The Tycoon Who Fell To Earth

Malaysian tycoon Tajudin Ramli had no experience in the airline business when he staked his fortune to buy the country's struggling national carrier in July, 1994, when it was privatized. But he had plenty of confidence. Even though Malaysian Airline Systems (MAS) eked out a mere $3.4 million profit on $1.6 billion in revenue in 1994, Tajudin boasted in the annual report that he aimed to turn it into "the largest, most successful, and most respected carrier in the world."

It hasn't taken long for Tajudin to come down to earth. Despite an initial rebound, profits are sliding again because of intensifying competition from such formidable rivals as Singapore Airlines and Cathay Pacific Airways Ltd. That has made it difficult for Tajudin to raise financing to pay off the $728 million loan he took out for the takeover. What's more, a bevy of government regulations is limiting Tajudin's ability to reduce the airline's bloated workforce and shed money-losing routes. Says Lawrence Lye, a Singapore-based airline analyst for BZW-Pacific Union: Tajudin is a good businessman, "but he's not God."

INSIDE TRACK. Some analysts see MAS as another Malaysian example of how not to privatize. Tajudin bought into the airline when Bank Negara Malaysia, the central bank, unloaded its 32% stake to make up for losses in currency speculation in 1992 and 1993. As often happens in Malaysia, Tajudin's connections apparently helped him land the deal. He is a business associate of Daim Zainuddin, a power broker in the dominant party, the United Malays National Organization.

The men grew up in the same village in Kedah. Malaysian Prime Minister Mahathir Mohamad also hails from Kedah. Despite having no experience in telecoms, Tajudin in 1989 won the license to operate Malaysia's first private cellular-phone network when demand was soaring. The deal helped make him a billionaire. His 38% stake in Technology Resources Inc., which now owns the cellular provider, is worth $695 million.

But MAS could deal a blow to his net worth. To buy his 32% stake, Tajudin took out a personal loan backed by his Technology Resources Industries stock. Another of his holding companies, Malaysia Helicopter Services, took over his MAS investment. That should have enabled Tajudin to pay off the loan. But Malaysia Helicopter's efforts to raise funds fell short when the Malaysian market plunged last year. And the value of the TRI stock used as collateral has shrunk.

Some analysts calculate that Tajudin may still be left with more than $550 million in debt for MAS. Until he finds the cash to pay off his loan, his TRI shares are sitting in a vault at his bank. Tajudin and other MAS executives declined BUSINESS WEEK's requests for interviews.

Tajudin has sketched out a plan to turn the airline around. Through restructuring and expansion, he hopes to more than double annual profits, to $140 million, in fiscal 1996. Already, he has spun off catering and ground services. Despite government meddling, he thinks he will save $20 million this year through efficiency.

To boost revenue, Tajudin is enlarging the airline's international network by signing cooperation agreements with Britain's Virgin Atlantic Airways Ltd. and Australia's Ansett Airlines. He also wants to expand the airline's routes to North America. And MAS plans major increases in its cargo business.

Most analysts are skeptical. For one thing, Tajudin's freedom to slash jobs is limited because the state retains veto power over major business decisions, and several government officials sit on the MAS board. MAS must also operate domestic routes that now lose $40 million to $80 million a year as part of its "social obligation." In the second half of fiscal 1995, pretax profits were down 55% from the first half.

Meanwhile, overcrowding and operating snafus at Kuala Lumpur's Subang International Airport hobble MAS's expansion plans. Simply put, says the managing director of another regional airline, "Kuala Lumpur's airport is the pits." A new and larger airport isn't scheduled to open until 1997.

If Tajudin is worried, he isn't letting on. He's sticking to his forecast of boosting MAS's revenue sixfold, to $9.5 billion, within five years. Unless he gets more help from the government and his lenders, however, Tajudin will be lucky to keep MAS flying in the black--and his own financial woes from deepening.

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