 370,655

22. TRADE AND OTHER RECEIVABLES Group Company 2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000 Restated Restated Current trade receivables 1,511,110 1,601,393 1,313,538 1,483,871 less: Provision for doubtful debts (415,111) (446,548) (382,831) (407,837) 1,095,999 1,154,845 930,707 1,076,034

21. INVENTORIES


Group Company 2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000 Restated Restated

Prepayment from a fellow subsidiary (note a) 41,147 44,641 41,147 44,641 Due from immediate holding company - 18,988 - 18,988 Due from subsidiaries - lease rental (note b) - - 19,464 16,711 - others - - 123,257 75,808 Due from associates 3,106 3,261 3,106 3,261 Deferred maintenance costs (note c) 67,498 101,159 67,498 101,159 staff loan (note d) 11,932 10,613 11,932 10,613 security deposits - refundable security deposit (note e) 8,812 - 8,812 - - others 5,696 5,410 5,300 4,977 Prepayments - staff loan 3,282 - 3,282 - - refundable security deposit 2,415 - 2,415 - - others 55,185 94,424 54,788 94,057 tax recoverable 36,365 31,554 35,270 34,872 sundry receivables 83,287 411,431 66,418 377,671 less: Provision for doubtful debts (18,835) (15,197) (17,169) (23,400) 299,890 706,284 425,520 759,358 1,395,889 1,861,129 1,356,227 1,835,392 Non Current Prepayment from a fellow subsidiary (note a) 162,740 202,423 162,740 202,423 Due from a subsidiary - lease rental (note b) - - 444,440 282,224 Deferred maintenance costs (note c) 60,195 124,519 60,195 124,519 staff loans (note d) 54,065 88,573 54,065 88,573 Refundable security deposit (note e) 63,594 70,410 63,594 70,410 Prepayments - staff loans 41,543 - 41,543 - - refundable security deposit 4,400 - 4,400 - 386,537 485,925 830,977 768,149

22. TRADE AND OTHER RECEIVABLES (continUeD)


(a) Prepayment from a fellow subsidiary Group and Company 2009 2008 RM’000 Rm’000 Current Due not later than one year 41,147 44,641 Non Current Due later than one year and not later than five years 162,740 180,829 Due later than five years - 21,594 162,740 202,423 203,887 247,064

the prepayment from a fellow subsidiary represents prepaid lease rentals. it is unsecured, interest free and will expire on 28 may 2014.

(b) Due from a subsidiary - lease rental Company 2009 2008 RM’000 Rm’000 Current Due not later than one year 19,464 16,711 Non Current Due later than one year and not later than five years 20,474 46,550 Due later than five years 423,966 235,674 444,440 282,224 463,904 298,935

the amount due from a subsidiary represents aircraft lease rentals. it is secured, subject to interest ranging from 4.7% to 4.8% per annum (2008: 4.7% to 4.8% per annum) and will expire between 31 July 2023 to 30 June 2024.



(c) Deferred maintenance costs Group and Company 2009 2008 RM’000 Rm’000 Current Due not later than one year 67,498 101,159 Non Current Due later than one year and not later than five years 49,770 100,120 Due later than five years 10,425 24,399 60,195 124,519 127,693 225,678

Deferred maintenance costs relates to maintenance costs incurred for aircraft, engines, auxiliary power units or landing gears prior to the return obligation stated in the lease agreements. Deferred maintenance costs is capitalised and amortised over the actual flying hours as the aircraft is flown up to its return condition. Upon the expiry of the lease or disposal of the aircraft, the net carrying amount is recognised in the income statement.

(d) Staff loans Group and Company 2009 2008 RM’000 Rm’000 Current Due not later than one year 11,932 10,613 Non Current Due later than one year and not later than five years 18,667 8,927 Due later than five years 35,398 79,646 54,065 88,573 65,997 99,186 staff loans represent amount due from employees for cadet pilot training. the loans are repayable by the employees within 15 years.



(e) Refundable Security Deposit Group and Company 2009 2008 RM’000 Rm’000 Current Due not later than one year 8,812 - Non Current Due later than one year and not later than five years 63,079 49,399 Due later than five years 515 21,011 63,594 70,410 72,406 70,410

Refundable security Deposits relate to deposits paid to lessors for the lease of aircraft and are refundable at the end of lease period. trade receivables, amount due from subsidiaries and associates are non-interest bearing and are generally on 14 to 30 (2008: 14 to 30) day’s terms. they are recognised at their original invoice amounts which represent their fair values on initial recognition.

the carrying amount of debtors is impaired by credit losses and is reduced through the use of an allowance account unless the Group and company write off the amount ascertained to be uncollectible. in subsequent periods when a debtor is ascertained to be uncollectible, it is written-off against the allowance account. individual debtor is written-off when management has ascertained that the amount is not collectible.

the Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups of debtors.



Group Company 2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000 cash on hand and at banks 845,724 613,190 819,542 588,917 term deposits with: - licensed banks 1,125,353 2,680,248 1,098,880 2,662,000 - other financial institutions 693,782 278,305 693,782 278,305 cash and bank balances 2,664,859 3,571,743 2,612,204 3,529,222 less: Deposits pledged with banks (215,497) (631,120) (215,497) (631,120) 2,449,362 2,940,623 2,396,707 2,898,102

included in cash and cash balances as at 31 December 2009 is Rm215,497,000 (2008: Rm631,120,000) deposits pledged for banking facilities, held within the Group’s and the company’s cash and bank balances, which are not immediately available for use in the business.

the range of interest rates of the deposits at the balance sheet date is as follows: Group Company 2009 2008 2009 2008 % % % % licensed banks 1.60 - 2.55 2.65 - 3.70 1.60 - 2.55 2.65 - 3.70 other financial institutions 0.05 - 5.25 0.125 - 3.63 0.05 - 5.25 0.125 - 3.63

the range of remaining maturities of the deposits as at the end of the financial year is as follows: Group Company 2009 2008 2009 2008 Days Days Days Days licensed banks 6 - 107 2 - 344 6 - 107 2 - 344 other financial institutions 1 - 316 1 - 358 1 - 316 1 - 358 other financial institutions are investment banks in malaysia and other foreign banks.

23. CASH AND BANK BALANCES


sales in advance of carriage represents the value of unutilised tickets up to 12 months (2008: 12 months).

24. SALES IN ADVANCE OF CARRIAGE

Employee share options scheme (“ESOS”)

the mas esos is governed by the by-laws approved by the shareholders at an extraordinary General meeting held on 23 april 2007. the esos was launched on 21 may 2007 and is to be in force for a period of 5 years from the effective date.

(a) The salient details of the ESOS are as follows:

(i) Offerthe offer is made to any eligible employee selected based on the criteria of allocation at the discretion of the esos committee. each offer shall be made in writing and is personal to the eligible employee and is non-assignable and non-transferable.

(ii) Maximum number of shares available under the ESOSthe total number of the new ordinary shares in mas which has a par value of Rm1.00 each (“mas shares”) which may be made available under the esos shall not exceed 10% of the total issued and paid-up share capital comprising ordinary shares of the company at the time of offer.

in the event that the number of new mas shares granted under the esos exceeds the aggregate of 10% of the issued and paid-up share capital of the company, no further option shall be offered until the number of new mas shares to be issued under the esos falls below 10% of the company’s issued and paid-up share capital.

(iii) Eligibility the selection of any director or employee for the participation of the esos shall be at the discretion of the esos committee based on the eligibility criteria stipulated in the By-laws.

any allocation of option under the esos to any person who is a Director of the company or persons connected to such director, major shareholder or chief executive officer or the holding company shall require the prior approval of the shareholders of the company in a general meeting.

any eligible employee who has accepted the offer under the esos shall not be entitled to participate in any other share option scheme which may be implemented by any other company in the Group during the duration of the esos.

25. EMPLOYEE BENEFITS


Employee share options scheme (“ESOS”) (continued) (a) The salient details of the ESOS are as follows (continued): (iv) Termination of option

in the event the grantee ceased to be in the employment of the Group, such option shall cease to be valid without any claims against the company, unless approved otherwise by the esos committee.

(v) Duration and termination of the ESOSthe esos shall be in force for a period of 5 years from the effective date of the scheme. the esos committee shall have the discretion, to extend the tenure of the esos for another 3 years or shorter immediately from the expiry of the first 5 years.

the esos may be terminated by the company upon recommendation of the esos committee at any time during the continuance of esos. Upon such termination, the unexercised or partially exercised options shall be deemed terminated and be null and void.

(vi) Maximum allowable allotment the number of mas shares allocated, in aggregate to the directors and senior management of the Group shall not exceed 50% of the total mas shares available under the esos. the number of mas shares allocated to any eligible employee who, either singly or collectively through persons connected with the eligible employee, holds 20% or more in the issued and paid-up share capital of the company, shall not exceed 10% of the total mas shares available under the esos.

(vii) Subscription price the subscription price upon the exercise of the option under the esos shall be the weighted average market price of the mas shares for the 5 market Days immediately preceding the offer date, or the par value of the mas shares, whichever is higher.

25. EMPLOYEE BENEFITS (continUeD)


Percentage of option exercisable with each year from the date of the offer

Year 1 Year 2 Year 3 Year 4 Year 5

40% 30% 30% - -

Employee share options scheme (“ESOS”) (continued) (a) The salient details of the ESOS are as follows (continued): (viii) Exercise of option

an option granted to an eligible employee is exercisable in the following manner:

- offer in Year 1 of the option period





- 40% 30% 30% -




- - 40% 30% 30%

(ix) Rights attaching to the new MAS sharesthe new mas shares to be allotted upon the exercise of an option shall, upon allotment and issue, rank pari passu in all respects with the existing ordinary shares of the company, save and except that the new mas shares will not be entitled to any dividends, rights and allotments and/or other distributions which entitlement date precedes the date of allotment of the said shares.

(x) Alteration of share capitalin the event of any alteration in the capital structure of the company during the option period, whether by way of a rights issue*, bonus issue or other capitalisation issue, consolidation or subdivision of mas shares or reduction of capital or any other variation of capital, the company shall adjust the number of mas shares which a grantee is entitled to subscribe for upon the exercise of each option and/or the subscription price.


Employee share options scheme (“ESOS”) (continued)

(a) The salient details of the ESOS are as follows (continued): (x) Alteration of share capital (continued)

the above shall not be applicable where an alteration in the capital structure of the company arises from any of the following:


(a) an issue of new mas shares or other securities convertible into mas shares or rights to acquire or subscribe for mas shares in consideration or part consideration for an acquisition of any other securities, assets or business;

(b) a special issue of new mas shares to Bumiputera investors nominated by ministry of international trade and industry, malaysia and/or other government authority to comply with the Government policy on Bumiputera capital participation;

(c) a private placement/restricted issue of new mas shares by the company;

(d) an issue of new mas shares arising from the exercise of any conversion rights attached to securities convertible to mas shares or upon exercise of any rights including warrants (if any) issued by the company;

(e) an issue of new mas shares upon exercise of options pursuant to the esos; and

(f) a share buy-back arrangement by the company, pursuant to section 67a of the act.

* subsequent to the commencement of the esos, mas had implemented a Rights issue in november 2007. Pursuant to Paragraphs 13.1 and 13.9(e) in the by-laws, mas has made the relevant adjustments to both the exercise price of the options and the number of the options allocated to maintain the value of the options in light of the alteration of its capital structure by way of a Rights issue.


Employee share options scheme (“ESOS”) (continued) (a) The salient details of the ESOS are as follows (continued): (xi) Utilisation of proceeds

the proceeds arising from the subscription of the options by the eligible employee shall be utilised as working capital of the Group.

the following table illustrates the number and weighted average exercise prices (“WaeP”) of, and movements in, share options during the financial year:


Number of Share Options (‘000)

Exercisable At At at 1 January Granted Exercised Forfeited 31 December 31 December20092007 options 28,651 - - (1,822) 26,829 26,829(WaeP: Rm5.09)

2008 options 108,805 - - (3,884) 104,921 104,921(WaeP: Rm3.71)

2009 options - 1,192 - - 1,192 1,192(WaeP: Rm3.20) 137,456 1,192 - (5,706) 132,942 132,942

2008 2007 options 30,844 - - (2,193) 28,651 28,651(WaeP: Rm5.09)

2008 options - 110,081 (10) (1,266) 108,805 108,805(WaeP: Rm3.71) 30,844 110,081 (10) (3,459) 137,456 137,456

movements in share option reserve on share options granted under esos during the financial year were as follows: Group and Company RM’000

At 31 December 2009 at 1 January 76,202 charge to income statement 11,550 at 31 December 87,752

At 31 December 2008at 1 January 27,880 charge to income statement 48,327 Provision reversal (5)at 31 December 76,202

Movements during the year


Employee share options scheme (“ESOS”) (continued) (b) Details of share options outstanding at the end of the financial year: Exercise price RM Exercise period

2009 2007 options 5.09 5.11.2007 - 31.12.2011 2008 options 3.71 30.6.2008 - 31.12.2011 2009 options 3.20 22.2.2010 - 31.12.2011

2008 2007 options 5.09 5.11.2007 - 31.12.2011 2008 options 3.71 30.6.2008 - 31.12.2011

(c) Fair value of share options granted

the fair value of share options granted during the financial year was estimated by an external valuer using a binomial model, taking into account the terms and conditions upon which the options were granted. the fair value of share options measured at grant date and the assumptions are as follows:

2009 2008

fair value of share options granted on - 20 June 2008 (Rm/share option) - 0.43 - 0.63 - 4 December 2009 (Rm/share option) 0.53 - share price (Rm) 3.07 3.34 exercise price (Rm) 3.20 3.71 expected volatility (%) 34.99 30.06expected life (years) 2.00 3.50 attrition rate (%) 4.55 4.53 - 7.93 exercise multipliers (times) 1.5 1.2 and 1.5 Risk free rate (%) 3.80 3.80 expected dividend yield (%) 0.46 0.46

the expected life of the optiones is based on historical data and is not necessarily indicative of excercise patterns that may occur. the expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. no other features of the option grant were incorporated into the measurement of fair value.



Group Company 2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000 Restated Restated

Current trade payables 1,635,034 1,798,758 1,504,992 1,592,765 Due to immediate holding company 96,294 - 96,294 - Due to subsidiaries - - 85,409 320,415 Due to associates 52,669 22,432 52,669 25,686 other payables 207,223 297,528 185,826 263,166 accruals 255,322 290,107 237,097 258,688 2,246,542 2,408,825 2,162,287 2,460,720

the normal trade credit terms granted to the Group ranges from 14 to 150 (2008: 14 to 150) days.

the amounts due to immediate holding company is unsecured, interest free and is repayable upon demand.

the amounts due to subsidiaries and associates are unsecured, interest free and under normal trade credit terms.

included in other payables is Redeemable Preference shares of Rm500 (2008: Rm500).

27. PROVISIONS


at 1 January 817,703 681,828 803,245 669,963 additional provisions 489,901 498,964 490,002 496,371 Utilisation of provisions (405,309) (363,089) (405,309) (363,089)at 31 December 902,295 817,703 887,938 803,245

Provisions of the Group and company are mainly in respect of aircraft maintenance and overhaul costs of Rm887,938,000 (2008: Rm803,244,000). the company leases a majority of its aircraft and engines whereby under the terms of the leases, these aircraft and engines are to be returned substantially in the original state when they were leased. Provisions are made based on the estimated hours flown and estimated costs of maintenance required. these estimates are based on past experiences and are regularly reviewed to ensure they approximate actual costs.

26. TRADE AND OTHER PAYABLES


Group Company 2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000 Short term borrowings Unsecured Revolving credit 160,000 425,000 160,000 425,000 term loan 100,252 - 100,252 - Secured term loan 24,148 - - - finance lease (note 30) 31,118 8,411 53,996 8,411 315,518 433,411 314,248 433,411

Long term borrowings Unsecured term loan 911,882 500,000 911,882 500,000 RcPs liability component (note 29) 396,040 373,336 396,040 373,336 Secured term loan 240,509 - - - finance lease (note 30) 455,631 112,241 690,288 112,241 2,004,062 985,577 1,998,210 985,577 Total borrowings 2,319,580 1,418,988 2,312,458 1,418,988

Details of the range of interest rates as at the balance sheet date and the maturity profile of the above interest-bearing loans and borrowings are disclosed in note 40(b).

the secured term loan and finance lease of the Group and the company are secured by certain aircraft of the Group and the company as disclosed in note 13.

29. REDEEMABLE CONVERTIBLE PREFERENCE SHARES (“RCPS”)

on 31 october 2007, the company issued 417,747,955 RcPs of Rm0.10 each at an issue price of Rm1.00 each. the total proceeds received from the issuance of the RcPs is split between a liability component and an equity component. at the date of issue, the fair value of the liability component is estimated by discounting the future estimated cash flows at the prevailing market interest rate available to the Group then. the difference between the total proceeds received from the issuance of the RcPs and the fair value assigned to the liability component, representing the conversion option, is accounted for in shareholders’ equity.

the liability component of the RcPs is thereafter measured and accounted for under the effective interest rate method, whereby an annual interest is accrued at the same rate as the discount rate used in estimating the fair value of the liability component mentioned above. the accrued interest is recognised in the income statement.

28. BORROWINGS


the RcPs are accounted for in the balance sheets of the Group and of the company as follows: Group and Company 2009 2008 RM’000 Rm’000 RCPS - liability component at 1 January 373,336 359,672

interest accrued - Recognised in the income statement (note 7) 23,530 26,670

cash settlement (518) (474) Dividend paid for 1st anniversary of RcPs - (12,532)RcPs surrendered for conversion by RcPs holders (308) -at 31 December 396,040 373,336

RCPS - equity component at 1 January/ 31 December 58,076 58,076

the following are the salient terms of the RcPs: (a) conversion Period - four years commencing from the first anniversary after the date of issuance on 31 october 2007.

(b) conversion Price - fixed at Rm4.05, which is the theoretical ex-rights market price of mas shares during the Rights issue in year 2007 or such adjusted price as may be applicable from time to time.

(c) conversion Right - each RcPs carries the entitlement to convert into new mas shares at the conversion Price through the surrender of the RcPs.

(d) Dividend - a non-cumulative preference dividend rate of 30% per annum on the par value of RcPs, shall be payable out of post taxation profits.

(e) Ranking of the RcPs - the RcPs shall rank pari passu amongst themselves. on a winding-up or upon a reduction of capital or other return of capital (other than on redemption or on the exercise of the cash settlement option):

(i) the RcPs shall confer on the holder thereof the right to receive, in priority to the holders of any other class of shares (except for the special share and RPs of Rm0.10 each) in the company, cash repayment in full of the nominal amount (and the premium payable and the amount of any dividend that have been declared and remaining in arrears) of that RcPs; and

(ii) the RcPs shall not confer on the holders thereof the right to participate in any surplus capital or surplus

profits. (f) Ranking new mas shares to be issued pursuant to the conversion of the RcPs, shall, upon allotment and issue, rank pari passu in all respects with the existing mas shares, save and except that they shall not be entitled to participate in any right, allotment and/or any other distributions, the entitlement date of which is prior to the date of allotment of the new mas shares. in addition, the new mas shares to be issued pursuant to the conversion of the RcPs shall not be entitled to participate in any dividend which may be declared in respect of the financial year immediately preceding the exercise of the RcPs notwithstanding the entitlement date thereof may fall on a date after the exercise of the RcPs.

29. REDEEMABLE CONVERTIBLE PREFERENCE SHARES (“RCPS”) (continUeD)


the following are the salient terms of the RcPs: (continued) (g) any fraction of a new mas share resulting from a conversion shall be forfeited and be applied for the benefit of the

company and the company shall not be under any obligation to make cash payment of the value of such fraction or cause the RcPs holder’s securities account to be credited for such fraction.

(h) Redemption Date - any RcPs, which has not been converted during the conversion Period will be automatically redeemed by the company at the issue price of Rm1.00 each within thirty (30) days after the conversion Period ends.

(i) cash settlement option - the company has the right to provide RcPs holders who elect to convert their RcPs into mas shares, payment in cash equal to the value of their new mas shares entitlements, based on the weighted average market price of mas shares for the ten (10) market day period ending on and inclusive of the date of the receipt of the relevant conversion notice by the company.

29. REDEEMABLE CONVERTIBLE PREFERENCE SHARES (“RCPS”) (continUeD)


Future minimum lease payments: not later than one year 47,035 14,225 78,854 14,225 later than one year and not later than five years 196,383 52,451 323,657 52,451 later than five years 374,150 82,344 520,550 82,344 total minimum future lease payments 617,568 149,020 923,061 149,020 less: future finance charges (130,819) (28,368) (178,777) (28,368) Present value of finance lease liabilities 486,749 120,652 744,284 120,652 Analysis of present value of finance lease liabilities: not later than one year 31,118 8,411 53,996 8,411 later than one year and not later than five years 137,855 36,055 238,033 36,055 later than five years 317,776 76,186 452,255 76,186 486,749 120,652 744,284 120,652 less: amount due within twelve months (31,118) (8,411) (53,996) (8,411) amount due after twelve months 455,631 112,241 690,288 112,241

30. FINANCE LEASE LIABILITIES


the finance lease liabilities are in respect of leasing of aircraft. Under the terms of the finance lease, the Group has the option to buy the aircraft from the lessor at a predetermined price.

in the event the lessee exercises the option to buy the aircraft at the purchase option date, the purchase price comprises total sum of the (i) purchase option price and (ii) rent of the aircraft due and payable on the purchase option date.

the finance lease of the Group and the company has a tenure of 12 years. Details of the range of interest rates as at the balance sheet date and the maturity profile of the finance lease are disclosed in note 40(b).

the finance lease of the company is in respect of amount due to its certain subsidiaries.

30. FINANCE LEASE LIABILITIES (continUeD)

Number of Shares Amount 2009 2008 2009 2008 ’000 ’000 RM’000 Rm’000 Group and Company Authorised: ordinary shares of Rm1.00 each 9,000,000 9,000,000 9,000,000 9,000,000

one special Rights Redeemable Preference share of Rm1.00 each (note a) 1 share 1 share RM1 Rm1

at 1 January/31 December Redeemable convertible Preference shares of Rm0.01 each 100,000,000 100,000,000 1,000,000 1,000,000 Redeemable convertible Preference shares of Rm0.10 each 418,000 418,000 41,800 41,800 Redeemable preference shares of Rm0.10 each 1,000 1,000 100 100 109,419,000 109,419,000 10,041,900 10,041,900 Issued and fully paid: ordinary shares of Rm1.00 each at 1 January 1,671,002 1,670,992 1,671,002 1,670,992 issued during the year: exercise of esos - 10 - 10 conversion of RcPs 76 - 76 - at 31 December 1,671,078 1,671,002 1,671,078 1,671,002 one special rights redeemable preference share of Rm1.00 each (note a) 1 Share 1 share RM1 Rm1 1,671,078 1,671,002 1,671,078 1,671,002

31. SHARE CAPITAL


(a) Special rights redeemable preference share (“Special Share”)

the special share would enable the Government through the minister of finance incorporated (“mof”) to ensure that certain major decisions affecting the operations of the company are consistent with the Government’s policy. the special share, which may only be held by the mof or its successors or any minister, representative, or any person acting on behalf of the Government of malaysia, carries certain special rights as provided by article 5 of the company’s articles of association (as amended at the extraordinary General meeting held on 19 april 1995). these special rights include:

(i) the right to appoint not more than three persons at any time as directors of the company;

(ii) the right to repayment of the capital paid up on the special share in priority to any other member in the event of a winding-up of the company; and

(iii) the right to require the company to redeem the special share at par at any time.

certain matters, in particular the alterations of specified articles of association of the company, require the prior approval of the holder of the special share. the special share does not carry any right to vote at General meetings but the holder is entitled to attend and speak at such meetings.

31. SHARE CAPITAL (continUeD)

the nature and purpose of each category of reserves are as follows: (a) Share premium reserve the share premium reserve relates to the amount paid by shareholders for shares in excess of the nominal value.

(b) Equity component of RCPS this reserve represents the fair value of the equity component of RcPs, as determined on the date of issue. (c) Share option reserve the share option reserve represents the equity-settled share options granted to employees. this reserve is made up

of the cumulative value of services received from employees recorded on grant of share options.

(d) General reserve

the general reserve relates to transfers made from retained profits in prior years.

32. RESERVES


Group 2009 2008 RM’000 Rm’000

at 1 January 345 (3,692)Recognised in the income statement (note 10) (34,371) 4,037 at 31 December (34,026) 345 Presented after appropriate offsetting as follows: Deferred tax assets (34,026) (1,348)Deferred tax liabilities - 1,693 (34,026) 345

the components and movements of deferred tax liabilities and assets during the financial year prior to offsetting are as follows:

Deferred tax liabilities of the Group: Accelerated capital allowances RM’000 at 1 January 2009 3,853Recognised in the income statement 423 at 31 December 2009 4,276 at 1 January 2008 9,012 Recognised in the income statement (5,159)at 31 December 2008 3,853

33. DefeRReD tAxAtion


33. DefeRReD tAxAtion (continueD)

Deferred tax assets of the Group: Unused tax losses and unabsorbed capital allowances Provisions total RM’000 RM’000 RM’000

at 1 January 2009 (775) (2,733) (3,508)Recognised in the income statement (35,077) 283 (34,794)at 31 December 2009 (35,852) (2,450) (38,302)

at 1 January 2008 (1,561) (11,143) (12,704)Recognised in the income statement 786 8,410 9,196 at 31 December 2008 (775) (2,733) (3,508)

Deferred tax assets have not been recognised in respect of the following items:


unused tax losses 774,071 774,013 773,811 773,811 unabsorbed capital allowances 936,743 936,850 936,309 936,309 other deductible temporary differences 1,144,310 1,025,787 1,144,310 1,025,787

2,855,124 2,736,650 2,854,430 2,735,907

the unused tax losses and unabsorbed capital allowances are available indefinitely for offsetting against future taxable profits of the respective companies in which those items arose, subject to no substantial changes in shareholdings on those subsidiaries under the income tax act, 1967 and guidelines issued by the tax authority.

the company has been granted an extension of the tax exemption status by the ministry of finance on its chargeable income in respect of all sources of income. as such, deferred tax assets have not been recognised in respect of the unused tax losses, unabsorbed capital allowances and other deductible temporary differences.


34. oPeRAtinG leAse ARRAnGeMents

2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000 Due not later than one year 1,533,365 1,985,496 1,234,650 1,659,443 Due later than one year and not later than five years 3,594,028 5,233,960 2,915,488 4,594,311 Due later than five years 815,255 1,689,474 369,364 1,069,181

5,942,648 8,908,930 4,519,502 7,322,935

Group Company

Company 2009 2008 RM’000 Rm’000

Due not later than one year 100,876 63,356 Due not later than one year and not later than five years 412,825 328,944 Due later than five years 2,330 18,880 516,031 411,180

(a) the Company as lessor the company has entered into non-cancellable operating lease agreements on lease of aircraft. these leases have remaining non-cancellable lease terms of between 8 to 9 years.

the future minimum lease payments receivable under non-cancellable operating leases contracted as at balance sheet date but not recognised as receivables, are as follows:

(b) the Group as lessee the Group has entered into non-cancellable operating lease agreements on lease of aircraft. these leases have remaining non-cancellable lease terms of between 14 to 15 years.

the future minimum lease payments payable under non-cancellable operating leases contracted as at balance sheet date but not recognised as liabilities, are as follows:


35. seGMentAl infoRMAtion

(a) Business segments the Group operates predominantly in two business segments, being airline operations and cargo services. (i) airline operations - operation of aircraft for passenger (ii) cargo services - operation of aircraft for cargo and mail services.

other business segments include, catering, engineering, computerised reservation services, trucking and warehousing services, retailing of goods, terminal charges and tour and travel related activities, none of which are of a sufficient size to be reported separately.

the directors are of the opinion that all inter-segment transactions have been entered into in the normal course of business. Belly space charges from airline to cargo are based on an internal pricing policy. all other inter-segment transactions have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties. these transactions are eliminated on consolidation.


35. seGMentAl infoRMAtion (continueD)

(a) Business segments (continued)

Airline Cargo

31 December 2009 operations services others elimination total

RM’000 RM’000 RM’000 RM’000 RM’000

Revenue

external sales 9,413,524 1,824,522 71,809 - 11,309,855

inter-segment sales 809,551 - 66,106 (875,657) -

total revenue 10,223,075 1,824,522 137,915 (875,657) 11,309,855

Results

segment results 694,775 (147,962) (12,967) 1,027 534,873

finance costs (84,523)

share of results of

associates 13,381 - - - 13,381

share of results of

jointly controlled entity (1,741) - - - (1,741)

Profit before taxation 461,990

taxation 31,116

net profit for the year 493,106

Assets

segment assets 8,791,373 118,420 956,559 (1,453,476) 8,412,876

investments in

associates 78,976 - - - 78,976

investments in

jointly controlled entity 1,798 - - - 1,798

unallocated assets 34,026

consolidated total assets 8,527,676

liabilities

segment liabilities 5,902,294 149,197 304,694 (895,685) 5,460,500

unallocated liabilities 2,319,580

consolidated total

liabilities 7,780,080

other segment information

capital expenditure 911,644 36 2,757 - 914,437

Depreciation 306,857 6,073 2,958 - 315,888

amortisation 21,209 5,592 44 - 26,845


35. seGMentAl infoRMAtion (continueD)

(a) Business segments (continued) Continuing operations Discontinued

Airline Cargo operations-

31 December 2008 operations services others elimination total others Consolidated

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue

external sales 12,369,203 2,590,983 75,117 - 15,035,303 - 15,035,303

inter-segment sales 1,165,878 - 30,251 (1,196,129) - - -

total revenue 13,535,081 2,590,983 105,368 (1,196,129) 15,035,303 - 15,035,303

Results

segment results 295,594 22,392 8,649 (21,178) 305,457 122 305,579

finance costs (60,770) - (60,770)

share of results of

associates 19,974 - - - 19,974 - 19,974

Profit before taxation 264,661 122 264,783

taxation (19,086) - (19,086)

net profit for the year 245,575 122 245,697

Assets

segment assets 9,761,835 348,614 87,769 (201,321) 9,996,897 83 9,996,980

investments in

associates 73,268 - - - 73,268 - 73,268

unallocated assets 1,348 - 1,348

consolidated total assets 10,071,513 83 10,071,596

liabilities

segment liabilities 4,256,921 232,142 38,099 (73,367) 4,453,795 144 4,453,939

unallocated liabilities 1,420,681 - 1,420,681

consolidated total

liabilities 5,874,476 144 5,874,620

other segment information

capital expenditure 761,567 2,044 202 - 763,813 - 763,813

Depreciation 298,449 26,102 3,307 - 327,858 - 327,858

amortisation 16,743 6,614 1,184 - 24,541 - 24,541

Writeback of impairment

losses recognised in

income statement (45,254) - - - (45,254) - (45,254)


(b) Geographical segments the following table provides an analysis of the Group’s revenue by geographical segments:

2009 2008 RM’000 RM’000

Revenue orient and north america 1,609,941 2,270,902 europe and middle east 2,202,472 3,148,726 australia and new Zealand 1,105,503 1,649,460 asia 2,871,214 3,029,416 africa and south america 175,703 249,711 7,964,833 10,348,215 other revenue 3,345,022 4,687,088 11,309,855 15,035,303

the Group’s revenue by geographical segment is based on flown revenue.

assets, which consist principally of flight and ground equipment that support the entire worldwide transportation system, are mainly located in malaysia. an analysis of assets and capital expenditure of the Group by geographical distribution is therefore not included.

35. seGMentAl infoRMAtion (ContinUeD)


36. siGnifiCAnt RelAteD PARty tRAnsACtions

(a) in addition to transactions detailed elsewhere in the financial statements, the Group and the company had the following transactions with related parties during the financial year.

Group Company

2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000

expenses

expenses charged by subsidiaries: - handling and cleaning services - - 2,408 2,471 - inflight meals - - 8,681 6,638 - other inflight services - - 11,267 11,705 - trucking, clearance and warehousing services - - 4,932 6,227 Geesm, an associate - engine maintenance services rendered and purchase of aircraft spares and equipment 324,054 333,654 324,054 333,654 taj madras flight Kitchen limited, an associate - catering services 1,206 1,801 1,206 1,801 Pan asia Pacific aviation services limited, an associate - transit and cabin services 4,898 5,499 4,898 5,499 lsG, an associate - Purchase of meals and beverages 200,365 201,684 200,365 201,684 honeywell, an associate - aircraft maintenance services 5,897 5,194 5,897 5,194

hamilton, an associate - aircraft maintenance services 11,688 10,118 11,688 10,118


36. siGnifiCAnt RelAteD PARty tRAnsACtions (ContinUeD)

(a) in addition to transactions detailed elsewhere in the financial statements, the Group and the company had the following transactions with related parties during the financial year. (continued)

2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000

expenses (continued) evergreen sky catering corporation, a company in which the company has equity interest - catering services 4,618 7,686 4,618 7,686 miascor catering services, a company in which the company has equity interest - catering services 879 1,375 879 1,375 abacus international holding limited, a company in which the company has equity interest - computer reservation system access fee 38,403 38,451 38,403 38,451

income Dividend received from: - subsidiaries - - 4,075 2,132 - associated companies - - 9,781 11,448

income received from subsidiaries: - hire of belly space - - 656,008 1,032,470 - aircraft maintenance and overhaul - - 143,321 99,561 - handling and cleaning services - - 3,599 4,790

Geesm - Rental and shared services income received 15,048 11,904 15,048 11,904

lsG - Rental and shared services income received 18,070 23,160 18,070 23,160

Group Company


36. siGnifiCAnt RelAteD PARty tRAnsACtions (ContinUeD)

transactions with holding company and its fellow subsidiaries


expenses hire of aircraft paid/ payable to PmB 618,687 541,148 618,687 541,148

lease rental paid/payable to aircraft Business malaysia sdn. Bhd. 246,032 265,751 246,032 265,751

the above transactions and transactions detailed elsewhere were undertaken at mutually agreed terms between the parties in the normal course of business and the terms and conditions are established under negotiated terms.

(b) compensation of key management personnel (“KmP”)

total KMPs’ remuneration (including Board of Directors)

2009 2008 RM’000 Rm’000

total 5,795 6,382 KMPs’ remuneration (excluding Board of Directors) 2009 2008

RM’000 Rm’000

salaries and other emoluments 1,967 981 Bonus 45 202 Defined contribution plan 302 192 share options granted under esos 152 729

2,466 2,104

Group and Company

Group and Company


36. siGnifiCAnt RelAteD PARty tRAnsACtions (continueD)

(b) compensation of key management personnel (“KmP”) (continued.)

for the details of Board of Directors’ remuneration, please refer to note 9.

the share options were granted on the same terms and conditions as those offered to the other employees of the Group (note 25).

significant related party transactions with KMPs (including Board of Directors)

there were no significant related party transactions with KmPs (including Board of Directors) during the financial year.

Group Company

2009 2008 2009 2008 RM’000 Rm’000 RM’000 Rm’000

Due not later than one year - approved and contracted for 758,259 856,239 756,901 856,239- approved but not contracted for 5,000 113,204 - 106,700 763,259 969,443 756,901 962,939Due later than one year - approved and contracted for 4,135,367 10,438,780 4,059,929 10,438,780- approved but not contracted for 4,663,470 85,273 4,663,470 85,273 8,798,837 10,524,053 8,723,399 10,524,053

total capital commitments - approved and contracted for 4,893,626 11,295,019 4,816,830 11,295,019- approved but not contracted for 4,668,470 198,477 4,663,470 191,973 9,562,096 11,493,496 9,480,300 11,486,992

the outstanding capital commitments of the Group and the company are as follows:

Group Company 2009 2008 2009 2008

RM’000 Rm’000 RM’000 Rm’000 Purchase of aircraft 9,181,922 8,821,731 9,181,922 8,821,731others 380,174 2,671,765 298,378 2,665,261 9,562,096 11,493,496 9,480,300 11,486,992

37. CoMMitMents


(a) Guarantees (unsecured)

2009 2008 RM’000 Rm’000

Bank guarantee given to third parties in respect of services provided, and derivatives contracts acquired 419,828 785,795 Bank guarantee given to PmB on aircraft lease 20,727 20,799 Performance bonds given in respect of services provided to third party 1,896 5,505 442,451 812,099 (b) liabilities assumed by the immediate holding company 2009 2008 RM’000 Rm’000 term loans - secured 11,422 118,101 - unsecured 73,130 81,166 finance lease payables (secured) - 420,862 84,552 620,129 527,003 1,432,228

in connection with the Widespread asset unbundling (“Wau”) exercise undertaken by the company in 2002, the company continues to be the named borrower of finance leases and term loans which have been taken over by the immediate holding company and is still contractually bound to meet these borrowings in the event the immediate holding company defaults on the payments. as such, the outstanding balance of the borrowings assumed by the immediate holding company is included within the Group’s and the company’s contingent liabilities.

the above term loans mature as follows: RM’000

Due not later than one year 26,675 Due later than one year and not later than five years 45,761 Due later than five years 12,116

84,552

(c) as at 31 December 2008, the Group had lease obligations amounting to Rm244,781,000 which were covered by interest bearing funds amounting to Rm235,910,000 placed with financial institutions at the inception date of the respective lease arrangements under defeasance arrangements. the defeased lease obligations, together with the related fund placements and payments, were therefore not included in these financial statements. as at 31 December 2009, the Group no longer had these obligations.

38. ContinGent liABilities

Group and Company

Group and Company


38. ContinGent liABilities (continueD)

(d) on 11 february 2004, the company filed a suit at the high court of malaya against air maldives limited (“aml”) to claim for the sum of usD35.5 million being unpaid fees and charges payable by aml to the company for airline re-lated services rendered by mas pursuant to numerous agreements. the writ of summons was served by the company against aml on 25 July 2007. aml entered appearance on 22 october 2007. aml had on 19 march 2008 served their defence together with a counterclaim of usD43.6 million on the company.

the company is seeking legal advice in relation to the counterclaim and has filed an application to stay the counter-

claim. (e) securiforce sdn. Bhd. and securiforce hi-tech cargo sdn. Bhd. (collectively, the “Plaintiffs”) served a writ of summons

and statement of claim on the company and its wholly-owned subsidiary, maskargo, on 16 June 2005. the Plaintiffs’ claim is for special damages of Rm4.9 million and general damages of Rm250 million as well as unspecified exemplary damages as a consequence of what is alleged by the Plaintiffs to be a termination by the company, in breach of a purported contract consisting of various documents involving services rendered by the Plaintiffs to the company and maskargo. the company and maskargo are challenging the claim.

(f) on 5 april 2006, the company and maskargo filed a civil suit in malaysia against its former executive chairman, tan sri tajudin bin Ramli and three other Defendants, Ralph manfred Gotz, uwe Juergen Beck and Wan aishah binti Wan hamid. the claim against the Defendants is for losses amounting to Rm174.6 million for, amongst others, breach of fiduciary duties committed by the Defendants and conspiracy to defraud the company. the first, second and fourth Defendants have filed applications to strike out the suit, whilst the third Defendant has applied to set aside the service of the amended Writ of notice to be served out of Jurisdiction on him.

(g) on 26 may 2006, the company, mas Golden holidays sdn Bhd and mas hotels and Boutiques sdn Bhd (collectively, the “Plantiffs”) filed a civil suit (“original suit”) in the high court at Kuala lumpur against its former executive chair-man, tan sri tajudin bin Ramli and four other Defendants for damages of approximately Rm90 million together with further damages to be assessed, resulting from inter alia breach of fiduciary duties and/or knowingly assisting or benefiting from such breach of fiduciary duties.

in response to the original suit, tan sri tajudin bin Ramli, Promet (langkawi) Resorts sdn Bhd and Kauthar Venture capital sdn Bhd had on 9 october 2006 jointly filed and served a defence and counterclaim (“counter claim”) on the Plaintiffs, the company directors and the Government alleging that the Defendants in the counter claim (ex-cept for the Government) had conspired to injure them or had caused injury to them through malicious prosecution of the original suit.


38. ContinGent liABilities (continueD)

(h) on 15 may 2007, the company received notice from the secretariat of the icc international court of arbitration in Paris, france that air maldives ltd. (“aml”) had commenced arbitration proceedings against the company for alleged continuous breaches of the company’s duties under a management agreement between the company and aml dated 16 January 1996 (“arbitration”).

Pending further particulars of aml’s claim in the arbitration, the effects of the claim on the financial position of the company cannot be ascertained. the company is currently seeking legal advice to challenge the claim.

(i) on 27 December 2007, the company and maskargo were served with “statement of objections” from the european commission in relation to its freight investigation under article 81 of the european community treaty, the general prohi-bition against anti-competitive behaviour. the statement of objections is a routine stage in the european commission’s investigations under the said article 81 and is not a final determination of an infringement, nor does the statement of objections indicate any quantum of fines that might be ultimately imposed.

the Group has sought legal advice and replied to the statement of objections from the european commission. the oral hearing was concluded on 30 June 2008 to 3 July 2008 but the european commission has not fixed the date for decision.

(j) (i) meor adlin against mas; (ii) stephen Gaffigan against mas; (iii) micah abrams against mas; (iv) Donald Wortman against mas (v) Bruce hut against mas; and (vi) Dickson leung against mas;

Between 18 January and 26 march 2008, the company had been served with various complaints filed in the united states District court for the northern District of california (san francisco) and the united states District court for the central District of california (los angeles) filed on behalf of various Plaintiffs against the company and a number of other airlines. the cases involve allegation of price fixing on transpacific passenger fares and related surcharges.

at this juncture, no infringement has been established. the recently served complaint does not make any men-tion of the quantum of damages sought against the company. the company is currently seeking legal advice in relation to the complaint.

(k) on 15 september 2008, the company was served with a “statement of claim“ from the commerce commission of new Zealand in relation to its air freight investigation under section 27 of the commerce act. the statement of claim does not indicate any quantum of fines that might be ultimately imposed.

the company and its lawyers are reviewing the statement of claim.

(l) on 16 february 2010, the company at its offices in united states, was served with a complaint filed in the united states District court for the eastern District of new York on behalf on Benchmark export services and six other plaintiffs against the company and eleven other defendants. the case involves allegations of price fixing on airfreight shipping services and related surcharges.

at this juncture, no infringement has been established. the recently served complaint does not mention the quantum of damages sought against the company. the company is currently taking legal advice in relation to the complaint.


39. ContinGent Assets

the company has the right to receive from PmB, 80% of the profit arising from the eventual realisation of aircraft unbundled to PmB under the widespread asset bundling agreement (“Wau agreement”). the profit will be computed based on the excess of the value realised over the decayed net book value of the aircraft. the decayed net book value for each aircraft at future dates is stipulated in the Wau agreement. Based on the published airline industry price data, the company’s share of profits on disposal if the respective aircrafts were to be disposed as at 31 December 2009 is approximately Rm250,325,000 (2008:Rm880,211,000).

the Group operates globally and generates revenue in various currencies. the Group’s airline operations carry certain financial, credit and commodity risks, including the effects of changes in fuel prices, foreign currency exchange rates, interest rates and the market value of its investments. the Group’s overall risk management approach is to mitigate the effects of such volatility on its financial performance and reflect an inclination towards risk averse policies.

the Group’s policy is not to trade in derivatives but to use these instruments to hedge against anticipated exposures. (a) fuel price risk

the Group’s earnings are affected by changes in the price of jet fuel. the Group manages this risk by using instruments such as swaps, collars and swaptions. the Group’s risk management strategy is to maintain a competitive hedge with regards to its competitors. the Group’s risk management policy is to hedge up to 70% of the annual budget volume for the 12 months and up to 20% of the volume for the tenure of such contract up to 36 months.

as at 31 December 2009, the Group and the company have entered into various fuel hedging transactions for periods up to 31 December 2011 in lots totalling 16,444,000 barrels (2008: 26,450,000 barrels).

(b) interest rate riskthe Group’s earnings are affected by changes in interest rates, the impact of which is on interest income and expense from short term deposits, interest bearing financial assets and liabilities, and operating lease payments.

the Group’s policy on managing its interest rate risk is by maintaining a prudent mix of fixed and floating rate investments and borrowings.

the following tables set out the carrying amounts of assets/(liabilities), the range of interest rates per annum as at the balance sheet date and the remaining maturities of the Group’s and of the company’s financial instruments that are exposed to interest rate risk.

40. finAnCiAl RisK MAnAGeMent oBJeCtiVes AnD PoliCies


(b) interest rate risk (continued) 2009 effective Within 1 1-2 2-3 3-4 4-5 More than Group note interest year year year year year 5 years total rates % RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 fixed rate: term deposits 23 0.05 - 5.25 1,819,135 - - - - - 1,819,135 term loan 28 3.00 24,148 24,883 25,640 26,421 27,225 136,340 264,657 finance lease 30 4.64 - 5.80 31,118 30,312 32,192 34,206 41,145 317,776 486,749

floating rate: negotiable instruments of deposit 19 4.20 - 6.35 287,466 - - - - - 287,466 Revolving credit 28 4.35 - 4.60 160,000 - - - - - 160,000 term loan 28 2.98 - 4.96 100,252 100,974 100,936 176,713 355,155 178,104 1,012,134 Company fixed rate: lease rental from subsidiary 22 4.70 - 4.80 19,464 - - - 20,474 423,966 463,904 term deposits 23 0.05 - 5.25 1,792,662 - - - - - 1,792,662 finance lease 30 3.60 - 5.80 53,996 55,224 57,697 61,158 63,954 452,255 744,284 floating rate: negotiable instruments of deposit 19 4.20 - 6.35 287,466 - - - - - 287,466 Revolving credit 28 4.35 - 4.60 160,000 - - - - - 160,000term loan 28 2.98 - 4.96 100,252 100,974 100,936 176,713 355,155 178,104 1,012,134

40. finAnCiAl RisK MAnAGeMent oBJeCtiVes AnD PoliCies (continueD)


(b) interest rate risk (continued)

2008 effective Within 1 1-2 2-3 3-4 4-5 More than Group note interest year year year year year 5 years total rates % RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 fixed rate: term deposits 23 0.13 - 3.70 2,958,553 - - - - - 2,958,553 finance lease 30 5.23 - 5.80 8,411 - - - 36,055 76,186 120,652

floating rate: negotiable instruments of deposit 19 3.75 - 6.50 795,000 250,000 - - - - 1,045,000 Revolving credit 28 4.35 - 4.60 425,000 - - - - - 425,000term loan 28 5.18 - 500,000 - - - - 500,000 Company fixed rate: lease rental from a subsidiary 22 4.70 - 4.80 16,711 - - - 46,550 235,674 298,935 term deposits 23 0.13 - 3.70 2,940,305 - - - - - 2,940,305 finance lease 30 5.23 - 5.80 8,411 - - - 36,055 76,186 120,652 floating rate: negotiable instruments of deposit 19 3.75 - 6.50 795,000 250,000 - - - - 1,045,000 Revolving credit 28 4.35 - 4.60 425,000 - - - - - 425,000term loan 28 5.18 - 500,000 - - - - 500,000




Group and Company notional amount 2009 2008 RM’000 Rm’000

interest rate derivatives: - Due not later than one year 58,486 177,388 - Due later than one year 1,892,029 2,038,072 1,950,515 2,215,460

the contracted interest rates relating to interest rate derivatives at the balance sheet date varied from 2.2% to 5.0% (2008: 2.2% to 5.0%) per annum.

(c) foreign exchange risk the Group is exposed to the effects of foreign exchange rate fluctuations because of its foreign currency denominated operating revenues and expenses. the Group’s largest exposures are from united states Dollar (“usD”), euro (“euR”), Great Britain Pound (“GBP”), Japanese Yen (“JPY”) and australian Dollar (“auD”).

the Group seeks to reduce its foreign exchange exposure arising from transactions in various currencies through a policy of matching, as far as possible, receipts and payments in each individual currency. surpluses of convertible currencies are sold, either spot or forward, for Rm and usD.

the net unhedged financial assets and financial liabilities of the Group that are not denominated in their functional currencies are as follows:

(b) interest rate risk (continued) as at 31 December 2009, the Group and the company have entered into various instruments such as caps and swaps with the following notional amounts and maturities pertaining to usD obligations:


(c) foreign exchange risk (continued)

net financial Assets/(liabilities) Held on non-functional Currencies UsD eUR GBP JPy AUD total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000functional currency ofCompanies in the Group:

At 31 December 2009Ringgit malaysia 1,305,325 (26,120) (39,098) (4) (65,456) 1,174,647united states Dollar - - - 35,616 - 35,616 1,305,325 (26,120) (39,098) 35,612 (65,456) 1,210,263

At 31 December 2008Ringgit malaysia 1,099,318 (35,197) (26,237) (35) (49,302) 988,547united states Dollar - - - 10,108 - 10,108 1,099,318 (35,197) (26,237) 10,073 (49,302) 998,655


net financial Assets/(liabilities) Held on non-functional Currencies UsD eUR GBP JPy AUD total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

functional currency of theCompany:

At 31 December 2009Ringgit malaysia 1,301,573 (26,324) (39,100) (4) (65,456) 1,170,689 united states Dollar - - - 35,616 - 35,616 1,301,573 (26,324) (39,100) 35,612 (65,456) 1,206,305

At 31 December 2008Ringgit malaysia 1,224,961 (34,993) (26,235) (35) (49,302) 1,114,396 united states Dollar - - - 10,108 - 10,108 1,224,961 (34,993) (26,235) 10,073 (49,302) 1,124,504

as at 31 December 2009, the Group and the company have entered into various foreign exchange instruments such as outright forward and options with the following notional amounts:

Group and Company notional amount 2009 2008 RM’000 Rm’000

foreign exchange derivatives: - Due not later than one year 838,321 2,783,975



(d) liquidity riskthe Group manages its liquidity risk by maintaining sufficient levels of cash or cash convertible investments and available credit facilities to meet its working capital requirements.

surplus funds are mainly invested in high quality short term liquid instruments, usually bank deposits. some surplus funds are invested in niDs, which are principal protected deposits (see note 19 for more details).

(e) Credit risk credit risk is the potential loss from a transaction in the event of default by the counterparty during the term of the transaction or on settlement of the transaction. credit exposure is measured as the cost to replace existing transactions should a counterparty default. the Group has credit risk associated with travel agents, industry settlement organisations and credit provided to direct customers. the Group minimises this credit risk through the application of stringent credit policies and accreditation of travel agents through industry programmes.

the Group does not have any significant exposure to any individual customer or counterparty nor does it have any major concentration of credit risk related to any financial instruments.

41. finAnCiAl instRUMents

(a) fair values the fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.

(i) financial instruments carried at fair value the Group and the company carried all derivative financial instruments at their fair value as required by fRs 139.

(ii) financial instrument whose carrying amount approximate fair valuemanagement has determined that the carrying amounts of cash and term deposits, negotiable instruments of deposits, current trade and other receivables, current trade and other payables and short term borrowings, based on their notional amounts, reasonably approximate their fair values because these are mostly short term in nature or are repriced frequently.

for investment in unquoted shares, fair value has been assumed to be the carrying amount as the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed.

(iii) financial instrument carried at other than fair valueset out below is a comparison by category of carrying amounts and fair values of all of the Group and company’s financial instruments that are carried in the financial statements at amounts other than fair values as at 31 December.


41. finAnCiAl instRUMents (continueD)

Group and Company Carrying amount fair value 2009 2009 RM’000 RM’000

financial assets: - staff loan 110,821 65,997 - Refundable deposit 79,222 72,406

Group Company Carrying Carrying amount fair value amount fair value 2009 2009 2009 2009 RM’000 RM’000 RM’000 RM’000

financial liabilities: - term loan 1,276,791 1,277,009 1,012,134 1,012,134 - finance lease 486,749 493,203 744,284 742,359 - RcPs 396,040 359,672 396,040 359,672

the methods and assumptions used by management to determine fair values of financial instruments other than those whose carrying amounts reasonably approximate their fair values as mentioned earlier, are as follows:

(iii) financial instrument carried at other than fair value (continued)

(a) fair values (continued)

financial assets and liabilities • Derivative financial instruments

• other receivables (non-current) • finance lease • term loan • RcPs

Methods and assumptions

fair value has been determined by reference to broker quotes at the balance sheet date without factoring in transaction costs.

fair value has been determined using discounted estimated cash flows. Where repayment terms are not fixed, future cash flows are projected based on management’s best estimates. the discount rates used are the current market incremental lending rates for similar types of lending, borrowing and leasing arrangements.


41. finAnCiAl instRUMents (continueD)

Group and Company RM’000

Current liabilitiesfuel hedging contracts 571,859 foreign currency hedging contracts 8,284 interest rate hedging contracts 4,645

584,788

Group and Company RM’000

non-Current liabilitiesfuel hedging contracts 263,665 interest rate hedging contracts 8,113

271,778

Derivative financial instruments included in the balance sheets at 31 December 2009 are as follows:

(b) Derivative financial instruments and hedging activities

42. siGnifiCAnt eVents

(a) on 22 December 2009, the company proposed to undertake a renounceable rights issue on the basis of one (1) Rights share for every one (1) existing share held (“Rights issue”). the Rights issue entails the issuance of up to 1,905,962,767 Rights shares on the basis of one (1) Rights share for every one (1) existing mas share held on an entitlement date to be determined later. the company’s Board of Directors has fixed the issue price at Rm1.60 per Rights share.

the proceeds arising from the Proposed Rights issue would be used for (i) partial financing for the acquisition of up to 25 wide-body aircraft to replace older aircraft of similar type in mas’ fleet (ii) general working capital, (iii) repayment of bank borrowings and (iv) expenses relating to the Proposed Rights issue.

the Proposed Rights issue was expected to be completed by the first quarter of financial year ending 31 December 2010.

on 11 January 2010, Bursa securities Berhad (“Bursa securities”) approved the listing of up to 1,905,962,767 Rights shares to be issued pursuant to the Proposed Rights issue subject to the following conditions:

(i) mas must fully comply with the relevant provisions under the main market listing Requirements pertaining to the implementation of the Proposed Rights issue;

(ii) mas to inform Bursa securities upon the completion of the Proposed Rights issue;

(iii) mas to furnish Bursa securities with a written confirmation of its compliance with the terms and conditions of Bursa securities’ approval once the Proposed Rights issue is completed.


42. siGnifiCAnt eVents (continueD)

(a) (continued) on 25 January 2010, at the company’s extraordinary General meeting, the shareholders approved the Proposed

Rights issue. on 26 January 2010, the company entered into an underwriting agreement with maybank investment Bank Berhad, cimB investment Bank Berhad and RhB investment Bank Berhad to underwrite all of the Rights shares to be issued pursuant to the Rights issue, other than the Rights shares representing (a) the entitlements of KnB and PmB under the Rights issue as at 10 february 2010 and (b) the additional take-up of 32,718,040 Rights shares by KnB, for which KnB and PmB have provided irrevocable undertakings to subscribe or procure subscription in full respectively.

(b) on 22 December 2009, the company entered into a memorandum of understanding (“mou”) with airbus s.a.s (“airbus”) to order fifteen (15) a330-300 and acquire purchase options for another ten (10). the total cost of the 25 aircraft is usD5 billion at list prices. the aircraft will be delivered from 2011 to 2016 to serve the growing markets of south asia, china, north asia, australia and middle east.

(c) on 22 December 2009, the company entered into (i) novation agreement with airbus and PmB for the acquisition of six (6) undelivered a380 and (ii) supplemental lease agreement with PmB for the revision of the existing operating lease rental of two (2) B777 and two (2) B747 (collectively referred as “Boeing aircraft”) payable to PmB and (iii) a conditional sale and Purchase agreement with PmB for the Boeing aircraft for a total consideration of about Rm3.19 billion (collectively referred to as the “Proposed acquisition”). on 25 January 2010, at the company’s extraordinary General meeting, the shareholders approved the Proposed acquisition.

(d) on 26 october 2009, the company extended the time frame for the utilisation of the proceeds raised from the Rights issue exercise which was completed on 5 november 2007. the company is expected to utilise the remaining proceeds of Rm571,122,000 by 31 march 2011 instead of 5 november 2009. the proceeds will be used for the pre-delivery progressive payments of B737-800 aircraft which the company is expected to take delivery beginning fourth quarter 2010 onwards.

(e) on 19 august 2009, mae, a wholly-owned subsidiary of the company, and transmile Group Berhad (“transmile”) signed a letter of intent (“loi”) for mae to purchase transmile’s engineering & maintenance unit. the proposed acquisition involves the purchase of transmile’s base maintenance and engineering capabilities including 2 hangars, equipment and employment of its skilled manpower at its subang base. upon completion of the acquisition, mae is expected to be the largest airframe maintenance, Repair and overhaul (“mRo”) in asia Pacific with 8 hangars and the capacity to accommodate 28 wide body and narrow body aircraft at any one time. on 19 november 2009, the loi expired and both parties agreed not to extend it. however, both parties will continue to be in dialogue if there is any opportunity for the parties to pursue the proposed transaction in the future.

(f) on 17 June 2009, mae and alenia aeronautica, a finmeccanica company, sealed an agreement to create a joint venture (“JV”) company for the provision of mRo services for atR aircraft within asean and the indian sub-continent with plans to offer these services to other countries in the near future. the JV agreement is related to the earlier order of 20 atR 72-500s, plus an option of 7 by firefly and maswings.

(g) on 13 may 2009, mae and eaDs seca, a Pratt & Whitney designated aircraft engine repair and overhaul facility of the eaDs GRouP, signed a mou towards the establishment of a JV company in malaysia. the mou for this JV allows both parties to create a world class PW100 series engine mRo facility in malaysia. the facility is positioned as a one-stop centre for engine and component support for PW100 series engines, and expected to be operational in 2010.

(h) on 13 april 2009, the company announced that the previously signed mou between mae and Qantas, to establish a JV company to provide airframe maintenance services from malaysia had expired. there is no active discussion taking place unless the mou is subsequently renewed.


42. siGnifiCAnt eVents (continueD)

43. sUBseQUent eVents

on 26 January 2010, the company notified its RcPs holders holiding an aggregate principal amount outstanding of Rm415,127,155 (“outstanding RcPs”) convertible into 102,500,532 new mas shares based on the existing conversion price of Rm4.05 per mas share of the following:

(a) entitlement date for the Rights issue was fixed on 10 february 2010 to determine the holders of mas shares who will be entitled to participate in the Rights issue;

(b) the conversion price of the outstanding RcPs was adjusted from Rm4.05 to Rm3.09 per mas share as a result of the Rights issue.

(i) on 27 february 2009, the company sealed an agreement to set up a 50:50 joint venture with GmR hyderabad international airport limited, indian(“Ghial”) to provide maintenance services on narrow and wide body aircraft at the Rajiv Gandhi international airport in hyderabad, india. on 22 January 2010, mas-GmR aerospace engineering company limited (“maG”), the joint venture company signed a mou with Jet airways in chennai, india to provide exclusive heavy maintenance services to the Jet airways’ fleet over the next 10 years with an option of another 5 years.

44. DiViDenDs

Dividends Dividends in respect of year Recognised in year 2009 2008 2007 2009 2008 RM’000 RM’000 RM’000 RM’000 RM’000Recognised during the year:first and final tax exempt dividend for 2007 of 2.50 sen per share, on 1,670,991,820 ordinary shares - - 41,775 - 41,775

no dividend has been paid or declared by the company since the end of the previous financial year. the directors do not recommend any dividend in respect of the financial year ended 31 December 2009.


the following balance sheet comparative figures have been reclassified to conform with current year’s presentation:

As previously As stated Re- classification restated RM’000 RM’000 RM’000

Group other receivables - non-current assets 326,942 158,983 485,925 trade and other receivables 2,020,112 (158,983) 1,861,129 Company other receivables - non-current assets 609,166 158,983 768,149 trade and other receivables 1,994,375 (158,983) 1,835,392 trade and other payables (2,581,372) 120,652 (2,460,720)Borrowings (1,298,336) (120,652) (1,418,988)

45. CoMPARAtiVes

the financial statements are presented in Ringgit malaysia (“Rm”) and all values are rounded to the nearest thousand (“Rm’000”) except when otherwise indicated.

46. CURRenCy


ReGionAl offiCes

Americas100, north sepulveda Boulevard, suite 1710,el segundo, california 90245 u.s.a.tel : +310 726 6201fax : +310 535 9185Zaiful [email protected]/[email protected]

Australia/new Zealand/ south West Pacificlevel 7, 16 spring street, sydney, n.s.W. 2000tel : +61 2 9364 3502fax : +61 2 9364 3566ignatius [email protected]

China & sARunit1008B, 10th floor, tower B,Pacific century Place,2a Gong ti Bei lu, chaoyang District Beijing 100027, chinatel : +86 10 6505 0341fax : +86 10 6539 2905christopher [email protected] Continental europeWorld trade centre tower D, 9th floor. schiphol Boulevard 1551118BG schiphol the netherlands tel : +31 20 521 6252fax : +31 20 521 6251huib [email protected]

Malaysia & AseanGround floor, admin Bldg 3B, mas complex B, saas airport,47200, subang, selangor Darul ehsan tel : +603 7863 3975fax : +603 7845 7153Dato’ Bernard [email protected]

Middle east & Africa109-112, national Bank of umm-al Quwain Building,Khaleed Bin Waleed street, Bur Dubai, Dubai, uaetel : +971 4 3970 221fax : +971 4 3971 286merina abu [email protected]

Corporate Directory

north Asia2nd floor, no.29, mori Building, 4-2-1 shinbashi minato-Ku tokyo 105-0004tel : +81 3 3432 8505fax : +81 3 3432 1716Yap Kiang [email protected]

south Asia16th floor, Dr Gopal Das Bhawan, 28 Barakhamba Roadnew Delhi 110 001, indiatel : +91 11 2370 4040fax : +91 11 2335 8834azahar [email protected]

UK & ireland247-249, cromwell Road, london, sW5 9Ga,united Kingdomtel : +44 20 7341 2060fax : +44 20 7373 2314Dato’ syed abdillah [email protected]

sUBsiDiARies

flyfirefly sdn. Bhd.3rd floor, admin Building 1, mas complex asultan abdul aziz shah airport47200 subang, selangor Darul ehsan,malaysiaGeneral linetel: 603 7840 4241call centretel : 603 7845 4543operating hours: Daily 0800 - 2100 [email protected]

Malaysia Airlines Cargo sdn. Bhd. 1m floor, core 2, advanced cargo centreKlia free commercial Zone, southern support ZoneKuala lumpur international airport64000 sepang, selangor Darul ehsan,malaysiatel : 603 8777 1601 fax : 603 8783 3070www.maskargo.comariza abu [email protected]

MAswings sdn. Bhd.lot 10635 airport commercial centreairport Road98000 miritel : 1 300 88 3000 (Within malaysia) 603 7843 3000 (outside malaysia)[email protected]

CUstoMeR AnD loyAlty PRoGRAMMe

enrich/ Grads Mailing Addressmalaysia airlines (10601-W)P.o. Box 8002, Kelana Jaya, 46780Petaling Jaya, selangor Darul ehsan, malaysia KuchingGround floor mas Buildingsong thian cheok Road93100 Kuching, sarawak, malaysiatel : 082 220 617fax : 082 411 767

Kota Kinabalucorporate travel Department1st floor admin BuildingJalan Petagas, P.o. Box 1019488802 Kota Kinabalu, sabah, malaysiatel : 088 515 530fax : 088 231 929

Australia / new Zealandenrich customer service centreeDs Building, level 6, 108 north terrace, adelaidesa 5000, australiatel : 13 26 27 (australia) 0800 777 747 (new Zealand)fax : 61 8 8413 9393 (australia) 0800 441 236 (new Zealand)

GradsKuala lumpurenrich customer service centre unit Dh6 Departure hallKuala lumpur city air terminalKuala lumpur sentral station50470 Kuala lumpurtel : 1 300 88 3000 (Within malaysia) 603 7843 3000 (outside malaysia)fax : 603 2163 [email protected]

KuchingGround floor mas Buildingsong thian cheok Road93100 Kuching, sarawak, malaysiatel : 082 220 617fax : 082 411 767

Kota Kinabalucorporate travel Department1st floor admin BuildingJalan Petagas, P.o. Box 1019488802 Kota Kinabalu, sabah, malaysiatel : 088 515 530fax : 088 231 929

Reservations and ticketing1 300 88 3000 (24 hours) Kl sentral tel : 603 2272 4248

Kuala lumpur international Airport tel : 603 8776 4321/ 4300 Putrajaya tel : 603 8888 6324/ 6237 skyPark subang tel : 603 7842 4353 otHeR BUsiness Units

corporate salesGround floor, administration Building 3B, mas complex Bsultan abdul aziz shah airport47200 subang, selangor Darul ehsan, malaysiatel : 603 7863 2629shanti [email protected]

Government & student travel Department(Jabatan Perjalanan Kerajaan & Pelajar)no. R 26, mezzanine floorKompleks Perbadanan PutrajayaPusat Pentadbiran Kerajaan PersekutuanPresint 3, 62050 Putrajaya, malaysiatel : 1 300 88 3000 (Within malaysia) 603 8888 6327 (outside malaysia)

Government support Unit: 603 8888 6331 / 603 8888 6329 / 603 8890 3702operating hours:mon – fri 0830 – 1730

tel : 603 8888 6327 hamzah [email protected]

tel : 603 8890 3704azlan [email protected]

tel : 603 8890 3704mohd nasir [email protected]

tel : 03-88886331 Rafidah abdul [email protected] Ground Handling Management 2nd floor, administration Buildingsouthern support ZoneKuala lumpur international airport64000 sepang, selangor Darul ehsan, malaysiatel : 603 8777 9514 / 9513 / 2995fax : 603 8777 2738

Jaffar Derus [email protected]

noor safura [email protected]

salmiah [email protected]

Malaysia Airlines Academylearning management servicesno 2, Jalan ss7/13 Kelana Jaya47301, Petaling Jaya, selangor Darul ehsan,malaysiatel : 603 7800 7500fax : 603 7804 [email protected]

engineering & Maintenance Division1st floor, Klia hangar 5 complexKuala lumpur international airport64000 sepangselangor Darul ehsanmalaysiatel : 603 8777 2688fax : 603 8787 2252mohd. Roslan bin [email protected]

4th floor hangar 3complex a aa1204sultan abdul aziz shah airport47200 subangselangor Darul ehsanmalaysiatel : 603 7840 4268fax : 603 7846 7103tan Wee [email protected]

engineering Commercial Department4th floor hangar 3complex a aa1204sultan abdul aziz shah airport47200 subangselangor Darul ehsanmalaysiatel : 603 7840 2139fax : 603 7846 3797chan Kum [email protected] MAskargo Animal Hotel1m floor, Zone Dadvanced cargo centreKlia free commercial Zone, southern support ZoneKuala lumpur international airport64000 sepang, selangor Darul ehsan,malaysiatel : 603 8777 2193 (admin officer) 603 8777 2133 (Warehouse / supervisor) 603 8777 1847 (counter)fax : 603 8777 1848www.maskargo.com

simulator sales & Marketingsimulator Building - complex a-aa0202sultan abdul aziz shah airport47200 subang, selangor Darul ehsan, malaysiatel : 603 7840 2673fax : 603 7847 [email protected]@malaysiaairlines.com

Every reasonable effort has been made to ensure the accuracy of all informa-tion at time of publication. However, information contained within is subject to change without prior notice.

Please go to www.malaysiaairlines.com to obtain the latest directory.

233Annual Report 2009 coRPoRate DiRectoRY

Appendix 1

PRoPoseD AMenDMents to tHe ARtiCles of AssoCiAtion

the articles of association of the company are proposed to be amended in the following manner:-

AMenDMent to ARtiCles

throughout the articles of association of the company all references to “listing Requirements” be altered and amended to refer to the “main market lR”

AMenDMent to ARtiCle 1

to substitute the definition of “listing Requirements” in the existing article 1 with the following:-

existing article 1

“listing Requirements” means the listing Requirements of Kuala lumpur stock exchange or Rules of the exchange including any amendment to the listing Requirements that may be made and such practice notes or circulars as may be issued by the exchange from time to time.

new article 1

“Main Market lR” means the Main Market listing Requirements of Bursa Malaysia securities Berhad including any amendment to the listing Requirements that may be made and such practice notes or circulars as may be issued from time to time.

AMenDMent to ARtiCle 175

to delete the existing article 175 in its entirety and to adopt and replace it with the following new article 175:-

existing article 175

any dividend, interest, or other money payable in cash in respect of shares may be paid by banker’s draft, money order, cheque or warrant sent through the post to the registered address of the member of person entitled thereto as the holder may direct. every such draft, money order, cheque or warrant shall be made payable to the order of the persons to whom it is sent or to such person as the holder may direct and payment of same if purporting to be endorsed shall be a good discharge to the company. every such draft, money order, cheque or warrant shall be sent at the risk of the persons entitled to the money represented thereby.

new article 175

Any dividend, interest, or other money payable in cash in respect of shares may be paid directly into the accounts opened and maintained with a financial institution based in Malaysia by way of electronic transfer or by banker’s draft, money order, cheque or warrant sent through the post to the registered address of the member or person entitled thereto as the holder may direct. every such draft, money order, cheque or warrant shall be made payable to the order of the persons to whom it is sent or to such person as the holder may direct and payment of the same if purportedly to be endorsed shall be a good discharge to the Company. every such draft, money order, cheque or warrant shall be sent at the risk of the persons entitled to the money represented thereby.

shareholder’s CDs Account no. no. of ordinary shares held

i/We, ........................................................................................................................................................................... (full name as per nRic in capital letters)company no./nRic no .......................................................... of ........................................................................................................................... (full address)being a member(s) of MAlAysiAn AiRline systeM BeRHAD (“the company”), hereby appoint:-....................................................................... nRic no. (new) ....................................................... (old) ....................................................... or failing him/her....................................................................... nRic no. (new) ....................................................... (old) ....................................................... 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 ninth annual General meeting of the company to be held at the auditorium, 1st floor, south Wing, mas academy, no. 2, Jalan ss7/13, Kelana Jaya, 47301 Petaling Jaya, selangor Darul ehsan on monday, 21 June 2010 at 10.00 a.m. and at any adjournment thereof, on the following resolutions referred to in the notice of the thirty ninth annual General meeting. my/our proxy is to vote as indicated below:-

Please indicate with an “x” in the space 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

for appointment of two proxies, percentage of shareholdings to be represented by the proxies:- no. of shares Percentage (%)Proxy 1 Proxy 2 total 100

as witness my/our hands this ............................ day of ............................, 2010 .................................................................. signature of member / common seal

form of Proxy

notes:1. a member of the company entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote in his stead. a proxy may but need not be a member

of the company and a member may appoint any person to be his proxy/proxies and the provisions of section 149(1)(b) of the companies act, 1965 shall not apply to the company.

2. in the case of a corporate member, the instrument appointing a proxy shall be under its common seal or under the hand of its officers or attorney, duly authorised in that behalf.

3. a holder may appoint more than two proxies to attend the meeting. 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 securities industry (central Depositories) (foreign ownership) Regulations, 1996. the position of such Depositors in this regard will be determined based on the General meeting Record of Depositors. such Depositors whose shares exceed the 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 to vote. consequently, a proxy appointed by such Depositor who is not entitled to vote will also not be entitled to vote at the above meeting.

5. the instrument appointing a proxy must be deposited at symphony share Registrars sdn. Bhd., level 6, symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, selangor Darul ehsan, Malaysia, not less than 48 hours before the time for holding the meeting or at any adjournment thereof.

6. shareholders’ attention is hereby drawn to the listing Requirements of the Bursa malaysia securities Berhad, which allow a member of the company who is an authorised nominee as defined under the securities industry (central Depositories) act, 1991, to appoint at least one (1) proxy in respect of each securities account he holds with ordinary shares of the company standing to the credit of the said securities account.

Resolution 1 to receive the audited financial statements for the financial year 31 December 2009 and the Reports of the Directors and auditors.

Resolution 2 Re-election of Dato’ mohamed azman bin Yahya as Director

Resolution 3 Re-election of tengku Dato’ azmil Zahruddin bin Raja abdul aziz as Director

Resolution 4 Re-election of Datuk seri Panglima mohd annuar bin Zaini as Director

Resolution 5 Re-appointment of Dato’ n. sadasivan a/l n. n. Pillay as Director

Resolution 6 approval of Directors’ fees

Resolution 7 Re-appointment of messrs ernst & Young as auditors and to authorize the Directors to fix the auditors’ remuneration

Resolution 8 authority under section 132D of the companies act, 1965 for Directors to issue shares

Resolution 9 Proposed amendments to articles of association

symphony share Registrars sdn. Bhd.

level 6, symphony housePusat Dagangan Dana 1Jalan PJu 1a/4647301, Petaling Jayaselangor Darul ehsanmalaysia

affixstamphere

fold here for sealing

fold here

Awards & Recognition

• 5-StarAirlineAward2009/2010-SkytraxUK

• World’sBestCabinStaff2009-Skytrax,UK

• Asia’sLeadingAirline2009-WorldTravelAward

• BestAirlineinSoutheastAsia-2009GTTestedAwards,GlobalTravellerMagazine

• 2009Top-PerformingCompanies(3rdPlace)-AviationWeek

• GoldAwardforthemosteffectiveutilisationofsearchtodriveticketsales -AsiaPacificDigitalMediaAwards • BestUseofDigitalAward-MalaysiaPRAwards2009

• AircraftLeasingDealoftheYear(Asia)-JaneTransportFinance

• Top10AirlinesinthefirstGlobalLocalMonitoronAirlinesWebsites

• BestinTravelPoll(8thPosition)-SmartTravelAsia

• BestIn-FlightMealsforEconomyClass2008-BangladeshMonitor -GalileoAirlinesoftheYear2008Award

• AirlineoftheYear2008-KLIAAward

• SafetyAward2008(MASkargo)-JapanAirlinesCargoLtd

• ACEAwardforExcellence(MASkargo),AirCarrierCategory -AirCargoWorld

• BestAirCargoCarrierinAsia-CargonewsAsia

• 2009BestAsia-PacificMROOperationAward -AviationWeekandOverhaul&MaintenanceMagazines

• 2009AsiaPacificFrost&SullivanAirframeMRO CentreoftheYear-Frost&Sullivan,Singapore

• BestValueAirlineofTheYearAward (CommercialAirTransportationCategory–Firefly) –2010Frost&SullivanAsiaPacificAerospace &DefenceAwards

A N N U A L R E P O R T2009

Malaysian

Airlin

e System B

erhad

(10601-W)

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