Contents - ChartNexusir.chartnexus.com/mas/website_HTML/attachments/attachment_18592... · Aeronautiques (SITA) ... changed to Malaysian Airline System (MAS). Malaysian Airline System

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Milestones

Notice of Annual General Meeting

Statement Accompanying the Notice of Annual General Meeting

Corporate Profile

Corporate Information

Group Structure

Board of Directors

Senior Management

Financial & Statistical Highlights

Chairman’s Statement

Managing Director’s Statement

Operational Review

Route Network

Details of Board of Directors’ Meeting

Audit Committee Report

Statement of Internal Control

Statement of Corporate Governance

Statement of Corporate Social Responsibility

List of Company Properties

Analysis of Shareholdings

Financial Report

Corporate Directory

Proxy Form

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Contents

Proudly Connecting Malaysia and the World for 62 Years

Our kebaya clad and songket attired award winning cabin crew and the intricately designed and colourful wau bulan (giant moon kite) symbolise the colourful nation of Malaysia. For over 6 decades, we have been the nation’s global ambassador delivering the warmth of Malaysian Hospitality, far and wide. Like the child aspiring to fly his wau high, we are confident that we will continue to soar for many more years to come as we transform into The World’s Five Star Value Carrier.

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� MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

MAS management moved into the new 36-storey MAS Headquarters building at Jalan Sultan Ismail in Kuala Lumpur.

RM85 million MAS hangar and workshop complex officially opened. It allows 3 aircrafts to be serviced simultaneously.

New uniforms introduced for the airline’s female frontline staff.

New corporate logo launched and name changed from Malaysian Airline System Berhad to Malaysia Airlines, retaining the MAS acronym.

MAS won the 1988-1989 award given by Florence based Albenso International for outstanding contribution towards tourism promotion, the first for an airline.

MAS appointed to the Board of Directors of the Societe International de Telecommuncations Aeronautiques (SITA) for the 1990 term.

Charter flight to South America in conjunction with Prime Minister Dato’ Seri Dr. Mahathir’s official visit to the continent.

Agreement signed with MTU Maintenance GMBH from Germany to set up a joint venture company.

The crew of MH192 safely delivered a baby boy on the flight from Kuala Lumpur to Kota Bharu, a first for the airline.

Malayan Airways Limited (MAL) started commercial operations.

Awarded the Cumberbatch Trophy for zero accident record.

With the formation of Federation of Malaysia, the airline was renamed Malaysian Airways Limited (MAL).

Borneo Airways Limited (founded in 1957) amalgamated into Malaysian Airways Limited (MAL).

The Malaysian and Singapore Governments acquired joint majority control of the airline.

Name change to Malaysia-Singapore Airlines Limited (MSA).

The Malaysia and Singapore Governments agreed to set up separate national airlines. Malaysia Airlines Incorporated and named Malaysian Airways Limited (MAL) but was later changed to Malaysian Airline System (MAS).

Malaysian Airline System (MAS) officially launched and joined the Orient Airlines Association.

First B737-200 delivered.

Haj operations commenced.

A Fokker F-27 simulator, the first for the airline, installed at the newly completed Training School in Subang.

MAS took delivery of its first wide-body aircraft, a DC10.

The first MAS Airbus A300-B4 delivered to replace the B707s.

New RM2.6 million maintenance hangar opened.

MAS took delivery of the first two B747 jumbo jets.

The Administration, Component Workshop and Simulator building at MAS complex

costing RM102 million was completed.

MAS became the first government agency to be privatised and listed on the Kuala Lumpur Stock Exchange.

Milestones

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MASkargo was the designated carrier for Formula 1 races in Melbourne, Australia and Sepang, Malaysia. It was also commissioned to transport FIM 500 Grand Prix motorcycles for the races in Sepang and in Europe.

MAS’s wholly owned subsidiary, MAS Aerotechnologies Sdn. Bhd. (MASA), was awarded the ‘Repair Station’ certificate by the Federal Aviation Authority (FAA) of USA. The recognition enabled it to sign contracts for maintenance works that require FAA certification.

MAS launched new Golden Lounge at Penang International Airport.

MAS Golden Lounge at KLIA was awarded the World’s 3rd Best Airline Lounge 2002.

Dato’ Md. Nor announced the innovative Widespread Asset Unbundling (WAU) scheme which resulted in separation of ownership of assets from operation. It was a timely move, which came at a most critical juncture when the Airline was under siege as never before in its history. It proved regenerative - transforming the financial standing of the Group.

MAS Widespread Asset Unbundling (WAU) restructuring exercise was named the ‘Asian Corporate Finance Deal of the Year’ by Airfinance Journal, the leading financial magazine serving the commercial aviation industry.

MASkargo’s I-Port, the first air-sea transhipment sevice, was launched by the Minister of Transport, Dato’ Seri Ling Liong Sik.

MAS announced the upgrading of its website, www.malaysiaairlines.com, to

incorporate an online booking facility.

MAS extended inflight no smoking ban to all international sectors except for selected routes to London and to Japan.

MAS B777-200 breaks world record for longest non-stop flight from Seattle to Kuala Lumpur.

Delivery of Malaysia Airlines first B777-200 “Super Ranger”.

Unveiling of new uniforms for Malaysia Airlines pilots.

MAS Catering sets record with double ISO 9002 Certification.

MAS Catering appointed official caterer for the 16th Commonwealth Games by SUKOM ‘98.

Unveiling of SUKOM ‘98 logo on all Malaysia Airlines fleet of aircraft as the official carrier for the 16th Commonwealth Games.

MAS launched New Student Card - Grads.

New MAS uniforms for frontline staff by Italian designer Gherardini introduced.

First Malaysia Airlines subsidiary launched - MAS Golden Boutiques Sdn. Bhd.

MAS Catering Sdn. Bhd. formed.

First in-house Heavy Maintenance Visit (HMV) B747-400 unit set up in Engineering Division.

Malaysia Airlines Engineering Division awarded ISO 9001 Quality System Certification. First aviation maintenance organisation in the region to be awarded prestigious certification by Det Norske Veritas of Norway.

ANNUAL REPORT 2008 MILESTONES

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Our Journey of Turnaround

• Teamed up with octopusTravel.com in a global partnership

• Official Airline for MATTA-MITM Fair 2006

• New B747-400 freighter aircraft received

• Q1 2006 We beat Q1 target loss of RM349m and made a profit of RM7m

• Implementation of e-Ticketing for domestic travel

• Reader’s Digest Trusted Brand Platinum Award 2006

• We took delivery of our second and final B747-400 freighter aircraft

• Best Airline to Asia by Travel Weekly Globe Awards

• The MAS Way revealed! BTP launched

COMMERCIAL

OPERATIONS

FINANCE

PEOPLE

STAKEHOLDERS

The MAS Way

• Route Rationalisation Plan implemented

• Domestic restructuring for profitability

• The true MH unveiled

• First PSS cutover success

• Code share agreement signed with South African Airways (SAA)

• 5 Star Airline Award by Skytrax, UK

• Firefly launched

• Shareholders approved ESOS

• Signed code share agreement with Alitalia

• Q1 2007 A net profit of RM133m achieved

• MD elected as IATA Board of Governors for 3-year term

• The first roll out Interline e-Ticketing (IeT) with first partner, Singapore Airlines

• World’s Best Cabin Staff by Skytrax, UK

• 5th agreement signed with Lembaga Tabung Haji to operate Hajj flights

• E&M signed service agreement with PT Lorena Transport Group of Companies

• Launch of e-ticketing domestic facility cutover• Manchester United flies MH

• MAS acquired a fleet of 10 ATR 72-500s plus options for 10 additional aircraft

• Launch of “Let’s Fly Malaysia” campaign

• MASkargo C-Solution Innovative Control Circle (ICC) won gold award at the Regional ICC Convention

• We are the champions! MH Juaras attend workshop

� ANNUAL REPORT 2008 MILESTONES

• Best Economy Class by Skytrax World Airlines Award 2006

• 2nd Best in Regional Best Cabin Staff by Skytrax, UK

• 3rd in Best Cabin Staff Category by Skytrax

• Re-launch of Frequent Flyer Programme (FFP), Enrich

• Q2 2006 – “We’re on target” Results exceeded BTP target by RM84m

• Code share agreement signed with Gulf Air

• 4th year agreement with Tabung Haji

• Introduction ’25 Reasons To Fly a Truly Malaysian Airline’

• Interline agreement signed with Virgin Blue

• Best South Asia Airline Hospitality India Awards 2006

• Passenger Services System (PSS) contract signing with SITA

• Corporate Signature Programme (CSP) launched

• The launch of ‘C Check’ on B737 aircraft by Engineering & Maintenance (E&M)

• MASkargo received the Gold (Class II) Award

• CAPA Airline Turnaround of the Year 2006 Award by Centre for Asia Pacific Aviation (CAPA)

• Launch of CIMB-Enrich co-branded credit card

• Q3 2006 A net profit of RM240m

• Ranked 7th for Best cabin Service Worldwide, by SmartTravelAsia.com readers

• Ranked 8th Best Airline Worldwide by SmartTravelAsia.com in Travel Poll 2006

• The launch of Malaysia Airlines Premier Football Package

• Successful Q2 despite lean period

• Malaysia Airlines Engineering Training Centre (METC) launched

• Highest profit in 60 years A strong comeback: RM851m in profit for Q3 2007

• Ranked 12th for Malaysia’s Most Valuable Brands (MMVB) by AAAA

• Asia’s Leading Business Class Airline award by World Travel Awards

• Launch of MASwings

• Meal boxes for economy class on regional short-haul flights launched

• 4th Best Airline for Cabin Service Worldwide by SmartTravelAsia.com Best in Travel Poll 2007

• Launch of 5-Star Airline @ LCC Cost

• MAS Aerospace Engineering (MAE) signed MoU with Qantas

• MASwings launched its online booking facility


Our Journey of Transformation

• BTP 2 Launched From Turnaround to Transformation

• Creating a Revolution in MAS ELF Launched

• Fleet: 35 B737-800 confirmed to acquire with rights to purchase 20 more

• RM851m 60 Year Record Profits doing it “The MAS Way”

• Received Phoenix Award by Pento Media’s Air Transport World (ATW)

• MH Campaign goes external

• 4 Tactical Pillars introduced Increase Price, Reduce Capacity, Manage Cost and Breakthrough Innovation

• New website cut over with new MH look

• Cabin Refresh upgrading of existing aircraft to present fresh inflight perspective

• Making the most by maximising interlining business

• ELF 500% jump in internet penetration in 13 days since launch of ELF

• Q1 2008 RM120m profit despite high fuel price

� ANNUAL REPORT 2008 MILESTONES

• Fuel Crisis highest yet! USD182 per barrel

• oneMH Unite to Survive and Win launched

• Discipline of Action (DoA) Workshops introduced

• Gaining New Business E&M sets up World Class MRO in Hyderabad

• New Fleet 7 ATRs for MASwings, 10 for Firefly and 1 A300-600 for MASkargo

• All-Inclusive Low Fares Transparent promotions for customers

• Staying Resilient: Q3 2008 9th consecutive quarter of profits RM38m

Structural cost savings of RM1b

• Q2 2008 RM40m profit despite sky rocketing fuel prices

• Project Pit Stop Improving transit time during Aircraft Turnaround

• Dual Pricing Begins Our Biggest KBA for 2009

• MH Value Fares launched for domestic

• ELF Total to Bottom Line: more than RM100m Surplus Seats Sold: more than 500,000 Profits RM38m

• MAS Ticket Office at KL Sentral One Stop Centre launched providing convenience

� MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)� MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Winning Smiles And Service That Comes From The Heart Have Always Been Our Trademark

Inflight Service

�

9

�0 MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Notice of Annual General Meeting

AGENDA

1. To receive the Audited Financial Statements for the financial year ended 31 December 2008 together with the Reports of Directors and Auditors thereon.

2. To approve the Directors’ fees for the financial year ended 31 December 2008.

3. To re-elect the following Directors retiring under Article 139 of the Company’s Articles of Association, and who, being eligible, offer themselves for re-election:-

(i) Keong Choon Keat (ii) Martin Gilbert Barrow (iii) Tan Sri Dr. Mohd. Munir bin Abdul Majid (iv) Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah

4. To re-appoint Messrs. Ernst & Young as Auditors of the Company until the conclusion of the next Annual General Meeting and to authorise the Directors to fix their remuneration.

SPECIAL BUSINESS

5. To consider and if thought fit, to pass the following Ordinary Resolution:-

Authority to Allot and Issue Shares

“THAT subject to the Companies Act, 1965 (the Act), the Articles of Association of the Company, approval from the Bursa Malaysia Securities Berhad and other government or regulatory bodies, where such approval is necessary, full authority be and is hereby given to the Board of Directors pursuant to Section 132D of the Act, to issue shares in the capital of the Company at any time upon such terms and conditions and for such purposes as the Directors may in their discretion deem fit, provided always that the aggregate number of shares to be issued shall not exceed 10% of the issued share capital of the Company and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company.”

6. To transact any other ordinary business for which due notice has been given.

BY ORDER OF THE BOARD

RIZANI BIN HASSAN (LS 05125) COMPANY SECRETARY

29 May 2009 Selangor Darul Ehsan

Ordinary Resolution 1


Ordinary Resolution 3Ordinary Resolution 4Ordinary Resolution 5Ordinary Resolution 6




NOTICE IS HEREBY GIVEN THAT the Thirty Eighth Annual General Meeting of Malaysian Airline System Berhad will be held at the Auditorium, 1st Floor, South Wing, MAS Academy, No. 2 Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan on Monday, 22 June 2009 at 10.00 a.m. for the following purposes:-

��ANNUAL REPORT 2008 NOTICE OF ANNUAL GENERAL MEETING

EXPLANATORY NOTES ON SPECIAL BUSINESS


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

The proposed Ordinary Resolution 8, if passed, will empower the Directors to issue shares in the Company up to an amount not exceeding in total 10% of the issued share capital of the Company, subject to compliance with the relevant regulatory requirements. The approval is sought to avoid any delay and cost in convening a general meeting for such issuance of shares. This authority, unless revoked or varied by the Company at a general meeting, will expire at the next Annual General Meeting.

Notes:

1. A member entitled to attend and vote at the Meeting is entitled to appoint more than two (2) proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.

2. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or, if the appointer is a corporation, either under its seal or under the hand of an officer or attorney duly authorised.

3. A holder may appoint more than two (2) proxies to attend the Meeting. Where a member appoints two (2) or more proxies, he shall specify the proportion of his shareholding to be represented by each proxy.

4. The right of foreigners to vote in respect of their deposited securities is subject to Section 41(1)(e) and Section 41(2) of the Securities Industry (Central Depositories) Act, 1991 and the Securities Industry (Central Depositories) (Foreign Ownership) Regulations, 1996. The position of such Depositors in this regard will be determined based on the General Meeting Record of Depositors. Such Depositors whose shares exceed the 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 26 Menara Multi-Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than 48 hours before the time for holding the Meeting or at any adjournment thereof.

6. Shareholders’ attention is hereby drawn to the Listing Requirements of Bursa Malaysia Securities Berhad, which allows a member of the Company who is an authorised nominee as 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.

�� MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

Statement Accompanying theNotice of Annual General Meeting

1. Further details of Directors who are standing for re-election or re-appointment as per Agenda 3 of the Notice of the 38th AGM respectively:-

A. Ordinary Resolution 3

Keong Choon Keat (Independent Non-Executive Director)

Keong Choon Keat, aged 64, a Malaysian, was appointed as an Independant Non-Executive Director of MAS on 16 April 2001. He serves as Chairman of Board Audit Committee and is a member of the Nomination Committee, Remuneration Committee and ESOS Committee.

He is a member of the Malaysian Institute of Accountants and Malaysian Institute of Certified Public Accountants. He is also a Fellow Member of the Institute of Chartered Accountants in England and Wales. He was attached to Bristol Myers & Company Ltd. in England as an Accountant in 1968. He then joined Malaysian Tobacco Company Berhad as an Accountant in 1969. From 1974 to 1999, he was attached to UMW Holdings Group, where he held various management positions from General Manager to Director Group Accounts before being promoted to the position of Executive Director in 1988. Upon retirement in 1999, he joined DBM (Malaysia) Sdn. Bhd. as an Accredited Consultant.

He sits on the Board of JT International Berhad, Chin Teck Plantations Berhad, Negri Sembilan Oil Palms Berhad and Crest Builder Holdings Berhad.

He has attended 10 out of 12 Board Meetings during the financial year.

B. Ordinary Resolution 4

Martin Gilbert Barrow (Independent Non-Executive Director)

Martin Gilbert Barrow, aged 65, a British citizen, was appointed as an Independant Non-Executive Director of MAS on 29 August 2001. He serves as Chairman of the Board Safety & Security Committee.

He obtained Oxford and Cambridge Examination “A” Levels in Science and Mathematics and subsequently attended courses in Finance and Marketing. He joined Jardine Matheson, Hong Kong in 1965. From 1975 to 1980, he was transferred to Japan as Managing Director of the Group’s operations in Japan. He was promoted to the position of President of the Group’s affiliate, Olayan Saudi Holding Company in Saudi Arabia in 1980. He returned to Hong Kong as Regional Managing Director of the Group’s operation in Hong Kong and China in 1983 and was appointed Director of Jardine Matheson Limited at its Group Head Office in 1989. He was also active in public service and was appointed by the Governor of Hong Kong as member of the Legislative Council from 1988 to 1995. Other public-related positions he had held included being a member of Hong Kong’s Aviation Advisory Board, member of the New Airport’s Steering Group, Chairman of the Hong Kong Tourist Association and Chairman of the Business Advisory Group Committee on Deregulation. He retired from Jardine Matheson in June 2001.

He does not hold any directorship in other public companies in Malaysia.

He has attended all 12 Board Meetings held during the financial year.

C. Ordinary Resolution 5

Tan Sri Dr. Mohd. Munir bin Abdul Majid (Non-Independent Non-Executive Chairman)

Tan Sri Dr. Mohd. Munir bin Abdul Majid, aged 61, a Malaysian, joined the Board of Directors of MAS on 1 June 2004. He was appointed Non-Independent Non-Executive Chairman on 1 August 2004. He serves as Chairman of the Nomination Committee.

He obtained a Bachelor of Science (Economics) degree from the London School of Economics and Political Science (LSE) in 1971 and went on to earn a Ph.D in International Relations in 1978. During his years in London, he taught at the Department of International Relations in LSE and worked as a research analyst at Daiwa Europe NV.

Upon his return to Malaysia in 1978, Tan Sri Dr. Mohd. Munir joined the News Straits Time Press as leader writer, ending his service there as Group Editor in 1986. He took on the appointment of Chief Executive Officer of a merchant bank, Pertanian Baring Sanwa, (which was renamed Commerce International Merchant Bankers Berhad), later becoming its Executive Chairman. He was the first and founding Chairman of the Securities Commission where he served from 1993 to 1999.

He has served on various governmental boards and committees, such as Malaysian Industrial Development Authority (MIDA), Bursa Malaysia Securities Berhad (formerly known as the Kuala Lumpur Stock Exchange), Foreign Investment Committee (FIC), as well as various private sector companies and organisations such as Kuala Lumpur Options and Financial Futures Exchange (KLOFFE), Council of the Association of Merchants Malaysia, Malaysian International Chamber of Commerce and Industry. He is also the founder President of the Kuala Lumpur Business Club and was appointed by the Malaysian Institute of Management to be a member of its Court of Fellows in May 2004.

��ANNUAL REPORT 2008 STATEMENT ACCOMPANYING THE NOTICE OF ANNUAL GENERAL MEETING

In December 2005, he was made an Honorary fellow of the London School of Economics and Political Science (LSE) and subsequently as a Visiting Senior Fellow at the LSE IDEAS (Centre for the Study of International Affairs, Diplomacy and Strategy) in October 2008. He is President of the Alumni Association of Malaysia.

He presently sits on the Advisory Board for Securities Market Regulation of the Toronto Centre for Leadership in Financial Market Regulation. He is a member of the International Institute for Strategic Studies (IISS) in London.

He was the Senior Independent Non-Executive Director of Telekom Malaysia Berhad (2000 – 2004), the Chairman of Celcom (Malaysia) Berhad and Technology Resources Industries Berhad (2002 – 2004).

He is also the Chairman of Bank Muamalat Malaysia Berhad and sits on the Board of Saujana Resorts (Malaysia) Berhad.

He has attended all 12 Board Meetings of the Company held during the financial year. D. Ordinary Resolution 6

Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah (Non-Independent Non-Executive Director)

Tan Sri Dr. Wan Abdul Aziz, aged 57, a Malaysian, was appointed as a Non-Independant Non-Executive Director of MAS on 20 March 2007. He is a member of the Board Audit Committee.

He holds a Bachelor of Economics (Honours) degree in Applied Economics from University of Malaya and a Master of Philosophy in Development Studies from the Institute of Development Studies, University of Sussex, United Kingdom. Tan Sri Dr. Wan Abdul Aziz went on to earn a Ph. D in Economics from the School of Business and Economic Studies, University of Leeds, United Kingdom. In 2004, he attended the Advanced Management Program at Harvard Business School, Harvard University.

He began his career in the Administrative and Diplomatic Service as Assistant Director of the Economic Planning Unit in the Prime Minister’s Department in 1975. He was later promoted to the position of Senior Assistant Director, Macro-economics in 1984, Senior Assistant Director, Human Resource Section and Director, Energy Section in 1988. In the same year, he was seconded to the World Bank Group in Washington DC, USA, representing Brunei Darussalam, Fiji, Indonesia, Laos PDR, Malaysia, Myanmar, Nepal, Singapore, Thailand, Tonga and Vietnam as Alternate Executive Director. He then served the Ministry of Finance as Deputy Secretary in the Economics and International Division in 2001. He later returned to the Economic Planning Unit in the Prime Minister’s Department as Deputy Director General (Macro) in 2004. In 2005, he was appointed Deputy Secretary General of Treasury (Policy), Federal Treasury in the Ministry of Finance. He is currently the Secretary General of Treasury in the Ministry of Finance.

He sits on the Board of Federal Land Development Authority (FELDA), Kumpulan Wang Amanah Persaraan (Diperbadankan) (KWAP), Lembaga Hasil Dalam Negeri Malaysia (LHDNM), Petroleum Nasional Berhad (PETRONAS), Malaysia International Shipping Corporation Berhad (MISC), Multimedia Development Corporation Sdn. Bhd. (MDeC), Syarikat Bekalan Air Selangor Sdn. Bhd. (SYABAS), Pelaburan Hartanah Bumiputera Berhad (PHBB), Cyberview Sdn. Bhd., Bank Negara Malaysia, Pembinaan BLT Sdn. Bhd. and Perbadanan Insuran Deposit Malaysia (PIDM).

He also represents Ministry of Finance as Member of PEMUDAH, Iskandar Malaysia (IRDA), Regional Corridor Development Authority (RECODA), Sarawak, Wilayah Ekonomi Pantai Timur (ECER) and a member of Economic Council.

He has attended 8 out of 12 Board Meetings of the Company held during the financial year.

Notes :

i. None of the Directors has any family relationship with any Director/major shareholder of MAS, nor has any conflict of interest with MAS.

ii. None of the Directors has been convicted for any offences (other than traffic offences if any) within the past ten years.

2. The above Directors’ direct interests in the securities of the Company as at 20 April 2009 :

Direct Interest

Name of Directors No. of Issued Shares % of Issued Shares

Keong Choon Keat Nil Nil Martin Gilbert Barrow Nil Nil Tan Sri Dr. Mohd. Munir bin Abdul Majid Nil Nil Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah Nil Nil


Achieving Mission Impossible To Simplify Passenger Travel

e-Ticketing


��

15


Corporate Profile

For over 6 decades, Malaysia Airlines, the country’s national carrier has been reinventing itself into a global carrier as it spreads Malaysian Hospitality and warmth far and wide.

Today, Malaysia Airlines (www.malaysiaairlines.com) connects 40,000 passengers daily to some 80 destinations worldwide across 6 continents.

In recent years, Malaysia Airlines has transformed itself into one of the world’s most respected airlines. In 2006, the Business Turnaround Plan (BTP 1) was introduced to turnaround the then close to bankrupt airline. The radical blueprint outlined 3 phases: financial survival in 2006, profit generation in 2007 and profitable growth in 2008.

2 years down the road, and a year ahead of the schedule outlined in its BTP 1 timeline, Malaysia Airlines announced a net profit of RM851 million for FY2007, the highest ever profit in its 60-year history.

Air Transport World, a leading monthly magazine covering the global airline industry paid accolades in 2007 to the best airline turnaround story by awarding Malaysia Airlines with the Phoenix award – for rising from the ashes.

The 5-year Business Transformation Plan (BTP 2) launched in 2008 sets the stage to turn Malaysia Airlines into a global champion. It aims to ensure that the Malaysia Airlines of tomorrow will be recognised as The World’s Five Star Value Carrier i.e. a customer focused airline providing 5-Star products and services at affordable prices, with a competitive cost structure and achieving a profit of RM1.5-RM3 billion annually.

A key thrust of this transformation includes turning the airline into one of the best places to work in Malaysia, a company that is a source of pride and admiration for its employees and stakeholders.

Supporting Malaysia Airlines to achieve these goals are its subsidiaries. Firefly was set up as a ‘breaking new ground’ project to connect communities that are not linked by air services. MASwings, meanwhile, is the lifeline for Sabah and Sarawak on the island of Borneo, connecting communities and moving businesses. MASkargo continues to challenge conventions to win niche markets globally while MAS Aerospace Engineering (MAE) cements its reputation as a leading Maintenance, Repair & Overhaul player in Asia Pacific.

While focusing on financial and operational excellence, Malaysia Airlines has always placed top priority on providing service excellence

and warmth. It continues to be an award winning airline, and holds a lengthy record of quality service and best practices excellence.

The national carrier is one of only 6 airlines worldwide to be accredited a “5-Star Airline” status by Skytrax for 4 years in a row from 2006-2009. Its highly commendable cabin crew has won “World’s Best Cabin Crew” award in 2009, and holds the record as the only cabin crew in any airline to have won this recognition 6 times since the award was introduced in 2001.

Pushing the envelope for service excellence across all customer touch points from purchase to disembarkation and providing passengers with seamless services, Malaysia Airlines launched MH=Malaysian Hospitality, the airline’s rallying call to employees to treat customers as guests in one’s home. Launched last year, MH=Malaysian Hospitality serves as a focal point to ensure that Malaysia Airlines’ service deliveries are aligned to its customers’ expectations and continuously deliver what customers value.

With its dedicated team of 19,000 employees worldwide, Malaysia Airlines will continue to soar for many more years to come as it transforms into The World’s Five Star Value Carrier.

��ANNUAL REPORT 2008 CORPORATE INFORMATION

Corporate Information

COMPANY SECRETARY

Rizani Hassan (LS 05125)

REGISTERED OFFICE

3rd Floor, Administration Building 1MAS Complex ASultan Abdul Aziz Shah Airport47200 SubangSelangor Darul Ehsan, Malaysia

Tel 603 7840 4550 Fax 603 7846 3932

www.malaysiaairlines.com

AUDITORS

Ernst & Young (AF 0039)

Chartered AccountantsLevel 23A, Menara MileniumJalan DamanlelaPusat Bandar DamansaraDamansara Heights50490 Kuala Lumpur, Malaysia

Tel 603 7495 8000 Fax 603 2095 9076 main 603 2095 9078 audit

REGISTRAR

Symphony Share Registrars Sdn. Bhd.Level 26, Menara Multi-PurposeCapital Square, No. 8 Jalan Munshi Abdullah50100 Kuala Lumpur, Malaysia

Tel 603 2721 2222 Fax 603 2721 2530

INVESTOR RELATIONS

Ma Kin HoongCommunications DivisionGround Floor, Administration Building 1MAS Complex ASultan Abdul Aziz Shah Airport47200 SubangSelangor Darul Ehsan, Malaysia

Tel 603 7840 4523 Fax 603 7847 3085

[email protected]

STOCK EXCHANGE LISTING

Main Board of Bursa Malaysia Securities Berhad(Listed since 16 December 1985)(Stock code: 3786)

PRINCIPAL BANKERS

Citibank Berhad (297089-M)

45th Floor, Menara Citibank165 Jalan Ampang50450 Kuala Lumpur, Malaysia

Malayan Banking Berhad (3813-K)

Menara Maybank100 Jalan Tun Perak50050 Kuala Lumpur, Malaysia

CIMB Bank Berhad (13491-P)

5th Floor, Bangunan CIMBJalan SemantanDamansara Heights50490 Kuala Lumpur, Malaysia

Financial Calendar

25 February 2008

Announcement of 2007 AnnualResults

20 May 2008

Announcement of 2008 FirstQuarter Results

18 August 2008

Announcement of 2008 Second Quarter Results

28 November 2008

Announcement of 2008 Third Quarter Results

30 December 2008

Payment of Tax-Exempt Non-Cumulative Preferential Dividend

26 February 2009

Announcement of 2008 Annual Results

22 June 2009

Annual General Meeting


MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

�0% Abacus Distribution Systems (Malaysia) Sdn. Bhd. (180535-T)

��% Aerokleen Services Sdn. Bhd. (277266-X)

�00% FlyFirefly Sdn. Bhd. (346606-K)*

�00% Kelip-Kelip Labuan Limited (LL06736)

�00% MASkargo Logistics Sdn. Bhd. (68121-P)

�00% Malaysia Airlines Capital (L) Limited (LL01132)

�00% Malaysia Airlines Cargo Sdn. Bhd. (318815-M)

�00% MAS Academy Sdn. Bhd. (317184-W)

�0% MAS Catering (Sarawak) Sdn. Bhd. (372384-D)

�00% MAS Golden Boutiques Sdn. Bhd. (317182-T)

�00% MAS Golden Holidays Sdn. Bhd. (317144-A)

�00% MASwings Sdn. Bhd. (773841-A)

�00% MAS Aerotechnologies Sdn. Bhd. (317185-K)

�00% Malaysian Aerospace Engineering Sdn. Bhd. (775412-D)

�00% Macnet CCN (M) Sdn. Bhd. (318626-W) under Members Voluntarily Winding Up

�00% Syarikat Pengangkutan Senai Sdn. Bhd. (39752-P)

INVESTMENT IN ASSOCIATES

��% Aerofine Meat Sdn. Bhd. (425749-M)

�0% GE Engine Services Malaysia Sdn. Bhd. (423679-X)

��% Hamilton Sundstrand Customer Support Centre (M) Sdn. Bhd. (301833-D)

�0% Honeywell Aerospace Services (M) Sdn. Bhd. (465037-M)

�0% LSG Sky Chefs-Brahim’s Sdn. Bhd. (317281-X)

��% Pan Asia Pacific Aviation Services Limited (470740)

�0% Taj Madras Flight Kitchen Limited (30706 State Code 18)

* FlyFirefly Sdn. Bhd. owns 100% equity in FlyFirefly Holiday Sdn. Bhd. (780113-P)

Group StructureAs at 20 April 2009

��ANNUAL REPORT 2008 BOARD OF DIRECTORS ��

Tan Sri Dr. Mohd. Munir bin Abdul MajidChairman, Non-Independent Non-Executive Director

Dato’ N. Sadasivan a/l N. N. PillayDeputy Chairman, Independent Non-Executive Director

Dato’ Sri Idris JalaManaging Director/Chief Executive Officer, Non-Independent Executive Director

Tengku Dato’ Azmil Zahruddin bin Raja Abdul AzizExecutive Director/Chief Financial Officer, Non-Independent Executive Director

Keong Choon KeatIndependent Non-Executive Director

Dato’ Mohamed Azman bin YahyaNon-Independent Non-Executive Director

Martin Gilbert BarrowIndependent Non-Executive Director

Datuk Seri Panglima Mohd. Annuar bin ZainiIndependent Non-Executive Director

Tan Sri Dr. Wan Abdul Aziz bin Wan AbdullahNon-Independent Non-Executive Director

Datuk Haji Yusoff bin Datuk Haji Mohamed KassimIndependent Non-Executive Director

Datuk Amar Wilson Baya DandotIndependent Non-Executive Director

Dato’ Puteh Rukiah binti Abd. MajidAlternate Director to Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah

Dato’ Haji Abdul Rahman bin Haji Abdul GhaniAlternate Director to Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim

Datuk Haji Mohamad Morshidi bin Abdul GhaniAlternate Director to Datuk Amar Wilson Baya Dandot

Board of Directors


Board of Directors

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W) �0

MH, our reminder to treat everyone as we would treat a guest to our own home. This is Malaysian Hospitality.

��ANNUAL REPORT 2008 BOARD OF DIRECTORS ��

1 Tan Sri Dr. Mohd. Munir bin Abdul Majid 2 Dato’ N. Sadasivan a/l N. N. Pillay 3 Dato’ Sri Idris Jala 4 Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz 5 Keong Choon Keat 6 Dato’ Mohamed Azman bin Yahya

7 Martin Gilbert Barrow 8 Datuk Seri Panglima Mohd. Annuar bin Zaini 9 Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah10 Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim11 Datuk Amar Wilson Baya Dandot

2 1013

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TAN SRI DR. MOHD. MUNIR BIN ABDUL MAJIDNon-Independent Non-Executive Chairman

Tan Sri Dr. Mohd. Munir bin Abdul Majid, aged 61, a Malaysian, joined the Board of Directors of MAS on 1 June 2004. He was appointed Non-Independent Non-Executive Chairman on 1 August 2004. He serves as Chairman of the Nomination Committee.

He obtained a Bachelor of Science (Economics) degree from the London School of Economics and Political Science (LSE) in 1971 and went on to earn a Ph.D in International Relations in 1978. During his years in London, he taught at the Department of International Relations in LSE and worked as a research analyst at Daiwa Europe NV.

Upon his return to Malaysia in 1978, Tan Sri Dr. Mohd. Munir joined the News Straits Time Press as leader writer, ending his service there as Group Editor in 1986. He took on the appointment of Chief Executive Officer of a merchant bank, Pertanian Baring Sanwa, (which was renamed Commerce International Merchant Bankers Berhad), later becoming its Executive Chairman. He was the first and founding Chairman of the Securities Commission where he served from 1993 to 1999.

He has served on various governmental boards and committees, such as Malaysian Industrial Development Authority (MIDA), Bursa Malaysia Securities Berhad (formerly known as the Kuala Lumpur Stock Exchange), Foreign Investment Committee (FIC), as well as various private sector companies and organisations such as Kuala Lumpur Options and Financial Futures Exchange (KLOFFE), Council of the Association of Merchants Malaysia, Malaysian International Chamber of Commerce and Industry. He is also the founder President of the Kuala Lumpur Business Club and was appointed by the Malaysian Institute of Management to be a member of its Court of Fellows in May 2004. In December 2005, he was made an Honorary Fellow of the London School of Economics and Political Science (LSE) and subsequently as a Visiting Senior Fellow at the LSE IDEAS (Centre for the Study of International Affairs, Diplomacy and Strategy) in October 2008. He is President of the Alumni Association of Malaysia.

Board of Directors’ Profile

He presently sits on the Advisory Board for Securities Market Regulation of the Toronto Centre for Leadership in Financial Market Regulation. He is a member of the International Institute for Strategic Studies (IISS) in London.

He was the Senior Independent Non-Executive Director of Telekom Malaysia Berhad (2000–2004), the Chairman of Celcom (Malaysia) Berhad and Technology Resources Industries Berhad (2002–2004).

He is also the Chairman of Bank Muamalat Malaysia Berhad and sits on the Board of Saujana Resorts (Malaysia) Berhad.

He has attended all 12 Board Meetings of the Company held during the financial year.

DATO’ N. SADASIVAN A/L N. N. PILLAYIndependent Non-Executive Deputy Chairman

Dato’ N. Sadasivan, aged 69, a Malaysian, joined the Board of Directors of MAS on 1 December 2001. He was appointed Independent Non-Executive Deputy Chairman on 20 July 2004. He is the Chairman of the Board Tender Committee and member of the Board Audit Committee, Nomination Committee and Remuneration Committee. He is also Chairman of Malaysia Airlines Cargo Sdn. Bhd.

He holds a Bachelor of Arts (Hons) degree in Economics from University of Malaya. He started his early career as an economist with the Economic Development Board Singapore until 1967. He subsequently served in various capacities with the Malaysian Industrial Development Authority (MIDA) until 1995. His last position with MIDA was as its Director-General. Upon his retirement, he set up a consultancy firm, SKA Management Consultants Sdn. Bhd. where he is the Executive Chairman.

He sits on the Board of Bank Negara Malaysia and is a Director of Chemical Company of Malaysia Berhad, Petronas Gas Berhad, Leader Universal Holdings Berhad, APM Automotive Holdings Berhad and Yeo Hiap Seng (Malaysia) Berhad.


��ANNUAL REPORT 2008 BOARD OF DIRECTORS

DATO’ SRI IDRIS JALANon-Independent Managing Director/Chief Executive Officer

Dato’ Sri Idris Jala, aged 50, a Malaysian, is currently Managing Director/Chief Executive Officer of MAS, a position he currently held since 1 December 2005. He is also a Member of the Board Safety & Security Committee.

He holds a Bachelor of Social Science (Hons) in Development Studies/Management degree from University Sains Malaysia and a Masters in Industrial Relations from University of Warwick, United Kingdom.

Prior to joining MAS, he was attached to Shell MDS (Malaysia) Sdn. Bhd. as Managing Director and Executive Director of Shell Malaysia Ltd., Gas & Power from 2003 to 2005. He joined Sarawak Shell Berhad in 1982 as Industrial Relations Officer and later promoted to Head Staff Development in 1987. In 1989, he was appointed Human Resource Advisor, Shell International, Holland and Head Human Resource Planning of Sarawak Shell Berhad. From 1995 to 1997, he was appointed Business Reengineering Manager, Retail Area Manager, Senior Manager, National Retail Sales of Shell Malaysia Ltd. In 1998, he was promoted as Chairman/Managing Director (LPG) of Shell Sri Lanka. He was then transferred to London as Vice President Business Development Consultancy in 2000 and Vice President Retail Marketing, SRI of Shell Int. Pet. Co., United Kingdom a year later.

He does not hold any directorship in other public companies.


TENGKU DATO’ AZMIL ZAHRUDDIN BIN RAJA ABDUL AZIZNon-Independent Executive Director/Chief Financial Officer

Tengku Dato’ Azmil, aged 38, a Malaysian, was first appointed to the Board of MAS on 23 August 2004 and subsequently as Executive Director of MAS on 23 August 2005 and Chief Financial Officer of MAS on 1 February 2006. He is a member of the Board Tender Committee and Board Safety & Security Committee.

He holds a double first class degree in Economics from the University of Cambridge. He is a Chartered Accountant and an Associate Member of the Malaysian Institute of Accountants and the Institute of Chartered Accountants in England and Wales. He is also an Associate of the Association of Corporate Treasurers, United Kingdom.

Upon graduating, he was attached to the Audit and Business Advisory Services Division, PricewaterhouseCoopers in London and Hong Kong specializing in banking and capital markets. In 2002, he took up the position of Chief Financial Officer in Penerbangan Malaysia Berhad, and subsequently as its Managing Director/Chief Executive Officer in 2004.

He does not hold any directorship in other public companies. He sits on the Investment Panel of Retirement Fund Incorporated, also known as Kumpulan Wang Persaraan (Diperbadankan) or KWAP.

He is also a member of the Issues Committee of the Malaysian Accounting Standards Board.


KEONG CHOON KEATIndependent Non-Executive Director

Keong Choon Keat, aged 64, a Malaysian, was appointed as an Independent Non-Executive Director of MAS on 16 April 2001. He serves as Chairman of Board Audit Committee and is a member of the Nomination Committee, Remuneration Committee and ESOS Committee.

He is a member of the Malaysian Institute of Accountants and Malaysian Institute of Certified Public Accountants. He is also a Fellow Member of the Institute of Chartered Accountants in England and Wales. He was attached to Bristol Myers & Company Ltd in England as an Accountant in 1968. He then joined Malaysian Tobacco Company Berhad as an Accountant in 1969. From 1974 to 1999, he was attached to UMW Holdings Group, where he held various management positions from General Manager to Director Group Accounts before being promoted to the position of Executive Director in 1988. Upon retirement in 1999, he joined DBM (Malaysia) Sdn Bhd as an Accredited Consultant.

He sits on the Board of JT International Berhad, Chin Teck Plantations Berhad, Negri Sembilan Oil Palms Berhad and Crest Builder Holdings Berhad.



DATO’ MOHAMED AZMAN BIN YAHYANon-Independent Non-Executive Director

Dato’ Azman, aged 45, a Malaysian, was appointed as a Non-Independent Non-Executive Director of MAS on 1 December 2001. He serves as Chairman of the Remuneration Committee and a member of the Nomination Committee and ESOS Committee.

He holds a First Class Honours degree in Economics from the London School of Economics and Political Science (LSE) and is a member of the Institute of Chartered Accountants in England and Wales, the Malaysian Institute of Accountants and a Fellow of Malaysian Institute of Banks.

His career appointments include auditing with KPMG in London, finance with Island & Peninsular Group and investment banking with Amanah Merchant Bank. In 1998, he was appointed by the Government of Malaysia to set-up and head Danaharta Nasional Berhad and subsequently became its Chairman until 2003. He was also the Chairman of the Corporate Debt Restructuring Committee, which was set up by Bank Negara Malaysia until its closure in 2002.

He is currently the Group Chief Executive and a Board member of Symphony House Berhad, a listed outsourcing group and is the Executive Chairman of the Bolton Berhad, a listed property group. Outside his professional engagements, Dato’ Azman is active in public service. He sits on the boards of a number of Government Linked Corporations namely Khazanah Nasional Berhad, the investment arm of the Malaysian Government, PLUS Expressways Berhad and Pharmaniaga Berhad. He also serves as a member of the Bursa Malaysia Securities Market Consultative Panel, the National Council for Scientific Research & Development, the National Innovation Council, the Special Taskforce to facilitate Business (PEMUDAH) and the Malaysian Economic Council. He is also a Director of Scomi Group Berhad and the Chairman of the Motorsports Association of Malaysia.


MARTIN GILBERT BARROWIndependent Non-Executive Director

Martin Gilbert Barrow, aged 65, a British citizen, was appointed as an Independent Non-Executive Director of MAS on 29 August 2001. He serves as Chairman of the Board Safety & Security Committee.

He obtained Oxford and Cambridge Examination “A” Levels in Science and Mathematics and subsequently attended courses in Finance and Marketing. He joined Jardine Matheson, Hong Kong in 1965. From 1975 to 1980, he was transferred to Japan as Managing Director of the Group’s operations in Japan. He was promoted to the position of President of the Group’s affiliate, Olayan Saudi Holding Company in Saudi Arabia in 1980. He returned to Hong Kong as Regional Managing Director of the Group’s operation in Hong Kong and China in 1983 and was appointed Director of Jardine Matheson Limited at its Group Head Office in 1989. He was also active in public service and was appointed by the Governor of Hong Kong as member of the Legislative Council from 1988 to 1995. Other public-related positions he had held included being a member of Hong Kong’s Aviation Advisory Board, member of the New Airport’s Steering Group, Chairman of the Hong Kong Tourist Association and Chairman of the Business Advisory Group Committee on Deregulation. He retired from Jardine Matheson in June 2001.

He does not hold any directorship in other public companies in Malaysia.


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DATUK SERI PANGLIMA MOHD. ANNUAR BIN ZAINIIndependent Non-Executive Director

Datuk Seri Panglima Mohd. Annuar, aged 57, a Malaysian, was appointed as Independent Non-Executive Director of MAS on 2 February 2005. He is a member of the Board Tender Committee.

He holds a Master of Arts in Law & Diplomacy from the Fletcher School of Laws & Diplomacy, Tufts University, USA; and a Bachelor of Arts with honours in Economics from University Kebangsaan Malaysia.

He began his career in the government service as an Administrative and Diplomatic Officer in 1977. He served the Malaysian Government at various ministries and departments and was the Senior Private Secretary to the Minister of Home Affairs from 1981 to 1986. In 1993, he was appointed General Manager of The Perak Foundation, a position he held until 1999 before he chose to take an optional retirement from the government service.

He has been appointed the Chairman of Malaysian National News Agency (BERNAMA) since February 2004. Also in February 2004, HRH The Sultan of Perak consented his appointment as Member of the Council of Elders to HRH Sultan of Perak. He is a Distinguished Fellow to Institute of Strategic and International Studies (ISIS) Malaysia, Fellow of Institut Sosial Malaysia, Member of the Advisory Board of the Public Complaints Bureau of the Prime Minister’s department and Member of the Economic Council Malaysia. He is a member of the Board of Directors of University Malaya and Chairman of the University Malaya Specialist Centre.

He has been appointed the Chief Executive of Northern Corridor Implementation Authority since September 2008. He is also the Adjunct Professor of Northern Corridor Economic Region Research Centre, Universiti Utara Malaysia since December 2007.

He holds directorships in Plus Expressways Berhad and a few private limited companies.


TAN SRI DR. WAN ABDUL AZIZ BIN WAN ABDULLAHNon-Independent Non-Executive Director

Tan Sri Dr. Wan Abdul Aziz, aged 57, a Malaysian was appointed as a Non-Independent Non-Executive Director of MAS on 20 March 2007. He is a member of the Board Audit Committee.

He holds a Bachelor of Economics (Honours) degree in Applied Economics from University of Malaya and a Master of Philosophy in Development Studies from the Institute of Development Studies, University of Sussex, United Kingdom. Tan Sri Dr. Wan Abdul Aziz went on to earn a Ph. D in Economics from the School of Business and Economic Studies, University of Leeds, United Kingdom. In 2004, he attended the Advanced Management Program at Harvard Business School, Harvard University.

He began his career in the Administrative and Diplomatic Service as Assistant Director of the Economic Planning Unit in the Prime Minister’s Department in 1975. He was later promoted to the position of Senior Assistant Director, Macro-economics in 1984, Senior Assistant Director, Human Resource Section and Director, Energy Section in 1988. In the same year, he was seconded to the World Bank Group in Washington DC, USA, representing Brunei Darussalam, Fiji, Indonesia, Laos PDR, Malaysia, Mynmar, Nepal, Singapore, Thailand, Tonga and Vietnam as Alternate Executive Director. He then served the Ministry of Finance as Deputy Secretary in the Economics and International Division in 2001. He later returned to the Economic Planning Unit in the Prime Minister’s Department as Deputy Director General (Macro) in 2004. In 2005, he was appointed Deputy Secretary General of Treasury (Policy), Federal Treasury in the Ministry of Finance. He is currently the Secretary General of Treasury in the Ministry of Finance.

He sits on the Board of Federal Land Development Authority (FELDA), Kumpulan Wang Amanah Persaraan (Diperbadankan) (KWAP), Lembaga Hasil Dalam Negeri Malaysia (LHDNM), Petroliam Nasional Berhad (PETRONAS), Malaysia International Shipping Corporation Berhad (MISC), Multimedia Development Corporation Sdn. Bhd. (MDeC), Syarikat Bekalan Air Selangor Sdn. Bhd. (SYABAS), Pelaburan Hartanah Bumiputera Berhad (PHBB), Cyberview Sdn. Bhd., Bank Negara Malaysia, Pembinaan BLT Sdn. Bhd. and Perbadanan Insuran Deposit Malaysia (PIDM).

He also represents Ministry of Finance as Member of PEMUDAH, Iskandar Malaysia (IRDA), Regional Corridor Development Authority (RECODA), Sarawak, Wilayah Ekonomi Pantai Timur (ECER) and a member of Economic Council.


ANNUAL REPORT 2008 BOARD OF DIRECTORS


DATUK HAJI YUSOFF BIN DATUK HAJI MOHAMED KASSIMIndependent Non-Executive Director

Datuk Haji Yusoff, aged 59, a Malaysian, was appointed as an Independent Non-Executive Director of MAS on 23 January 2006. He is a member of the Board Audit Committee.

He holds a Bachelor of Economics from University of Adelaide, Australia and attended Public Budgeting and Financial Management at John F. Kennedy School of Government, Harvard University, USA. He began his career in Sabah’s Public Services as Assistant Director, Economic Planning Unit in 1979. He was appointed District Officer, Beaufort, Sabah in 1982. From 1984 to 1994, he held various positions within the Chief Minister’s Department and the Ministry of Industrial Development, Sabah. He then joined the Ministry of Finance, Sabah as Under Secretary (Budget). He is currently the Permanent Secretary, Minister of Finance, Sabah.

He sits on the Board of Saham Sabah Berhad.


DATUK AMAR WILSON BAYA DANDOTIndependent Non-Executive Director

Datuk Amar Wilson Baya Dandot, aged 57, a Malaysian, was appointed as an Independent Non-Executive Director of MAS on 11 January 2008. He is a member of the Board Safety & Security Committee.

He holds a Bachelor of Economics from University of Western Australia and a Masters degree in Development Economics from University of Sussex, United Kingdom. He also attended a Senior Executive Fellows Programme at JFK School of Government, Harvard University. He first joined Sarawak State Government Office as the Assistant Secretary of Agriculture Sector State Planning Unit in 1973. He was an Economist of the International Pepper Community, Jakarta in 1977 to 1983, and later as Principal Assistant Secretary in the State Planning Unit in 1983. In 1990, he was appointed as Deputy Director/Principal Assistant Director, State Planning Unit, Sarawak. He later assumed the position of Director, State Planning Unit in 1995 and Deputy State Secretary (Planning & Development) in 2000.

He was later then appointed as Deputy State Secretary (Human Resource) and was subsequently appointed as Deputy State Secretary (Administration, Security & Protocol) at the Chief Minister Department. In 2007, he was appointed Sarawak State Secretary, a position he held until today.

He sits on the Board of Employees Provident Fund and Sarawak Energy Berhad.


DATO’ PUTEH RUKIAH BINTI ABD. MAJIDAlternate Director to Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah

Dato’ Puteh Rukiah, aged 56, a Malaysian, was appointed as Alternate Director to Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah on 16 August 2007.

She holds a Bachelor of Economics degree from University of Malaya and a Master of Economics from Western Michigan University, USA. She has held various posts in the Government since 1976 and her various appointments included being the Deputy Under Secretary, Minister of Finance (Incorporated), Privatisation and Public Enterprise Division in 2000 and subsequently, until 2006, served as Under Secretary, Investment and Privatisation Division, Ministry of Finance (Incorporated). Currently she is the Deputy Secretary General (Systems and Controls), Ministry of Finance.

She sits on the Boards of Tenaga Nasional Berhad, Perbadanan Usahawan Nasional Berhad, Pengurusan Aset Air Berhad, Penerbangan Malaysia Berhad and Pelaburan Hartanah Bumiputera Berhad.

She has attended 3 out of 12 Board Meetings of the Company held during the financial year on behalf of Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah.

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DATO’ HAJI ABDUL RAHMAN BIN HAJI ABDUL GHANIAlternate Director to Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim

Dato’ Haji Abdul Rahman bin Haji Abdul Ghani, aged 58, a Malaysian was appointed as Alternate Director to Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim on 23 January 2006.

He graduated with a Bachelor of Arts degree from the University of Queensland, Australia. He began his career in civil service as Penolong Penguasa Kastam at the Royal Customs and Excise Department 1977. He then served in various senior positions in the State Civil Service, including statutory bodies and agencies for over 24 years.

He was the Government Printer at Sabah Government Printing Department before assuming his current position of Chief Executive Officer, Warisan Harta Sabah Sdn. Bhd., a wholly owned investment holding company of the State Government of Sabah in 2000.

He also sits on the Board of Borneo Housing Mortgage Finance Berhad.

He has attended 3 out of 12 Board Meetings of the Company held during the financial year on behalf of Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim.

DATUK HAJI MOHAMAD MORSHIDI BIN ABDUL GHANIAlternate Director to Datuk Amar Wilson Baya Dandot

Datuk Haji Mohamad Morshidi, aged 52, a Malaysian, was appointed as Alternate Director to Datuk Amar Wilson Baya Dandot on 11 January 2008.

He holds a Bachelor of Economics degree from University Kebangsaan Malaysia and a Master of Science in Human Resource Administration from University of Scranton, Pennsylvania, USA. He started his career as Management Executive with PETRONAS in 1980. He was appointed Director of Kuching North City Hall from 1988 to 1998. He then went on to hold the senior positions in the Chief Minister’s Department that included Director, Human Resource Management and Director, Human Resource Development and Quality from 1998 to 2001. He was later appointed as Permanent Secretary in the Ministry of Social Development and Urbanisation in 2001. He was the Director in the State Planning Unit in the Chief Minister’s Department before assuming his current position as Deputy State Secretary of Sarawak on 1 July 2006.

He does not hold any directorship in other public companies.

He is currently the Board Member of Sarawak Economic Development Corporation (SEDC), Chairman of Board Audit Committee (SEDC), Board Member of Kuching North City Council, Board of Director University Malaysia Sarawak (UNIMAS), Board of Director/University Council Member of SWINBURNE University of Technology Sarawak, Council Member of Majlis Peperiksaan Malaysia, Director of ASSAR Asset Management Sdn. Bhd. Sarawak, Chairman of FARADALE Development Sdn. Bhd., Deputy Chairman of Sarawak Development Institute

He has attended 3 out of 12 Board Meetings of the Company held during the financial year on behalf of Datuk Amar Wilson Baya Dandot.

Notes:1. None of the Directors has any family relationship with any Directors/Shareholders of MAS, nor has any conflict of interest with MAS.2. None of the Directors has been convicted for any offences (other than traffic offences if any) within the past ten years.

ANNUAL REPORT 2008 BOARD OF DIRECTORS


124 1

23

6

16 17

91013

71114155

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1 Dato’ Sri Idris Jala 2 Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz 3 Dato’ Abdul Rashid Khan bin Abdul Rahim Khan 4 Dato’ Tajuden bin Abu Bakar 5 Dato’ Captain Mohd. Nawawi bin Awang 6 Indira Nair 7 Mohd. Azha bin Abdul Jalil 8 Effendi bin Abdul Rahman 9 Shahari bin Sulaiman

MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

10 Mohd. Salleh Ahmad Tabrani11 Mohd. Roslan bin Ismail12 Eddy Leong Chin Tung 13 Dr. Amin Khan14 Dato’ Bernard Francis15 Captain Dr. Ooi Teong Siew16 Raja Azura Raja Mahayuddin17 Rizani bin Hassan

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��ANNUAL REPORT 2008 SENIOR MANAGEMENT

Senior Management

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daylight visual system and a high degree of realism to make the pilot a true master of the craft.


Dato’ Sri Idris JalaManaging Director/Chief Executive Officer

Dato’ Sri Idris, aged 50, holds a Bachelor degree from Universiti Sains Malaysia and a Masters degree from Warwick University, United Kingdom. He joined MAS in December 2005 as the Managing Director/CEO and steered the airline out of its financial crisis via its Business Turnaround Plan. From a full-year loss of RM1.3 billion in 2005, Idris managed to turnaround the company and achieved a record full year profit for 2 consecutive years - RM851 million in 2007 and RM244 million in 2008. Idris also sits on the Board of Tourism Malaysia and on the IATA Board of Governors. Prior to joining MAS, he held various key positions in the Shell group of companies, including Managing Director of Shell MDS, Vice President of Shell Gas & Power (Malaysia), Vice President, Retail Marketing & Business Development Consultancy (Shell International, London) and Managing Director of Shell Sri Lanka.

Tengku Dato’ Azmil Zahruddin bin Raja Abdul AzizExecutive Director/Chief Financial Officer

Tengku Dato’ Azmil, aged 38, holds a double first class degree in Economics from the University of Cambridge. He is a Chartered Accountant and an associate member of the Malaysian Institute of Accountants and the Institute of Chartered Accountants in England and Wales. He is also an Associate of the Association of Corporate Treasurers, United Kingdom. Upon graduating, he was attached to the Audit and Business Advisory Services Division, PricewaterhouseCoopers in London and Hong Kong specializing in banking and capital markets. In 2002, he took up the position of Chief Financial Officer in Penerbangan Malaysia Berhad (PMB), and subsequently as its Managing Director/Chief Executive Officer in 2004. On 23 August 2005, he joined MAS on a full time basis, relinquishing his position at PMB. He sits on the Investment Panel of Kumpulan Wang Persaraan (Diperbadankan) and is a member of the Issues Committee of the Malaysian Accounting Standards Board.

Senior Management Profile

Dato’ Abdul Rashid Khan bin Abdul Rahim KhanCommercial Director

Dato’ Rashid Khan, is the Commercial Director of MAS, managing the functions of Network and Revenue Management and Sales, Distribution and Marketing. He has been with MAS for more than 36 years, having held various positions in the national airline’s home base as well as in Saudi Arabia, USA, Thailand and Germany. He currently serves senior roles in the industry’s most prominent and influential organisations including Chairman of Board of Airline Representatives (BAR) Malaysia; Pacific Asia Travel Association (PATA), Malaysia Chapter; ASEANTA and member of the National Tourism Committee Malaysia, and has previously served in an advisory capacity in the Tourism Committees of the Malaysian states of Sabah, Sarawak and Penang. He is a member of Harvard Business School Alumni Club of Malaysia and the Asian Institute of Management.

Dato’ Tajuden bin Abu BakarDirector of Operations

Dato’ Tajuden joined MAS in 1976 and is responsible for the airline’s operations networkwide. A licensed aircraft engineer by profession, he also holds a Master of Science degree in Engineering Business Management from the University of Warwick. Aside from engineering and maintenance, his previous experience included aircraft production inspection, line station management, joint venture project management and airport operations. Before becoming the Director of Operations in 2007, he was the Vice President of Engineering & Maintenance in 1999, Senior General Manager Technical & Ground Operations (2001) and Senior General Manager Operations Control in 2006. Dato’ Tajuden represents MAS in the Technical Committee of the Asia Pacific Airlines Association (AAPA), the International Federation of Airworthiness (IFA) and is in the Board of Directors of Pan Asia Pacific Aviation Services Pte., Hong Kong and MAS Aerospace Engineering Sdn. Bhd. He is also the Board Chairman of GE Engine Services (Malaysia) Sdn. Bhd., Hamilton Sundstrand CSC (Malaysia) Sdn. Bhd., Aerokleen Services Sdn. Bhd. and MAS Catering Sarawak Sdn. Bhd.

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Dato’ Captain Mohd. Nawawi bin AwangSenior General Manager, External Relations

Dato’ Nawawi, an airline pilot by profession, is a member of the Chartered Institute of Logistics and Transport (CILT) and holds a Master of Business Administration from the University of Strathclyde, Scotland. He joined MAS in 1975 after 5 years of service with the Royal Malaysian Air Force. Throughout the years, he has progressed through several senior positions in the airline, including the role of Senior General Manager of Flight Operations prior to being appointed to his current position. Dato’ Nawawi has also represented MAS in a number of industry-level committees, including at the IATA Operations Committee from 2001 to 2004 and currently spearheads the airline’s efforts to ‘Win Coalitions’, proactively engaging with its stakeholders, namely government ministries and agencies, state governments, members of parliaments, suppliers and business partners. He also leads the airline’s commitment towards Project PINTAR, a GLC-concerted effort in nurturing human capital, which is part of the airline’s Corporate Social Responsibility initiatives. He is also the President of Malaysia Airlines Sports Club (Kelab Sukan MAS) since 2004 and manages 23 sports sub-committees in the Company.

Indira NairSenior General Manager, Communications

Indira Nair, aged 53, held a regional role at Ogilvy Public Relations Worldwide prior to joining Malaysia Airlines in February 2006. At Malaysia Airlines, her remit covers Investor Relations, Media Relations, Internal Communications, Community Relations, Advertising & Promotions, Visual Identity and Customer Response. She has also worked with a number of networks including Edelman Worldwide, Burson-Marstellar and MDK Consultants, as well as the Berjaya Group. Her experience ranges from leading integrated communications campaigns to turning around agency operations and developing/implementing network-wide training programmes.

ANNUAL REPORT 2008 SENIOR MANAGEMENT

Mohd. Azha bin Abdul Jalil Senior General Manager, Finance

Mohd. Azha Abdul Jalil, aged 42, graduated with Bachelor degree in Accounting (High Distinction) from Indiana University, Bloomington, USA. He joined MAS in July 2007. Prior to joining MAS, he held eight different positions in Shell group of companies within a span of 17 years. The assignments included as General Finance Manager of Shell MDS Malaysia, Senior Analyst (Business Performance & Strategy) at Shell International London, Finance Manager (Commercial) of Shell Malaysia Trading Berhad and several other finance positions at Sarawak Shell Berhad. He started his career with KPMG Peat Marwick.

Effendi bin Abdul RahmanSenior General Manager, Human Resources

Effendi bin Abdul Rahman, aged 53, holds a Bachelor degree in Computing Science from Imperial College London and Masters in Business Administration from Ohio University, USA. He was appointed Senior General Manager, Human Resources in April 2006 and has instituted many changes in the airline’s human resources operations and strategy since, including the organisation-wide implementation of the Performance Management System. Before joining MAS, he was the Human Resources Director in Dutch Lady Milk Industries Berhad. Prior to Dutch Lady, Mr. Effendi held a similar role at Texas Instruments. Mr. Effendi also has extensive business related experience in other management roles at other organisations such as Northern Waste Industries, Proton and Time Telecommunications.

Shahari bin SulaimanManaging Director, MASkargo

Shahari Sulaiman, aged 46, graduated from the University of Southern California with a Bachelor of Science (B.Sc) in Aerospace Engineering in 1985. He subsequently joined Malaysia Airlines and had served 15 years in various technical capacities in Engineering Division. In early 2001, he was brought into MASkargo as a Senior Management team member to turn around the company and has held various key positions over the last 7 years. He was appointed to the current position in September 2007.


Mohd. Salleh Ahmad TabraniManaging Director, MASwingsGeneral Manager, Transition Management

Salleh, aged 46, graduated in 1985 with an Honors Bachelor degree in Economics from University of Waterloo, Ontario, Canada. He joined MAS in 1986 as a Management Trainee. Since then, he has held several management positions at various locations within domestic and international network of MAS which includes posting in Malaysia, Brunei, Germany, Holland, USA and Australia. Over the last 23 years, given his wide international experience, he has progressively assumed higher management positions and responsibilities within MAS. His current management responsibilities include being Board of Director for MAS subsidiaries such as Golden Boutique Sdn. Bhd. and Golden Holidays Sdn. Bhd. He is also a faculty member of MAS Leadership Development Program.

Mohd. Roslan bin IsmailManaging Director, MAS Aerospace Engineering Senior General Manager, Engineering & Maintenance

Mohd. Roslan bin Ismail, graduated with a Master of Science (M.Sc), (Transport Planning) from Universiti Teknologi Malaysia (UTM), Skudai, Johor, in 1996 and holds a Malaysian DCA Aircraft Maintenance Engineer’s License. He started his career in MAS as a Licensed Aircraft Maintenance Engineer and has more than 28 years of working experience in the Engineering Division. He is currently a member of the Board of Directors of Malaysian Institute of Aviation Technology (MIAT), Honeywell Aerospace Services (M) Sdn. Bhd., GE Engine Services Malaysia Sdn. Bhd. (GEESM) and Hamilton Sundstrand CSC (M) Sdn. Bhd. He is also the Managing Director of MAS Aerospace Engineering Sdn. Bhd., a wholly owned subsidiary company of MAS.

Eddy Leong Chin TungManaging Director, Firefly

Eddy Leong Chin Tung, aged 36, graduated with a Bachelor of Business in Accounting from the RMIT University of Melbourne, Australia and also a member of the Institute of Chartered Accountants in Australia as well as for Malaysian Institute of Accountants. Prior to joining MAS in 2003, Eddy Leong was in the Audit & Business Advisory and Business & Risk Consulting units in Arthur Andersen (which merged with Ernst & Young in 2002) from 1997 to 2003. He has held various key positions within MAS including Project Director of MAS Hotels & Boutiques Sdn. Bhd., Head of Project Management Department, Assistant General Manager for Airport & Inflight Operations (Quality Assurance), and Assistant General Manager, Turnaround Management Office until 2007. Currently, Eddy Leong holds the position of Managing Director of FlyFirefly Sdn. Bhd., a subsidiary airline of MAS.

Dr. Amin KhanSenior General Manager, Network & Revenue Management

Dr. Amin Khan graduated from the Cranfield School of Management, United Kingdom, with an MBA and PhD in Management. He is a licensed aircraft engineer and a certified Six Sigma Black belt holder. He has held various key positions in the Company, namely in Engineering, Internal Audit, Network Planning and Revenue Management, Human Resources (Training and Development), Sales and Regional Manager of the China region. Prior to his appointment to his current position, he was double hatting as the Senior General Manager for Transition Management that leads the development and implementation of the Passenger Services System including eCommerce and the Managing Director of MASwings a subsidiary of MAS that provides rural air services in East Malaysia. He is currently heading the Network, Revenue Management and Distribution in MAS.

��

Dato’ Bernard FrancisSenior General Manager, Sales

Dato’ Bernard Francis, aged 39, holds Bachelor degree from Universiti Kebangsaan Malaysia and Masters in Business Administration (International Business) from Universiti Malaya. He was entrusted with the new role of Senior General Manager Sales in overseeing the entire sales function systemwide. Also, he double-hat as the Regional Manager for Malaysia & ASEAN. Prior to the appointment to his current position in November 2008, Bernard headed Network, Revenue Management and Distribution and played a pivotal role in the rationalisation of both the International and Domestic networks, instituted many structural changes to Revenue Management Optimisation since, including Fare Class Realignment and Fare Distributions. Bernard managed to increase the Company’s yield which resulting an impressive improvement of 39%. Before joining MAS, he was the Regional Director, Route Revenue and Distribution with responsibilities covering AirAsia Malaysia, Thai AirAsia and Indonesia AirAsia. His past experience with YTL Group includes Project Financing and Mergers and Acquisitions related to energy, cement, property, hotels and information technology.

Captain Dr. Ooi Teong SiewGeneral Manager, Corporate Safety, Security, Health, Environment

Captain Dr. Ooi, age 55, joined MAS as a cadet pilot in 1972. He became Captain at age of 25 and has held various key management pilot positions for the last 26 years. He holds a Master of Business Administration from the University of Bath and a Doctor of Business Administration from the University of Newcastle. He is an associate lecturer in corporate strategy and change management for the Malaysian Institute of Management.

Raja Azura Raja MahayuddinChief Internal Auditor

Raja Azura Raja Mahayuddin, aged 36, graduated with a Bachelor of Accounting (Hons) from Universiti Utara Malaysia. Before joining MAS, she had served Arthur Andersen & Co for 4 years. She is a Chartered Accountant (CA), Certified Internal Auditor (CIA) and has obtained the Certification in Control Self Assessment (CCSA). She has been actively involved with the International Association of Airline Internal Auditors (IAAIA) as a member of the Executive Committee and has recently been appointed as the Chairperson of the IAAIA for financial year 2008 and 2009. She is also the Chairman of Whistleblower Independent Committee since the roll-out of the programme in 2006. Prior to the appointment to her current position in March 2005, she assisted the organisation in establishing the Organisation & Methods Department and participating in several corporate initiatives including developing of Corporate Safety and Security Management Manual (CSSMM), development of Corporate Approving Authority Manual (CAAM), Enterprise Content Management System (ECMS), and Regional Management Development Programme.

Rizani bin HassanCompany Secretary

Rizani bin Hassan, graduated from MARA Institute of Technology in 1986 with a Diploma In Law and thereafter, with an Advanced Diploma In Law, he went on to do his post graduate courses and graduated with a Post Graduate Diploma in Syariah Law and Practice and Masters In Comparative Law from the International Islamic University in 1992 and 1994 respectively. He was a Legal Officer with a Government statutory body from 1987 to 1990 before he left the service to join a law firm as an advocate and solicitor. He joined MAS on 15 July 1994 as a Legal Corporate Counsel and thereafter as General Counsel until 2002 when he was transferred to Group Secretarial Practice as the Group Company Secretary.

ANNUAL REPORT 2008 SENIOR MANAGEMENT

�� MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)�� MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

��

35

Pushing The Limits As Asia Pacific’s Leading MRO

MAS Aerospace Engineering


Ten Years Statistical Review of the Group

31-Dec 31-Dec 31-Dec 31-Dec 2008 2007 2006 2005 ̂

FINANCIAL*

Total Revenue (RM’000) 15,035,303 14,630,231 13,407,240 9,181,338

Total Expenditure (RM’000) 15,198,257 14,357,514 13,641,880 10,434,634

Taxation (RM’000) (19,086 ) (29,590 ) (60,618 ) (18,657 )

Profit/(Loss) after Tax And Exceptional Item (RM’000) 245,697 852,743 (133,737 ) (1,251,603 )

Shareholders’ Funds (RM’000) 4,185,698 3,934,893 1,873,425 2,009,857

Profit/(Loss) as a % of Revenue (%) 1.6 5.8 (1.0 ) (13.6 )

Return on Shareholders’ Funds (%) 5.9 21.7 (7.1 ) (62.3 )

Earnings/(Loss) Per Share (sen) 14.6 58.0 (10.9 ) (100.2 )

PRODUCTION

Network Size (KM) 387,987 421,075 525,784 505,376

Time Flown (Hours) 364,013 356,295 3 81,134 314,087

Distance Flown (000 KM) 236,031 239,699 249,925 207,117

Available Capacity (000 TKM) 8,503,203 9,579,101 9,525,623 7,716,059

Available Passenger Capacity (000 Seat KM) 53,378,580 56,227,787 58,923,735 49,785,977

TRAFFIC

Passenger Carried (000) 13,760 14,213 15,466 13,852

Passenger Carried (000 Pax KM) 36,176,166 40,162,186 41,099,612 35,604,763

Passenger Load Factor (%) 67.8 71.4 69.8 71.5

Cargo Carried (000 TKM) 2,445,021 2,621,597 2,593,332 1,948,761

Mail Carried (000 TKM) 8,965 4,721 4,309 2,131

Overall Load Carried (000 TKM) 5,750,376 6,305,358 6,359,430 5,205,283

Overall Load Factor (%) 67.6 65.8 66.8 67.5

STAFF

Employee Strength (At 31 Dec/31 March) 19,094 19,423 19,596 22,835

Revenue Per Employee (RM’000) 787 753 684 402

Available Capacity Per Employee (TKM) 445,334 493,183 486,100 337,905

Load Carried Per Employee (TKM) 301,161 324,634 324,527 227,952

* As per Audited Financial Statements for the financial year under review.^ For 9 months ended 31 December 2005 as a result of change in financial year end to 31 December.# Financial year under review from 1 April to 31 March.

��ANNUAL REPORT 2008 FINANCIAL & STATISTICAL HIGHLIGHTS ��

2004 2003 2002 2001 2000 1999 2005 # 2004 # 2003 # 2002 # 2001 # 2000 #

11,364,309 8,780,820 8,864,385 8,695,150 9,712,097 8,288,273

11,046,764 8,591,157 8,872,391 9,569,435 10,336,829 9,566,041

(35,707 ) (117,543 ) (5,017 ) (14,898 ) 26,683 18,813

326,079 461,143 336,531 (835,562 ) (417,428 ) (258,574 )

3,318,732 3,023,984 2,562,841 1,215,290 1,252,148 3,222,276

2.9 5.3 3.8 (9.6 ) (4.3 ) (3.1 )

9.8 15.2 13.1 (68.8 ) (33.3 ) (8.0 )

26.0 36.8 38.7 (108.5 ) (54.2 ) (33.6 )

504,051 445,263 439,547 453,720 488,243 366,578

411,134 352,540 357,328 340,741 349,352 330,205

265,050 227,865 228,762 201,189 191,668 200,223

10,299,867 8,413,110 7,977,845 7,823,943 8,054,870 7,531,473

64,115,190 55,692,377 54,265,627 52,594,942 51,237,536 48,905,537

17,536 15,375 16,325 15,734 16,745 15,371

44,226,090 37,658,910 37,652,955 34,708,514 38,312,570 34,930,136

69.0 67.6 69.4 66.0 74.8 71.4

2,686,783 2,184,226 2,071,271 1,759,209 1,837,426 1,664,600

3,004 2,840 2,054 2,014 1,830 2,828

6,728,547 5,628,573 5,496,735 5,149,942 5,379,101 4,853,377

65.3 66.9 68.9 65.8 66.8 64.5

22,513 20,789 21,916 21,438 21,518 21,587

505 422 429 406 451 384

457,508 404,690 364,019 364,957 374,332 348,889

298,874 270,748 250,809 240,225 249,981 224,829


31-Dec 31-Dec Change 2008 2007 %GROUP

FinancialTotal Revenue RM Million 15,035.3 14,630.2 2.8Total Expenditure RM Million 15,198.3 14,357.5 5.9Profit After Tax RM Million 245.7 852.7 (71.2 )Shareholders’ Funds RM Million 4,185.7 3,934.9 6.4Earnings Per Share Sen 14.6 58.0 (74.8 )Dividends Per Share Sen 0.0 0.0 0.0 Cashflow Per Share RM (0.4 ) 1.6 (125.0 )

Operating StatisticsAvailable Tonne Kilometres Million 8,503.2 9,579.1 (11.2 )Load Tonne Kilometres Million 5,750.4 6,305.4 (8.8 )Overall Load Factor % 67.6 65.8 2.7Available Seat Kilometres Million 53,378.6 56,227.8 (5.1 )Passenger Kilometres Flown Million 36,176.2 40,162.2 (9.9 )Passenger Load Factor % 67.8 71.4 (5.1 )

Staff and ProductivityEmployee Strength 19,094 19,423 (1.7 )Available Tonne Kilometres Per Employee 445,334 493,183 (9.7 )Load Tonne Kilometres Per Employee 301,161 324,634 (7.2 )

COMPANY

Operating StatisticsAvailable Tonne Kilometres Million 6,815.3 7,494.6 (9.1 )Load Tonne Kilometres Million 4,723.3 5,066.2 (6.8 )Overall Load Factor % 69.3 67.6 2.5Available Seat Kilometres Million 52,868.0 56,104.3 (5.8 )Passenger Kilometres Flown Million 35,868.4 40,096.0 (10.5 )Passenger Load Factor % 67.8 71.5 (5.1 )Aircraft Utilisation (Average) Hours Per Day 11.1 11.5 (3.5 )

Staff and ProductivityEmployee Strength 17,571 17,991 (2.3 )Available Tonne Kilometres Per Employee 387,869 416,575 (6.9 )Load Tonne Kilometres Per Employee 268,811 281,598 (4.5 )

Performance Highlights

��

31-Dec 31-Dec Change 2008 2007 RM MIL RM MIL %GROUP

Staff Costs 2,171.9 2,125.2 2.2Depreciation 327.9 344.6 (4.8 )Fuel and Oil 6,531.6 4,915.8 32.9Handling and Landing Costs 1,717.3 1,738.6 (1.2 )Hire of Aircraft and Equipment 1,906.0 2,119.4 (10.1 )Finance Charges 60.8 46.9 29.6Commission and Incentives 507.7 524.3 (3.2 )Others 1,975.1 2,542.7 (22.3 )

15,198.3 14,357.5 5.9

COMPANY

Staff Costs 1,960.9 2,001.1 (2.0 )Depreciation 294.1 302.4 (2.7 )Fuel and Oil 5,732.1 4,271.2 34.2Handling and Landing Costs 1,544.0 1,557.3 (0.9 )Hire of Aircraft and Equipment 1,569.7 1,686.2 (6.9 )Finance Charges 59.3 46.8 26.7Commission and Incentives 484.7 511.6 (5.3 )Others 1,759.7 2,218.9 (20.7 )

13,404.5 12,595.5 6.4

Staff Costs Depreciation Fuel and Oil Handling and Landing Costs

Hire of Aircraft and Equipment

Finance Charges

Commission and Incentives

Others

Group Expenditure 31 Dec 200831 Dec 2007

14.3 14.8

2.2 2.4

43.0

34.2

11.312.1 12.5

14.8

0.4 0.33.3 3.7

13.0

17.7

%

50.0

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

ANNUAL REPORT 2008 FINANCIAL & STATISTICAL HIGHLIGHTS

Expenditure


31-Dec 31-Dec Change 2008 2007 * %

Route Revenue (RM MIL)

Malaysia 1,388.4 1,342.9 3.4Asia 1,641.0 1,849.4 (11.3 )Europe and Middle East 3,148.7 3,339.8 (5.7 )Australia and New Zealand 1,649.5 * 1,754.5 (6.0 )Africa and South America 249.7 249.2 0.2Orient and North America 2,270.9 2,652.4 (14.4 )

* Restated 10,348.2 * 11,188.2 (7.5 )

Passenger Load Factor (%)

Malaysia 67.8 66.5 2.0Asia 60.7 65.5 (7.3 )Europe and Middle East 74.9 77.1 (2.9 )Australia and New Zealand 73.6 79.9 (7.9 )Africa and South America 72.6 73.2 (0.8 )Orient and North America 60.6 65.1 (6.9 )

67.8 71.4 (5.0 )

Overall Load Factor (%)

Malaysia 64.1 62.3 2.9Asia 65.2 65.6 (0.6 )Europe and Middle East 71.1 69.0 3.0Australia and New Zealand 68.6 67.8 1.2Africa and South America 64.2 53.7 19.6Orient and North America 64.3 62.0 3.7

67.6 65.8 2.7

Malaysia Asia Europe and Middle East

Australia and New Zealand

Africa and South America

Orient and North America

Revenue Composition by Route 31 Dec 200831 Dec 2007

13.412.0

15.9 16.5

30.429.9

15.9 15.7

2.4 2.2

22.023.7

%

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

By Geographical Route Region

Analysis of Airline Operations (Including Freighter)

��

31-Dec 31-Dec Change 2008 2007 RM MIL RM MIL %GROUP

Passenger and Excess Baggage 8,668.5 9,352.0 (7.3 )Cargo and Mail 1,615.3 1,750.4 (7.7 )Airport Services 420.3 354.9 18.4Charters 197.6 139.3 41.9Others 4,133.6 3,033.6 36.3

15,035.3 14,630.2 2.8

COMPANY

Passenger and Excess Baggage 8,546.5 9,327.4 (8.4 )Cargo and Mail 1,031.2 955.7 7.9Airport Services 408.4 354.9 15.1Charters 165.2 116.3 42.0Others 3,095.9 2,146.8 44.2

13,247.2 12,901.1 2.7

Passenger and Excess Baggage

Cargo and Mail

AirportServices

Charters Others

Revenue Composition by Category 31 Dec 200831 Dec 2007

57.7

63.9

10.712.0

2.8 2.4 1.3 1.0

27.5

20.7

%

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

By Category


Revenue Composition


RM

2.5

2.0

1.5

1.0

0.5

0.0

- 0.5

- 1.0

Cash Flow Per Share

Sen

100.0

50.0

0.0

- 50.0

- 100.0

- 150.0

- 200.0

Earnings/(Loss) Per Share

99/00

0.6

02/03

1.1

03/04

0.9

04/05

0.5

31 Dec05

(0.4)

31 Dec06

(0.1)

31 Dec07

1.4

31 Dec08

(0.4)

01/02

1.5

(33.6)

99/00

(173.2)

00/01

(108.5)

01/02

38.7

02/03

36.8

03/04

26.0

04/05

(100.2)

31 Dec05

(9.8)

31 Dec06

58.0

31 Dec07

14.6

31 Dec08

00/01

0.0

Group Financial Highlights

��

Net Tangible Assets Per ShareRM

�.�

�.0

�.�

�.0

�.�

�.0

0.�

0.0

99/00

�.�

00/01

0.�

01/02

�.0

02/03

�.0

03/04

�.�

04/05

�.�

31 Dec05

�.�

31 Dec06

�.�

31 Dec07

�.�

31 Dec08

�.�

00/0101/0202/0303/0431 Dec05

31 Dec06

31 Dec07

31 Dec08

Sen

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Dividends Per Share

99/00

2.0

04/05

2.5



31 Dec08

Overall Capacity and Demand

31 Dec07

31 Dec06

31 Dec05

04/05 03/04 02/03 01/02 00/01 99/00

Revenue Tonne KilometresAvailable Tonne Kilometres

31 Dec08

Overall Load Factor

31 Dec07

31 Dec06

31 Dec05

04/05 03/04 02/03 01/02 00/01 99/00

31 Dec08

Passenger Capacity and Demand

31 Dec07

31 Dec06

31 Dec05

04/05 03/04 02/03 01/02 00/01 99/00

Revenue Passenger KilometresAvailable Seat Kilometres

5,75

0

8,50

3 9,57

9

6,35

9

6,30

5

5,20

5 6,72

9

5,62

9

7,71

6

9,52

6

10,3

00

8,41

3

7,97

8

5,49

7

5,15

0

5,37

9

4,85

3

7,82

4

8,05

5

7,53

1

36,1

76

53,3

79

56,2

28

41,1

00

40,1

62

35,6

05

44,2

26

37,6

59

49,7

86

58,9

24 64,1

15

55,6

92

54,2

66

37,6

53

34,7

09

38,3

13

34,9

30

52,5

95

51,2

38

48,9

06

67.6

66.8

65.8

67.5

65.3

66.9

68.9

65.8

66.8

64.4

Million

12,000

10,000

8,000

6,000

4,000

2,000

0

%

69.0

68.0

67.0

66.0

65.0

64.0

63.0

62.0

Million

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

Corporate Charts

��

31 Dec08

Cargo Carried

31 Dec07

31 Dec06

31 Dec05

04/05 03/04 02/03 01/02 00/01 99/00

No. of Aircraft No. of Aircraft in Malaysia Airlines Operation in Malaysia Airlines Operation as at 31 December 2008 as at 31 December 2007

B747-400P 13 13

B747-200/400F 7 6

B777-200 17 17

A300-600F 1 0

A330-300 11 11

A330-200 3 3

B737-400/800 37 37

ATR72-500 6 0

F50 9 10

DHC-6 5 5

Total 109 102

Fleet Status

2,44

5

2,59

3

2,62

2

1,94

9

2,69

0

2,18

7

2,07

1

1,75

9

1,83

7

1,66

5

3,000

2,500

2,000

1,500

1,000

500

0

Million Tonne

Kilometres



Challenging Conventions To Win Niche Markets Globally

MASkargo

��

47


Chairman’s Statement

We maintained commendable momentum and progressed through the first year of our Business Transformation Plan (BTP 2) despite tremendous external pressures.

Dear Shareholders,

Against the backdrop of a highly challenging operating environment, Malaysia Airlines recorded a profit of RM244 million for the financial year 2008, sustaining 10 consecutive quarters of profits which began in 2006 when we embarked on our turnaround journey.

Having accomplished the Business Turnaround journey which began in 2006 a year ahead of time, we launched the BTP 2 in February 2008. The BTP 2 provided continuity to the momentum built up during the turnaround and to fundamentals required to transform and achieve our vision of becoming The World’s Five Star Value Carrier (FSVC). This means providing 5-Star products and services at affordable prices.

The launch of the BTP 2 and the business assumptions made then proved extremely relevant. In the BTP 2, we had anticipated signs of deepening competition and worsening market conditions, particularly in

Asia. It could not have come at a better time, as it provided thrusts and strategies to fast track the transformation in one of the most challenging times for airlines globally. As the year progressed, the industry was transported into uncharted territory.

While we battled high fuel prices during the first 8 to 9 months, the rest of the year we faced a global economic slowdown. Airlines faced their biggest crisis ever as jet fuel price breached unprecedented levels, skyrocketing to US$182 per barrel. The situation was further compounded by overcapacity, liberalisation and the weakening global economy, which put pressure on yields and profit margins.

With this in mind, we fast tracked our BTP 2 initiatives to grow our customer base and accurately manage pricing and yields. Over the year, we saw passenger yields improve by 13% from 2007 to 30.3 sen/RPK (Revenue Passenger Kilometre). This represents record passenger yield improvement of 60% over the last three years since embarking on transformational route profitability and revenue enhancement initiatives.

We also continued to improve the way in which we managed our costs. Structural cost cutting initiatives saw the highest level of cost savings of RM936 million in a single year since 2006. Relentless in improving our operational efficiency without compromising safety and quality, we were disciplined in implementing various operational efficiencies which saw us achieving more than RM2 billion cost savings over the last 3 years.

As we continue to transform ourselves, we are mindful that we have to keep improving our customer value proposition to elevate our customers’ experience and add greater convenience. As one of the six 5-Star rated airlines by Skytrax, we received the World’s Best Cabin Staff award for 2008, a true testament to our commitment to delivering the highest quality products and services at affordable prices under our vision of becoming The World’s Five Star Value Carrier. For the year under review, we are pleased that Malaysia Airlines had garnered over 20 accolades and awards, including the Aviation Week magazine recognition which ranked us as the world’s second best full-service carrier in the strongest financial shape to face the current challenges.

Malaysia Airlines recorded a profit of RM244 million

for the financial year 2008, sustaining 10 consecutive

quarters of profits

��ANNUAL REPORT 2008 CHAIRMAN’S STATEMENT ��

The brand new Regional Golden Lounge in Kuala Lumpur

International Airport - our way of taking care of our

loyal customers. t

“

“


In everything that we do, there is absolutely no compromise on safety. We are committed to protecting the well-being of our passengers, workforce and stakeholders through the effective and stringent implementation of good occupational safety, health and security practices in all our business operations.

A monthly safety performance report is provided to the Board of Directors’ meeting as the first item on the agenda. In 2008, the Corporate Safety, Security, Health and Environment team focused on the implementation of the Safety Management System. Effective 1 January 2009, its adoption became mandatory for all airlines in Malaysia. In recognition of our commitment to occupational safety and health, Malaysia Airlines was awarded the National Occupational Safety and Health Excellence Gold Award in July 2008, the first for an airline in Malaysia.

GLC TRANSFORMATION AND PROJECT PINTAR

For the year under review, Malaysia Airlines was “on target” in its overall business performance against our corporate scorecard in 2008 under the Government-Linked Companies Transformation (GLCT) Programme. The net profit of RM244 million achieved for the financial year 2008 was within the threshold range of our 2008 corporate scorecard. We are proud of this achievement as it was

attained amidst oil price volatility, global economic downturn and overcapacity in the Asia Pacific region.

We have remained on track with our structural cost reduction KPI targets, “exceeding” the target levels for the year under review. Similarly, our operational measures had exceeded the targets set for the year. We have further improved on baggage delivery which achieved an “outstanding” score while year-on-year on-time performance improved significantly from 80.9% in 2007 to 86.8% in 2008, exceeding the target. With the new KPIs set in the 2009 corporate scorecard, we aspire to achieve equally positive results as we continue to fast track our BTP 2 initiatives.

Project PINTAR

The PINTAR project is a joint community programme by the Government-Linked Companies aimed at promoting education as a vehicle to improve socio-economic imbalances amongst underprivileged children. Together with the schools adopted in 2007, Malaysia Airlines has a total of 13 schools under our wings in 2008. Through this project, Malaysia Airlines has also facilitated a series of outdoor activities which involved coordination by employee volunteers of Kelab Sukan MAS and teachers from both the primary and secondary schools. More information on this project is covered under the Corporate Social Responsibility statement.

INDUSTRY OUTLOOK

Until the end of 2008, more than 30 airlines have failed, while many major carriers reported substantial losses and lower profits. We still remain in the middle of what is termed as the perfect storm.

While we anticipated that the aviation industry in Asia Pacific would come under increasing competitive pressures from increased liberalisation, overcapacity and new competition into the region, the current economic crisis poses a prolonged threat to the recovery of airlines. This is especially true after the onslaught of high fuel prices in 2008. Although the oil price has come off its peak in July 2008,

We are proud of this achievement as it was

attained amidst oil price volatility, global economic

downturn and overcapacity...

��ANNUAL REPORT 2008 CHAIRMAN’S STATEMENT

the volatility and uncertainties surrounding the macroeconomic environment today have caused heavy fare discounting, further denting airlines’ profitability and yields.

The International Air Transport Association (IATA) reported that airlines lost US$8.5 billion in 2008 which started with a fuel price crisis and ended with a revenue crisis that is currently ongoing. In April 2009, IATA had predicted that airlines will lose a further US$4.7 billion in 2009 and the situation is expected to deteriorate further on expectations of a slow economic recovery.

IATA had also indicated that Asian airlines are expected to record the highest losses at US$1.7 billion for 2009 on the back of the crisis as large economies such as India and China are not immune to the global economic slowdown. Although some airlines are expected to benefit from the drop in fuel prices, many airlines in Asia had reported substantial mark-to-market losses on fuel hedging, a matter which we too will have to address.

So far in 2009, it is reported that up to 40 airlines have ceased to operate while some are contemplating consolidation to survive the crisis. Rising to the challenge in the current economic crisis, touted as the worst since the 1930s, the priorities are shared by all airlines - efficiency, cost reduction, careful capacity management and constant attention to safety.

Amidst a global recession that is challenging airlines everywhere, leaders of the airline industry will meet in Kuala Lumpur for the 65th IATA Annual General Meeting and World Air Transport Summit in June 2009. While times remain extremely challenging we are nevertheless delighted and proud to host this global airline event of the year.

MOVING FORWARD

The operating landscape in 2009 is regarded as the toughest ever for the airlines and with uncertainties looming in the economic and operating climate, Malaysia Airlines will stay on track and align our plans closely to the 5-year BTP 2 plan. The vision to emerge as The World’s Five Star Value Carrier remains intact as we aim to provide greater value than our competitors. The various initiatives launched in BTP 2 will continue to provide the much needed thrust to remain agile under the current operating environment. For this, our focus for 2009 will be anchored on 3 key thrusts – Serve Customers, Make Money and Save Money.

We have maintained a healthy balance sheet since our turnaround and it is crucial given the current economic crisis that we continue to be prudent in our capital management strategy. The cash and negotiable deposits balances of RM4.6 billion as at 31 December

2008 will also provide us with the flexibility to remain agile during this challenging operating environment and allows us to capitalise on any opportunity that may emerge.

ACKNOWLEDGEMENTS

Malaysia Airlines’ success to date has been made possible by efforts and sacrifices of our dedicated and talented team of managers and employees. On behalf of the Board, I wish to convey my deepest gratitude to these hardworking individuals and ask that they continue to uphold their commitment to excellence. Our sincere appreciation must also go to the government, our regulators, business partners and investors for their unwavering support. I would also like to thank my colleagues on the Board for their guidance and insights in driving Malaysia Airlines forward. Even as we move forward to embrace the many opportunities before us and prepare to overcome emerging challenges, rest assured that your Board will continue to make a concerted effort to create and build on shareholder value.

On behalf of the Board, I would also like to take this opportunity to thank Dato’ Zaharaah binti Shaari for her years of service as a member of the Board. Dato’ Zaharaah, who had been on the Board since 1999, was a member of the Board Audit Committee and served as a Non-Executive Director until 10 September 2008. We are extremely grateful for her invaluable contributions to Malaysia Airlines.

I also thank all our customers for their strong endorsement of our services. Malaysia Airlines, in turn, is deeply committed to supporting efforts that uplift the lives of our customers and surrounding communities.

Having faced the challenges of the past year, we brace ourselves to face even greater challenges ahead, and are determined to emerge stronger and to realise our vision of becoming The World’s Five Star Value Carrier.

Tan Sri Dr. Mohd. Munir bin Abdul MajidChairmanMalaysia Airlines

April 2009


The philosophy of the BTP 2 is aiming and planning for the best, assuming the worst. We have to build a ship that can weather the storm. Together, we will continue to achieve the impossible.

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��ANNUAL REPORT 2008 MANAGING DIRECTOR’S STATEMENT

Managing Director’s Statement

ANNUAL REPORT 2008 MANAGING DIRECTOR’S STATEMENT

Having seen how much we have achieved in the first year of the Business Transformation Plan (BTP 2), we know we have the right strategy to survive the crisis.

In an extremely challenging environment in Asia, Malaysia Airlines

has remained resilient.

2008 was a watershed year for the airline industry. First, we were hit by the high fuel price which went up to US$182 per barrel. While we were figuring out how to hedge against this possibility, we were suddenly slammed by the economic crisis.

Yet, against this landscape of the toughest business environment where more than 30 airlines have failed and many have announced losses, we have remained resilient and registered a net profit of RM244 million.

This achievement is only possible because of our BTP 2 approach, “Prepare for the worst but aim and plan for the best.” We assume that the world would be a very tough place by 2012. In the worst case

scenario, margins and yield will go down 5% respectively year-on-year.

Instead of 2012, the worst case scenario is happening now. For us, the Key Business Activities (KBAs) in the BTP 2 that we have identified are the right things to do and we have fast tracked these initiatives which are grounded in the profit and loss (P&L).

These KBAs are grouped under a 4 pillar strategy - dynamic pricing to grow our customer base; network optimisation to ensure that we retain the correct balance in our network and fleet utilisation given

supply and demand; maintaining the momentum for structural cost reduction without compromising on quality and safety; and innovate by implementing radical initiatives.

This has enabled us to generate revenue with ground breaking projects such as Everyday Low Fares, and Project Delta and Procurement; cut cost by RM936 million while strategising on new KBAs to ensure our future growth.

We are on track with our BTP 2 but challenges remains, and new ones such as the H1N1 flu compounds the situation. In times like this, we adhere to one simple critical success factor: Anchor everything on the P&L. This remains our single minded focus to transform Malaysia Airlines into The World’s Five Star Value Carrier i.e. an airline that provides 5-Star products and services at affordable prices.

We continue to chart our path and remain focused on five bold steps which make up the Virtuous Cycle of Profitable Growth:

Step 1 - 5-Star: We must maintain the high quality products and services offered (5-Star) and these have to be constantly matched to the specific needs of our customers;

Step 2 - Lower Costs: We must reduce our structural and operational costs, without compromising on safety and security;

Step 3 - Competitive Fares: With a lower cost base, we will be able to offer low and competitive fares to our customers, and still be able to make a profit;

Step 4 - Get more customers, more revenue: With high quality products and services at low/competitive fares, more passengers will choose to fly on Malaysia Airlines. This translates into more revenue;

Step 5 - Grow network, build capacity: With more revenue and profit, we can invest in growing our network and building our capacity. We will open up more routes and acquire more planes, and this leads us to sustainable, profitable growth.


YEAR 1 OF BTP 2

FINANCIAL REVIEW

Our 2008 Corporate Scorecard’s aspiration KPIs were RM400-550 million (on target), RM551-650 million (exceeding) and RM651-1,000+ (outstanding). These headline KPIs were based on reasonable business assumptions including jet fuel at US$100 per barrel.

For the financial year 2008 which saw jet fuel price hitting US$182 per barrel, and our fuel cost increasing by RM1.6 billion compared to 2007, we registered a net profit of RM244 million, achieving the “threshold” target against our scorecard.

Group revenue increased 2% to RM15.5 billion. Malaysia Airlines’ passenger revenue improved marginally by 1% to RM11.0 billion even though capacity was reduced by 6% and seat factor declined by 3.7 percentage points to 67.8%.

We continued to register marked improvements in passenger yield and Revenue per Available Seat Kilometre (RASK). Yield increased by 13% from 27.0 sen/RPK to 30.3 sen/RPK year-on-year while RASK was up 7% to 20.6 sen/ASK from 19.3 sen/ASK for the same period. When benchmarked against 2005, when we began our turnaround journey, our yield and RASK have grown an astounding 60% and 45% respectively.

Meanwhile, cargo revenue contracted by 2% to RM2.2 billion as capacity was reduced by 15% to mitigate the challenges of the cargo business. As a result of this, cargo load improved 5.6 percentage points to 67.5%. Yield and Revenue per CTKM improved by 5% and 15% to 90.9 sen/LTKM and 61.4 sen/CTKM respectively.

As part of our BTP 2 strategy, we continued to roll out aggressive structural cost reduction and efficiency measures which resulted in a reduction of 8% in our non-fuel expenditure. However, cost reduction measures only offered partial relief as the average fuel price surged from US$92 per barrel in 2007 to US$129 per barrel in 2008, resulting in a 6% increase in total operating expenditure. Given the circumstances, I am pleased to note that we have achieved our savings target of RM936 million in 2008, building on the savings momentum since embarking on our turnaround journey in 2006.

For the most part of 2008, the high fuel price environment and financial crisis had subjected many airlines to the stress test. Many airlines are confronted with a distressed cash flow and balance sheet.

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Malaysia Airlines’ balance sheet remained healthy following the successful completion of cash generation initiatives over the last 3 years. As at 31 December 2008, its cash and negotiable deposits totalled RM4.6 billion while net cash position stood at RM3.5 billion. The decrease in cash was due mainly to capital expenditure payments in the year for the purchase of the ATR72-500 (ATR) aircraft and pre-delivery payments we have made for our B737-800 aircraft order.

The Group continues to apply prudent capital management strategy to optimise our balance sheet. In 2008, the Group has drawn down RM425 million under its revolving credit facilities for working capital requirement and to finance the purchase of the ATR aircraft. Separately, we also entered into finance lease contracts for 2 ATR aircraft. As at end 2008, our long term borrowings stood at RM986 million, up from RM860 million in 2007.

BUSINESS TRANSFORMATION JOURNEY - FROM BASE CAMP TO FIRST CHECK POINT

ANCHORING ON 4 PILLARS

For the first year of the BTP 2, we mitigated the challenges with a 4 pillar strategy - dynamic pricing, network optimisation, cost management and innovation.

Dynamic Pricing

Dynamic pricing is a key pillar which helped us grow our customer base. Like many airlines, our load factors were impacted by over capacity, liberalisation and the global economic crisis. We knew we had to act swiftly to attract customers.

As oil prices surged in the first 7 months of 2008, we had to review our fuel surcharge progressively to counter the fuel price increase. This allowed us to manage the equilibrium of pricing and surcharges to sustain yield improvement while ensuring our fares remained competitive. This had proven to be effective as our yield continued to improve from 20.5 sen/RPK in 2005 to 30.3 sen/RPK in 2008, representing a 60% growth.

In May 2008, we launched Everyday Low Fares or ELF. We were the first full service airline to offer rock-bottom fares under such a campaign. The rationale was simple - on routes where only around 70% of the seat were taken up, we sold the remaining 30% seats at a discounted price. Intuitively, it appears that by doing this, we would inevitably lose money because we were dropping fares drastically. On the contrary, we recorded sales growth, and our online revenue grew by 150% due to this innovative approach in managing our seat inventory.

Building on this success, we launched our All-Inclusive Low Fares promotion in October 2008 where we reduced our fuel surcharge by 50-73% for domestic travel, ASEAN and Australia. Our promotions had generated significant sales increase. At the launch of our All-Inclusive Low Fares, sales grew significantly.

As a result of the on-going initiatives, over the year, our internet sales recorded an increase of 173% to RM475 million compared to the same period in 2007.

Throughout the year, we continued to provide consumers with special fare promotions. Our dynamic pricing strategy ensures that we are accurately managing pricing and yields.

Network Optimisation

Like many other airlines, we have embarked on a network optimisation strategy. Many airlines had to park their excess aircraft and slash capacity by at least 10% to pare costs. We reduced our capacity by 6% system wide which represented some 3.27 billion ASK (Available Seat Kilometre). Concurrently, we carried out ad-hoc adjustments to ensure that we retained the correct balance in network and fleet utilisation given supply and demand.



directly from the manufacturer and will finance them on our own balance sheet as well as use operating leases. This would also give us the flexibility to manage our balance sheet and financing commitments.

The timing of aircraft delivery is also important. We are hopeful that the economy would have picked up by the time we take delivery of the aircraft. We will also take delivery of 6 A380-800 in 2011, acquired by aircraft lessor Penerbangan Malaysia Berhad.

Meanwhile, Firefly has completed its fleet change. It is currently operating with a fleet of 5 new turboprop aircraft, the French-Italian made ATR72-500 (ATR).

Cost Management

In 2008, we maintained the momentum of structural cost reduction which began in 2006 with the turnaround plan. We achieved savings of RM936 million without compromising on quality and safety.

These savings were achieved through operational efficiencies with various initiatives such as e-ticketing, fuel efficiency programmes, rationalisation of facilities and customer service/preference analysis.

We were also actively mitigating the impact of the fuel price increase in the first eight months of the year. Although the price of fuel fell towards the end of the year, our fuel savings remain relevant and we are continuing our efforts in this area.

We hedged our fuel requirement, fast tracked the fuel efficiency

In times like this, we find that our hub-and-spoke strategy is a way to maintain our profitability. We continued to pursue partners to increase feeder traffic onto our trunk network. To date, we have signed more than 25 code share partnerships to expand our network and reduce the cost of flying into destinations with low-load factors.

In 2008, we signed a code share agreement with Etihad Airways and expanding our partnerships with Air Mauritius, Singapore Airlines and Silk Air. In early 2009, we sealed the missing link in our hub-and-spoke network by signing a code share and network-wide reciprocal Frequent Flyer partnership with Jet Airways to enable us to enhance passenger traffic between Malaysia and India. This will allow us to capture untapped traffic from Jet’s 42 routes in India through the 5 Indian gateways onto our network.

Fleet Replacement

We have developed a 5-year network plan. Our strategy is to match our fleet plans to our network as well as to our hub-and-spoke plans. The aim is to operate cost efficient aircraft and simplifying the fleet by minimising the number of aircraft types.

In March 2008, we ordered 35 firm B737-800 which will be delivered from October 2010 onwards. We have also acquired purchase rights for an additional 20 B737s.

The new fleet will support our aim towards the usage of more agile and fuel-efficient aircraft for our core network in the ASEAN region, including the domestic sector in Malaysia and China as well as India.

Our aim is to ensure that the aircraft for the core network will be the latest in terms of technology. We are purchasing these aircrafts

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programmes, increased fuel surcharges, optimised fares and shut down the lower fare classes, introduced Everyday Low Fares and reduced capacity.

We also instituted tough measures including freezing all recruitment and discretionary training, and prioritising all expenditure projects under the Project Expenditure Committee.

Innovation

Innovation is a core pillar for Malaysia Airlines. My challenge to employees is to find radical ways to do things, and to confront the norm.

In December 2008, we became one of the first airlines in Asia to offer fare branding. We launched Value Fares which provides customers with value and choices. In line with best practices worldwide, we branded our fares and provided full information for each of the fares - MHlow, MHbasic, MHsmart and MHflex – to provide our customers with full control of their travel experience.

One other key project is Project Pit Stop which aims to reduce the ground transit time for selected flights on our Boeing 737-400 fleet. More importantly, this project improves the efficiency and productivity of our resources, enhances our asset utilisation and maintains a high level of on-time arrivals and departures while ensuring continuous safety and customer comfort.

By reducing the ground transit time by 5 minutes for selected flights and using existing free pockets of time in the schedule, 1 Boeing 737-400 aircraft was released and was deployed on additional domestic routes. This helped us provide more frequencies and connectivity to our passengers at low cost.

NO COMPROMISE TO SAFETY & QUALITY

SAFETY

Safety remains an integral part of our 5-Star MH delivery to our customers. In everything that we do, there is absolutely no compromise to safety. In 2008, Corporate Safety, Security, Health and Environment (CSSHE), which reports directly to the Managing Director’s Office, focused on the implementation of the Safety Management System (SMS).

A total of 603 safety action activities were identified and

appropriate processes put in place for different reporting levels to the management and the Board. These range from the monthly Safety Council Meetings to Accountable Managers’ Meeting and the Board Safety Security Council Meeting.

We have developed a comprehensive Corporate Emergency Operations Manual (CEOM) as a guiding force in our endeavour to handle all types of emergencies as effectively and efficiently as possible. In 2008, the Emergency Operations Committee (EOC) has implemented several initiatives to further enhance the effectiveness of the emergency operations such as air crash exercise, hijack exercise, search and rescue exercise, table top exercise and recruitment of additional Special Assistance Team volunteers with special emphasis on Family Assistance.

We will renew our IATA Operational Safety Audit (IOSA) in May 2009 and also certify our ground operations to the new IATA Safety Audit for Ground Operations (ISAGO) standards by July 2009. These certifications are prerequisites to be a member of IATA and to ensure that we have the operational safety integrity of best practices in the industry.

ENVIRONMENTAL PROTECTION

Our commitment to conserving the environment remains strong and we ensure that our operations conform to international and national standards with regard to reducing noise and emissions. We will be guided by the International Civil Aviation Organization (ICAO) and IATA in all the activities we undertake to support



audits. The results have been extremely beneficial as it highlighted weaknesses and breakages which the teams then collaborated with the business owners to fix the problems. An example is the DoA Aircraft Sweep series which was introduced to ensure that we deliver a consistently high level of serviceability onboard the aircraft.

At the same time, we rolled out new services such as the inflight mobile connectivity which allows customers to use BlackBerry® type devices and mobile phones to send/receive emails and text messages, and to make/receive voice calls.

In addition, we made it more convenient for customers to access our ticketing centres. Our renovated flagship store in KL Sentral was opened in December 2008. Occupying 3,800 square feet, this one-stop centre boasts 27 counters manned by 60 staff, offering the full plethora of services for MAS, Firefly, MASwings, Enrich, MASholidays, and more. To add to passengers’ convenience, we introduced the web and self-service kiosk check-in at the Kuala Lumpur International Airport.

We will also be opening a new ticket office at SkyPark Subang Terminal (formerly Terminal 3 of Sultan Abdul Aziz Shah Airport), which is targeted at customers in the growing commercial and residential areas of Subang, Shah Alam, Ara Damansara, Kota Damansara, Taman Tun Dr. Ismail, Damansara Perdana, Kelana Jaya, Sunway, Klang and beyond.

industry environmental initiatives and have been a member of the Association of Asia Pacific Airlines (AAPA) Environmental Working Group since May 2004.

We have actively embarked on voluntary carbon offset and forest conservation programmes to help fund selected United Nations-sanctioned programmes to protect rainforests in Malaysia. Internally, we have also established an Environmental Management System management framework by which our impact on the environment can be systematically identified and reduced through more efficient and better resource utilisation.

We are also preparing for the European Union Emission Trading Scheme (EUETS) monitoring plan which is required by August 2009. The plan will show how we will monitor and report the required revenue ton km and fuel emissions data to the European Union before the 2012 implementation date.

QUALITY

We continue to strive to delight our customers as we invest in improving our products and services in line with our commitment to delivering the highest quality at affordable prices.

We launched MH=Malaysian Hospitality, which is about consistently delivering a seamless, hassle free experience to our customers. Today, we have more than 700 customer focused initiatives. These are aimed at improving our front liners’ interaction skills and service delivery, and improving our physical product and service offerings.

One novel concept, Discipline of Action (DoA) series, was introduced in 2008. This had staff from across the company perform end-to-end

��ANNUAL REPORT 2008 MANAGING DIRECTOR’S STATEMENT

AWARDS & RECOGNITIONIn 2008, we continued to be acknowledged as an award winning airline. We received 21 awards ranging from recognition for our products and services, to our financial performance.

Notable ones include being one of only 6 airlines worldwide to be accredited a “5-Star Airline” status by Skytrax, and making it to the Top 10 Airlines in the World by SmartTravelAsia.com.

In addition, we received the Phoenix Award by Air Transport World (ATW), the leading monthly magazine covering the global airline industry. The Phoenix Award recognises airlines that have gone through a life changing transformation.

Similarly, Aviation Week magazine ranked us as the second best amongst the world’s top full-service carriers to face the current challenges citing the underlying survivability factors such as disciplined operational improvements, sounds management, focus on efficiency and liquidity.

MOVING FORWARD

KEY CHALLENGES

2009 is the toughest year ever for the airline industry. My term for this is “quadruple squeeze”.

Firstly, while oil price has dropped to US$50 per barrel which required airlines to reduce their fuel surcharge, most airlines

(including ourselves) have hedged their fuel requirements at US$100 per barrel. This means many airlines including Malaysia Airlines are actually paying for fuel at prices which are significantly above the current market prices.

Secondly, we are also hit by falling passenger and cargo demand due to the economic crisis. Both IATA and AAPA have provided statistics that show declining trends globally and also within Asia Pacific. Thirdly, the overcapacity in the region and the lack of fare discipline in the industry compounds the problem. Lastly, we are now faced with the Influenza A (H1N1 virus), which is resulting in more people reconsidering their travel plans.

KEY BUSINESS AREAS (KBAs) IN 2009

Our strategy to survive this crisis is based on the following 3 interlinked thrusts:

• Serve Customers – Improve our products/services and service delivery

• Make Money – Anchor all initiatives on the P&L and continue to innovate

• Save Money – Continue to reduce and contain costs

SERVE CUSTOMERS

We cannot emphasise enough how important it is for us as a company to deliver MH all the way. To reflect how serious the Management views this, we have revised the corporate scorecard for 2009 to reflect a higher weightage for Customer Value Proposition (CVP) from 8 to 10%.

Whilst others may cut down service and quality initiatives, we will strive to raise the bar on our services and Malaysian Hospitality. We recognise that this is the time to build and strengthen customer loyalty. As such, we will be stepping up the MH CVP initiatives and will roll out more programmes focusing on improving areas such as Food & Beverage, Airport Operations, Cabin Serviceability (Engineering and Maintenance) and Enrich redemption.


Selling Aggressively to Make Money

Armed with a detailed revenue and inventory management tool, we will embark on aggressive selling and stimulate demand. Our strategy has proven to be successful during the recent Malaysia Airlines Travel Fair (MATF) which ended on 19 February where we achieved sales of RM95 million, beating our target of RM70 million and exceeding the 2007 MATF.

In view of slowing demand in markets in Europe, Asia Pacific, South Asia and Australia/New Zealand, we will also do things differently to stimulate demand and improve forward bookings. In February 2009, for the first time we offered promotional fares from Europe to Kuala Lumpur with fares as low as £260 from London to Kuala Lumpur.

Through the revamping and restructuring of the Corporate Services Programme, we have set a RM1 billion target. We will provide more attractive rebates and offers to our corporate clients.

Engineering and Maintenance (E&M) / MAS Aerospace Engineering (MAE)

Engineering & Maintenance has outlined a 3-year transformation plan to become MAS Aerospace Engineering (MAE) by 2011. A key

Passenger Services System Phase 2

Technology is helping us to reduce cost, but more importantly, it also adds convenience to our customers. We are replacing our KOMMAS Reservation System with the new SITA RES system. The project started in January 2009 and we aim to cut over in the fourth quarter of 2009. Upon completion of

this project, we will enjoy an integrated environment which offers better efficiency and productivity at a lower cost.

On top of this, customers will be assured that their booking and e-ticket information will always be available at check-in. In addition, we will also be able to offer our customers more and better self-service options through our website.

MAKE MONEY

Dynamic Pricing

Under a revolutionary approach to managing yield and pricing, we will radically change the way we manage our 20 million seat inventory. This, being our single largest KBA, will see a fundamental departure from traditional industry practice. The framework encompasses strategies for managing peak flights through Cost Plus Pricing to maximise profit, and non-peak flights through Competitive Pricing to capture market share.

An extensive and exhaustive process was undertaken to apply these strategies and to design a flight-by-flight P&L. The result of this exercise was a total of 110,000 plus flight P&Ls. This level of granularity ensures that each flight, on every route, is managed at a DNA level; it provides a clear line of sight between each flight and the total P&L.

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2. What are the opportunities presented by the crisis that would create new value which we would not otherwise get under normal conditions?

For example, more than 30 airlines went bankrupt last year. I think many more will go bankrupt this year. The crisis will separate the winners from the losers, and only the fittest will survive. As such, more airlines are finding it more compelling to consolidate or merge, as that enables them to leverage on each other to attain synergy value. This crisis today presents itself as a serious opportunity to obtain new value.

These are questions we need to ask relentlessly and find the answers to. If we can find the answers, we will emerge as a winner.

At Malaysia Airlines, as we push ahead with the BTP 2, our aim and focus is to be one of the winners.

In the face of global recession, the industry needs to take radical and bold steps. Together, we must cut capacity, increase yield, reduce cost, innovate and consolidate.

To conclude, we have come a long way since 2006 and have achieved the impossible. The toughest year in 2009 calls for us to continue to persevere and continue to remain focused – anchor all initiatives on P&L. Together, we can continue to deliver the impossible to transform Malaysia Airlines into The World’s Five Star Value Carrier.

Dato’ Sri Idris JalaManaging DirectorMalaysia Airlines

April 2009

thrust of the plan is to step up third party revenue and key priorities for the year include finalising all joint venture activities on-shore and overseas. Major milestones in 2009 include sealing an agreement with GMR Hyderabad International Airport Ltd. to set up a 50:50 joint venture Airframe Maintenance, Repair and Overhaul (MRO) company in Hyderabad, India.

SAVE MONEY

We will continue to be relentless in cutting costs without compromising on safety and quality. We have achieved a cost savings of some RM2 billion over the last 3 years and are targeting a savings of some RM700 million to RM1 billion this year.

This year, we will also benefit from the government’s stimulus plan where it provided 50% rebate on landing charges for airlines.

REMAINING RESILIENT IN THE FACE OF RECESSION

These are tough times but there are also opportunities. We must never waste a good crisis. However, to emerge a winner, we need to ask and answer these 2 fundamental questions:

1. What are the things that we will need to do now that we would not be doing under normal conditions?

For example, we have embarked on a new approach to do our revenue management. We have P&Ls for every one of the 110,076 flights per annum, each with different fares and inventory. We believe this makes us sharper in our revenue management.


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