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to be maximised. Implementation of the‘Component Tracking System’ and the‘Engineering Maintenance System’ were important IT milestones, resulting in improvedoperational efficiency and effectiveness.

E&M also focused on revenue generation fromthe sale of surplus maintenance capacity. Someof the contracts secured during the same yearwere B777 on-job training of KLM engineers,maintenance checks of Jet Airways B737, AirMandala B737 and Air Atlanta B747 freighteraircraft. E&M also signed a Memorandum ofUnderstanding (MOU) with PEMCO AviationGroup Inc to form a B737 cargo conversion jointventure in Subang, Malaysia. Partnering with amajor player such as PEMCO will fast-track MAS’mission of becoming a major maintenance,repair and overhaul centre in the region.

E&M’s five-year plan encompasses both staffdevelopment and facility planning to satisfy the projected fleet growth and the introductionof Airbus A380. By collaborating with theMalaysian Institute of Aviation Technology,a side campus of University of Kuala Lumpur,the capacity for training of engineers and technicians has doubled.

Customer Services

Technical and ground operations services areprovided to other airlines, other than MalaysiaAirlines, at KLIA. The customer services extended

to these airlines have always been of a highlevel, rated number one by Royal Brunei Airlinesand Nippon Cargo Airlines. For Malaysia Airlines,proactive passenger handling processes, such as the introduction of Queue Combers andmaintenance of close rapport with immigrationand airport personnel have meant a reduction in flight delays caused by late passengers. Cases of mishandled baggage have been reduced by 13.75% over the previous financial year.There has also been much improvement in the customer check-in process with the commissioning of the On-line Departure ControlSystem at five international stations, namelyChennai, Bangkok, Frankfurt, Dhaka and Delhi.

During the period under review, there was excellent compliance with all mandatory require-ments of the Advance Passenger InformationSystem of the United States, Advance PassengerProcessing System of Australia and AdvancePassenger Screening System of New Zealand.

To further enhance customer experience at KLIA,Malaysia Airlines is set to revive a flight owner-ship programme whereby dedicated teamscalled the ‘Red Capper’ will own, co-ordinateand account each flight from chocks-on tochocks-off. Assigning accountability this way will help reduce the number and duration offlight delays and improve passenger handling.

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Ground Support Services

The operations of ground support services havebeen streamlined, enabling the implementationof a Preventive Maintenance Programme similarto that of aircraft maintenance. Together withthe exercise to replace ageing equipment,Malaysia Airlines has been able to ensure 80%ground equipment serviceability and availabilityto operating departments at all times.

Several initiatives were introduced to enhanceservice quality and operational effectiveness. The review of work processes in regard to Non-Technical Ramp Handling Services (NTRHS)eliminated occurrences of consequential delaysat the apron, thereby reducing flight delaysattributable to NTRHS by 18% compared to thelast financial year. The quality standard of aircraftinterior cleaning has also improved and the section’s cost control initiatives had netted cost savings of RM0.56 million for the financialyear. The introduction of a Driver OwnershipProgramme for transport vans and outsourcingof maintenance to UMW Toyota has ensured a van serviceability rate of 90% and utilisation of 18 hours daily.

Ground Handling Management

The SARS outbreak, the war in Iraq and globalterrorist activities had caused ground handlingand airport costs to soar because of the additional security and safety measures imposed.Nonetheless, Malaysia Airlines was able toexercise a number of cost-saving and revenueenhancement initiatives to mitigate the impact of these challenges.

An aggressive cost saving drive at line stationsled to a one-time reduction in ground handling

and airport charges of RMR6.35 million for themonths of April to December 2003. During thefinancial year, 84 Ground Handling Agreementsat line stations were re-negotiated with theobjective of reducing costs and improving service quality. As a result, a reduction ofRM6.87 million per year was secured, mainlyfrom China and India. To ensure service quality,Service Level Agreements covering all areas ofoperations were executed with ground handlers.

As part of the Airline’s initiative to upgrade itsfront-end product, London was chosen as thefirst station to have totally dedicated, hand-picked check-in counter agents, adorningMalaysia Airlines uniform and specially trainedon such matters as Malaysian protocol and culture, and the Airline’s products. This productupgrade will be implemented at other selectedhigh-frequency stations.

The second half of 2003/04 witnessed the influx of foreign airlines into Malaysia, eight in Kuala Lumpur, four in Penang and one in KotaKinabalu. Malaysia Airlines succeeded in securingground handling contracts for nine of these airlines, bringing its market share to 76% inKuala Lumpur and 64% in Penang. The Airlineretains 100% market share in Kota Kinabalu,Kuching and Langkawi. These nine new airlineswill contribute an additional revenue ofRM11.27 million each year.

Malaysia Airlines continues to ensure a clearunderstanding of IATA’s Standard GroundHandling Agreement (SGHA) across the Airline. This is to improve cost and operational efficiencythroughout its network. For the first time,employees from different areas of the Airlinewere trained by IATA in Kuala Lumpur on thecontents and applications of the SGHA.

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Flight Management Centre

The Flight Management Centre (FMC) principally tracks and coordinates all aircraftmovements and service recovery actionsthroughout the network to ensure that operations are run as per the time-table andthat every schedule disruption is rendered astructured recovery process. FMC’s core activityinvolves monitoring the performance of all operating departments in line with MalaysiaAirlines’ precision timing process. For the yearunder review, the overall On-Time-Performanceregistered an improvement to 91.78% from90.74% in the previous financial year.

To further enhance the monitoring of flightmovement, the current tracking system calledFLOWS has been replaced with a more state-of-the-art Operations Control System that isadaptable for a totally integrated operation. By improving the Aircraft Communication and Reporting System currently fitted to theAirline’s aircraft, cabin crew are now able tocommunicate directly with the ground, thusproviding the opportunity for value-addedservices to passengers.

By default, FMC is the coordinating centre foremergency and crisis management. During theSARS outbreak for example, the EmergencyOperations Committee (EOC) was operatingaround the clock for three months to monitorthe situation closely and was prepared for any eventuality. The EOC has more than 850volunteers who are trained to handle anyaviation disaster in Malaysia or abroad. Thesevolunteers, who are divided into specialisedgroups, are trained to play a special role in theSpecial Assistance Team, the On-Site Team, the Telephone Enquiry Centre Team or theCritical Incident Stress Management Team.

The overall On-Time-Performance registered

an improvement to 91.78% from 90.74% in

the previous financial year

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Enabling the Business withInformation Technology

During the financial year, Malaysia Airlines’ information technology (IT) development targeted three business initiatives, namely infra-structure upgrading, strategic outsourcing andupgrading of business applications.

Upgrading the IT Infrastructure

In April 2002, the Airline initiated a RM150 million project, comprising two phases, toupgrade its desktops and network worldwide aswell as implement a new Internet infrastructure.The first phase, completed in February 2004,met the primary objectives of deploying a basicInternet Protocol (IP) network, desktop andsecurity software to Priority 1 and 2 stations and providing operating units with about 6,500 personal computers and 450 notebookssystem-wide. In total, 183 sites, comprising 141 international and 42 domestic Priority 1 and 2 stations, were completed and a newInternet infrastructure was successfully implemented at 11 stations. The second phase of the project will be undertaken in thenext financial year, covering the upgrading ofthe IT infrastructure of Priority 3 and 4 stations,extending the new Internet infrastructure to 40 Priority 1 and 2 stations, and implementingthe security system.

Strategic IT Outsourcing

An integral element of Malaysia Airlines’ ITdevelopment is that of strategic IT outsourcingas a means of improving the delivery of relatedservices as well as to support the future mode of operations. After a rigorous short-listing,

An integral element of Malaysia Airlines’ IT

development is that of strategic IT outsourcing

as a means of improving the delivery of related

services as well as to support the future mode

of operations

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evaluation and negotiation process, the Board ofDirectors gave its final approval in June 2003 toenter into an outsourcing relationship with IBMMalaysia (IBM). An agreement with IBM wassigned on 3 September 2003, which would pavethe way for the establishment of a long-termvalue-based strategic partnership, in the form ofa full-service outsourcing arrangement, to deliverimmediate business performance impact. Thepartnership will allow for the best possible out-come in an area that is not a core business forMalaysia Airlines.

IBM started taking management responsibilityfor the delivery of IT services from 1 October2003 as part of a two-stage approach. The firststage covered a six-month transition process ofmoving both staff and services to IBM, and ofimplementing changes required by the new relationship, including the implementation ofnew and modified processes, improvements toservice levels and activities to further stabilise the delivery capability. The transition phase wassuccessfully completed on 29 February 2004,which resulted in 118 IT staff from the Airlinejoining IBM while remaining staff were placed

in the Airline’s other business units. IBM took full management control of the operating environment on 1 March 2004.

With the partnership firmly in place, the Airline’sIT operational service performance has exceededexpectations and all service metrics haveimproved. Further areas being improved are theinternal IT processes such as IT service requests,Helpdesk and Station Support functions. A number of initiatives are also underway toimprove the reliability, security and quality ofMalaysia Airlines’ computer services, includingData Centre facilities, deployment of new IToperations processes, System Management andHelpdesk tools upgrade, e-mail system upgradeand network optimisation.

With the successful transition of staff and services to IBM, the Airline is now able to shift its focus to the next phase of its IT strategy,that of systematically improving its business performance through technology investment,implementation of critical business projects,redefining the level and delivery of user services, and implementation of an operationsimprovement plan.

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Business Applications Upgrade

Since assuming a more focused role in enablingbusiness changes, the Airline’s InformationTechnology Planning and Services Division has, since February 2004, started working withkey business units to identify and support theimplementation of strategic business projects.These business units have undertaken a numberof IT-supported business improvement initiativesduring the financial year. Projects that were successfully implemented included the InternetBooking Facility (Phase 1), Call Centralisation,Revenue Management System (Phase 1) andCargo Revenue Accounting System (Phase 1).

New projects have been initiated, includingEnterprise Project Management, MaintenanceScheduler, Integrated Financial System, Ticket Imaging System and Fuel ManagementSystem. In addition, business units such asMASKargo, Technical and Ground Operationsand Flight Operations have begun conducting a comprehensive review of their IT-enabled business processes to support their long-termbusiness improvement objectives.

A number of initiatives are also underway to improve the reliability ,

security and quality of Malaysia Airlines’ computer services, including

Data Centre facilities, deployment of new IT operations processes,

System Management and Helpdesk tools upgrade, e-mail system

upgrade and network optimisation

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Project Management & Assurance

Various projects were undertaken during the period under review covering propertydevelopment and maintenance, procurementand business process improvement. A department has been established to provideproject management support across theCompany, focusing on the planning and implementation of corporate projects. The Department will also assist in aligning the projects with broad corporate strategies as well as prioritising them, taking into consideration resource and budget constraints.

Property Development & Maintenance

One of the major exercises completed duringthe year was the refurbishment of the variousoffice buildings in Subang. This included theredevelopment of Complex B, which had beenleft vacant for several years. In addition toupgrading the ageing facilities in Subang, the exercise also enabled the consolidation of various departments under the respective divisions under one roof, thus enhancing operating efficiency whilst optimising space utilisation through the sharing of common facilities. A pedestrian bridge has been constructed to link Complex A and B in order to ensure that staff safety is not compromised. A new cafeteria has also been opened inComplex B to complement the existing one,thus providing staff with additional variety of food selection.

Other major projects completed were the refurbishment of the ticketing and Enrich offices in MAS headquarters, Kuala Lumpur,refurbishment of the Golden Lounge in SydneyAirport, renovation of the Paris Town Office and the development of the Engineering andCargo Complex at Bintulu Airport.

The construction of the resort in Tanjung Rhu,Langkawi, progressed significantly during theyear, with completion targeted by end-2004.Four Seasons Hotels and Resorts, a renownedinternational brand in luxury hotel and resortmanagement, has been appointed to operatethe resort upon its completion.

The year also saw the conclusion of the acquisi-tion of a piece of land on which the EngineeringMaintenance Centre is located from theSelangor State Secretary Inc and the conversionof the Kelana Jaya land to commercial status.

Centralised Procurement

The Centralised Procurement Department continues to engage the various purchasingunits across the Company, consolidating common purchases to ensure that leverage ismade on the Company’s purchasing volume to obtain the best prices and reduce costs. TheDepartment also provides contract negotiationsupport to the various purchasing units.

A pilot project was initiated to purchase winesupplies through a real-time online biddingprocess, utilising a specialist third party biddingplatform. Several international wine suppliers atvarious locations in the world participated in the exercise, resulting in substantial cost savings.

The Department will continue to explore other areas where this method of procurementcan be applied.

Business Process Improvement Initiatives

Driven by the Organisation and MethodsDepartment, two major initiatives were completed during the period under review – the development of the Station Internal ControlManual and the Corporate Safety and SecurityManual. Both manuals are critical given theCompany’s emphasis on strengthening internalcontrols and procedures over safety and securityissues. The manuals will provide staff with aquick reference on operational matters, thusenabling them not only to operate but alsorespond to situations in a timely and consistentmanner. The Station Internal Control Manual has its own dedicated website to provide easyaccess to staff throughout the organisation, both locally and at international stations.

Other major initiatives in progress are the development of the Enterprise ContentManagement System, which will provide a platform for manuals and other documents to be stored, viewed and updated online, and the Product and Services Categorisationdatabase to build up a coding system that will enable a more effective and efficient contracts and suppliers management.

A department has

been established

to provide project

management

support across

the Company ,

focusing on the

planning and

implementation of

corporate projects

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A promise to be better