BRAHIM'S Holdings Bhd has spoken about its turbulent ties with Malaysia Airlines Bhd, claiming the latter set unfair terms in their three-year contract that is supposed to be signed by the end of this month.
Brahim's also suggested that the thinning of margins had led to a drop in service quality.
Brahim's group chief executive officer Mohd Fadhli Abdul Rahman yesterday said the company had discussed and signed all 12 of the termination clauses, except for one: the termination for convenience.
"They inserted one new clause out of the blue: termination for convenience with a one-month notice. What is this?" he told the New Straits Times here.
Under the termination of convenience clause, a party can bring a contract to an end without any valid reason.
The contract with an optional two-year renewal was supposed to come into force on Jan 1 this year, but Brahim's and Malaysia Airlines have failed to reach an agreement since they started discussions in September last year.
In 2015, when Malaysia Airline System Bhd was closed down, Brahim's and the NewCo had signed a new catering agreement that lasted for five years with an option to renew for another five years.
However, the agreement was not renewed in 2020 due to the Covid-19 pandemic. The companies have been doing business based on a service contract that they renew every three to six months.
To resolve the contract issue, Brahim's then negotiated on the termination for convenience clause by adding a "contract fulfilment charge" should Malaysia Airlines impose the termination clause.
Initially for the charge, Brahim's proposed a complex formula that included Malaysia Airlines' average three-month revenue, the remaining contract tenure and discount factor.
Due to its complexity, the companies agreed to simplify the formula by calculating only the three-month average revenue times the remaining tenure.
"I put a full stop there, but they continued. They told us that they'll pay us only the margin, and the margin in their definition is 1.6 per cent.
"Three-month average revenue times the remaining tenure times the 1.6 per cent margin.
"It's like you're speeding and get a RM300 speeding ticket, and the police immediately give you a 98.4 per cent discount. For the RM300 summons, you pay only RM4.80. Do you think I can accept that? Of course, I rejected it. After that, they offered us a 10 per cent margin. Why 10 per cent?
"I'm willing to negotiate but please don't insult us. We're asking Malaysia Airlines to be fair."
Brahim's offered Malaysia Airlines to buy the former's 70 per cent stake in Brahim's Food Services Sdn Bhd (BFS).
This would allow the airline to take 100 per cent control of Brahim's Food — along with its central catering kitchen, catering equipment and 35 foreign airline clients — for a fair price.
The other 30 per cent is held by Malaysia Airlines.
Fadhli said Malaysia Airlines had offered RM50 million for the buy-out.
He could not agree to the amount, given that Brahim's had spent RM170 million cash in 2003 to buy over the then MAS Catering Sdn Bhd.
At the time of the acquisition, MAS Catering had negative equity of RM240 million, which Brahim's absorbed into its bottom line.
"We know that they are always eager to manage their own catering. We've started a discussion with them for us to let go of our 70 per cent.
"But again, their offer is similar to the 1.6 per cent margin offer. They always give you a ridiculous offer and hope that you grab it. They are always at the top. Whatever they say, you have to follow."
He said Malaysia Airlines did ask for another two-month extension from July to August this year while the companies continue their negotiations.
But Brahim's decided to revert to what Malaysia Airlines had written to it in their corresponding letters, that their contract shall expire on June 30 if the companies failed to reach an agreement.
Speaking about the future of Brahim's Food should both parties fail to reach an agreement before end-June, Fadhli said the company still had an obligation to 35 of its clients.
He said there was less than two weeks before the end of a tumultuous 26-year relationship between the in-flight caterer and the national carrier, unless a solution was found.
"We know the relationship between us and Malaysia Airlines will never mend because of the old stories that were never addressed before. It's never a scar, it's always a wound.
"We never said they're not capable of doing it on their own. They're a big company, so they're always capable."
Malaysia Airlines parent Malaysia Aviation Group managing director Datuk Captain Izham Ismail, in a recent interview with the NST, said it wanted to invest its RM4.7 billion cash reserve to migrate some of the carrier's services in-house while also working with new third-party vendors.
Also Read: Malaysia Airlines to end catering deal?
He added that the poor service provided by some of Malaysia Airlines' vendors was affecting its customers. He named Brahim's as one of the vendors that could not keep its standards high.
"Food is our challenge. Our caterer, Brahim's, are in PN17 (Practice Note 17 of financially-distressed listed companies).
"They're not giving us good products. Who gets the blame? Malaysia Airlines."
