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�� MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

AIRPORT AND FLIGHT OPERATIONS

Malaysia Airlines’ average systemwide on-time departure performance improved by 7% from 80.9% in 2007 to 86.8% in 2008. This was made possible following our Operations Control Centre’s (OCC) effort to improve utilisation of its aircraft. The physical centralisation of key operating departments was done to enhance communication among the departments to make it more responsive to events such as schedule disruptions.

Under Project Delta (a cost savings initiative), Airport Operations (AO) implemented 17 initiatives which contributed to savings of RM72.7 million in 2008. All these initiatives were implemented with no compromise to safety and quality. We also reduced meal wastage on each flight by closely uplifting meals based on passenger loads which netted savings of RM2.5 million. In addition, our gate

collection for excess baggage initiative reduced the occurrence of unaccounted weight on the aircraft by discouraging passengers from carrying heavy bags on board.

With fuel prices skyrocketing in 2008, the Ground Power Unit (GPU)/ Auxiliary Power Unit (APU) initiatives led to a reduction in fuel cost and saved the company RM33.1 million. This is achieved by shutting down the APU and switching on the GPU when the aircraft is on ground since GPU consumes diesel compared to APU which consumes jet fuel.

Fuel management initiatives in the year included optimising the tracking mechanism of the Flight Planning and Flight Following System whereby process refinements were carried out to monitor the accuracy of Zero Fuel Weight and reduce the over-fueling for flights. The co-operation by the pilots’ community, dispatchers and load controllers were tremendous, resulting in a 27.93 million kg of

fuel saved in comparison with the original budget.

Meanwhile, Ground Handling Management (GHM), a new department set up in 2008, revisited manning levels and renegotiated ground handling contracts overseas. These, and other initiatives, saved RM21.2 million. At the same time, AO managed to expand its ground handling business by securing new contracts with Etihad Airways, Best Air and Air Niugini.

Efforts to pursue revenue generating initiatives through third party simulator training have been very encouraging, and grew 22% compared to last year. Malaysia Airlines provides technical training, ground and flight trainings to Jet Airways, Asset Aviation (Australia), Qantas, Great Wall China, Jade Cargo and Garuda Indonesia.

INFLIGHT SERVICES

Inflight services’ Delta projects achieved commendable savings of RM47.5 million in 2008 with no compromise on quality to our customers. In line with passengers’ feedback, Malaysia Airlines introduced the hot meal for the Light Meal Box (LMB) in July 2008. The first full implementation of LMB commenced on February 2008 for sectors ranging from 1 to 3 hours in flight time. It was further developed by offering 2 meal choices, namely Asian and Western dishes.

Operational Review

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Our cabin staff are exposed to a series of training aimed at enhancing their skills and knowledge in selected areas in line with our quest for improved service delivery.

As a result of continuous development and enhancement, Malaysia Airlines’ cabin crew regained its No. 1 position as “World’s Best Cabin Staff” by Skytrax in 2009. This is a testament to our ability to achieve international standards and remain true to the spirit of our MH personality – natural, spontaneous, determined and willing.

ENGINEERING AND MAINTENANCE (E&M) / MAS AEROSPACE ENGINEERING (MAE)

Revenue from third party work has seen steady growth since 2005. Over the last 2 years, third party revenue contribution has increased 100% from RM218 million in 2006 to RM438 million in 2008, and E&M have seen a 50% increase in the number of customers. For 2009, it hopes to achieve a third party revenue target of RM520 million.

E&M currently has 80 customers including Lufthansa, Saudi Arabian Airlines, Jet Airways, Qantas, Austrian Airlines, AWAS, RBS and GECAS, one of the world’s largest fleet owners and lessors.

These achievements were made possible with E&M’s 2-year Breakthrough Program (EBP) launched in July 2006 which saw staff productivity in Subang and Kuala Lumpur International Airport growing to 80% in December 2008 compared to 32% at the start of the programme.

ANNUAL REPORT 2008 OPERATIONAL REVIEW

The potential of the global MRO business also saw the setting up of MAS Aerospace Engineering (MAE) in 2007. During the year under review, MAE signed a Memorandum of Agreement with Italian Alenia Aeronavali for the establishment of a MRO joint venture company in Malaysia, and a Memorandum of Understanding with GMR Hyderabad International Airport Ltd. to establish a joint venture MRO in Hyderabad, India.

In February 2009, MAE marked its first foray overseas by signing a 50:50 joint venture agreement with GMR Hyderabad International Airport Ltd.

The joint venture company, known as MAS-GMR Aerospace Engineering Company Ltd., will be built on the eastern side of the Rajiv Gandhi International Airport, Hyderabad.

While there are concerns over the global slowdown and the deferred delivery of new aircraft, the Indian airlines currently operate over 350 passenger planes. Regardless of the state of the economy, all of the aircraft will require on-going maintenance and repair. The facility, catering to both narrow and wide body aircraft checks, will be up and running by the 3rd quarter of 2010. Built specially to service aircraft in the Indian sub-continent, it will have the capacity to service between 60-80 aircraft annually. This will also give the joint venture company a head start when the economy recovers, and new capacity will be added as needed.

In March 2009, in recognition of E&M’s capability to deliver comprehensive services including aircraft modification and upgrades to its customers in the Asia Pacific region and worldwide, the E&M Division was voted the best Maintenance, Repair and Overhaul (MRO) centre in Asia Pacific by Frost & Sullivan, Singapore.


MASkargo

In retrospect, 2008 was a very volatile year for the airfreight business. The year saw MASkargo weathering the storm and consolidating its position while maintaining its profitability by continuously undertaking several revenue enhancement and cost cutting measures.

The introduction of the Airbus A300-600F freighter in September 2008 complemented the 747 freighter fleet. On this front, MASkargo made changes to the freighter network by moving more flights into Tashkent and introduced freighter capacity into new markets such as Jakarta, Bangkok, Ho Chi Minh, Chennai and Dhaka.

In its quest to form winning coalitions, MASkargo has obtained ‘Preferred Carrier’ status from two global logistics providers. These partnerships have created a platform to significantly enhance the business volume and further strengthen the cooperation between the airline and logistics provider in all areas of air cargo supply chain. The activities undertaken during the year has substantially increased revenue and tonnage as compared to previous years.

Amidst all that, MASkargo has also seen prospects in the global mail business. It has set up a special unit dedicated to capture business in this area to enhance profitability and revenue.

Cargo Operations has initiated several revenue enhancement programmes which includes cargo volumetric project to eliminate revenue leakage and back-end container project for the last minute uplift of containerised cargo. In addition to this, cost control measures through plastic re-cycling project have proved to enhance MASkargo’s bottom line.

As a ground handling agent, last year was significant to MASkargo as it has managed to improve the mishandling rate from 0.068% to 0.056%. This is the best rate ever in the company’s history.

To date, MASkargo has achieved the ISO 9001, ISO 14001 and OHSAS 18001 certifications. Its success in acquiring the prestigious certification is a formal recognition that the quality management system in place are of international standards.

The year 2008 was also significant in terms of exposure. MASkargo played host to the biggest air cargo conference in the world, the 24th International Air Cargo Forum & Exposition or ACF2008 which was held from 4-6 November. It was truly an honour as MASkargo was given the responsibility to promote the company, the industry, Kuala Lumpur and Malaysia as a strategic location in terms of cargo and logistics.

In addition, MASkargo was the official air cargo partner for the FEI World Endurance Championship 2008. The event was a groundbreaking event as it was the first time MASkargo operated a wide body aircraft direct from Europe into Terengganu.

MASkargo’s achievements are continuously being recognised by its peers. In 2008, it obtained the Malaysian Productivity Award (Open Services) by the National Productivity Centre, Best Brand in Air Freight by The Brandlaureate Awards, Carrier of the Year by Malaysia Airports Berhad and Technology Business Review Asean Awards.

It also received nomination for Best Air Cargo Carrier (Asia) by the Asian Freight & Supply Chain Awards (AFSCAs) for the seventh consecutive time. Obtaining the awards and accolades is not the end game, but it is our commitment to excellence; to serve our customers better.

The highlight for 2009 was winning the Best Air Cargo Carrier in Asia title at the 23rd annual Asian Freight and Supply Chain Awards 2009 (AFSCA).

On being a responsible corporate citizen, MASkargo has adopted an orphanage in Banting which houses close to 70 children aged between 7-17 years old. They have also adopted a 5-year old Indochinese tiger, named ‘Lobo’ at Zoo Melaka.

MASkargo ended the financial year achieving a profit before tax of RM15.9 million from RM131.3 million last year. Total cargo revenue dropped by 0.6% to RM2.23 billion from RM2.25 billion in 2007 mainly due to capacity reduction from the network. Total cargo throughput at KLIA decreased to 623,314 tonnes from 646,500 tonnes as compared to the previous year. The drop of only 3.5% is in line with other cargo operators operating in this region. Although MASkargo managed to improve the yields and load factor combined effect by 15%, the contraction in profitability

��ANNUAL REPORT 2008 OPERATIONAL REVIEW

During the year, Firefly formed its travel agency subsidiary named Firefly Holidays. Firefly Holidays is an e-commerce based travel agency focused on packaging Firefly’s flights with other travel needs such as hotels, excursions and car rentals. It works closely with the travel trade and tourism authorities on destination marketing as well as specialty product packaging.

MASwings

MASwings is also undergoing a fleet refresh. It has received 1 out of the 7 ordered ATR and is expected to take delivery of 6 more aircraft in 2009.

The introduction of the aircraft in Sabah and Sarawak is timely in order to improve the customer value proposition. More importantly, the arrival of the ATR propelled MASwings’ journey towards greener travel practices as the aircraft burns 60% less fuel than a normal jet would and emits 50% less carbon dioxide.

Some of the new initiatives rolled out in 2008 included the introduction of Business class cabins and ‘green’ meal boxes which are fully biodegradable and compostable. The “Scratch ’n Go” card, Malaysia’s first prepaid flight card was launched for travel within Sabah and Sarawak which offers airfares 30% lower than the normal market fare.

was mainly attributed to the unprecedented high fuel prices in the first 7 months of the year which was subsequently followed by the global slowdown in airfreight due to the global economic crisis.

Firefly

Firefly completed its fleet change in 2008 and is now operating with a fleet of 5 new turboprop aircraft, the French-Italian made ATR72-500. The fleet of new aircraft allows Firefly to step up its brand positioning as “Your Community Airline”. It has a clear customer value proposition themed “Incredible Value with Low Fares” with emphasis on being an affordable point-to-point full-service airline.

Firefly currently operates 9 domestic and 5 regional destinations from 2 bases namely Penang International Airport and the Sultan Abdul Aziz Shah Airport, located approximately 20 kilometers from Kuala Lumpur city centre. It has also adopted a consumer friendly policy of all-inclusive pricing with no hidden charges as well as complete removal of fuel surcharge in its ticket prices.

The opening of its Sultan Abdul Aziz Shah Airport ticketing office in January 2009 marked the airline’s first storefront in the Klang Valley and is in line with Firefly’s expansion plan in terms of ticket sales and distribution.

Firefly will be opening more airport ticketing office in stages to the destinations it serves as the airline now has the size and scale as well as the routes to expand its reach. Already in the operation are the Subang, Penang, Kerteh, Johor Bahru, Alor Setar, Kota Bharu, Kuala Terengganu and Kuantan airport ticketing offices, as well as in Medan, Pekanbaru and Banda Aceh in Sumatera, Indonesia.

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��ANNUAL REPORT 2008 ROUTE NETWORK ��

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Breaking New Grounds With Our Community Airline

Firefly

�0 MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

DATE OF MEETING TIME OF MEETING NATURE OF MEETING VENUE

22 January 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 01-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

25 February 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 02-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

18 March 2008 10.30 a.m. Special Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 03-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

27 March 2008 9.00 a.m. Special Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 04-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

30 April 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 05-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

20 May 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 06-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan 23 June 2008 1.00 p.m. Special Board of Directors’ Meeting Meranti 1, Ground Floor, MAS Academy [No. 07-08] No. 2 Jalan SS7/13, Kelana Jaya 47301 Petaling Jaya, Selangor Darul Ehsan

28 July 2008 2.30 p.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 08-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

18 August 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 09-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

22 September 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 10-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

20 October 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 11-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

25 November 2008 9.30 a.m. Board of Directors’ Meeting Board Room, 3rd Floor, Administration Building 1 [No. 12-08] MAS Complex A, Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan

Details of Board of Directors’ Meeting

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Audit Committee Report

A. ESTABLISHMENT AND COMPOSITION OF BOARD AUDIT COMMITTEE

In accordance to the Malaysian Code of Corporate Governance (MCCG) and para 15.10 of Bursa Malaysia Securities Berhad (BMSB) Listing Requirements (LR), the following members continue to reprise their roles and responsibility in BAC.

Name of Directors Directorship

Keong Choon Keat (Chairman) Independent Non-Executive Director Dato’ N. Sadasivan a/l N.N. Pillay Independent Non-Executive Director Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim Independent Non-Executive Director Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah Non-Independent Non-Executive Director

On 10 September 2008, Dato’ Zaharaah binti Shaari resigned as member of BAC.

The BAC was appointed amongst MAS Board of Directors (Board) and fulfills the following LR/MCCG:

• Comprise not fewer than three (3) members• Majority are independent directors • All members are non-executive directors• At least one should be a member of an accounting association• No alternate director appointed as a member of audit committee

Appointment to the BAC is referred to the Nomination Committee, prior to approval by the Board. The Board then shall ensure that the composition of the BAC meets the independence and experience requirements set out by LR/MCCG.

The term of office of a member of the BAC shall be three years, after which he or she may be re-nominated and appointed by the Board. The Board shall review the performance of the BAC and its members at least once every three years.

The Chairman of the BAC was elected by members of BAC and is a member of the Malaysian Institute of Accountants. The profiles of the Chairman and BAC members are set out on pages 22 to 27 in the Annual Report.

B. QUORUM OF BAC

Quorum shall comprise at least two (2) members, majority of whom are independent directors.

C. MEETINGS OF THE BAC

The BAC shall meet at least four (4) times annually, or more frequently as circumstances dictate. The Committee held nine (9) meetings during the financial year, and the attendance record of each member is as follows:

Name of Directors Attended

Keong Choon Keat 9/9 Dato’ N. Sadasivan a/l N.N. Pillay 9/9 Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim 1/9 Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah 3/9 Dato’ Zaharaah binti Shaari (resigned on 10 September 2008) 4/6

Note: The first figure above denotes the number of meetings attended while the second figure denotes the number held. The number of meetings held refers to the applicable meetings for each Director and varies based on their dates of appointment.

ANNUAL REPORT 2008 AUDIT COMMITTEE REPORT

The Board Audit Committee (BAC) of Malaysian Airline System Berhad (MAS or the Company) is pleased to present the Audit Committee Report for the financial year ended 31 December 2008.


Representatives of Senior Management, Chief Internal Auditor and External Auditors’ representatives attend the meetings as and when appropriate. Additionally, the BAC conducted 2 meetings with the external auditor without the presence of executive directors.

Minutes of each meeting are kept and distributed to each member of the BAC as well as to the other members of the Board. The Chairman of the BAC makes a report on each meeting to the Board.

D. OBJECTIVES

The principal objectives of the BAC are to assist the Board in discharging its statuary duties and responsibilities relating to accounting and reporting practices of the holding company and each of its subsidiaries. In addition, the BAC shall:

• evaluate the quality of the audits performed by the internal and external auditors;• provide assurance that the financial information presented by management is relevant, reliable and timely;• oversee compliance with relevant laws and regulations and observance of a proper code of conduct; and• determine and review the quality, adequacy and effectiveness of the Group’s system of internal control.

The BAC was established in 1992 with written terms of reference approved by Board which deals with BAC authority and duties. These terms of reference are periodically reviewed.

i. Authority

The BAC shall, in accordance with procedures determined by the Board and at the expense of the Company,

• investigate any activity within its terms of reference.

• have full and unlimited/unrestricted access to all information and documents/resources required to perform its duties.

• obtain independent professional advice or other advice and to secure the attendance of external parties with relevant experience and expertise if it deems necessary.

• convene meetings with the external auditors, internal auditors or both, without the attendance of other directors and employees if deemed necessary. However, at least twice a year the BAC shall meet with the external auditors without any executive board member present.

• make relevant reports when necessary to the relevant authorities if a breach of the LR has occurred.

ii. Duties and Responsibilities

The Audit and Business Advisory Department (ABA) shall report directly to the BAC on all matters within its scope of activities.

The duties and responsibilities of the BAC are to undertake the following and report accordingly to the Board:

• Review the audit plan and audit reports, including the evaluation of the internal control system with the external auditors;

• Review the quality of the external auditors and to make recommendations on their appointment, termination and remuneration. In any resignation/termination any letter/representations by the external auditors would be reported to the Board and BMSB;

• Review the liaison between the external auditors, Management and the Board, and the assistance given by Management to the external auditors;

• Review the quarterly reporting to BMSB and year-end annual financial statements before submission to the Board, focusing on:

• major accounting policy changes • significant audit issues in relation to the estimates and judgemental areas • significant and unusual events • compliance with accounting standards and other legal requirements;

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• In relation to the audit function:

• Assess the adequacy of the scope, functions, competency and resources of the internal audit function and ensure that internal auditors have the necessary authority to carry out its work;

• Review the internal audit programme processes and results of the audit and assess whether appropriate actions have been taken on the recommendations of the internal auditors;

• Review any appraisal or assessment of the performance of the internal audit function; and

• Review the performance of senior staff members of internal audit functions and approve their appointment or termination.

• Monitor any related party transactions that may arise within the Group and to report, if any, transactions that may arise within the Group and any related party outside the Group that are not based on arms-length terms and are disadvantageous to the Group;

• Review the process and allocation of options pursuant to the Employees Share Option Scheme (ESOS) at the end of each financial year as being in compliance with the terms and conditions under the ESOS scheme.

• Review any related party transaction and conflict of interest situation that may arise within the Group including any transaction, procedure or cause of conduct that may raise questions of management integrity.

E. ACTIVITIES IN THE FINANCIAL YEAR

The activities of the BAC during the financial year 2008 were as follows: -

i. Risks and Controls

• Reviewed the progress of the risk management functions and its on-going activities for identifying, evaluating, monitoring and managing risks; and

• Reviewed the adequacy and effectiveness of the system of internal controls through the evaluation of results of work performed by internal and external auditors, committees as well as through discussion with Management and representation by Management.

ii. Internal Audit

• Approved the audit plan, scope and budget for the financial year;

• Reviewed the results of internal auditors’ work and monitor the implementation of management action plans in addressing and resolving issues;

• Reviewed the adequacy of resources and the competencies of staff within the ABA to execute the plan; and

• Reviewed the performance of the ABA and recommend improvements.

iii. External Audit

• Approved the external auditors terms of engagement, audit plan and scope for the financial year;

• Reviewed the results and issues arising from their audit of the financial year and the resolution of issues highlighted in their report to the BAC and Management response; and

• Made recommendations to the Board on the appointment and remuneration of the external auditors.

iv. Financial Reporting

• Reviewed and deliberated on the Quarterly Financial Announcements and Annual Financial Statements to BMSB and recommend them for approval by the Board.

ANNUAL REPORT 2008 AUDIT COMMITTEE REPORT


v. Related Party Transactions

• Reviewed related party transactions for compliance with the LR of BMSB and the adequacy of the review procedures for related party transactions.

vi. Employees’ Share Option Scheme (ESOS)

• Reviewed and verified that the allocation options granted under ESOS during the financial year were in accordance to the required provisions set out under the Company’s Scheme.

F. INTERNAL AUDIT FUNCTION

The internal audit function is performed by the ABA of MAS Group that reports to the BAC. The function has an approved Charter that provides for its independence in evaluating and report on the adequacy, integrity and effectiveness of the overall internal control system, risk management and corporate governance in the MAS Group using a systematic and disciplined approach.

The ABA adopts established auditing standards and performs periodic self-assessment against applicable guidelines to maintain its proficiency and ensure due professional care. Additionally, ABA has adopted the COSO based audit methodology in aligning itself to the internal control framework that has been rolled out companywide. The Chief Internal Auditor is a Chartered Accountant, Certified Internal Auditor and has obtained a Certification on Control Self Assessment. Additionally, MAS is a Corporate Member of Institute of Internal Auditors.

The risk based audit plan approved by the BAC is developed to cover key commercial, operational and financial activities that are significant to the overall performance of the MAS Group. The prioritisation of audit assignments is based on the results from the risk management exercise, past audit results and discussions with Senior Management. Key processes in the MAS Group are clustered into audit universes that have been aligned to the MAS five key thrusts (the “MAS Way”) against the following objectives:

• Revenue enhancement and protection • Operational effectiveness and efficiency, including cost containment • Assets and services management, including effectiveness of management assurance functions • Human resource management • Financial reporting integrity; and • Information system management

Internal audit activities covering all the above objectives are undertaken for both passenger and cargo businesses at Corporate Headquarters, Station Systemwide and MAS Subsidiaries. The ABA also conducts special audits on an ad-hoc basis based on specific requests either from the Board, BAC, Senior Management or arising from the Whistle Blower Programme.

The BAC receives regular reports from the Chief Internal Auditor on the results of activities performed. The ABA continuously monitors the execution of the audit recommendations, external and internal through periodic follow up. The Management Audit Action Committee headed by the Managing Director dicussed and deliberated on audit issues every quarter to ensure effective implementation of recommendations and action items arising from the audit work performed. During this financial year, the ABA undertook 74 audit assignments and 14 advisory assignments.

The BAC reviews and approves the ABA’s annual budget to ensure that the function is adequately resourced with competent and proficient internal auditors. As at 31 December 2008, the ABA had 31 internal auditors of various mix of expertise and experiences with approximately 44,100 available man-hours per annum. During the year, the ABA also outsourced certain types of work where ABA clearly benefits from their expertise and involvement. The total expenditure incurred by the ABA for the financial year 2008 is approximately RM6.4 million.

��ANNUAL REPORT 2008 STATEMENT OF INTERNAL CONTROL

Statement of Internal Control

INTRODUCTION

The Malaysian Code of Corporate Governance (the Code) requires the Board of Directors (Board) to maintain a sound system of internal control to safeguard shareholders’ investments and the Group’s assets. Pursuant to para 15.27 (b) of Bursa Malaysia Listing Requirements and Statement on Internal Control: Guidance for Directors of Public Listed Companies, the Board is pleased to present the Statement on Internal Control which outlines the nature and scope of internal control of the Group during the financial year under review.

RESPONSIBILITY

The overall responsibility for the Malaysian Airline System Berhad’s (MAS) group-wide system of internal control resides with the Board. The Board is committed to maintain a sound system of internal control in order to safeguard shareholders’ investments and Group’s assets. The system of internal control comprises, amongst others:

• governance, • risk management, • financial, • organisational, • operational and • compliance controls.

Such a system is designed to manage an acceptable and tolerable level of the Group’s risk rather than eliminate the risk of failure to achieve business objectives. As such, the Group’s system of internal control can only provide reasonable but not absolute assurance against occurrence of any material misstatement or loss. The Board acknowledges the importance of a sound internal control system which requires constant review of its effectiveness, adequacy as well as its integrity. Concerted effort from all business units are needed to fulfil such requirements. Management is responsible for implementing the Board’s policies on risk management and internal controls. All employees have a responsibility towards maintaining a sound internal control system as part of their accountability in achieving the Group’s overall objectives.

INTERNAL CONTROL PROCESSES

Both the Board and Management of MAS continue to strive towards enhancing and implementing the internal control system to manage those risks that could affect the Group’s profitability and financial viability. Accordingly, continuous efforts are made to improve the policies, processes and structure relating to internal control, and ensure that the people tasked with the responsibilities are competent and trained. This continual improvement enhances Management’s ability to monitor the existing risks and by taking into consideration the changes in the risk profile of the industry and the Group, helps to anticipate and manage potential risks.

The key elements in MAS’ internal control systems are as follows:

• The Board assumes responsibilities which facilitate the discharge of Board’s stewardship through the adoption of strategic plan for the Group, oversee the conduct of the Group’s business and review the adequacy and integrity of the internal control systems and compliance to applicable regulations. The Board also reviews the operational and financial performance of the Group. The scope of this review covers any significant internal control issues identified in the monthly performance reports.

• The Board Audit Committee (BAC), which is comprised of a majority of independent non executive directors, duly executes its duties as defined in the Malaysian Code of Corporate Governance. The BAC regularly reviews, on behalf of the Board, internal control issues reported by the Audit and Business Advisory Department (ABA) and external auditors, including any significant internal control issues affecting the financial statements. The BAC also performs annual review on the adequacy of scope, authority and resources of ABA and appraises the performance of ABA.

• A comprehensive organisation structure, which aligns to business and operational requirements and led by Division Heads with defined responsibility, accountability and delegation of authority, is in place.


• Internal audit functions are carried out by ABA which performs systematic reviews of key processes in high-risk areas and assesses the effectiveness of internal controls. ABA reports to the BAC on recommendations for improvement which are also deliberated at the Senior Management level. Periodic follow-up reviews are conducted to monitor the status of internal control issues raised.

• The internal control framework introduced in FY2007 provided a structured audit framework that enhances value reporting to stakeholders which includes an Internal Control Performance Scorecard describing the state of internal control on particular auditable areas.

• Management Committee Meetings chaired by the Managing Director are conducted on a regular basis to monitor business performance and discuss other related issues.

• The Management Audit Action Committee (MAAC) headed by the Managing Director meets quarterly to discuss concerns and issues arising from audit activities and ensures the implementation of actions highlighted in BAC meetings. It focuses on closure of audit action items and ensures appropriate actions are taken on the audit recommendations.

• Business Council Meetings attended by General Managers and above are conducted periodically to discuss results, performance, initiatives and issues encountered. It is also a forum to cascade strategic plans and directives of the Group.

• Quarterly Extended Leadership sessions are conducted for the Senior Management team as an avenue for sharing of operational and results, performance and issues.

• Our Business Plan and Budget are reviewed and approved by the Board on an annual basis. An integrated business plan is produced that is driven by commercial objectives and translated into an operational budget. There is continuous enhancement of the planning and budgeting processes through a refined assignment of drivers that align with the profit and loss of the Group. Budgets are monitored by each business unit and forms part of the unit’s key performance indicator.

• Policy guidelines and authority limits are imposed in respect of day-to-day operations in a form of Corporate Policy, Corporate Approving Authority Manual (CAAM), Station Approving Authority Manual (SAAM) and Systemwide Station Internal Control Manual (SSICM). These policies complement each other in defining the authority and accountability for key decision making areas. These policies are continuously reviewed to align with organisational and industry changes.

• Policies and procedures with embedded internal controls are documented in a series of Standard Operating Manuals. Custodianship of these manuals is bestowed upon the Risk and Policy Advisory Services (RPAS) Department. Manuals are regularly reviewed to ensure that more aligned, standardised and comprehensive procedures are in place. RPAS assists Management to establish and review corporate policies, when necessary, to improve the Group’s corporate governance profile. RPAS also conducts regular briefings to various levels of employees on key policies and procedures, including those relating to authorisation, accountability, monitoring and reconciliation processes.

• Key manuals at the corporate level are periodically reviewed and subject to adherence by the employees. Updated versions of the key corporate policies are maintained and made available via the Group’s intranet.

• Our Commend & Reprimand Program (CaRP) continues to serve as a consequent management tool to instil discipline in the organisation, to reiterate the importance of complying with Group’s policies and procedures and to deal with unethical practices. It also serves to recognise areas which have shown to have put in place and applied consistently good corporate governance practices.

• The Whistle Blower Program (WBP) is in place to provide an internal mechanism for employees to raise their concerns about malpractices, irregularities and negligence affecting MAS without fear of adverse repercussions and with their confidentiality protected. The Whistle Blower Independent Committee (WIC) chaired by the Chief Internal Auditor is responsible to review and monitor concerns channelled through WBP. Investigations and reviews are carried out by the Integrity Unit under ABA or appointed action parties, tabled to the WIC and subsequently reported to the Managing Director on a periodic basis. Appropriate actions are taken based on the strengths and merits of the findings.

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• Internal Control Enhancement (ICE) Program continues to be a group-wide effort put in place to increase awareness amongst business units of the importance of effective internal controls. A key initiative under ICE program rolled out in June 2008 was the Business Assurance & Control Assessment (BACA) initiative, serves as the control and performance assessment tool to be used by departmental head to self assess the state of health of control and performance on periodic basis. BACA is rolled out in 2 phases focusing on stations systemwide in financial year 2008 and key divisional areas at the corporate office in financial year 2009.

• Management’s tools for enhancing self-assurance comprise 16 internal quality assurance (QA) functions undertaken by various divisions such as RPAS, IT Governance, Financial Compliance, Service Quality Unit, Engineering & Maintenance QA, Airport Operations QA and others.

• Continuous enhancement of Performance Measurement System which is applicable for all employees.

• Regular training, workshop and awareness programmes for employees are conducted to emphasise the importance of governance, risk management and internal controls.

RISK MANAGEMENT

Risk and Policy Advisory Services (‘RPAS’) is mandated by Board of Directors (‘BOD’) to implement and sustain a consistent and integrated Risk Management (RM) framework within the Group. The engineering and implementation of RM processes and activities are guided by the RM Policy, which was revised and approved by the BOD in July 2008. The revision was undertaken to incorporate further improvements in the risk management process on the following:

• Risk Impact and Likelihood measures to reflect changes in risk appetite

• Control measures to simplify control self assessments

• Subsidiary and project risk management framework to extend the coverage of the RM Policy to the subsidiaries and critical projects undertaken in MAS, in a systematic and effective manner

Risk assessments also set the tone of the control environment, cultivating open reporting and self assessment amongst management. In the period under review, RPAS continued to facilitate risk assessments for the respective business areas and provided assurance review of risk profiles to ensure that key risks are anticipated and mitigated. The risk assessment is now conducted once a year, replacing the twice yearly frequency, as the newly implemented Key Risk Indicators (‘KRIs’) in 2008 serve to track risk exposures over time, acting as alert signals to trigger actions on a timely basis in order to prevent or minimise material loss or incidents.

The divisional and subsidiary risk assessment cycle are also scheduled to coincide before the start of the Company’s business planning sessions to anticipate and mitigate threats as well as leveraging on potential opportunities. With the implementation of the Project Risk Management Framework, a project risk session was conducted for the Passenger Services System Phase 2. In addition to the annual review held at the corporate and divisional levels, risk sessions were also conducted for our subsidiaries as well as our regional offices in the United Kingdom, Australia/New Zealand and Middle East and Africa.

As part of the risk monitoring and reporting process, RPAS maintains a database of key risks faced by MAS and mitigating actions undertaken at the Corporate, Divisional, Subsidiary and Regional level. The risk monitoring and reporting process has been enhanced with the implementation of the Enterprise-wide Risk Management (“EWRM”) system in April 2008.

The risk ratings of the Corporate risks have been revised to reflect the current global economic recession and decreasing passenger and cargo travel demand, amongst other concerns. Management has been committed to reducing the risk exposure by embarking on various projects and initiatives such as Project Delta, Dual Pricing, Project Mosaic, Procurement Revamp programme, Anti trust awareness programme, E&M breakthrough programme, Emergency Response Plans, Project Infinity, CVP initiatives, Project Risk Management initiative, Enterprise Resource Planning initiative and various fare promotions to stimulate demand (e.g. MH fares and Everyday Low Fares).

ANNUAL REPORT 2008 STATEMENT OF INTERNAL CONTROL


The progress of the action plans is also reported at the appropriate levels to ensure that adequate attention and resources are granted to manage these risks.

In order to embed and operationalise risk management within the Group, risk training, briefings and awareness programmes are also conducted throughout the year to inculcate understanding of risk management and its importance to all levels of staff.

MANAGEMENT ACTIONS

In the pursuit of strategic risk management excellence, benchmarking initiatives were undertaken in 2008, which included other industry players, in the areas of capabilities, process, results, governance and reporting. This serves as a guide to management in identifying areas in MAS’ risk management practices that require improvement and enhancement to reflect best practices and good governance.

In order to sustain and improve the risk management process in MAS, the focus was on improving the policy on risk management accountabilities in the company, the alignment of risk management process to MAS’ business planning cycle, the development and tracking of Key Risk Indicators, the implementation of the Project Risk Management framework, and the implementation of a reporting tool which was rolled out system-wide on 1 April 2008.

MOVING FORWARD

Further enhancements include leveraging on the MAAC and the Commend and Reprimand Programme (CaRP) to drive risk management accountabilities at the relevant business units. The Divisional Risk Managers will also take on a more active role in leading and facilitating the business planning risk sessions, providing greater alignment between strategic business planning and risk management. KRI’s will also be monitored to ensure they are relevant and effective in the escalation of risks to prompt timely actions.

DESIGN OF INTERNAL CONTROL SYSTEM

MAS’ internal control system does not apply to its associated companies which have not been dealt with as part of the Group. Nonetheless, the interests of MAS are served through its representatives on the Board of the respective associated companies and through the review of management accounts received. These provide MAS’ Board of Directors with performance-related information to enable timely decisions with regards to the Group’s investments in such companies.

The Board confirms that the system of internal control, with the key elements highlighted above, is in place during the financial year. The system is subject to regular reviews by the Board.

��ANNUAL REPORT 2008 STATEMENT OF CORPORATE GOVERNANCE

Statement of Corporate Governance

The Board of Directors (the Board) of MAS strives to maintain a sound level of corporate governance in the Group. They have been unequivocal in their commitment to ensure that the highest standards of corporate culture are practised throughout the Group, both locally and worldwide in the interest of shareholders and stakeholders.

A Whistle Blowing Program was established in February 2006 to provide an internal mechanism for employees to raise their concerns responsibly about malpractices, irregularities and negligence affecting MAS, without any fear of adverse repercussions. An appropriately managed whistle blowing system functions as an internal control mechanism allowing for effective action to be taken and to provide preventive measures in order to ensure that the integrity of the Company is maintained.

A re-compilation of the existing Corporate Approving Authority Manual (CAAM) for ease of reference and compliance was made. The CAAM is continuously being reviewed to keep up with organisational and industry changes. The Station Approving Authority Manual (SAAM) and the Systemwide Station Internal Control Manual (SSICM) complement the CAAM in defining the authority and the accountability for business activities at the stations. As a pivotal internal control mechanism, the CAAM will promote greater managerial discipline, accountability and transparency in the performance of the identified operational and management decision-making activities.

MAS continues to review the initiatives that were identified under the Government Linked Companies Transformation Programme throughout the year. During the year, the Board had adopted the Board Charter as recommended by the ‘Green Book’ to ensure that all the members of the Board are aware of their fiduciary duties and responsibilities as directors and the various legislations and regulations affecting their conduct and that the highest standards of corporate governance are applied in all their dealings in respect, and on behalf of the Company.

The Board is pleased to outline below the manner in which MAS has strengthened its application of the principles and the adoption of corporate governance best practices laid down in the Code. Best Practices over and above the recommendations contained in the Code adopted by the Group are those recommended by PCG and other global standards which the Board has considered to be suitable for the Group.

THE BOARD OF DIRECTORS

ROLES AND RESPONSIBILITIES OF THE BOARD

First and foremost, the Board is responsible for determining the Company’s long-term direction, business objectives and strategy. The Board, in discharging its duties, ensures that the Company has adequate resources to meet its objectives and that it maintains an effective safety and risk management system. The Board is mindful in monitoring the Company’s performance and ensuring that it acts ethically and meets its responsibilities to shareholders and other stakeholders.

Apart from the above responsibilities, the Board adopted a formal schedule to decide on matters requiring approval covering long-term strategy and objectives, capital and operating plans, major investments and disposals, funding and dividend, and annual financial statements.

Malaysian Airline System Berhad (MAS or the Company) has, apart from adhering to the principles and best practices of the Malaysian Code on Corporate Governance (revised 2007) (the Code), also abided by the Guidelines to Enhance Board Effectiveness set by the Putrajaya Committee on GLC High Performance (PCG).


BOARD BALANCE, STRUCTURE AND COMPOSITION

Board structure and composition is the foundation of board effectiveness. The Board is led by a Chairman with strong leadership and management skills to lead and manage discussions among Directors with differing backgrounds. In 2008, the Board comprises the following 11 members which complied with the requirement on Independent Directors of the Listing Requirements (LR) of Bursa Malaysia Securities Berhad (BMSB):-

Category Number

Non-Independent and Non-Executive Chairman 1Executive Directors 2Non-Independent and Non-Executive Directors 2Independent and Non-Executive Directors 6

The Board composition complied with the requirement on Independent Directors of the LR of BSMB.

A brief profile of each Director appears on pages 22 to 27 of this annual report.

There is a clear division of responsibilities between the Chairman of the Board and the Managing Director. The requirement of the Code for a balanced board is fulfilled with Independent Directors constituting more than one-third of the Board. The presence of Independent Directors ensures an additional element of balance to the Board as they provide unbiased and independent views, advice and judgement to all Board deliberations.

The Non-Executive Directors provide a mix of related industry-specific knowledge as well as broad government, business and commercial experience. All Non-Executive Directors do not participate in the day-to-day management of the Company and are free from any relationship that could interfere with their ability to exercise independent judgement and act in the best interests of the Company and its shareholders. In situations where it would be inappropriate for concerns to be dealt with by the Chairman or the Managing Director, such concerns would be conveyed to the Deputy Chairman who is also the Senior Independent Non-Executive Director.

The Board believes that its present structure and composition satisfactorily reflect the investments of its shareholders and is able to provide clear and effective leadership to the Group.

BOARD MEETINGS AND SUPPLY OF INFORMATION TO THE BOARD

Board meetings for the ensuing financial year are scheduled in advance before the end of each financial year so as to enable Directors to plan ahead and fit the year’s Board meetings into their respective schedules. Board meetings are conducted in accordance with a structured agenda. The agenda for each Board meeting and papers relating to the agenda items are forwarded to all Directors before the Board meeting. This is to facilitate the Board to peruse the board papers and review the issues to be deliberated at the Board meeting well ahead of the meeting date to enable directors to make informed decisions.

In the event that any of the Directors has an interest in proposals considered by the Board, the Director concerned will make a written disclosure to that effect at the Board meeting. The interested Director will thereupon abstain from deliberations and decisions of the Board on the subject proposal.

Minutes of each Board meeting are circulated to all Directors for their perusal prior to confirmation of the minutes before the commencement of the following Board meeting. The Directors may request for clarification or raise comments on the minutes prior to the confirmation of the minutes.

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The Board has full and unrestricted access to all information within the Group, individually or collectively, and has direct access to the advice and services of the Company Secretary. The Directors are regularly updated and advised by the Company Secretary on new statutory and regulatory requirements, and the impact and implication to the Company and Directors’ in carrying out their fiduciary duties and responsibilities. The Company Secretary organises and attends all Board meetings and ensures that accurate and proper records of the proceedings of Board meetings and resolutions passed are recorded and kept in the statutory register at the registered office of MAS.

The Directors are free, at the Company’s expense, to seek independent professional advice should they consider it necessary, in furtherance of their duties. The Board has an established procedure for Directors to take independent professional advice.

A total of 12 Board meetings were held during year 2008 and the Board attendance record is as follows:

Directors Meeting Attendance

Tan Sri Dr. Mohd. Munir bin Abdul Majid 12/12Chairman

Dato’ N. Sadasivan a/l N. N. Pillay 12/12Deputy Chairman

Dato’ Sri Idris Jala 12/12Managing Director

Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz 12/12Executive Director

Keong Choon Keat 10/12

Martin Gilbert Barrow 12/12

Dato’ Mohamed Azman bin Yahya 12/12

Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah 8/12

Dato’ Puteh Rukiah binti Abd. Majid 3/12 [Alternate Director to Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah]

Datuk Seri Panglima Mohd. Annuar bin Zaini 10/12

Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim 6/12

Dato’ Haji Abdul Rahman bin Haji Abdul Ghani 5/12 [Alternate Director to Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim]

Datuk Amar Wilson Baya Dandot 8/12 [Appointed on 11 January 2008]

Datuk Haji Mohamad Morshidi bin Abdul Ghani 3/12 [Alternate Director to Datuk Amar Wilson Baya Dandot appointed on 11 January 2008]

Dato’ Zaharaah binti Shaari 7/9 [Resigned on 10 September 2008]

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

ANNUAL REPORT 2008 STATEMENT OF CORPORATE GOVERNANCE


APPOINTMENT OF BOARD MEMBERS

Nomination to the Board of MAS is made either by the Special Shareholder in accordance with Article 5(2) or by the Board pursuant to Article 136 of the Company’s Articles of Association.

The Nomination and Remuneration Committees scrutinise the sourcing and nomination of suitable candidates for appointment as Director in MAS and its subsidiary companies. These Committees will ensure the selection of Board members with the right skill set, expertise and industry knowledge thus strengthening the composition of the Board and contributing significantly to the effectiveness of the Board.

DIRECTORS’ TRAINING

All Directors have attended and successfully completed the Mandatory Accreditation Programme mandated by BMSB. During the financial year, the Company has arranged in-house training programmes on topics relevant to the Company, which were attended by both the members of the Board and Senior Management. In addition to such programmes, the Directors have attended various conferences and seminars organised by external organisers which assisted them in the discharge of their duties.

The various conferences, seminars and training programmes attended by the Directors in 2008 include the following:-

• Malaysia’s 50 Years of Development & Nationhood. Khazanah Merdeka Series• ACG-UK Environment Seminar on Air Transport and the Environment• Corporate Boards in a Challenging Environment• Business Performance Management, Corporate Governance and Risk Management Update • Invest Malaysia 2008: GLC Transformation - What’s next• Anti-Competition Law • Directors’ and Officers’ Liabilities

RE-ELECTION OF DIRECTORS

Pursuant to the LR of BMSB and the Company’s Articles of Association, all Directors are subject to re-election by rotation once at least every three years and a re-election of Directors shall take place at each Annual General Meeting. Executive Directors are also ranked for re-election by rotation. The purpose of such re-election is to ensure that shareholders have a regular opportunity to reassess the composition of the Board. The Directors standing for re-election are set out in the Statement Accompanying the Notice of Annual General Meeting.

DIRECTORS REMUNERATION

The remuneration of the Executive and Non-Executive Directors is reviewed against market practices. The Executive Directors’ remuneration consists of basic salary, other emoluments and other customary benefits as appropriate to a senior management member. Salary reviews take into account market rates and the performance of the individual and the Group. The Executive Directors are not paid the Directors’ fees nor are they entitled to receive any meeting allowance for the Board and Board Committee meetings they attend. The Non-Executive Directors’ remuneration is based on standard fixed fees and allowances that reflect their number of meetings attended during the year.

Details of the total remuneration during the financial year disclosed by category are as follows:

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

Executive Directors 3,526 83 3,609Non-Executive Directors 752 - 752

Total 4,278 83 4,361

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The number of Directors of the Company whose total remuneration during the financial year fell within the following bands is as follows:-

No. of Directors

Executive Directors:RM1,000,001 to RM1,500,000 2

Non-Executive Directors:Below RM50,000 9RM50,001 to RM100,000 2RM150,001 to RM200,000 2

The Board has chosen not to disclose the remuneration of Directors on an individual basis, as suggested by the Code, as the Board believes that such information will not add significantly to the understanding and evaluation of the Group’s standards of corporate governance.

BOARD COMMITTEES

The Board delegates certain responsibilities to Board committees with specified terms of reference and responsibilities. The Chairmen of various committees report the outcome of the committee meetings to the Board and the minutes of the committee meetings are circulated to the Board for their information. Where the committees have no authority to make decisions on matters reserved for the Board, recommendations would be highlighted in their respective reports for the Board’s endorsement. These committees are the:

1. Board Audit Committee2. Nomination Committee3. Remuneration Committee4. Board Safety and Security Committee5. Board Tender Committee6. ESOS Committee

1. Board Audit Committee (BAC)

A full BAC report enumerating its membership, its terms of reference and its activities during the year, appears on pages 71 to 74 of this Annual Report.

The Chairman of the BAC reports the outcome of its meetings to the Board and such reports are incorporated as part of the agenda of the Board meetings.

2. Nomination Committee (NC)

Membership as at 31 December 2008Chairman: Tan Sri Dr. Mohd. Munir bin Abdul Majid Members: Dato’ N. Sadasivan a/l N. N. Pillay Dato’ Mohamed Azman bin Yahya Keong Choon Keat



Objective :-

• To assist the Board in their responsibilities in nominating new nominees to the Board. The NC shall also assess the performance of the Directors on an on-going basis.

Duties and Responsibilities :-

• To recommend to the Board, candidates for all directorships to be filled by the Shareholders or the Board.• To consider, in making its recommendations, candidates for directorship proposed by the Managing Director/Chief Executive

Officer and, within the bounds of practicability, by any other senior executive or any Director or Shareholder.• To recommend to the Board the nominees to fill the seats on Board Committees.• To assess the effectiveness of the Board as a whole and each individual Directors/committees of the Board.• To act in line with the directions of the Board.• To review and approve the appointment of senior management.• To consider and examine such other matters as the NC considers appropriate.

Authority :-

• The NC, in accordance with a procedure or process to be determined by the Board and at the expense of the Company,

a) shall annually review the required mix of skills and experience and other qualities, including core competencies which non executive and executive directors should have.

b) shall assess on annual basis, the effectiveness of the Board as a whole, the committees of the Board and the contribution of each individual Director.

c) shall be entitled to the services of a Company Secretary who must ensure that all appointments are properly made, that all necessary information is obtained from Directors, both for the Company’s own records and for the purposes of meeting statutory obligations, as well as obligations arising from the LR of the BMSB or other regulatory requirements.

3. Remuneration Committee (RC)

Membership as at 31 December 2008 Chairman: Dato’ Mohamed Azman bin Yahya Members: Keong Choon Keat Dato’ N. Sadasivan a/l N. N. Pillay

Objective :-

• To assist the Board in their responsibilities in assessing the remuneration packages of the directors reflecting the responsibilities and commitment undertaken.


• To review and assess the remuneration packages of the directors and senior management in all forms, with independent professional advice, if necessary.

• To ensure the levels of remuneration be sufficiently attractive and be able to retain directors needed to run the Company successfully.

• To structure the component parts of remuneration so as to link rewards to corporate and individual performance and to assess the needs of the Company for talent at Board level at a particular time.

• To recommend to the Board the remuneration packages of the directors.• To act in line with the directions of the Board; and• To consider and examine such other matters as the RC considers appropriate.

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Authority :-

• The RC, in accordance with a formal and transparent procedure or process or policy on directors’ remuneration packages to be determined and established by the Board and at the expense of the Company;

a) review, access and recommend to the Board the remuneration packages of the directors.

b) shall be entitled to the services of the Company Secretary who must ensure that all decisions made on the remuneration packages of the directors be properly recorded and minuted in the minutes book.

4. Board Safety and Security Committee (BSSC)

Membership as at 31 December 2008 Chairman: Martin Gilbert Barrow Members: Dato’ Sri Idris Jala Datuk Amar Wilson Baya Dandot Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz George Synder, Senior Technical Consultant

Other members of the BSSC included relevant Senior Management.

Objective :-

• To provide assurance to the Board that the Company is complying fully with its safety responsibilities under the Air Operator’s Certificate (AOC), and to provide the Board with an assessment of risk to the Company arising from its management of safety and security. This includes an assessment of the reputational exposure from associated operations such as code shares, sub contracted operations under other AOCs, and subsidiaries holding their own regulatory approvals. Currently these comprise MASkargo, Firefly and MASwings but may in the future include other operating divisions.

The BSSC on behalf of the Board has endorsed the Safety Management System (SMS) of the Company, and agrees with its programme to safeguard the safety and security of its operations. It endorses the principles of openness, and encourages continuous improvement.

Role and Scope :-

• Reviews the overall safety and security performance of operations under the MAS AOC, by considering significant operational incidents, and trends.

• Considers the effectiveness of controls by reviewing:-

a) Results of audits, inspections and investigations

b) Significant quality lapses

c) Process conformance

d) Status of corrective and preventive actions

e) Follow up actions from previous management reviews

f) Regulatory violations and concessions

• Reviews occurrence reports as well as trend analyses and ensure that corrective actions are taken in a timely manner; • Periodically reviews the Safety and Security performance of MASkargo, Firefly and MASwings. • Consider relevant incidents to other operators, paying particular attention to those with whom MAS has contractual

relationships. • Reviews recommendations for management system improvement.



• Regularly briefed on changes in regulatory policy or civil aviation legislation. • Monitor safety management processes in flight operations, engineering, security, cargo and ground operations, and ensures that

these are in line with the Group’s quality standards; • Encourages good communication between the various departments with regards to the above processes so that any problem

areas are quickly highlighted and corrective actions taken; and • Ensures that contingency planning and crisis management procedures are in place.

The Chairman of BSSC and the General Manager Corporate Safety, Security, Health and Environment report the outcome of its meetings to the Board and such reports are incorporated as part of the agendas of the Board meetings and the minutes of each BSSC meeting is distributed to all Board members.

5. Board Tender Committee (BTC)

Membership as at 31 December 2008 Chairman: Dato’ N. Sadasivan a/l N. N. Pillay Member: Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz Datuk Seri Panglima Mohd. Annuar bin Zaini

Other members of the BTC included relevant Senior Management.

Objective :-

• To assist the Board, in its capacity to approve tenders with contract value of RM5 million and above.

Duties, Responsibilities and Authority:-

• To deliberate on and approve tenders with contract value of RM5 million and above. • Such tenders shall first be endorsed by the Tender Committee prior to the deliberation of tenders at BTC. • Make other decisions if required to affect the contract between MAS and the appointed contractors/suppliers. • To act in line with the directions of the Board. • To consider and examine such other matters as the BTC considers appropriate.

In the event a BTC meeting cannot be held to deliberate an urgent tender, approval of resolution by circulation can be done.

Such circularised resolution and approval would then be confirmed at the next available BTC meeting.

BTC would designate an authorised personnel to execute the Letter of Award or/and agreement upon such approval.

6. ESOS Committee

Membership as at 31 December 2008 Chairman: Dato’ Mohamed Azman bin Yahya Members: Keong Choon Keat Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz

Other members of the ESOS Committee included relevant Senior Management.

Objective :- • to implement and administer the MAS ESOS in accordance with the By-Laws approved by the shareholders of the Company • to determine participation eligibility, option offers and share allocations; and • to attend to such other matters as may be required.


• responsible for the ESOS plan design and amendments; • assume responsibility for administrative oversight of the plan including reviewing ESOS procedures and ensuring they are adhered

to properly;

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• deliberate and decide on areas such as:-

o participation and eligibility o number of new shares granted o criteria and method of allocation o termination

• to decide on the tenure of plan; • administration of the Selling Flexibility Scheme; and • responsible for all other areas of the ESOS, including, but not limited to, the areas specified under the ESOS By-Laws.

Authority:-

• The MAS ESOS shall be administered by the ESOS Committee. • The ESOS Committee shall be vested with such powers and duties as are conferred upon it by the Board of MAS to administer

the Scheme in such manner it shall in its discretion deem fit. • The ESOS Committee may, for the purpose of administering the Scheme, do all acts and things and enter into any transactions,

agreements, deeds, documents or arrangements, and make rules, regulations or impose terms and conditions or delegate part of its power relating to the Scheme which the ESOS Committee may in its discretion consider to be necessary or desirable for giving full effect to the Scheme. For the avoidance of doubt, the ESOS Committee shall have the authority to administer the Selling Flexibility mechanism.

• Any liberty or power which may be exercised or any determination which may be made hereunder by the ESOS Committee may be exercised at the ESOS Committee’s discretion.

• The decision of the ESOS Committee shall be final and binding.

SHAREHOLDERS

The Company communicates regularly and proactively with shareholders and investors to ensure that they are kept appropriately informed of major developments within the Group on a timely basis.

Relationship and Communication with Shareholders and Investors

It is customary for the Group to brief the analysts and the media immediately after the Group’s quarterly financial results are publicly announced. The Managing Director and Senior Management are present at these briefings to clarify issues raised by the analysts and members of the media. It is also the Group’s practice to hold special briefings with analysts and the media with regard to any special development relating to the Group, after the necessary approvals have been obtained and, where applicable, the prescribed announcements to BMSB have been made.

In addition, the Managing Director holds briefings for institutional investors as and when required.

To develop a long-term relationship with shareholders and institutional investors, the Investor Relations Department, enables the maintenance of an open channel of communication between MAS and its shareholders and institutional investors. Towards this end, a dedicated e-mail address ([email protected]) has been set up, to which shareholders can direct their queries.

Annual General Meeting (AGM)

The AGM is an important forum for communication and dialogue with shareholders. Notice of the AGM and the Annual Report are sent out to shareholders at least 21 days before the date of the meeting. The Annual Report provides detailed and comprehensive information on the Group’s business and activities to help shareholders make informed decisions on their investment in MAS. Shareholders may also access the Group’s website (www.malaysiaairlines.com) for more information.



During the AGM, the Board takes the opportunity to present a comprehensive review of the progress and performance of the Group. This review is supported by visual and graphical presentation of key points and financial figures. The shareholders are given both the opportunity and the time to seek clarifications or raise questions on the agenda items of the general meetings, where the Board would respond with the appropriate answers. To enable shareholders to gain full understanding and evaluate the issues involved, explanatory statements are provided to them on items of special business that may be included in the Notice of Meeting.

At the AGM, shareholders have direct access to Board members who are on hand to answer their questions, either on a specific resolution or on the Company generally.

While the Company endeavours to provide as much information as possible to its shareholders and stakeholders, it is aware of the legal and regulatory framework governing the release of material and sensitive information and accordingly works within such restrictions to attain a balance between providing timely and accurate information which is not misleading to its shareholders and stakeholders.

ACCOUNTABILITY AND AUDIT

Financial Reporting

The Board is mindful to provide and present a balanced and fair assessment of the Group’s financial performance and prospects through its annual financial statements, quarterly results and Annual Report to both BMSB and shareholders. The BAC assists the Board to scrutinise information to ensure adequate disclosures are made in such reports and the overall quality of the Group financial reporting is maintained.

Statement of Directors’ Responsibility in relation to the Financial Statements

In the preparation of the Financial Statements as set out on pages 116 to 199 of this Annual Report, the Directors are of the view that:

• The Group has used appropriate accounting policies that were consistently applied; • Reasonable and prudent judgements and estimates were made; and • All applicable MASB approved accounting standards in Malaysia have been followed.

The Directors are responsible for ensuring that the Company maintains accounting records, which disclose with reasonable accuracy the financial position of the Company and the Group, and that the Financial Statements comply with the Companies Act, 1965.

The Statement of Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 114 of this Annual Report.

Internal Control

The Board acknowledges its overall responsibility for maintaining a sound system of internal control to safeguard shareholders’ investment and the Group’s assets. In compliance with the LR of BMSB under paragraph 15.27(b) and guided by the Statement of Internal Control: Guidance for Directors of Public Listed Companies, the report on the Group’s internal control is presented in the Statement on Internal Control on pages 75 to 78 of this Annual Report.

Relationship with Auditor

The Board has, through the BAC, established and maintained a formal, transparent and appropriate relationship with the Group’s auditors. The authority, roles and responsibilities of the BAC are presented in the Audit Committee Report set out on pages 71 to 74 of this Annual Report.

The Group has always maintained a close and transparent relationship with its auditors in seeking professional advice and ensuring compliance with the relevant accounting standards.

This Statement is made in accordance with the resolution of the Board of Directors dated 20 April 2009.

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Additional Compliance Statement

In compliance with the LR of BMSB under paragraph 9.25, the Board is also pleased to provide disclosure on the following information:-

1. Imposition of Sanctions/Penalties:- There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or Management by the relevant

regulatory bodies during the financial year.

2. Material Contracts:- Save as disclosed below, there are no other material contracts entered into or subsisting by the Company or its subsidiaries, involving

directors and major shareholders interests during the financial year:-

i. Supplemental Agreement dated 28 May 2002 between the Company and Aircraft Business Malaysia Sdn. Bhd. (ABM), a wholly-owned subsidiary of Penerbangan Malaysia Berhad (PMB), to amend certain clauses stated in the Master Aircraft Purchase Agreement dated 5 February 2002 between the aforesaid parties.

ii. Eight (8) Operating Lease Agreements, one (1) of which is dated 6 June 2002 and seven (7) of which are dated 28 May 2002, between the Company and Aircraft Business Malaysia Sdn. Bhd. (ABM), a wholly-owned subsidiary of PMB, in relation to the lease of the eight (8) aircraft for a lease period not exceeding 12 years.

iii. Eight (8) Supplemental Agreements dated 30 July 2002 between the Company and ABM, a wholly-owned subsidiary of PMB, to amend the terms of rental rate/formula stated in the Operating Lease Agreements between the aforesaid parties referred to in paragraph (ii) above.

iv. Several Agreements dated 30 July 2002 between the Company and PMB such as:

a) Widespread Asset Unbundling (WAU) Agreement which describes the general structure of the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Common Terms Agreement, the Governance Agreement and the Aircraft and Engines Purchase Agreement.

b) Agreement for Aircraft and Finance Agreements Unbundling which sets out the terms and arrangements under which PMB and Malaysia Airlines must make payments to each other, in relation to the aircraft assets which are subject to finance leases, loan agreements or operating leases entered into by Malaysia Airlines, (Encumbered Aircraft Assets) and certain payments which Malaysia Airlines receives in respect of its aircraft assets, and in relation to specifically identified liabilities of Malaysia Airlines which are unbundled. This agreement provides PMB with an option to purchase the Encumbered Aircraft Assets becoming unencumbered to Malaysia Airlines, upon which such aircraft will be leased back to Malaysia Airlines on the same terms as the leaseback agreements for Unencumbered Aircraft Assets referred to under paragraph 2(iv)(c).

c) Aircraft and Engines Purchase Agreement which sets out the terms and arrangements under which Malaysia Airlines agrees to sell and transfer title to twenty four (24) aircraft and eight (8) spare engines owned by Malaysia Airlines (Unencumbered Aircraft Assets), to PMB, in consideration of PMB’s obligation to pay Malaysia Airlines certain payments under the Agreement For Aircraft and Finance Agreements Unbundling. The signing of the leaseback agreements for the Unencumbered Aircraft Assets is a condition precedent to the Proposed WAU.

d) Common Terms Agreement which sets out the common terms, conditions and provisions that are incorporated by reference into each of the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Governance Agreement and the WAU Agreement. Included in this agreement is a description of events of default which apply to the said agreements.

e) Governance Agreement which constitutes an agreement between Malaysia Airlines, as the Asset Operator and PMB, ABM and Assets Global Network Sdn. Bhd. (Asset Owners) to comply with the corporate and contractual governance code in relation to the conduct between Malaysia Airlines and the Assets Owners on matter referred to in the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Governance Agreement, the Aircraft and Engines Purchase Agreement and the WAU Agreement.



v. Supplemental Agreement dated 11 October 2002 between Malaysia Airlines and PMB, to amend certain provisions of the Agreement for Aircraft and Finance Agreements Unbundling and the Agreement for Domestic Business Unbundling.

vi. Supplemental Agreement dated 11 October 2002 between Malaysia Airlines and PMB, to amend certain provisions of the Aircraft and Engines Purchase Agreement.

vii. The Lease Agreement dated 6 November 2002 between Malaysia Airlines and PMB in relation to the lease of twenty four (24) aircraft sold by Malaysia Airlines to PMB under the Aircraft and Engines Purchase Agreement, for a period which expires on 30 September 2005 or such other later date agreed by the parties.

viii. The Lease Agreement dated 6 November 2002 between Malaysia Airlines and PMB in relation to the lease of eight (8) spare engines sold by Malaysia Airlines to PMB under the Aircraft and Engines Purchase Agreement, for a period which expires on 30 September 2005 or such other later date agreed by the parties.

ix. Sub-Lease Agreement (In Respect of KLIA Buildings) dated 26 March 2003 between Malaysia Airlines and Assets Global Network Sdn. Bhd. (‘AGN”), a wholly-owned subsidiary of the Minister of Finance, Incorporated in relation to the sub-lease of the land and the buildings and infrastructure as therein defined for fifty seven (57) years at a yearly rent payable by Malaysia Airlines to AGN in accordance with the Rent Schedule appended to the Sub-Lease Agreement.

x. Aircraft Procurement and Lease Agreement dated 21 November 2003 in respect of the procurement of six new Airbus 380-800 aircraft by PMB for subsequent lease to Malaysia Airlines as operator between PMB and Malaysia Airlines.

xi. Aircraft Operating Lease Agreement of One (1) Boeing B777-200ER Aircraft bearing Manufacturer’s Serial Number 28421 Malaysian Registration Mark 9M-MRP, dated 29 November 2004 between PMB (Lessor) and Malaysia Airlines (Lessee).

xii. Aircraft Operating Lease Agreement of One (1) Boeing B777-200ER Aircraft bearing Manufacturer’s Serial Number 28422 Malaysian Registration Mark 9M-MRQ, dated 13 December 2004 between PMB (Lessor) and Malaysia Airlines (Lessee).

xiii. Purchase Agreement Assignment and Novation of Two Boeing Model 747-4H6 under Purchase Agreement No. 1390 dated 17 June 2005 between Malaysia Airlines as Assignor and PMB as Purchaser.

xiv. Aircraft Sub-Lease Agreement of One (1) Boeing B747-4H6 Aircraft bearing Manufacturer’s Serial Number 28434 Malaysian Registration Mark 9M-MPR, dated 20 March 2006 between PMB (Lessor) and Malaysia Airlines (Lessee).

xv. General Terms Agreement dated 29 March 2006 together with Side Letter Agreement Number One, Side Letter Agreement Number Two and Side Letter Agreement Number Three between Rolls-Royce, PMB and Malaysia Airlines.

xvi. Aircraft Sub-Lease Agreement of One (1) Boeing B747-4H6 Aircraft bearing Manufacturer’s Serial Number 29902 Malaysian Registration Mark 9M-MPS, dated 30 May 2006 between PMB (Lessor) and Malaysia Airlines (Lessee).

xvii. An Aircraft General Terms Agreement (AGTA) dated 6 June 2008 for the purchase of 35 B737-800’s was entered into with The Boeing Company. The subject matter of the purchase includes the aircraft, buyer furnished equipment (BFE), customer support and product assurance. Delivery of the first aircraft is estimated in September 2010 and delivery of the final aircraft is estimated in December 2014.

xviii. An agreement for the provision of hajj flights was entered into between Malaysia Airlines and Lembaga Tabung Haji in July 2008. MAS has been appointed as the main carrier to transport Muslim pilgrims to Saudi Arabia for purpose of performing hajj for hajj seasons 1429 Hijrah and 1430 Hijrah. In addition to Kuala Lumpur International Airport, pilgrims from Pulau Pinang, Terengganu, Johor, Sabah and Sarawak are given opportunity to embark from and return to their state’s airports.

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3. Utilisation of Proceeds from Corporate Proposal

During the financial year 2008, part of the proceeds from the Company’s rights issue of ordinary shares and redeemable convertible preference shares were utilized to finance acquisition of new aircraft and passenger services system.

4. Non-audit fees

The amount of non-audit fees paid and payable to the external auditors by the Group for the financial year ended 31 December 2008 is RM214,000.

5. Revaluation Policy on Landed Properties

Revaluation of landed properties will only be undertaken by the Company upon the approval of the Board of Directors of the Company or should there be an intended sale or the market values were materially changed.

6. Profit Guarantee

The Company did not give any profit guarantee during the financial year.

7. Share Buyback

There was no share buyback scheme undertaken by the Company.

8. Options, Warrants or Convertible Securities

The Company has not issued any options, warrants or convertible securities during the financial year 2008 other than the granting of options under the MAS Employees’ Share Option Scheme as disclosed in Note 25 to the Financial Statements.

9. American Depository Receipt (“ADR”) or Global Depository receipt (“GDR”) Programme (as at 31 December 2008)

The Company did not sponsor any ADR or GDR programme during the financial year.

10. Variation in Results

There was no variance of 10% or more in the results in the unaudited quarterly result and the audited financial statement.



Statement of Corporate Social Responsibility

Malaysia Airlines will be renowned as one of the best places to work in Malaysia, and a company that is a source of pride and admiration for its employees and all its stakeholders.

Malaysia Airlines aims to be a responsible corporate citizen as a key member of the aviation industry both within Malaysia and globally. Malaysia Airlines is committed to uphold integrity, transparency and fairness in all our business dealings both internally and externally with customers, suppliers or business partners. We continuously seek to refine our processes and policies to ensure this. In support of this, our corporate social responsibility activities will focus on the 3 thrusts:

1. The Workplace2. Community Involvement3. The Environment

THE WORKPLACEFor more than 60 years, Malaysia Airlines has been one of the nation’s key national employers. Malaysia Airlines, as part of its Business Transformation, is committed towards providing a quality, safe and conducive working environment for its 19,000-strong employee base.

EMPLOYEE ENGAGEMENT

We believe that an informed employee is an engaged employee. To ensure an engaged workforce, various channels are used to proactively communicate with employees system-wide. Channels such as the MH Pulse intranet, Berita MH (in-house bulletin) and U-voice (an internal electronic memo) are used to share company updates. In the spirit of transparency, face to face sessions between management and employees are also conducted through annual Townhall session, quarterly financial staff briefing and departmental cascade sessions system-wide. These are platforms for management to not only share financial performance and company updates but also rally employees towards a common vision.

A milestone in 2008 was the launch of the Living MH Blog (www.malaysiaairlinesblog.com) as it provided an avenue to showcase employees’ experiences - challenges, success stories and perspectives. The employees’ blog provides the public and our customers a better understanding of our organisation’s changing work culture.

In view of the fuel crisis which hit the aviation industry in 2008, Malaysia Airlines launched an employee engagement programme oneMH - Unite and Survive to Win to strengthen the spirit of pulling together and breaking silos to face the challenges in the changing business landscape. As an outcome of this, a series of oneMH Discipline of Action (DoA) workshops took place to collectively improve service quality levels and is gradually becoming a culture within employees in Malaysia Airlines.

UNLEASHING TALENTS

In line with the business focus to unleash talents and capabilities of our employees, helping them to reach their maximum potential both as individuals and as teams, Malaysia Airlines continues to embark on the Human Resource Transformation programme which entails strengthening the Performance Management System, Job Grading and Salary Structure, Talent Management, Human Capital Relations and Human Resource process improvement.

Malaysia Airlines recognises its role as a corporate citizen and its capacity to contribute to Human Capital Development at a national level. Through its Internship Programme, 122 interns were provided an opportunity to be positioned in the diverse operating entities within the Group and giving them a wide spectrum of exposure to prepare them for employment prospects within those entities.

SAFE WORK ENVIRONMENT

Safety Security Health and Environment (SSHE) continued to receive key and consistent focus throughout 2008. Over 600 safety action plans were developed and adopted across all business units to minimise risks and ensure continuous safety improvements. Over 400 quality audits were conducted by internal and external agencies for compliance and conformance to regulations and Malaysia Airlines policies.

Engagement with external agencies was conducted at all levels for improved security, emergency response and air traffic cooperation and support. Through the efforts of Malaysia Airports Berhad and the airlines, the police have deployed its personnel at all international airports since July 2008.

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Unleashing Talents through DIODE (Driving it Out Doing the Extreme)

DIODE is a youth Leadership and Talent Development camp aimed at bringing together teenagers of all races, walks of life and socio-economic backgrounds. This camp provides an opportunity for kids who are less fortunate to learn about leadership. Through this camp, the children will be connected and exposed to key industry figures and leaders in communities. They will be provided with hands on experience on leadership simulations, team building activities, project idea and development. In 2008, Malaysia Airlines has sponsored 11 children under the youth leadership camp. Moving forward, in line with the business focus to unleash talents Malaysia Airlines will expand its support for DIODE through employee volunteers at this camp and sponsoring more children for the camp.

SOCIAL INITIATIVES

MASkargo

In wanting to achieve our vision, mission and goals, MASkargo has not forgotten its role towards the environment and community. MASkargo has adopted an orphanage in Banting which houses close to 70 children aged between 7-17 years old. They have also adopted a 5-year old Indochinese tiger, named ‘Lobo’ at Zoo Melaka.

MASwings

As the national carrier, we have a social responsibility to provide air services especially to those living in isolated locations. Malaysia Airlines’ subsidiary, MASwings which began its services in October 2007, provides a vital and reliable transport and communication link to the people of Sabah and Sarawak.

COMMUNITY INVOLVEMENT We recognise that our presence and success is closely interwoven with the communities around us. We are committed to serve these communities through efficient and safe operations. In addition to this, we want to be actively involved with these communities, whether through social concern groups or through government sponsored programmes and community relations programmes.

EDUCATION AND YOUTH

Project PINTAR

The PINTAR project is a joint community project by Government-Linked Companies (GLCs), aimed to promote the importance of education as a way to improve socio-economic imbalances amongst underprivileged children.

Together with the schools adopted in 2007, Malaysia Airlines has a total of 13 schools in our wings. In 2008, 11 MAS PINTAR schools were launched in various economic regions guided by the Malaysian Government. Schools adopted in 2008 are: SK Kampung Belukar (Kedah), SK Sanglang (Perlis), SK Sabak (Kelantan), SMK Kuala Balah (Kelantan), SMK Ibrahim Fikri (Terengganu), SK Fakeh (Pahang), SK Gelang Patah (Johor), SK Lambir Village, Miri (Sarawak), SK Satria Jaya, Kuching (Sarawak), SK Pasir Puteh, Keningau (Sabah) and SMK Merpati, Sandakan (Sabah).

Through this project Malaysia Airlines has facilitated a series of outdoor activities which included 2 summer camps and 2 visits to Malaysia Airlines head quarters and Putrajaya. The programme involved coordination by employee volunteers from the Backpackers Club of Kelab Sukan MAS and teachers from both the primary and secondary schools.

ANNUAL REPORT 2008 STATEMENT OF CORPORATE SOCIAL RESPONSIBILITY


The “Wings for Children” programme continued in 2008 where MASwings flies children from rural areas that are in need of medical attention for free to stations like Kuching and Miri for specialist treatment. On top of that, Malaysia Airlines also sponsors flights to those with bona fide medical conditions and require flying to a major city for treatment.

The airline also rolled out a “Thoughts for Tots Donation Drive”, calling for donation from the employees in conjunction with Christmas. This culminated with breakfast with 30 in-patient children at the Sarawak General Hospital Oncology ward, the children were served meal boxes offered on MASwings’ flights.

In conjunction with the 250,000th passengers celebration in March 2008, MASwings organised a free trip from Kuching to Bintulu for 12 SPM high achiever from the Pertubuhan Kebajikan Anak-Anak Yatim Negeri Sarawak. Also, MASwings flew students and teachers of SMK Bakong to Mulu for an educational trip as part of its Integration Towards Unity Programme, a programme that promote integration amongst the students and community.

CHINESE NEW YEAR INITIATIVES

This year, resources that would have been spent on Chinese New Year messages in the media and festive projects were channeled into giving back to our community. Malaysia Airlines has visited 41 senior citizens of the Ci Hang Cempaka Bakti Old Folks Home in coordination with Community Relations Unit, Communications Division. Our teams in Kota Kinabalu, Kuching, Penang, Kuantan and Johor Bahru also chipped-in by spreading the MH love whilst visiting homes for the poor, unfortunate, disabled and aged in the stations we operate in.

WOMEN’S AID ORGANISATION (WAO)

The WAO is a local Non-Governmental Organisation (NGO)

working towards the elimination of violence against women. It provides social services to abused women and their children and advocates for the elimination of discrimination against women, in particular violence against women. Its core activities include Refuge/Shelter Services, Child Care Centre (CCC), telephone and face-to-face counseling. In 2008, Malaysia Airlines made a contribution for the maintenance of the Refuge for women and save the WAO’s Child Care Centre. In addition, a donation of essential items, such as mattress and pillows, for the Women’s Refugee and Child Care Centre were made.

HUMANITARIAN

Myanmar was hit by Cyclone Nargis in 2008. Many perished and hundreds of thousands of people who lived within the Irrawady Delta region were evacuated. Victims were without power, clean water, food and clothing. Malaysia Airlines demonstrated great oneMH teamwork, quick response from employees saw 188 boxes of essentials such as medical supplies, food and urgent household supplies organised and flown to Myanmar. The team in Kuala Lumpur worked with Malaysia Airlines’ staff in Rangoon to ensure supplies reached the communities who needed it most.

THE ENVIRONMENT

FUEL EMISSION AND CONSERVATION

As a global airline operating to 6 continents, we ensure that our operations conform to international and national standards with regard to reducing noise and emissions. A key activity for the immediate future is to prepare for the EU Emission Trading Scheme (ETS) which is planned for 2012. Identifying key environmental measures such as carbon offset initiatives will be required to ensure transparency and a demonstration of tangible commitment. We will be guided by the International Civil Aviation Organization

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(ICAO) and IATA in all the activities we undertake to support industry environmental initiatives.

We have been a member of the Association of Asia Pacific Airlines (AAPA) Environmental Working Group since May 2004. Within this framework, we have implemented a number of initiatives to reduce the environmental impact of our business. These include waste management processes in engineering, fuel efficiency improvements, chemical risk assessment and noise monitoring programs.

We are continuously working with our stakeholders to change attitudes towards fuel usage. This includes monitoring excessive fuel uplift on all our aircraft, practising optimum altitude management and adopting fuel conservation approach techniques. Improved maintenance techniques and procedures, including the washing and cleaning of engines, also contribute towards improving fuel consumption. We will continuously seek more improvements in our fuel burn rate especially in the dynamic fuel savings opportunities. These are possible through more efficient airspace and air traffic management for example, in continuous descent approaches, more direct routings and minimising ground time.

The hub-and-spoke model is an efficient way to improve load factors while reducing our carbon impact. We have been building partnerships and code share agreements with other airlines to expand our market base without increasing our point-to-point operations, or increasing our environmental impact. As we continue to add more partners and code share destinations which we hope will increase load factors across several airlines, we expect this will lead to increased efficiency and reduced carbon emissions per passenger.

Apart from that, MASwings and Firefly engaged in an ongoing process of fleet renewal. Through a fleet renewal plan in 2008, both subsidiaries introduced the ATR 72-500 into the fleet. This turboprop aircraft offered the latest fuel efficient, with minimal sound and atmospheric impact. The ATR is tagged as a ‘Green Aircraft’ due to its low carbon emissions and noise levels. Based on manufacturer’s report, a 200 mile sector, the ATR’s fuel consumption per passenger is up to 11% lower than a typical European car.

VOLUNTARY CARBON OFFSET AND FOREST CONSERVATION

Passengers flying with Malaysia Airlines, or our subsidiaries MASwings and Firefly, may choose to pledge a contribution towards reducing the effects of carbon dioxide. Those proceeds will help fund selected United Nations-sanctioned programmes to protect rainforests in Malaysia. Through a trust fund managed

by the Forest Research Institute of Malaysia (FRIM) on behalf of the Ministry of Natural Resources and Environment (NRE), the South-East Pahang Peat Swamp Forests will be funded by these proceeds.

Malaysia Airlines signed Memorandum of Understandings with the Ministry of Natural Resources and the Environment as well as with Shell Malaysia which are both corporate clients of MAS – on the corporate client scheme of the Carbon Offset Programme. From 1st June 2008, Malaysia Airlines will offset carbon emissions generated from all employee duty travel.

As of January 2009, the total amount collected under this programme was approximately RM80,000.

ENVIRONMENTAL MANAGEMENT SYSTEM

Malaysia Airlines established a management framework by which our impact on the environment can be systematically identified and reduced. The framework encompasses an assessment of the company activities, products, processes and services that might affect the environment, development and enforcement of an environmental policy, monitoring, training and awareness programme, periodic auditing of the system and a formal review of the system by senior management. Following are some of the initiatives implemented in 2008.

Our MASkargo operation was awarded ISO 14001 certification for the Environmental Management System implemented for the MASkargo Animal Hotel in January 2004. In addition, MASkargo has successfully implemented Environmental Management System in early 2009. The handling of all live animals is undertaken with extra care in line with animal rights and welfare practices, and all its activities are undertaken with a careful eye on resource conservation and waste management.

MASwings switched the conventional cardboard or plastic meal boxes to a disposable, environmentally friendly meal box made from palm fibres. With over 400 flights per week, the switch of materials would definitely impact the environment in a positive way.

As part of our Business Turnaround Plan, we have adopted paperless ticketing across the board, reducing the quantities of paper consumed in many of our internal processes and transactions. We are now fully e-ticket capable which resulted in doing away with the printing of 16 million paper tickets annually.

ANNUAL REPORT 2008 STATEMENT OF CORPORATE SOCIAL RESPONSIBILITY


Location Description Tenure Approximate Area Approximate Net Book Value (sq feet) Age as at 31.12.2008 (years) (RM)

1. State of 32 office and workshop Occupation of federal Land - 4,617,360 10-37 Selangor buildings forming MAS office land pending Built up - 2,284,309 256,761,642 complex at Sultan Abdul Aziz formalisation of a lease Shah Airport, 47200 Subang and 1 Pedestrian Bridge

Industrial land at PT 44562 Leasehold 99 years 10.972 acres 5 15,661,520 Mkm Sg Buloh, expiring 2102 47200 Subang

Hangar 6 30 yrs + 13 renewal Built up - 41,058 sqm 2 285,382,908 period - subject to finalisation of lease agreement with MAB

2. State of 13 units of shoplots Leasehold 99 years Built up - 8,690 32 837,640 Penang A1.04-A1.07 & A1.11-A1.14 expiring 2075 Level 1; A4.05-A4.08 & B114.03 Level 4, Kompleks KOMTAR, Jalan Penang, George Town, 10000 Pulau Pinang

8 buildings at Penang Monthly tenancy pending Built up - 331,154 39 27,603,632 International Airport, renewal of tenance by MAB 11900 Bayan Lepas, Penang wef 1 August 2006

3. State of 4 shoplots Lot G-01 and Freehold Built up - 4,102 28 176,536 Perak 1-06, 1-07 & 1-08, Bangunan Sri Kinta, Jalan Sultan Idris Shah, 30000 Ipoh

4. State of Vacant Land Lot 51, Leasehold 60 years Land - 52,816 28 37,274 Pahang Taman Bukit Kayangan, expiring 2041 49000 Bukit Fraser

2 units condominium at Leasehold 99 years Built up - 5,226 23 124,324 K67 & B16 Pine Resort, expiring 2082 132,362 49000 Bukit Fraser

List of Company PropertiesAs at 31 December 2008

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5. State of 1 engineering workshop at Monthly tenancy pending Built up - 4,500 24 1 Terengganu Sultan Mahmud Airport, renewal of tenance by MAB 21300 Kuala Terengganu wef 1 August 2006

6. State of 1 engineering building at Monthly tenancy pending Land - 2,065 17 114,351 Kedah Sultan Abdul Halim Airport, renewal of tenance by MAB Built up - 5,950 06200 Alor Setar wef 1 August 2006

1 cargo store at Langkawi Monthly tenancy pending Built up - 1,632 14 1 International Airport, 07100 renewal of tenance by MAB Padang Matsirat, Langkawi wef 1 August 2006

7. State of 1 engineering workshop at Tenancy commencing Land - 16,000 17 397,161 Johor Sultan Ismail Airport, Senai, 1 November 2005 and 81250 Johor Bahru expiring 31 October 2008

1 cargo building at Sultan Tenancy commencing Built up - 10,911 16 3 Ismail Airport, Senai, 81250 1 November 2005 and Johor Bahru expiring 31 October 2008

8. State of 5 units condominium at Leasehold for 99 years Built up - 5,657 21 500,024 N.Sembilan A-6-10, 1-7-5, 1-5-3, A-5-5, expiring 2086 A-4-2, Tanjung Tuan Resort, Batu 5, Jalan Pantai, 71050 Port Dickson, Negeri Sembilan

9. State of Office lots, Leasehold 99 years Built up - 4,350 19 445,501 Kelantan Ground Floor, expiring 2088 Wisma Yakin, Jalan Gajah Mati, 15050 Kota Bharu

10. State of Hangar & cargo and Engineering & Cargo: Engineering & Cargo: 19 5,620,565 Sabah administration buildings at Leasehold expiring 2044 Land - 152,460 Kota Kinabalu International Administration Building: Built up - 118,207 Airport, 88100 Kota Kinabalu Monthly tenancy pending Administration Building: 28 1,385,232 renewal by MAB wef Land - 16,000 1 October 2006 Built up - 31,104

1 hangar / cargo building at Monthly tenancy pending Built up - 16,625 7 2,325,541 Tawau Airport, 91000 Tawau renewal of tenance by MAB wef 30 November 2006

ANNUAL REPORT 2008 LIST OF COMPANY PROPERTIES



11. State of Catering and workshop Monthly tenancy pending Land - 67,662 19-27 645,041 Sarawak building at Kuching renewal of tenance by MAB Built up - 25,171 International Airport, wef 1 August 2006 93250 Kuching

1 cargo warehouse / Monthly tenancy pending Land - 40,864 23 687,236 engineering building at Miri renewal of tenance by MAB Built up - 19,588 Airport, 98000 Miri wef 1 August 2006

Cargo / engineering building Monthly tenancy pending Land - 52,474 5 2,234,057 at Bintulu Airport, Jalan renewal of tenance by MAB Bintulu, 97000 Bintulu wef 1 January 2007

1 cargo / engineering building Monthly tenancy pending Land - 39,654 15 916,271 at Sibu Airport, 23km renewal of tenance by MAB Built up - 10,926 Sibu/Durin Road, 96000 Sibu wef 1 August 2006

12. Singapore Office lots #2-01 to #02-11, Leasehold 99 years Built up - 7,061 29 1,595,112 Level 2, 190, Clemenceau expiring 2047 Avenue No 0209-11, Singapore Shopping Centre, 239924 Singapore

13. England 7 storey office building at Freehold Land - 29,977 13 27,238,422 No 247-249, Cromwell Road, Built up - 24,169 London SW59GA

��ANNUAL REPORT 2008 ANALYSIS OF SHAREHOLDINGS

STATEMENT OF SHAREHOLDINGS AS AT 20 APRIL 2009

Share Capital

Our authorised, and issued and fully paid-up share share capital as at 20 April 2009 are as follows:

No. of Par value TotalType shares RM RM

Authorised

Shares 9,000,000,000 1.00 9,000,000,000

Special Rights Redeemable Preference Share 1 1.00 1

Redeemable Convertible Preference Shares (RCPS) 100,000,000,000 0.01 1,000,000,000- Redeemed

Redeemable Preference Shares 1,000,000 0.10 100,000

Redeemable Convertible Preference Shares 418,000,000 0.10 41,800,000

Total 10,041,900,001

Issued and paid-up

Shares 1,671,062,120 1.00 1,671,062,120

Special Rights Redeemable Preference Share 1 1.00 1

Redeemable Preference Shares 500 0.10 50

Redeemable Convertible Preference Shares 416,127,955 0.10 41,612,795.50

Total 1,712,674,966.50

Voting Rights : One vote per Ordinary Share. The Special Share has no voting right other than those referred to in note 31(b) of the financial statements.

Analysis of Shareholdings


STATEMENT OF SHAREHOLDINGS AS AT 20 APRIL 2009 (CONTINUED)

Changes In Our Share Capital

The changes in our issued and paid-up share capital since the date of incorporation up to 20 April 2009 are as follows:-

Date of No. of shares Par value Consideration/ Total issued andallotment allotted value Type of issue paid-up share capital RM RM

03.04.71 2 1.00 Subscribers’ shares 2

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

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

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

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

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

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

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

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

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

12.09.85 210,000,000 1.00 Bonus issue on the basis of 3 new shares for every 1 share 280,000,000

12.09.85 1 1.00 Special Share-Issued to MoF for cash 280,000,001

21.11.85 70,000,000 1.00 Public issue at RM1.80 per share 350,000,001

13.11.92 350,000,000 1.00 Rights issue on the basis of 1 new share for every 1 share at RM5.00 per share 700,000,001

22.05.96 70,000,000 1.00 Private placement at RM8.00 per share 770,000,001

11.09.01 800,000,000 0.01 RCPS - Issued at RM1.00 each to Intelek Perkasa Berhad for cash 778,000,001

15.01.03 483,243,865 1.00 In satisfaction of the surplus of the liabilities unbundled by MAS to PMB over the total aggregate value of the aircraft assets to be unbundled by MAS to PMB at RM3.85 per share 1,261,243,866

11.09.06 (800,000,000) 0.01 RCPS - Redeemed 1,253,243,866

31.01.07 500 0.10 RPS - Issued at RM1.00 each to CIMB Bank Berhad 1,253,243,916

05.11.07 417,747,955 1.00 Rights issue on the basis of 1 new share for every 1 share at RM2.70 per share 1,670,991,871

05.11.07 417,747,955 0.10 Rights issue on the basis of 1 new share for every 1 share at RM2.70 per share 1,712,766,666.50

06.08.08 2,000 1.00 By way of ESOS allotment 1,712,768,666.50

20.08.08 8,300 1.00 By way of ESOS allotment 1,712,776,966.50

04.02.09 60,000 1.00 Allotment of ordinary shares by way of RCPS conversion 1,712,674,966.50

�0�

LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 20 APRIL 2009

In accordance with the Register of Depository, the list of thirty largest shareholders of the Company is as follows:-

Ordinary Share

No. Name No. of Shares %

1. Penerbangan Malaysia Berhad 868,957,232 52.00

2. Khazanah Nasional Berhad 239,522,656 14.33

3. Employees Provident Fund Board 210,021,260 12.57

4. Amanah Raya Nominees (Tempatan) Sdn Bhd <Skim Amanah Saham Bumiputera> 89,184,367 5.34

5. Cimsec Nominees (Tempatan) Sdn Bhd <Khazanah Nasional Berhad (MAS ESOS Pool)> 50,129,755 3.00 6. State Financial Secretary Sarawak 45,333,333 2.71

7. Warisan Harta Sabah Sdn Bhd 40,056,000 2.40

8. Alliance Group Nominees (Tempatan) Sdn Bhd <PHEIM Asset Management Sdn Bhd for Employees Provident Fund> 7,763,733 0.46

9. Amanah Raya Nominees (Tempatan) Sdn Bhd <Skim Amanah Saham Nasional> 4,786,667 0.29

10. Citigroup Nominees (Tempatan) Sdn Bhd <ING Insurance Berhad (INV-IL PAR)> 4,016,300 0.24

11. Cartaban Nominees (Asing) Sdn Bhd <Government of Singapore Investment Corporation Pte Ltd for Government of Singapore (C)> 3,847,333 0.23

12. Low Poh Weng 3,450,000 0.21

13. Cartaban Nominees (Asing) Sdn Bhd <State Street London Fund MATF for Marathon New Global Fund Plc> 3,101,067 0.19

14. HSBC Nominees (Asing) Sdn Bhd <BBH and Co Boston for Vanguard Emerging Markets Stock Index Fund> 2,624,400 0.16

15. Cartaban Nominees (Asing) Sdn Bhd <State Street for Ishares, Inc.> 2,515,800 0.15

16. HSBC Nominees (Asing) Sdn Bhd <Exempt an for JP Morgan Chase Bank, National Association (U.A.E)> 2,294,269 0.14

ANNUAL REPORT 2008 ANALYSIS OF SHAREHOLDINGS

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

LIST OF THIRTY LARGEST SHAREHOLDERS AS AT 20 APRIL 2009 (CONTINUED)

Ordinary Share (continued)


17. HSBC Nominees (Asing) Sdn Bhd <Exempt an for the Bank of New York, Mellon (Mellon Act)> 2,277,329 0.14

18. HSBC Nominees (Asing) Sdn Bhd <Exempt an for JP Morgan Chase Bank, National Association (Norges Bank)> 2,236,700 0.13

19. HSBC Nominees (Asing) Sdn Bhd <Exempt an for the Bank of New York, Mellon (BNYM As E&A)> 1,686,798 0.10

20. HSBC Nominees (Asing) Sdn Bhd <BBH and Co Boston for Vanguard Global Equity Fund> 1,605,433 0.10

21. Cartaban Nominees (Asing) Sdn Bhd <Investors Bank and Trust Company For MSCI Equity Index Fund B Malaysia (Barclays G Inv)> 1,560,424 0.09

22. Kumpulan Wang Simpanan Pekerja 1,500,000 0.09

23. Cartaban Nominees (Asing) Sdn Bhd <SSBT Fund H61P for Dynamic Far East Value Fund> 1,464,000 0.09

24. Cartaban Nominees (Asing) Sdn Bhd <Government of Singapore Investment Corporation Pte Ltd for Monetary Authority of Singapore (H)> 1,421,800 0.09

25. Citigroup Nominees (Tempatan) Sdn Bhd <Exempt an for American International Assurance Berhad> 1,364,100 0.08

26. HSBC Nominees (Asing) Sdn Bhd <Exempt an for JP Morgan Chase Bank, National Association (U.S.A.)> 1,273,832 0.08

27. HSBC Nominees (Asing) Sdn Bhd <Exempt an for JP Morgan Chase Bank, National Association (Australia)> 1,251,631 0.07

28. SBB Nominees (Tempatan) Sdn Bhd <Pertubuhan Keselamatan Sosial> 1,107,000 0.07

29. Cartaban Nominees (Asing) Sdn Bhd <SSBT Fund Mata for Global Equity Fund (Marathon Gbl FD)> 1,082,933 0.06

30. HSBC Nominees (Asing) Sdn Bhd <Exempt an for Danskee Bank A/S (Client Holdings)> 1,067,067 0.06

�0�ANNUAL REPORT 2008 ANALYSIS OF SHAREHOLDINGS


Redeemable Convertible Preference Share


1. Khazanah Nasional Berhad 289,652,500 69.61

2. Employees Provident Fund Board 48,117,298 11.56

3. Amanah Raya Nominees (Tempatan) Sdn Bhd <Skim Amanah Saham Bumiputera> 19,316,467 4.64

4. Warisan Harta Sabah Sdn Bhd 10,014,000 2.41

5. Low Poh Weng 6,208,500 1.49

6. Tan Lean Kee 2,478,600 0.60

7. Ke-Zan Nominees (Asing) Sdn Bhd <Kim Eng Securities Pte. Ltd. for CYL Investments Limited 2,424,000 0.58

8. Ho Chu Chai 1,838,600 0.44

9. Kurnia Insurance (Malaysia) Berhad 1,620,000 0.39

10. AllianceGroup Nominees (Tempatan) Sdn Bhd <PHEIM Asset Management Sdn Bhd for Employees Provident Fund> 1,493,033 0.36

11. Citigroup Nominees (Tempatan) Sdn Bhd <ING Insurance Berhad (INV-IL PAR)> 1,364,200 0.33

12. Mayban Nominees (Tempatan) Sdn Bhd <Mayban Trustees Berhad for MAAKL Value Fund (950290)> 1,320,300 0.32

13. Amanah Raya Nominees (Tempatan) Sdn Bhd <Skim Amanah Saham Nasional> 1,196,667 0.29 14. Tan Yu Wei 1,022,500 0.25

15. Mayban Nominees (Tempatan) Sdn Bhd <Ting Poi Ling> 615,000 0.15

16. HSBC Nominees (Asing) Sdn Bhd <Exempt an for the Bank of New York Mellon (Mellon Act)> 516,529 0.12

17. Ti Teow Choo 461,800 0.11



Redeemable Convertible Preference Share (continued)


18. Lee Ah Beng <Exempt an for Mellon Bank (Mellon)> 461,600 0.11

19. Cimsec Nominees (Tempatan) Sdn Bhd <CIMB for Chai Kim Sin (PB)> 429,800 0.10

20. Lee Chee Yong @ Shoong Chee Yong 426,400 0.10

21. HSBC Nominees (Tempatan) Sdn Bhd <HSBC (M) Trustee Bhd for MAAKL Growth Fund (4074)> 405,000 0.10

22. Public Nominees (Tempatan) Sdn Bhd <Pledged Securities Account for Wong Toh Kwong (E-PDG)> 400,000 0.10

23. Chai Kim Sin 385,000 0.09

24. Teng Swee Lan @ Fong Swee Lan 383,700 0.09

25. Chew Guat Looi 320,000 0.08

26. JF Apex Nominees (Tempatan) Sdn Bhd <Pledged Securities Account for Voon Sze Lin> 313,400 0.08

27. Su An Lee 255,300 0.06

28. Wong Kok Sin 240,000 0.06

29. Wong Kek Chong 240,000 0.06

30. Wong Kook Chee 230,000 0.06

�0�

ANALYSIS OF SHAREHOLDINGS AS AT 20 APRIL 2009

Ordinary Share

Category Shareholders % Shareholdings %

Less than 100 127 1.31 2,812 0.00

100 to 1,000 2,975 30.62 2,650,938 0.16

1,001 to 10,000 5,816 59.86 18,362,214 1.10

10,001 to 100,000 661 6.80 18,018,511 1.08

100,001 to less than 5% of issued shares 133 1.37 164,936,242 9.87

5% and above of issued shares 4 0.04 1,467,091,403 87.79

TOTAL 9,716 100.00 1,671,062,120 100.00


Category Shareholders % Shareholdings %

Less than 100 38 0.89 1,849 0.00

100 to 1,000 2,638 62.03 1,661,969 0.40

1,001 to 10,000 1,241 29.18 3,795,014 0.91

10,001 to 100,000 254 5.97 8,621,549 2.07

100,001 to less than 5% of issued shares 80 1.88 62,781,343 15.09

5% and above of issued shares 2 0.05 339,266,231 81.53

TOTAL 4,253 100.00 416,127,955 100.00



LIST OF SUBSTANTIAL SHAREHOLDERS (5% AND ABOVE) AS AT 20 APRIL 2009

Ordinary Share

Share Held Percentage (%)No. Name Direct Indirect Direct Indirect

1. Penerbangan Malaysia Berhad 868,957,232 - 52.00 -

2. Khazanah Nasional Berhad 239,522,656 * 50,129,755 14.33 3.00

3. Employees Provident Fund Board 210,021,260 ** 9,276,133 12.57 0.55

4. Amanah Raya Nominees (Tempatan) Sdn Bhd Skim Amanah Saham Bumiputera 89,184,367 - 5.34 -


Share Held Percentage (%)No. Name Direct Indirect Direct Indirect

1. Khazanah Nasional Berhad 289,652,500 - 69.61 -

2. Employees Provident Fund Board 48,117,298 ** 1,496,433 11.56 0.36

* Khazanah Nasional Berhad (Khazanah) is deemed to have indirect interest by virtue of MAS Shares held by CIMSEC Nominees (Tempatan) Sdn Bhd on behalf of Khazanah under Section 6A of the Companies Act, 1965 (CA 1965).

** Employees Provident Fund Board (EPF) is deemed to have indirect interest by virtue of MAS Shares managed by other portfolio managers on behalf of EPF under Section 6A of the CA 1965.

�0�

DIRECTORS’ DIRECT AND DEEMED INTERESTS IN THE COMPANY AS AT 20 APRIL 2009

In accordance with the Register of Directors’ Shareholdings, the directors’ direct and deemed interests in shares in the Company are as follows:-

Ordinary Share

No. Name No. of Shares % Direct Indirect

1. Tan Sri Dr. Mohd. Munir bin Abdul Majid - - -

2. Dato’ N. Sadasivan a/l N. N. Pillay - - -

3. Dato’ Sri Idris Jala 1,443,358 - 0.086

4. Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz 1,155,066 - 0.069

5. Keong Choon Keat - - -

6. Dato’ Mohamed Azman bin Yahya - - -

7. Martin Gilbert Barrow - - -

8. Datuk Seri Panglima Mohd. Annuar bin Zaini - - -

9. Datuk Haji Yusoff bin Datuk Haji Mohamed Kassim - - -

10. Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah - - -

11. Datuk Amar Wilson Baya Dandot - - -

12. Dato’ Haji Abdul Rahman bin Haji Abdul Ghani - - -

13. Dato’ Puteh Rukiah binti Abd. Majid - - -

14. Datuk Haji Mohamad Morshidi bin Abdul Ghani - - -



The Lifeline Connecting Communities In Sabah And Sarawak

MASwings


109109

FINANCIAL REPORT

109

Directors’ Report

Statement by Directors and Statutory Declaration

Independent Auditors’ Report

Income Statements

Balance Sheets

Statements of Changes in Equity

Cash Flow Statements

Notes to the Financial Statements

110

114

115

116

117

118

120

124

110 MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W) ANNUAL REPORT 2008110 MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W)

The directors present their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2008.

PRINCIPAL ACTIVITIES

The Company is principally engaged in the business of air transportation and the provision of related services. The principal activities of the subsidiaries are described in Note 15 to the financial statements.

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

RESULTS

Group Company RM’000 RM’000

Profit from continuing operationsProfit from discontinued operations 245,575 228,021Profit for the year 122 -

245,697 228,021

Attributable to: Equity holders of the Company 244,312 228,021Minority interests 1,385 -

245,697 228,021

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

In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature, other than:

(a) the effects arising from changes in estimates for the recognition of unavailed credits on sales in advance of carriage resulting in an increase in the Group’s and the Company’s profit for the financial year by RM102 million as disclosed in Note 2.5 (b) to the financial statements.

(b) the effects arising from changes in estimates where the remaining useful life of spare engines, repairable and rotable aircraft spares were revised resulting in an increase in the Group’s and the Company’s profit for the financial year by RM20 million as further elaborated in Note 2.5 (a) to the financial statements.

DIVIDENDS

The amount of dividends paid by the Company since 31 December 2007 were as follows:

First and final tax exempt dividends of 2.50 sen per share, on 1,670,991,820 ordinary shares, in RM’000respect of the financial year ended 31 December 2007, declared on 23 June 2008 and paid on31 July 2008. 41,775

The directors do not recommend any dividend for the financial year ended 31 December 2008.

Directors’ Report

111111

DIRECTORS

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

Tan Sri Dr. Mohd. Munir bin Abdul Majid

Dato’ N. Sadasivan a/l N.N. Pillay

Datuk Seri Panglima Mohd. Annuar bin Zaini

Dato’ Mohamed Azman bin Yahya

Dato’ Sri Iris Jala @ Idris Jala

Keong Choon Keat

Martin Gilbert Barrow

Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz

Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim

Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah

Datuk Amar Wilson Baya Dandot

Dato’ Haji Abdul Rahman bin Haji Abdul Ghani (Alternate to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim)

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

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

Dato’ Zaharaah binti Shaari(resigned on 10 September 2008)

In accordance with Article 139 of the Company’s Articles of Association, Keong Choon Keat, Martin Gilbert Barrow, Tan Sri Dr. Mohd. Munir bin Abdul Majid and Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.

DIRECTORS’ BENEFITS

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

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

ANNUAL REPORT 2008 DIRECTORS’ REPORT


DIRECTORS’ INTEREST

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

Number of Options over Ordinary Shares* 1.1.2008 Granted Exercised 31.12.2008The Company

Dato’ Sri Iris Jala @ Idris Jala 755,358 688,000 - 1,443,358

Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz 604,066 551,000 - 1,155,066

*Share options granted under ESOS

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

ISSUE OF SHARES

During the financial year, the Company increased its issued and paid-up capital from RM1,670,991,821 to RM1,671,002,121 by way of issuance 10,300 ordinary shares of RM1.00 each for cash pursuant to the Company’s ESOS at exercise prices of between RM3.82 and RM3.94 per ordinary shares.

EMPLOYEE SHARE OPTION SCHEME

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

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

The Company has been granted exemption by the Companies Commission of Malaysia from having to disclose the names of the option holders, other than directors, who have been granted options to subscribe for less than 600,000 ordinary shares of RM1 each. The names of option holders granted options to subscribe for 600,000 or more ordinary shares of RM1 each as at 31 December 2008 are as follows:

Grant Expiry Exercise Number of Share OptionsName Date Date Price 1.1.2008 Granted Exercised Expired 31.12.2008 RM

Dato’ Sri Iris Jala @ Idris Jala 29.6.2007 31.12.2011 5.09 755,358 - - - 755,358 20.6.2008 31.12.2011 3.71 - 688,000 - - 688,000

Tengku Dato’ Azmil Zahruddin 29.6.2007 31.12.2011 5.09 604,066 - - - 604,066 bin Raja Abdul Aziz 20.6.2008 31.12.2011 3.71 - 551,000 - - 551,000

Dato’ Abdul Rashid Khan 29.6.2007 31.12.2011 5.09 452,773 - - - 452,773 bin Abdul Rahim Khan 20.6.2008 31.12.2011 3.71 - 379,000 - - 379,000

Dato’ Tajuden bin Abu Bakar 29.6.2007 31.12.2011 5.09 323,567 - - - 323,567 20.6.2008 31.12.2011 3.71 - 344,000 - - 344,000

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

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

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

Dato’ Captain Ahmad 29.6.2007 31.12.2011 5.09 323,567 - - - 323,567 Zuraidi bin Dahalan 20.6.2008 31.12.2011 3.71 - 287,000 - - 287,000

Dato’ Bernard Francis 29.6.2007 31.12.2011 5.09 323,567 - - - 323,567 a/l G Francis 20.6.2008 31.12.2011 3.71 - 316,000 - - 316,000

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

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

113113

OTHER STATUTORY INFORMATION

(a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps:

(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and

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

(b) At the date of this report, the directors are not aware of any circumstances which would render:

(i) the amount written off for bad debts or the amount of the provision for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and

(ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

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

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

(e) As at the date of this report, there does not exist:

(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or

(ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year.

(f) In the opinion of the directors:

(i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and

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

SIGNIFICANT EVENTS

Details of the significant events are disclosed in Note 41 to the financial statements.

AUDITORS

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

Signed on behalf of the Board in accordance with a resolution of the directors dated 26 February 2009.

Tan Sri Dr. Mohd. Munir bin Abdul Majid Dato’ Sri Iris Jala @ Idris Jala

ANNUAL REPORT 2008 DIRECTORS’ REPORT


We, Tan Sri Dr. Mohd. Munir bin Abdul Majid and Dato’ Sri Iris Jala @ Idris Jala, being two of the directors of Malaysian Airline System Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 116 to 199 are drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2008 and of the results and the cash flows of the Group and of the Company for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 26 February 2009.

Tan Sri Dr. Mohd. Munir bin Abdul Majid Dato’ Sri Iris Jala @ Idris Jala

I, Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz, being the director primarily responsible for the financial management of Malaysian Airline System Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 116 to 199 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared bythe abovenamed Tengku Dato’ Azmil Zahruddinbin Raja Abdul Aziz at Kuala Lumpur inWilayah Persekutuan on 26 February 2009 Tengku Dato’ Azmil Zahruddin bin Raja Abdul Aziz

Before me,

Statutory Declaration

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

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

115115

Report on financial statements

We have audited the financial statements of Malaysian Airline System Berhad, which comprise the balance sheets as at 31 December 2008 of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 116 to 199.

Directors’ responsibility for the financial statements

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

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Approved Standards on Auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

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

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

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards in Malaysia and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2008 and of their financial performance and cash flows of the Group and of the Company for the year then ended.

Report on other legal and regulatory requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act.

(b) We are satisfied that the accounts of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.

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

Other matters

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

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

Kuala Lumpur, Malaysia26 February 2009

ANNUAL REPORT 2008 INDEPENDENT AUDITORS’ REPORT

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


Group Company Note 2008 2007 2008 2007 RM’000 RM’000 RM’000 RM’000

Continuing OperationsOperating revenue 3 15,035,303 14,630,231 13,247,237 12,901,143Operating expenditure (15,198,257 ) (14,357,514 ) (13,404,533 ) (12,595,523 )Other operating income 466,001 288,242 447,969 297,549Residual value sharing on sale of aircraft by Penerbangan Malaysia Berhad 4 - 209,333 - 209,333Gain on sale of properties 5 2,410 104,935 2,410 104,935

Profit from operations 6 305,457 875,227 293,083 917,437Finance costs 7 (60,770 ) (46,886 ) (59,258 ) (46,841 )Share of results of associated companies 19,974 12,570 - -

Profit before taxation 264,661 840,911 233,825 870,596Taxation 10 (19,086 ) (29,590 ) (5,804 ) 9,487Profit for the year from continuing operations 245,575 811,321 228,021 880,083

Discontinued OperationsProfit for the year from discontinued operations 11 122 41,422 - -

Profit for the year 245,697 852,743 228,021 880,083

Attributable to: Equity holders of the Company 244,312 851,418 228,021 880,083Minority interests 1,385 1,325 - -

245,697 852,743 228,021 880,083Earnings per share attributable to equity holders of the Company (sen): Basic, for profit from continuing operations 12 14.6 55.2Basic, for profit from discontinued operations 12 - 2.8Basic, for profit for the year 12 14.6 58.0

Diluted, for profit from continuing operations 12 14.6 51.6 Diluted, for profit from discontinued operations 12 - 2.6

Diluted, for profit for the year 12 14.6 54.2

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

Income StatementsFor the year ended 31 December 2008

117117


NON-CURRENT ASSETSAircraft, property, plant and equipment 13 2,464,823 2,061,118 2,138,312 2,002,490Prepaid lease payments on land 14 17,431 17,613 15,699 15,861Investments in subsidiaries 15 - - 53,372 35,149Investments in associates 16 73,268 58,447 81,274 81,274Other investments 17 64,946 66,325 64,946 66,325Negotiable instruments of deposits 18 250,000 340,000 250,000 340,000Intangible assets 19 106,253 103,162 86,831 85,849Other receivables 21 326,942 316,255 609,166 316,255Deferred tax assets 33 1,348 4,007 - -

3,305,011 2,966,927 3,299,600 2,943,203CURRENT ASSETSInventories 20 379,730 365,266 370,655 358,097Trade and other receivables 21 2,020,112 1,807,949 1,994,375 1,775,951Negotiable instruments of deposit 18 795,000 485,000 795,000 485,000Cash and bank balances 22 3,571,743 4,434,338 3,529,222 4,393,289

6,766,585 7,092,553 6,689,252 7,012,337Non-current assets held for sale 23 - 2,501 - 2,465

6,766,585 7,095,054 6,689,252 7,014,802CURRENT LIABILITIESSales in advance of carriage 24 1,222,410 1,563,394 1,222,410 1,563,394Trade and other payables 26 2,408,825 3,006,391 2,469,131 3,016,584Provisions 27 817,703 681,828 803,245 669,963Borrowings 28 433,411 - 425,000 -Taxation 5,001 4,432 4,814 4,231

4,887,350 5,256,045 4,924,600 5,254,172

NET CURRENT ASSETS 1,879,235 1,839,009 1,764,652 1,760,630

5,184,246 4,805,936 5,064,252 4,703,833FINANCED BY:Equity attributable to equity holders of the Company:Share capital 31 1,671,002 1,670,992 1,671,002 1,670,992Reserves 32 2,514,696 2,263,901 2,407,673 2,173,169

4,185,698 3,934,893 4,078,675 3,844,161Minority interests 11,278 11,056 - -

Total equity 4,196,976 3,945,949 4,078,675 3,844,161

NON CURRENT LIABILITIESOther payables - - 112,241 -Borrowings 28 985,577 859,672 873,336 859,672

Deferred tax liabilities 33 1,693 315 - -

5,184,246 4,805,936 5,064,252 4,703,833


ANNUAL REPORT 2008 BALANCE SHEETS

Balance SheetsAs at 31 December 2008


Statements of Changes In Equity

Attributable to equity holders of the Company

Non-Distributable

Share Share Equity Share Option Note Capital Premium Component Reserve RM’000 RM’000 RM’000 RM’000 (Note 31) (Note 32(a)) (Note 32(b)) (Note 32(c))GROUPAt 1 January 2007 1,253,244 3,301,164 - -Net profit for the year - - - -Dividends - - - -Grant of ESOS 25 - - - 27,880Rights Issue: - Issue of ordinary shares 417,748 710,172 - - - Rights expenses - (3,826 ) - -Redeemable Convertible Preference Shares (“RCPS”): - Issue of RCPS 29 - - 58,076 -

At 31 December 2007 1,670,992 4,007,510 58,076 27,880

At 1 January 2008 1,670,992 4,007,510 58,076 27,880Net profit for the year - - - -Dividends 42 - - - -Net expenses recognised directly in equity - (97 ) - -ESOS - Grant of ESOS 25 - - - 48,327 - Exercise of options 25 10 28 - - - ESOS provision reversal 25 - 5 - (5 )

At 31 December 2008 1,671,002 4,007,446 58,076 76,202

COMPANYAt 1 January 2007 1,253,244 3,301,164 - -Net profit for the year - - - -Grant of ESOS 25 - - - 27,880Rights Issue: - Issue of ordinary shares 417,748 710,172 - - - Rights expenses - (3,826 ) - -Redeemable Convertible Preference Shares (“RCPS”): - Issue of RCPS 29 - - 58,076 -

At 31 December 2007 1,670,992 4,007,510 58,076 27,880

At 1 January 2008 1,670,992 4,007,510 58,076 27,880Net profit for the year - - - -Dividends 42 - - - -Net Expenses recognised directly in equity - (97 ) - -ESOS - Grant of ESOS 25 - - - 48,327 - Exercise of options 25 10 28 - - - ESOS provision reversal 25 - 5 - (5 )

At 31 December 2008 1,671,002 4,007,446 58,076 76,202


For the year ended 31 December 2008

119119

Minority Total Interests Equity

Distributable

General Accumulated Total Reserve Losses Reserves Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 (Note (32(d))

501,530 (3,182,513 ) 620,181 1,873,425 15,246 1,888,671 - 851,418 851,418 851,418 1,325 852,743 - - - - (5,515 ) (5,515 ) - - 27,880 27,880 - 27,880

- - 710,172 1,127,920 - 1,127,920 - - (3,826 ) (3,826 ) - (3,826 )

- - 58,076 58,076 - 58,076

501,530 (2,331,095 ) 2,263,901 3,934,893 11,056 3,945,949

501,530 (2,331,095 ) 2,263,901 3,934,893 11,056 3,945,949 - 244,312 244,312 244,312 1,385 245,697 - (41,775 ) (41,775 ) (41,775 ) (1,163 ) (42,938 ) - - (97 ) (97 ) - (97 )

- - 48,327 48,327 - 48,327 - - 28 38 - 38 - - - - - -

501,530 (2,128,558 ) 2,514,696 4,185,698 11,278 4,196,976

500,000 (3,300,380 ) 500,784 1,754,028 - 880,083 880,083 880,083 - - 27,880 27,880 - - 710,172 1,127,920 - - (3,826 ) (3,826 )

- - 58,076 58,076

500,000 (2,420,297 ) 2,173,169 3,844,161

500,000 (2,420,297 ) 2,173,169 3,844,161 - 228,021 228,021 228,021 - (41,775 ) (41,775 ) (41,775 )

- - (97 ) (97 )

- - 48,327 48,327 - - 28 38 - - - -

500,000 (2,234,051 ) 2,407,673 4,078,675

ANNUAL REPORT 2008 STATEMENTS OF CHANGES IN EQUITY


Cash Flow Statements


CASH FLOWS FROM OPERATING ACTIVITIESProfit before taxation from: Continuing operations 264,661 840,911 233,825 870,596 Discontinued operations 122 43,218 - -Adjustments for: Provision for aircraft maintenance and overhaul costs 27 498,964 633,754 496,371 621,889 Aircraft, property, plant and equipment: - depreciation 6 327,858 344,610 294,086 302,376 - loss/(gain) on disposal, net 6 16 (53,917 ) 113 (53,887 ) - writeback of impairment losses, net 6 (45,254 ) (2,101 ) (45,254 ) (2,101) - written off, net 6 35,287 22,503 35,283 22,503 Losses incurred due to delay in delivery of A380 6 - 58,385 - 58,385 Gain on disposal of non-current assets held for sale 6 (2,410 ) (52,840 ) (2,410 ) (52,840 ) (Writeback of)/provision for inventories obsolescence, net 6 (2,374 ) 26,672 (2,374 ) 26,672 Amortisation of prepaid lease payments on land 6 182 582 162 173 (Writeback of)/provision for doubtful debts, net: - subsidiaries 6 - - - (20,798 ) - others 6 (58,165 ) 108,697 (59,752 ) 4,067 Gain on disposal of a subsidiary 6 - (36,145 ) - (9,386 ) Writeback of unavailed credits on sales in advance of carriage 3 (324,078 ) (252,193 ) (324,078 ) (252,193 ) Amortisation of intangible assets 6 24,359 13,206 16,104 10,693 Provision for/(writeback of) short term accumulating compensated absences 8 35,207 (70,921 ) 34,993 (70,921 )

For the year ended 31 December 2008

121121

CASH FLOW STATEMENTS (CONTINUED)For the year ended 31 December 2008


CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)Discount on redemption of redeemable preference shares in an associate 6 - 3,229 - 3,229Gain on disposal of other investment 6 (24,732 ) - (24,732 ) -Grant of ESOS 8 48,327 27,880 45,102 26,278Share of results of associated companies (19,974 ) (12,570 ) - -Unrealised foreign exchange loss 6 90,424 27,743 90,424 27,743Interest income 6 (222,746 ) (106,050 ) (221,993 ) (105,710 )Dividend income 6 (16,586 ) (21,691 ) (30,166 ) (55,590 )Interest expense 7 58,595 46,841 58,595 46,841Operating profit before working capital changes 667,683 1,589,803 594,299 1,398,019 Increase in inventories (12,090 ) (5,180 ) (10,185 ) (5,847 ) Increase in trade and other receivables (201,082 ) (19,683 ) (189,709 ) (36,009 ) Decrease in amount owing to holding company (90,848 ) (171 ) (90,848 ) (171 ) (Decrease)/increase in sales in advance of carriage (16,905 ) 613,526 (16,905 ) 613,526 (Decrease)/increase in trade and other payables (564,477 ) 540,509 (522,560 ) 695,661 Decrease in provisions 27 (363,089 ) (299,640 ) (363,089 ) (299,640 )Cash (used in)/generated from operating activities (580,808 ) 2,419,164 (598,997 ) 2,365,539 Interest paid (28,363 ) (39,825 ) (28,363 ) (39,825 ) Taxes paid (14,480 ) (8,753 ) (5,224 ) (6,591 )Net cash (used in)/generated from operating activities (623,651 ) 2,370,586 (632,584 ) 2,319,123

ANNUAL REPORT 2008 CASH FLOW STATEMENTS




CASH FLOWS FROM INVESTING ACTIVITIESPurchase of aircraft, property, plant and equipment 13 (763,813 ) (411,303 ) (760,797 ) (405,879 )Placement of NIDs (220,000 ) (825,000 ) (220,000 ) (825,000 )Purchase of intangible assets 19 (27,450 ) (36,006 ) (17,086 ) (26,261 )Net cash inflow from disposal of a subsidiary - 372,190 - 386,263Proceeds from disposal of: - aircraft, property, plant and equipment 42,236 72,944 41,812 72,892 - non current assets held for sale 4,875 151,732 4,875 151,732 - other investments 26,112 33,173 26,112 33,173Interest received 187,708 91,720 172,623 91,380Dividend received 21,739 43,276 30,166 55,590Deposits pledged with banks (631,120 ) - (631,120 ) -Net cash used in investing activities (1,359,713 ) (507,274 ) (1,353,415 ) (466,110 )

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from Rights Issue - 1,127,920 - 1,127,920Proceeds from financing of aircraft 120,651 - 120,651 -Issuance of shares 38 - 38 -Conversion of RCPS 29 (474 ) - (474 ) -Expenses incurred on issuance of Rights share exercise (96 ) (3,826 ) (96 ) (3,826 )Proceeds from RCPS - 417,748 - 417,748Proceeds from/(repayment of) short term borrowings 425,000 (1,050,000 ) 425,000 (1,050,000 )Proceeds from long term borrowings - 500,000 - 500,000Dividends paid to: - RCPS holders 29 (12,532 ) - (12,532 ) - - shareholders 42 (41,775 ) - (41,775 ) - - minority shareholders in subsidiaries (1,163 ) (5,515 ) - -Net cash generated from financing activities 489,649 986,327 490,812 991,842

123123



NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (1,493,715 ) 2,849,639 (1,495,187 ) 2,844,855CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,434,338 1,584,699 4,393,289 1,548,434CASH AND CASH EQUIVALENTS AT END OF YEAR 2,940,623 4,434,338 2,898,102 4,393,289

CASH AND CASH EQUIVALENTS COMPRISE:Cash on hand and at banks 22 613,190 1,350,767 588,917 1,325,143Short term deposits 22 2,958,553 3,083,571 2,940,305 3,068,146

Cash and cash equivalents 3,571,743 4,434,338 3,529,222 4,393,289Less: Deposits pledged with banks 22 (631,120 ) - (631,120 ) -

Cash and cash equivalent 2,940,623 4,434,338 2,898,102 4,393,289


ANNUAL REPORT 2008 CASH FLOW STATEMENTS


Notes to the Financial Statements

1. CORPORATE INFORMATION

The Company is principally engaged in the business of air transportation and the provision of related services. The principal activities of the subsidiaries are described in Note 15. There were no significant changes in the nature of these activities during the financial year.

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

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

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 26 February 2009.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Preparation

The financial statements of the Group and of the Company have been prepared under the historical cost convention unless otherwise indicated in the accounting policies below and comply with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards (“FRSs”) in Malaysia. During the financial year, the Group and the Company had adopted new and revised FRSs which are mandatory for financial periods beginning on or after 1 January 2008 as described fully in Note 2.2.

2.2 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs

On 1 January 2008, the Group and the Company adopted the following revised FRS, amendment to FRS and Interpretations:

FRS 107: Cash Flow StatementsFRS 112: Income TaxesFRS 118: Revenue FRS 120: Accounting for Government Grants and Disclosure of Government AssistanceFRS 134: Interim Financial ReportingFRS 137: Provisions, Contingent Liabilities and Contingent Assets

Amendments to FRS 121: The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation IC Interpretation 1: Changes in Existing Decommissioning, Restoration and Similar LiabilitiesIC Interpretation 8: Scope of FRS 2

The revised FRS, amendment to FRS and Interpretations above do not have any significant impact on the financial statements of the Group and the Company.

The Malaysian Accounting Standrads Board (“MASB”) has also issued the following revised FRS and Interpretations, but these are not applicable to the Group or the Company:

FRS 111 - Construction Contracts IC Interpretation 2: Members’ Shares in Co-operative Entities and Similar Instruments IC Interpretation 5: Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IC Interpretation 6: Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment IC Interpretation 7: Applying the Restatement Approach under IAS 292004 Financial Reporting in Hyperinflationary Economies

31 December 2008

125125ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (continued)

At the date of authorisation of these financial statements, the MASB had issued the following new FRS and Interpretations but not yet effective and have not been applied by the Group and the Company:

Effective for financial periods beginning on or after

FRS 7: Financial Instruments: Disclosures 1 January 2010 FRS 8: Operating Segments 1 July 2009 FRS 139: Financial Instruments: Recognition and Measurement 1 January 2010 IC Interpretation 9: Reassessment of Embedded Derivatives 1 January 2010 IC Interpretation 10: Interim Financial Reporting and Impairment 1 January 2010

The new FRS and Interpretations above are expected to have no significant impact on the financial statements of the Group and the Company upon their initial application except for the changes in disclosures arising from the adoption of FRS 7 and FRS 8.

The Group and the Company are exempted from disclosing the possible impact, if any, to the financial statements upon the initial application of FRS 139.

2.3 Significant Accounting Estimates and Judgements

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

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

(a) Critical Judgements Made in Applying Accounting Policies

The following are judgements made by management while applying the Group’s accounting policies that have the most significant effect on the amount recognised in the financial statements.

(i) Contingent Liabilities - Litigations

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

(ii) Operating Lease Commitments

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



2.3 Significant Accounting Estimates and Judgements (continued)

(b) Key Sources of Estimation Uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Impairment of Intangible Assets - Landing Slots

The Group determines whether the landing slots which have indefinite useful lives, are tested for impairment either annually or on a more frequent interval, depending on events or changes in circumstances that indicate the carrying value may be impaired. This requires an estimation of the “value in use” of the cash generating units (“CGU”) to which the landing slots belong.

In assessing value in use, the management is required to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate to their present value of those cash flows. The details are as disclosed in Note 19.

(ii) Provisions for Aircraft Related Direct Operating Expenses

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

(iii) Deferred Tax Assets

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

(iv) Depreciation of Aircraft, Property, Plant and Equipment

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

(v) Provision for Aircraft Maintenance and Overhaul Costs

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

(vi) Aircraft and Engines Lease Charges

The Company leases a majority of its aircraft as well as certain engines from its immediate holding company and other third parties. Certain leases of aircraft and engines from the immediate holding company have expired and negotiations are currently underway to determine the new charges. Notwithstanding the on-going negotiation, the Company has made accruals for these lease charges based on estimated market rates for similar types of aircraft and engines.

127127


2.3 Significant Accounting Estimates and Judgements (continued)

(b) Key Sources of Estimation Uncertainty (continued)

(vii) Unutilised Tickets

Unutilised tickets are subsequently recognised as revenue using estimates regarding the timing of recognition based on the terms and conditions of the tickets and historical trends. Changes in the estimation methods could have a material impact on the financial statement of the Group as referred to in Note 2.5 (b).

2.4 Summary of Significant Accounting Policies

(a) Revenue Recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the revenue can be measured reliably.

(i) Revenue from Services

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

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

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

(ii) Catering, Charter and Other Revenue

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

(iii) Dividend Income

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

(iv) Rental Income

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

(v) Interest Income

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

(vi) Disposal of Assets

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

(b) Subsidiaries and Basis of Consolidation

(i) Subsidiaries

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

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

ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS



2.4 Summary of Significant Accounting Policies (continued)

(b) Subsidiaries and Basis of Consolidation (continued)

(ii) Basis of Consolidation

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

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

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

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

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

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

(c) Associates

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

Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting.

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

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

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

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




(c) Associates (continued)

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

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

(d) Aircraft, Property, Plant and Equipment and Depreciation

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

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

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

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

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

(iii) Spare engines are depreciated over their estimated useful commercial lives, which range from 7 to 20 years (2007: 7 to 15 years), having regard to their planned withdrawal from services.

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

(v) Repairable and rotable aircraft spares are depreciated over 7 to 18 years (2007: 7 to 15 years) or the remaining lease period of the aircraft to which they relate, whichever is the shorter.

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

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

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

(viii) Progress payments represent aircraft simulators and properties under construction are stated at cost and are not depreciated until the respective assets are ready for their intended use.

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

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




(e) Intangible Assets

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

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

Intangible assets with indefinite useful lives such as aircraft landing slots, are not amortised but tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the CGU level. The useful life of an intangible asset with an indefinite life is also reviewed annually to determine whether the useful life assessment continues to be supportable.

The useful life of aircraft landing slots is estimated to be indefinite because based on the current landing slots arrangements, management believes there is no foreseeable limit to the period over which the aircraft landing slots are expected to generate net cash flows to the Group. Aircraft landing slots are stated at cost less any impairment.

(f) Foreign Currencies

(i) Functional and Presentation Currency

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

(ii) Foreign Currency Transactions

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

(iii) Foreign Entities

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

(g) Inventories

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

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

(h) Leases

(i) Classification

Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. All leases that do not transfer substantially all the risks and rewards are classified as operating leases.

131131



(h) Leases (continued)

(ii) Finance Leases - The Group as Lessee

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

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

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

(iii) Finance Leases - The Company as Lessor

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

(iv) Operating Leases - The Group as Lessee

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

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

(i) Income Tax

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

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

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised as income or expenses and included in the income statement for the period, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or negative goodwill.





(j) Employee Benefits

(i) Short Term Benefits

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

(ii) Defined Contribution Plans

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

(iii) Share-Based Compensation

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

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

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

(k) Provisions for Liabilities

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

(l) Aircraft Maintenance and Overhaul Costs

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

133133



(l) Aircraft Maintenance and Overhaul Costs (continued)

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

(m) Frequent Flyer Programme

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

(n) Borrowing Costs

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

(o) Financial Instruments

Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instrument. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends and gains and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are recognised directly in equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

(i) Cash and Cash Equivalents

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

(ii) Other Non-current Investments

Non-current investments other than investments in subsidiaries and associates are stated at cost less impairment losses. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is recognised in the income statement.

(iii) Negotiable Instruments of Deposit (“NIDs”)

Negotiable instruments of deposit (NIDs) are deposits placed for its yield and are held to maturity. If the NIDs are redeemed or sold prior to maturity, a certain amount from the initial deposits may be forfeited.

NIDs are stated at cost and provision is made for diminution in value which is other than temporary.

(iv) Trade and Other Receivables

Trade and other receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date.

(v) Trade and Other Payables

Trade and other payables are stated at the fair value of the consideration to be paid in the future for goods and services received.

(vi) Interest Bearing Loans and Borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.





(o) Financial Instruments (continued)

(vii) Equity Instruments

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

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

(viii) Derivative Financial Instruments

The Group’s policy on the use of derivative financial instruments is not for speculative purposes but to use these instruments to hedge against specific exposures.

The Group enters into foreign exchange derivatives to cover a portion of future capital, revenue and operating payments in a variety of currencies in order to manage its foreign currency risk. The Group also enters into fuel derivatives to manage its fuel price risk, and interest rate derivatives to manage its operating lease rental payments for aircraft.

Derivative financial instruments are not recognised in the financial statements.

Gains or losses arising from these derivatives are recognised upon maturity in the income statement as realised exchange differences, component of fuel costs and lease rental payments respectively.

(ix) Redeemable Convertible Preference Shares (“RCPS”)

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

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

(p) Impairment of Non-Financial Assets

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

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

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

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




(p) Impairment of Non-Financial Assets (continued)

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

(q) Non-current Assets (or Disposal Groups) Held for Sale and Discontinued Operation

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary.

Immediately before classification as held for sale, the measurement of the non-current assets (or all the assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable FRSs. Then, on initial classification as held for sale, non current assets or disposal groups (other than investment properties, deferred tax assets, employee benefits assets and financial assets) are measured in accordance with FRS 5 that is at the lower of carrying amount and fair value less costs to sell. Any differences are included in the income statement.

A component of the Group is classified as a discontinued operation when the criteria to be classified as held for sale have been met or it has been disposed and such a component represents a separate major line of business or geographical area of operations, is part of a single co-ordinated major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.

2.5 Changes in Estimates

(a) Aircraft, Property, Plant and Equipment

The FRS 116: Property, Plant and Equipment requires the review of the residual value and remaining useful life of aircraft, property, plant and equipment at least at each financial year end. The Group revised the estimated useful lives of spare engines, repairable and rotable aircraft spares from 7 to 15 years to 7 to 20 years with effect from 1 January 2008. The revisions were accounted for prospectively as a change in accounting estimates and as a result, the depreciation charges of the Group for the current financial year have been reduced by RM20 million.

(b) Sales in Advance of Carriage

During the financial year ended 31 December 2008, the Group reviewed its basis of estimates for the recognition of unavailed credits on sales in advance of carriage. This relates to tickets sold, fuel and insurance surcharges and administrative fees which are not utilised upon expiry of its validity which the Group recognises as revenue. The Group revised its estimate for the financial year using historical data and trends. The revision was accounted for prospectively as a change in accounting estimates and as a result of this, the Group has recognised an additional income of RM102 million for the financial year ended 31 December 2008 to the Group’s profit before tax.


3. OPERATING REVENUE

Group Company 2008 2007 2008 2007 RM’000 RM’000 RM’000 RM’000

Traffic Revenue: Scheduled services - passenger and baggage 8,668,496 9,351,987 8,546,526 9,327,374 - cargo and mail 1,615,274 1,750,363 1,031,161 955,711

10,283,770 11,102,350 9,577,687 10,283,085 Non-scheduled services 59,620 85,807 59,620 85,807

10,343,390 11,188,157 9,637,307 10,368,892 Fuel surcharge 2,767,528 1,783,373 2,086,073 1,235,584 Insurance surcharge 156,479 171,533 149,369 170,046 Security surcharge 120,929 130,801 - - Administration fees 268,167 230,466 248,234 226,926 Unavailed credits 324,078 252,193 324,078 252,193

13,980,571 13,756,523 12,445,061 12,253,641 Other Revenue: Lease of aircraft and engines 1,981 11,506 11,972 11,506 Airport handling and engineering services 407,200 341,869 395,269 341,869 Catering and cleaning services 13,082 12,985 13,103 12,985 Intercompany engineering services - - 99,566 58,998 Charter services 197,605 139,286 165,164 116,266 Others* 434,864 368,062 117,102 105,878

15,035,303 14,630,231 13,247,237 12,901,143

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

4. RESIDUAL VALUE SHARING ON SALE OF AIRCRAFT BY PENERBANGAN MALAYSIA BERHAD (“PMB”)

Group and Company 2008 2007 RM’000 RM’000

Share of gain on disposal of aircraft by immediate holding company, PMB - 209,333

In accordance with the Agreement for Aircraft and Finance Agreements Unbundling entered into with PMB, the Company is entitled to an 80% share of the gain on disposal of certain aircraft unbundled to PMB as disclosed in Note 39.


5. GAIN ON SALE OF PROPERTIES

Several local and overseas properties were disposed off during the financial year resulting in a gain on disposal of RM2.4 million (2007 RM104.9 million) to the Group and to the Company.

6. PROFIT FROM OPERATIONS

The following amounts have been included at arriving at profit from operations:


Fuel and oil 6,531,595 4,915,837 5,732,101 4,271,208 Employee benefits expenses (Note 8) 2,171,879 2,125,205 1,960,879 2,001,066 Handling, enroute charges, catering and other related costs 1,404,425 1,439,213 1,267,482 1,297,417 Hire of aircraft, operating plant and equipment 1,905,998 2,119,412 1,569,729 1,686,213 Aircraft maintenance and overhaul 1,146,425 1,435,681 1,146,425 1,435,681 Landing, parking and other related costs 312,833 299,406 276,472 259,930 Aircraft, property, plant and equipment: - depreciation (Note 13) 327,858 344,610 294,086 302,376 - loss/(gain) on disposal, net 16 (53,917 ) 113 (53,887 ) - writeback of impairment losses (45,254 ) (2,101 ) (45,254 ) (2,101 ) - written off, net (Note 13) 35,287 22,503 35,283 22,503 Losses incurred due to delay in delivery of A380 - 58,385 - 58,385 Gain on disposal of non-current assets held for sale (2,410 ) (52,840 ) (2,410 ) (52,840 ) Sales commission and incentives 507,725 524,299 484,662 511,592 Foreign exchange losses/(gain): - realised (7,771 ) 37,739 (8,118 ) 37,687 - unrealised 90,424 27,743 90,424 27,743 Advertising and promotions 110,549 64,504 100,491 57,439 Computerised reservation system booking fees 160,964 180,579 160,362 180,478 Rental of land and buildings 164,428 158,587 159,060 156,540 (Writeback of)/provision for inventories obsolescence, net (2,374 ) 26,672 (2,374 ) 26,672 (Writeback of)/provision for doubtful debts, net: - subsidiaries - - - (20,798 ) - others (58,165 ) 108,697 (59,752 ) 4,067 Amortisation of prepaid lease payments on land (Note 14) 182 582 162 173 Amortisation of intangible assets (Note 19) 24,359 13,206 16,104 10,693 Other engineering expenses 37,426 35,174 37,426 35,174 Hull and legal liability insurance 63,447 59,880 60,397 59,880


6. PROFIT FROM OPERATIONS (CONTINUED)


Directors’ remuneration (Note 9) 4,278 3,839 4,278 3,839 Auditors’ remuneration: - audit fees 869 797 535 528 - other professional fees 214 484 134 392 Discount on redemption of redeemable preference shares in an associate - 3,229 - 3,229 Interest income - third parties (222,746 ) (106,050 ) (221,993 ) (105,710 ) Gain on disposal of a subsidiary - (36,145 ) - (9,386 ) Gain on disposal of other investment (24,732 ) - (24,732 ) - Rental income (75,967 ) (74,340 ) (42,457 ) (45,205 ) Dividend income - subsidiaries - - (2,132 ) (10,906 ) - associated companies - - (11,448 ) (22,993 ) - unquoted shares (16,586 ) (21,691 ) (16,586 ) (21,691 )

Included in profit from operations of the Group and of the Company are the operating inventories used of RM355,195,000 and RM352,380,000 (2007: RM248,265,000 and RM246,008,000) respectively.

7. FINANCE COSTS


Interest expense on: - Revolving credit 8,166 - 8,166 - - Term loan 22,592 46,841 22,592 46,841 - RCPS (Note 29) 26,670 - 26,670 - - Finance Leases 1,167 - - - - Amount due to subsidiary - - 1,167 -

58,595 46,841 58,595 46,841 Other finance costs 2,175 45 663 -

60,770 46,886 59,258 46,841


8. EMPLOYEE BENEFITS EXPENSES


Salaries and wages 1,326,423 1,352,852 1,181,623 1,262,599 Contribution to defined contribution plan 143,702 245,066 129,023 235,950 Social security contributions 9,111 8,612 7,718 7,863 Share options granted under ESOS (Note 25) 48,327 27,880 45,102 26,278 Provision for/(Writeback of) short term accumulating compensated absences 35,207 (70,921 ) 34,993 (70,921 ) Other staff related expenses 609,109 561,716 562,420 539,297

Total (Note 6) 2,171,879 2,125,205 1,960,879 2,001,066

Included in employee benefits expense of the Group and of the Company are executive directors’ remuneration of RM3,526,000 (2007:RM3,085,000) as further disclosed in Note 9.

9. DIRECTORS’ REMUNERATION


Executive directors’ remuneration: Salaries and other emoluments 1,344 1,196 Bonus 790 395 Defined contribution plan 380 267 Share options granted under ESOS 1,012 1,227

3,526 3,085

Non-executive directors’ remuneration: Fees 517 530 Other allowances 235 224

752 754

Total directors’ remuneration (Note 6) 4,278 3,839 Estimated money value of benefits-in-kind 83 25

Total directors’ remuneration including benefits-in-kind 4,361 3,864


9. DIRECTORS’ REMUNERATION (CONTINUED)

The number of directors of the Company whose total remuneration during the financial year fell within the following bands is as follows:

Number of Directors 2008 2007

Executive Directors: RM900,001 to RM950,000 - 1 RM950,001 to RM1,000,000 - 1 RM1,000,001 to RM1,500,000 2 -

Non-Executive Directors: Below RM50,000 9 9 RM50,001 to RM100,000 2 3 RM150,001 to RM200,000 2 1

10. TAXATION


Continuing Operations Current income tax: Malaysian income tax 11,117 3,727 - - Foreign tax 7,392 7,392 7,392 7,392

18,509 11,119 7,392 7,392

Overprovision in prior years: Malaysian income tax (1,872 ) (1,509 ) - - Foreign tax (1,588 ) (16,879 ) (1,588 ) (16,879 )

15,049 (7,269 ) 5,804 (9,487 )

Deferred taxation (Note 33): Relating to origination and reversal of temporary differences 651 32,425 - - Relating to changes in tax rates (21 ) 1,343 - - Underprovision in prior years 3,407 3,091 - -

4,037 36,859 - -

Total income tax expense from continuing operations 19,086 29,590 5,804 (9,487 )


10. TAXATION (CONTINUED)


Discontinued Operations Current income tax: Malaysian income tax (Note 11) - 1,796 - -

Total income tax expense 19,086 31,386 5,804 (9,487 )

There is no provision for Malaysian taxation for the Company in the current financial year as the Company has been granted an extension of the tax exemption status by the Ministry of Finance on its chargeable income in respect of all sources of income. The extension is valid for a period of ten years from year of assessment 2006 up to year of assessment 2015.

As at 31 December 2008, the Company has tax exempt income account of approximately RM11,011,884,000 (2007: RM10,582,475,000) available for payments of tax exempt dividends subject to agreement with the Inland Revenue Board.

Domestic current income tax is calculated at the Malaysian statutory tax rate of 26% (2007: 27%) of the estimated assessable profit for the year. The domestic statutory tax rate will be reduced to 25% for effective year of assessment 2009 and its subsequent years. The computation of deferred tax as at 31 December 2008 has reflected these changes. Taxation for other jurisdictions is calculated at the rate prevailing in the respective jurisdictions.

Certain subsidiaries of the Group qualify for a tax incentive applicable to small-medium enterprises by virtue of having an issued and paid up share capital which is below RM2,500,000. Under this incentive, these subsidiaries enjoy a preferential tax rate of 20% on the first RM500,000 of the estimated assessable profit.

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

2008 2007 Group RM’000 RM’000

Profit before taxation from: Continuing operations 264,661 840,911 Discontinued operations (Note 11) 122 43,218

264,783 884,129

Taxation at Malaysian statutory tax rate of 26% (2007: 27%) 68,844 238,715 Tax incentive obtained from preferential tax rate of 20% (60 ) (70 ) Effect of changes in tax rates on opening balance of deferred tax (246 ) 1,384 Effect of changes in tax rates (1,276 ) (1,269 ) Effects of share of profits of associates (5,193 ) (6,768 ) Foreign income tax 7,392 7,392 Effect of tax exemption status (107,118 ) (262,771 ) Income not subject to tax (36,114 ) (81,612 ) Expenses not deductible for tax purposes 75,230 92,552 Deferred tax assets not recognised on: - other deductible temporary differences 17,680 58,860 - unused tax losses - 270 Underprovision of deferred tax in prior years 3,407 3,091 Overprovision of tax expense in prior years (3,460 ) (18,388 )

Tax expense for the year 19,086 31,386


10. TAXATION (CONTINUED)

2008 2007 Company RM’000 RM’000

Profit before taxation 233,825 870,596

Taxation at Malaysian statutory tax rate of 26% (2007: 27%) 60,795 235,061 Foreign income tax 7,392 7,392 Effect of tax exemption status (107,118 ) (262,771 ) Income not subject to tax (35,096 ) (118,187 ) Expenses not deductible for tax purposes 75,439 90,817 Deferred tax assets not recognised on: - other deductible temporary differences 5,980 55,080 Overprovision of tax expense in prior years (1,588 ) (16,879 )

Tax expense for the year 5,804 (9,487 )

11. DISCONTINUED OPERATIONS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

As at 31 December 2007, MAS Hotel Boutique Sdn. Bhd. (“MHB”) and Syarikat Pengangkutan Senai Sdn. Bhd. (“SPS”) were classified as discontinued operations. As at 31 March 2008, the disposal of the shares in MHB has been completed as disclosed in Note 41 (e). SPS ceased its operations since 15 August 2007 and as at 31 December 2008, the disposal of assets in SPS has been completed.

An analysis of the result of discontinued operations is as follows:

MHB SPS Total 2008 2007 2008 2007 2008 2007 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue - 21,059 - 101 - 21,160 Expenses - (13,420 ) (1 ) (667 ) (1 ) (14,087 ) Gain on disposal of discontinued operations - 36,145 123 - 123 36,145

Profit/(loss) before tax (Note 10) - 43,784 122 (566 ) 122 43,218 Taxation (Note 10) - (1,796 ) - - - (1,796 ) Profit/(loss) for the period from discontinued operations - 41,988 122 (566 ) 122 41,422


11. DISCONTINUED OPERATIONS AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (CONTINUED)

The following amounts have been included in arriving at profit/(loss) before tax of discontinued operations:


Staff costs - 3,568 1 321 1 3,889 Auditors’ remuneration - - - 1 - 1 Depreciation on property, plant and equipment - 5,249 - 48 - 5,297

The cash flows attributed to the discontinued operations are as follows:


Operating cash flows - (1,875 ) (4 ) (138 ) (4 ) (2,013 ) Investing cash flows - (81 ) - - - (81 ) Financing cash flows - 6,841 - - - 6,841

Total cash flows - 4,885 (4 ) (138 ) (4 ) 4,747

As at 31 December 2008, property, plant and equipment of SPS classified as non-current assets held for sale is RMNil (2007: RM35,000).

12. EARNINGS PER SHARE

(a) Basic

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

Group 2008 2007

Profit attributable to equity holders of the Company (RM’000) - Continuing operations 244,190 809,996 - Discontinued 122 41,422

244,312 851,418

Weighted average number of ordinary shares in issue (‘000) 1,670,996 1,466,713

Basic earnings per share for (sen): - Continuing operations 14.6 55.2 - Discontinued - 2.8

14.6 58.0


12. EARNINGS PER SHARE (CONTINUED)

(b) Diluted

For the purpose of calculating diluted earnings per share, the profit for the year attributable to ordinary equity holders of the Company and the weighted average number of ordinary shares in issue during the financial year have been adjusted for the dilutive effects of all potential ordinary shares, i.e. RCPS and share options granted to employees.

Group 2008 2007

Weighted average number of ordinary shares in issue (‘000) 1,670,996 1,466,713 Effects of dilution resulting from RCPS (‘000) - 103,148 Adjusted weighted average number of ordinary shares in issue and issuable (‘000) 1,670,996 1,569,861

Diluted earnings per share for (sen): - Continuing operations 14.6 51.6 - Discontinued - 2.6

14.6 54.2

Diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average of ordinary shares in issue during the financial year ended 31 December 2008, adjusted to assume the conversion of dilutive potential ordinary shares.

The share options granted under ESOS have not been included in the calculation of diluted earnings per shares because they are anti-dilutive for the current and previous financial years.

The RCPS have not been included in the calculation of diluted earnings per shares because they are anti-dilutive for the current financial years.

13. AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT

Aircraft, aircraft Operating modifications/ equipment, office Group Land and retrofits, engines equipment and Progress buildings and spares motor vehicles payments Total RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2008 (Note 13(a)(i)) (Note 13(b)(i)) (Note 13(c)(i)) (Note 13(d)(i))

Cost/Valuation At 1 January 2008 1,006,041 2,186,099 1,646,695 172,738 5,011,573 Additions 1,244 156,128 34,510 571,931 763,813 Disposals - (46,097 ) (29,764 ) - (75,861 ) Transfers from Non-Current Assets Held for Sale - - 624 - 624 Write-offs (119 ) (89,088 ) (391,824 ) (2,579 ) (483,610 ) Reclassifications 46,820 357,906 (30,794 ) (373,932 ) -

At 31 December 2008 1,053,986 2,564,948 1,229,447 368,158 5,216,539

145145

13. AIRCRAFT, PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Aircraft, aircraft Operating modifications/ equipment, office Group (continued) Land and retrofits, engines equipment and Progress buildings and spares motor vehicles payments Total RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2008 (Note 13(a)(i)) (Note 13(b)(i)) (Note 13(c)(i)) (Note 13(d)(i))

Cost/Valuation (continued) Representing: At cost 1,043,819 2,564,948 1,229,447 368,158 5,206,372 At valuation 10,167 - - - 10,167

1,053,986 2,564,948 1,229,447 368,158 5,216,539

Accumulated Depreciation and Impairment Losses At 1 January 2008 374,678 1,128,245 1,447,532 - 2,950,455 Charge for the year 30,575 208,128 89,155 - 327,858 Writeback of impairment losses - (18,262 ) (26,992 ) - (45,254 ) Disposals - (6,420 ) (27,189 ) - (33,609 ) Transfers from Non-Current Assets Held for Sale - - 589 - 589 Write-offs (90 ) (65,074 ) (383,159 ) - (448,323 ) Reclassifications 17,206 - (17,206 ) - -

At 31 December 2008 422,369 1,246,617 1,082,730 - 2,751,716

Representing: At cost 414,812 1,246,617 1,082,730 - 2,744,159 At valuation 7,557 - - - 7,557

422,369 1,246,617 1,082,730 - 2,751,716

Analysed As: Accumulated depreciation 422,081 1,246,362 1,082,730 - 2,751,173 Accumulated impairment losses 288 255 - - 543

422,369 1,246,617 1,082,730 - 2,751,716

Net Book Value At cost 629,007 1,318,331 146,717 368,158 2,462,213 At valuation 2,610 - - - 2,610

At 31 December 2008 631,617 1,318,331 146,717 368,158 2,464,823




Aircraft, aircraft Operating modifications/ equipment, office Group Land and retrofits, engines equipment and Progress buildings and spares motor vehicles payments Total RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2007 (Note 13(a)(i)) (Note 13(b)(i)) (Note 13(c)(i)) (Note 13(d)(i))

Cost/Valuation At 1 January 2007 1,159,860 1,965,952 1,625,537 366,120 5,117,469 Additions 16,486 192,965 22,983 178,869 411,303 Disposals (295,330) - (47,162 ) (14,003 ) (356,495 ) Transfers (to)/from Non-Current Assets Held for Sale (143,077 ) 67,065 (1,402 ) - (77,414 ) Write-offs (1,292 ) (74,758 ) (7,240 ) - (83,290 ) Reclassifications 269,394 34,875 53,979 (358,248 ) -

At 31 December 2007 1,006,041 2,186,099 1,646,695 172,738 5,011,573

Representing: At cost 995,874 2,186,099 1,646,695 172,738 5,001,406 At valuation 10,167 - - - 10,167

1,006,041 2,186,099 1,646,695 172,738 5,011,573

Accumulated Depreciation and Impairment Losses At 1 January 2007 425,768 921,342 1,358,822 - 2,705,932 Charge for the year 20,678 230,813 93,119 - 344,610 (Writeback of)/Provision for impairment losses - (29,093 ) 26,992 - (2,101 ) Disposals (29,094 ) - (23,667 ) - (52,761 ) Transfers (to)/from Non-Current Assets Held for Sale (42,660 ) 59,593 (1,371 ) - 15,562 Write-offs (14 ) (54,410 ) (6,363 ) - (60,787 )

At 31 December 2007 374,678 1,128,245 1,447,532 - 2,950,455


374,678 1,128,245 1,447,532 - 2,950,455

Analysed As: Accumulated depreciation 374,390 1,109,728 1,420,540 - 2,904,658 Accumulated impairment losses 288 18,517 26,992 - 45,797

374,678 1,128,245 1,447,532 - 2,950,455

147147


Aircraft, aircraft Operating modifications/ equipment, office Group (continued) Land and retrofits, engines equipment and Progress buildings and spares motor vehicles payments Total RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2007 (Note 13(a)(i)) (Note 13(b)(i)) (Note 13(c)(i)) (Note 13(d)(i))


At 31 December 2007 631,363 1,057,854 199,163 172,738 2,061,118

Aircraft, aircraft Operating modifications/ equipment, office Company Land and retrofits, engines equipment and Progress buildings and spares motor vehicles payments Total RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2008 (Note 13(a)(ii)) (Note 13(b)(ii)) (Note 13(c)(ii)) (Note 13(d)(ii))

Cost/Valuation At 1 January 2008 990,978 2,186,099 1,213,277 172,736 4,563,090 Additions 1,104 156,128 31,635 571,930 760,797 Disposals - (46,097 ) (27,765 ) - (73,862 ) Transfers to a subsidiary - - - (298,935 ) (298,935 ) Write-offs (119 ) (89,088 ) (391,821 ) (2,579 ) (483,607 ) Reclassifications 46,820 58,970 (30,794 ) (74,996 ) -

At 31 December 2008 1,038,783 2,266,012 794,532 368,156 4,467,483

Representing: At cost 1,028,616 2,266,012 794,532 368,156 4,457,316 At valuation 10,167 - - - 10,167

1,038,783 2,266,012 794,532 368,156 4,467,483

Accumulated Depreciation and Impairment Losses At 1 January 2008 371,389 1,128,245 1,060,966 - 2,560,600 Charge for the year 30,508 203,956 59,622 - 294,086 Writeback of impairment losses - (18,262 ) (26,992 ) - (45,254 ) Disposals - (6,420 ) (25,517 ) - (31,937 ) Write-offs (90 ) (65,074 ) (383,160 ) - (448,324 ) Reclassifications 17,206 - (17,206 ) - -

At 31 December 2008 419,013 1,242,445 667,713 - 2,329,171

Representing: At cost 411,456 1,242,445 667,713 - 2,321,614 At valuation 7,557 - - - 7,557

419,013 1,242,445 667,713 - 2,329,171




Aircraft, aircraft Operating modifications/ equipment, office Company (continued) Land and retrofits, engines equipment and Progress buildings and spares motor vehicles payments Total RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2008 (Note 13(a)(ii)) (Note 13(b)(ii)) (Note 13(c)(ii)) (Note 13(d)(ii))

Analysed As: Accumulated depreciation 418,725 1,242,190 667,713 - 2,328,628 Accumulated impairment losses 288 255 - - 543

419,013 1,242,445 667,713 - 2,329,171


At 31 December 2008 619,770 1,023,567 126,819 368,156 2,138,312

At 31 December 2007

Cost/Valuation At 1 January 2007 905,798 1,965,952 1,138,712 352,115 4,362,577 Additions 2,491 192,965 31,554 178,869 405,879 Disposals (42,336 ) - (3,828 ) - (46,164 ) Transfers (to)/from Non-Current Assets Held for Sale (143,077 ) 67,065 - - (76,012 ) Write-offs (1,292 ) (74,758 ) (7,140 ) - (83,190 ) Reclassifications 269,394 34,875 53,979 (358,248 ) -

At 31 December 2007 990,978 2,186,099 1,213,277 172,736 4,563,090

Representing: At cost 980,811 2,186,099 1,213,277 172,736 4,552,923 At valuation 10,167 - - - 10,167

990,978 2,186,099 1,213,277 172,736 4,563,090



Aircraft, aircraft Operating modifications/ equipment, office Company (continued) Land and retrofits, engines equipment and Progress buildings and spares motor vehicles payments Total RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2007 (Note 13(a)(ii)) (Note 13(b)(ii)) (Note 13(c)(ii)) (Note 13(d)(ii))

Accumulated Depreciation and Impairment Losses At 1 January 2007 417,106 921,342 992,789 - 2,331,237 Charge for the year 20,452 230,813 51,111 - 302,376 (Writeback of)/Provision for impairment losses - (29,093 ) 26,992 - (2,101 ) Disposals (23,496 ) - (3,663 ) - (27,159 ) Transfers (to)/from Non-Current Assets Held for Sale (42,659 ) 59,593 - - 16,934 Write-offs (14 ) (54,410 ) (6,263 ) - (60,687 )

At 31 December 2007 371,389 1,128,245 1,060,966 - 2,560,600


371,389 1,128,245 1,060,966 - 2,560,600

Analysed As: Accumulated depreciation 371,101 1,109,728 1,033,974 - 2,514,803 Accumulated impairment losses 288 18,517 26,992 - 45,797

371,389 1,128,245 1,060,966 - 2,560,600


At 31 December 2007 619,589 1,057,854 152,311 172,736 2,002,490

During the financial year, the Group acquired aircraft, property, plant and equipment at aggregate costs of RM763,813,000 (2007: RM411,303,000) of which RM115,631,000 (2007: RMNil) were acquired by means of finance lease arrangements. Net carrying amounts of aircraft,property, plant and equipment held under finance lease arrangements are as follows:

Group 2008 2007 RM’000 RM’000

Aircraft 113,222 -



(a) (i) Land and Buildings

Freehold Group Land Buildings Total At 31 December 2008 RM’000 RM’000 RM’000

Cost/Valuation At 1 January 2008 - 1,006,041 1,006,041 Additions - 1,244 1,244 Write-offs - (119 ) (119 ) Reclassifications - 46,820 46,820

At 31 December 2008 - 1,053,986 1,053,986

Representing: At cost - 1,043,819 1,043,819 At valuation - 10,167 10,167

- 1,053,986 1,053,986

Accumulated Depreciation and Impairment Losses At 1 January 2008 - 374,678 374,678 Charge for the year - 30,575 30,575 Write-offs - (90 ) (90 ) Reclassifications - 17,206 17,206

At 31 December 2008 - 422,369 422,369

Representing: At cost - 414,812 414,812 At valuation - 7,557 7,557

- 422,369 422,369

Analysed As: Accumulated depreciation - 422,081 422,081 Accumulated impairment losses - 288 288

- 422,369 422,369

Net Book Value At cost - 629,007 629,007 At valuation - 2,610 2,610

At 31 December 2008 - 631,617 631,617



(a) (i) Land and Buildings (continued)

Freehold Group Land Buildings Total At 31 December 2007 RM’000 RM’000 RM’000

Cost/Valuation At 1 January 2007 11,387 1,148,473 1,159,860 Additions - 16,486 16,486 Disposals (1,599 ) (293,731 ) (295,330 ) Transfers to Non-Current Assets Held for Sale (9,788 ) (133,289 ) (143,077 ) Write-offs - (1,292 ) (1,292 ) Reclassifications - 269,394 269,394

At 31 December 2007 - 1,006,041 1,006,041


- 1,006,041 1,006,041

Accumulated Depreciation and Impairment Losses At 1 January 2007 - 425,768 425,768 Charge for the year - 20,678 20,678 Disposals - (29,094 ) (29,094 ) Transfers to Non-Current Assets Held for Sale - (42,660 ) (42,660 ) Write-offs - (14 ) (14 )

At 31 December 2007 - 374,678 374,678


- 374,678 374,678


- 374,678 374,678


At 31 December 2007 - 631,363 631,363



(a) (ii) Land and Buildings

Freehold Company Land Buildings Total At 31 December 2008 RM’000 RM’000 RM’000

Cost/Valuation At 1 January 2008 - 990,978 990,978 Additions - 1,104 1,104 Write-offs - (119 ) (119 ) Reclassifications - 46,820 46,820

At 31 December 2008 - 1,038,783 1,038,783

Representing: At cost - 1,028,616 1,028,616 At valuation - 10,167 10,167

- 1,038,783 1,038,783

Accumulated Depreciation and Impairment Losses At 1 January 2008 - 371,389 371,389 Charge for the year - 30,508 30,508 Write-offs - (90 ) (90 ) Reclassifications - 17,206 17,206

At 31 December 2008 - 419,013 419,013


- 419,013 419,013


- 419,013 419,013


At 31 December 2008 - 619,770 619,770



(a) (ii) Land and Buildings (continued)

Freehold Company Land Buildings Total At 31 December 2007 RM’000 RM’000 RM’000

Cost/Valuation At 1 January 2007 9,788 896,010 905,798 Additions - 2,491 2,491 Disposals - (42,336 ) (42,336) Transfers to Non-Current Assets Held for Sale (9,788 ) (133,289 ) (143,077 ) Write-offs - (1,292 ) (1,292 ) Reclassifications - 269,394 269,394

At 31 December 2007 - 990,978 990,978


- 990,978 990,978

Accumulated Depreciation and Impairment Losses At 1 January 2007 - 417,106 417,106 Charge for the year - 20,452 20,452 Disposals - (23,496 ) (23,496 ) Transfers to Non-Current Assets Held for Sale - (42,659 ) (42,659 ) Write-offs - (14 ) (14 )

At 31 December 2007 - 371,389 371,389


- 371,389 371,389


- 371,389 371,389


At 31 December 2007 - 619,589 619,589

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



(a) (ii) Land and Buildings (continued)

Certain buildings at a carrying value of RM2,610,000 (2007: RM3,259,000) were revalued by directors in 1985, as disclosed in Note 2.4 (d)(vi). Had the revalued buildings been carried at historical cost less accumulated depreciation, the net book value of those buildings would have been as follows:


Leasehold buildings 1,848 2,049

(b) (i) Aircraft, Aircraft Modifications/Retrofits, Engines and Spares

Aircraft modifications Aircraft and spare retrofits Group Aircraft engines and spares Total At 31 December 2008 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2008 15,531 713,639 1,456,929 2,186,099 Additions 133 85,660 70,335 156,128 Disposals (8,801 ) (37,296 ) - (46,097 ) Write-offs - (57,216 ) (31,872 ) (89,088 ) Reclassifications 357,871 - 35 357,906

At 31 December 2008 364,734 704,787 1,495,427 2,564,948

Accumulated Depreciation and Impairment Losses At 1 January 2008 935 400,046 727,264 1,128,245 Charge for the year 6,567 102,248 99,313 208,128 Disposals (1,329 ) (5,091 ) - (6,420) Writeback of impairment losses - (3,600 ) (14,662) (18,262 ) Write-offs - (45,709 ) (19,365) (65,074 )

At 31 December 2008 6,173 447,894 792,550 1,246,617

Analysed As: Accumulated depreciation 6,173 447,894 792,295 1,246,362 Accumulated impairment losses - - 255 255

6,173 447,894 792,550 1,246,617

Net Book Value At 31 December 2008 358,561 256,893 702,877 1,318,331



(b) (i) Aircraft, Aircraft Modifications/Retrofits, Engines and Spares (continued)

Aircraft modifications Aircraft and spare retrofits Group Aircraft engines and spares Total At 31 December 2007 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2007 - 574,819 1,391,133 1,965,952 Additions 15,531 103,164 74,270 192,965 Transfers to Non-Current Assets Held for Sale - 7,943 59,122 67,065 Write-offs - (5,614 ) (69,144 ) (74,758 ) Reclassifications - 33,327 1,548 34,875

At 31 December 2007 15,531 713,639 1,456,929 2,186,099

Accumulated Depreciation and Impairment Losses At 1 January 2007 - 287,076 634,266 921,342 Charge for the year 935 105,021 124,857 230,813 Provision for/(writeback of) impairment losses - 3,600 (32,693 ) (29,093 ) Transfers from Non-Current Assets Held for Sale - 7,943 51,650 59,593 Write-offs - (3,594 ) (50,816) (54,410 )

At 31 December 2007 935 400,046 727,264 1,128,245

Analysed As: Accumulated depreciation 935 396,446 712,347 1,109,728 Accumulated impairment losses - 3,600 14,917 18,517

935 400,046 727,264 1,128,245




(b) (ii) Aircraft, Aircraft Modifications/Retrofits, Engines and Spares

Aircraft modifications Aircraft and spare retrofits Company Aircraft engines and spares Total At 31 December 2008 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2008 15,531 713,639 1,456,929 2,186,099 Additions 133 85,660 70,335 156,128 Disposals (8,801 ) (37,296 ) - (46,097 ) Write-offs - (57,216 ) (31,872 ) (89,088 ) Reclassifications 58,935 - 35 58,970

At 31 December 2008 65,798 704,787 1,495,427 2,266,012

Accumulated Depreciation and Impairment Losses At 1 January 2008 935 400,046 727,264 1,128,245 Charge for the year 2,395 102,248 99,313 203,956 Disposals (1,329 ) (5,091 ) - (6,420) Writeback of impairment losses - (3,600 ) (14,662) (18,262 ) Write-offs - (45,709 ) (19,365) (65,074 )

At 31 December 2008 2,001 447,894 792,550 1,242,445

Analysed As: Accumulated depreciation 2,001 447,894 792,295 1,242,190 Accumulated impairment losses - - 255 255

2,001 447,894 792,550 1,242,445




(b) (ii) Aircraft, Aircraft Modifications/Retrofits, Engines and Spares (continued)

Aircraft modifications Aircraft and spare retrofits Company Aircraft engines and spares Total At 31 December 2007 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2007 - 574,819 1,391,133 1,965,952 Additions 15,531 103,164 74,270 192,965 Transfers to Non-Current Assets Held for Sale - 7,943 59,122 67,065 Write-offs - (5,614 ) (69,144 ) (74,758 ) Reclassifications - 33,327 1,548 34,875

At 31 December 2007 15,531 713,639 1,456,929 2,186,099

Accumulated Depreciation and Impairment Losses At 1 January 2007 - 287,076 634,266 921,342 Charge for the year 935 105,021 124,857 230,813 Provision for/(writeback of) impairment losses - 3,600 (32,693 ) (29,093 ) Transfers from Non-Current Assets Held for Sale - 7,943 51,650 59,593 Write-offs - (3,594 ) (50,816 ) (54,410 )

At 31 December 2007 935 400,046 727,264 1,128,245

Analysed As: Accumulated depreciation 935 396,446 712,347 1,109,728 Accumulated impairment losses - 3,600 14,917 18,517

935 400,046 727,264 1,128,245




(c) (i) Operating Equipment, Office Equipment and Motor Vehicles

Office Operating furniture plant and and Motor Group equipment equipment vehicles Total At 31 December 2008 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2008 1,106,144 478,454 62,097 1,646,695 Additions 18,519 14,812 1,179 34,510 Disposals (16,459 ) (7,731 ) (5,574 ) (29,764 ) Transfers from Non-Current Assets Held for Sale - - 624 624 Write-offs (242,875 ) (126,557 ) (22,392 ) (391,824 ) Reclassifications (34,240 ) 3,328 118 (30,794 )

At 31 December 2008 831,089 362,306 36,052 1,229,447

Accumulated Depreciation At 1 January 2008 959,055 430,124 58,353 1,447,532 Charge for the year 59,278 28,392 1,485 89,155 Writeback of impairment losses (17,456 ) (8,746 ) (790 ) (26,992 ) Disposals (14,774 ) (7,141 ) (5,274 ) (27,189 ) Transfers to Non-Current Assets Held for Sale - - 589 589 Write-offs (237,815 ) (123,251 ) (22,093 ) (383,159 ) Reclassifications (25,359 ) 8,870 (717 ) (17,206 )

At 31 December 2008 722,929 328,248 31,553 1,082,730

Net Book Value At 31 December 2008 108,160 34,058 4,499 146,717



(c) (i) Operating Equipment, Office Equipment and Motor Vehicles (continued)

Office Operating furniture plant and and Motor Group equipment equipment vehicles Total At 31 December 2007 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2007 1,075,157 485,815 64,565 1,625,537 Additions 11,383 9,264 2,336 22,983 Disposals (1,738 ) (42,153 ) (3,271 ) (47,162 ) Transfers from Non-Current Assets Held for Sale - - (1,402 ) (1,402 ) Write-offs (4,565 ) (2,666 ) (9 ) (7,240 ) Reclassifications 25,907 28,194 (122 ) 53,979

At 31 December 2007 1,106,144 478,454 62,097 1,646,695

Accumulated Depreciation At 1 January 2007 861,198 437,331 60,293 1,358,822 Charge for the year 86,537 5,197 1,385 93,119 Provision for impairment losses 17,456 8,746 790 26,992 Disposals (1,738 ) (19,185 ) (2,744 ) (23,667 ) Transfers to Non-Current Assets Held for Sale - - (1,371 ) (1,371 ) Write-offs (4,398 ) (1,965 ) - (6,363 )

At 31 December 2007 959,055 430,124 58,353 1,447,532

Analysed As: Accumulated depreciation 941,599 421,378 57,563 1,420,540 Accumulated impairment losses 17,456 8,746 790 26,992

959,055 430,124 58,353 1,447,532




(c) (ii) Operating Equipment, Office Equipment and Motor Vehicles

Office Operating furniture plant and and Motor Company equipment equipment vehicles Total At 31 December 2008 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2008 754,420 403,495 55,362 1,213,277 Additions 16,698 14,139 798 31,635 Disposals (16,133 ) (6,839 ) (4,793 ) (27,765 ) Write-offs (242,875 ) (126,556 ) (22,390 ) (391,821 ) Reclassifications (34,240 ) 3,328 118 (30,794 )

At 31 December 2008 477,870 287,567 29,095 794,532

Accumulated Depreciation At 1 January 2008 645,129 362,557 53,280 1,060,966 Charge for the year 34,095 24,456 1,071 59,622 Writeback of impairment losses (17,456 ) (8,746 ) (790 ) (26,992 ) Disposals (14,449 ) (6,339 ) (4,729 ) (25,517 ) Write-offs (237,815 ) (123,250 ) (22,095 ) (383,160 ) Reclassifications (25,359) 8,871 (718 ) (17,206 )

At 31 December 2008 384,145 257,549 26,019 667,713




(c) (ii) Operating Equipment, Office Equipment and Motor Vehicles (continued)

Office Operating furniture plant and and Motor Company equipment equipment vehicles Total At 31 December 2007 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2007 712,688 369,626 56,398 1,138,712 Additions 22,218 8,417 919 31,554 Disposals (1,354 ) (176 ) (2,298 ) (3,828 ) Write-offs (4,565 ) (2,566 ) (9 ) (7,140 ) Reclassifications 25,433 28,194 352 53,979

At 31 December 2007 754,420 403,495 55,362 1,213,277

Accumulated Depreciation At 1 January 2007 600,156 339,073 53,560 992,789 Charge for the year 33,269 16,709 1,133 51,111 Provision for impairment losses 17,456 8,746 790 26,992 Disposals (1,354 ) (106 ) (2,203 ) (3,663 ) Write-offs (4,398 ) (1,865 ) - (6,263 )

At 31 December 2007 645,129 362,557 53,280 1,060,966

Analysed As: Accumulated depreciation 627,673 353,811 52,490 1,033,974 Accumulated impairment losses 17,456 8,746 790 26,992

645,129 362,557 53,280 1,060,966




(d) (i) Progress Payments

Aircraft equipment Properties and under Group simulators construction Total At 31 December 2008 RM’000 RM’000 RM’000

Cost At 1 January 2008 135,383 37,355 172,738 Additions 538,784 33,147 571,931 Write-offs (2,180 ) (399 ) (2,579 ) Reclassifications (357,871 ) (16,061 ) (373,932 )

At 31 December 2008 314,116 54,042 368,158

At 31 December 2007

Cost At 1 January 2007 144,194 221,926 366,120 Additions 33,647 145,222 178,869 Write-offs - (14,003 ) (14,003 ) Reclassifications (42,458 ) (315,790 ) (358,248 )

At 31 December 2007 135,383 37,355 172,738

(d) (ii) Company At 31 December 2008

Cost At 1 January 2008 158,788 13,948 172,736 Additions 538,783 33,147 571,930 Write-offs (2,180 ) (399 ) (2,579 ) Transfers to a subsidiary (298,935 ) - (298,935 ) Reclassifications (58,935 ) (16,061 ) (74,996 )

At 31 December 2008 337,521 30,635 368,156

At 31 December 2007

Cost At 1 January 2007 167,599 184,516 352,115 Additions 33,647 145,222 178,869 Reclassifications (42,458 ) (315,790 ) (358,248 )

At 31 December 2007 158,788 13,948 172,736


14. PREPAID LEASE PAYMENTS ON LAND


Net Book Value At 1 January 17,613 91,824 15,861 16,416 Disposal - (76,907 ) - - Transfers from/to Non-Current Assets Held for Sale - 3,278 - (382 ) Amortisation for the year (Note 6) (182 ) (582 ) (162 ) (173 )

At 31 December 17,431 17,613 15,699 15,861

Analysed As: Long term 17,394 17,572 15,662 15,820 Short term 37 41 37 41

17,431 17,613 15,699 15,861

Certain land at carrying value of RM37,000 (2007: RM41,000) were revalued by directors in 1985, as disclosed in Note 2.4 (d) (vi). Had the revalued leasehold land been carried at historical cost less accumulated depreciation, the net book value of those leasehold land would have been as follows:


Leasehold land 44 45

15. INVESTMENTS IN SUBSIDIARIES

Company 2008 2007 RM’000 RM’000

Unquoted shares, at cost 191,523 173,300 Less: Accumulated impairment losses (138,151 ) (138,151 )

53,372 35,149


15. INVESTMENTS IN SUBSIDIARIES (CONTINUED)

Details of the subsidiaries, which are incorporated in Malaysia, are as follows: Name of Company Country of Effective Interest Principal Activities Incorporation 2008 2007 % %

Held by Company:

Abacus Distribution Malaysia 80 80 Promotion, development, Systems (Malaysia) operation and marketing of Sdn. Bhd. computerised reservations systems and related services

Aerokleen Services Malaysia 51 51 Provision of laundry and Sdn. Bhd. cleaning related services

FlyFirefly Sdn. Bhd. Malaysia 100 100 Air transportation and the (“Firefly”) provision of related services

Malaysia Airlines Malaysia 100 100 Air cargo operations, charter Cargo Sdn. Bhd. reighter and all warehousing (“MASkargo”) activities relating to air cargo operations

MAS Catering Malaysia 60 60 Provision of catering and (Sarawak) Sdn. Bhd. cabin handling services

MAS Golden Malaysia 100 100 Retailing of inflight goods Boutiques Sdn. Bhd. and boutique operations

MASkargo Logistics Malaysia 100 100 Provision of trucking, Sdn. Bhd. clearance and warehousing services

Malaysia Airlines Malaysia 100 100 Investment holding Capital (L) Limited

MASwings Sdn. Bhd. Malaysia 100 100 Air transportation and the provision of related services

Kelip-Kelip Malaysia 100 - Purchase, sale, lease, Labuan Limited obtaining lease finance and refinancing of commercial aircraft

MAS Golden Malaysia 100 100 Dormant Holidays Sdn. Bhd.

MAS Aerotechnologies Malaysia 100 100 Dormant Sdn. Bhd.

Syarikat Pengangkutan Malaysia 100 100 Dormant Senai Sdn. Bhd.

165165

15. INVESTMENTS IN SUBSIDIARIES (CONTINUED)

Details of the subsidiaries, which are incorporated in Malaysia, are as follows: (continued) Name of Company Country of Effective Interest Principal Activities Incorporation 2008 2007 % %

Held by Company:

Malaysian Aerospace Malaysia 100 100 Dormant Engineering Sdn. Bhd.

Macnet CCN (M) Malaysia 100 100 Under Members’ Voluntary Sdn. Bhd. Winding Up

MAS Academy Malaysia 100 100 Dormant Sdn. Bhd.

Held Through a Subsidiary:

FlyFirefly Holiday Malaysia 100 100 Tour and travel agency and Sdn. Bhd. the provision of related services

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

Subscription of Shares in Subsidiaries

(i) On 22 September 2008, the Company subscribed one ordinary shares of USD1.00 of an off-shore Company under the name of Kelip Kelip Labuan Limited for a purchase consideration of RM3.50 by way of cash. With effect from that date, Kelip-Kelip Labuan Limited became a fully owned subsidiary of the Company.

(ii) On 18 March 2008, the Company subscribed for additional 14,999,998 ordinary shares of RM1.00 each in the share capital of FlyFirefly Sdn. Bhd, a wholly owned subsidiary by way of loan capitalisation.

16. INVESTMENTS IN ASSOCIATES


Unquoted shares, at cost 124,919 124,919 124,919 124,919 Less: Accumulated impairment losses - - (43,645 ) (43,645 )

124,919 124,919 81,274 81,274

Share of post acquisition losses (51,651 ) (66,472 ) - -

73,268 58,447 81,274 81,274



16. INVESTMENTS IN ASSOCIATES (CONTINUED)

Details of the associated companies are: Name of Companies Country of Effective Interest Principal Activities [Financial Year End] Incorporation 2008 2007 % %

Hamilton Sundstrand Malaysia 49 49 Repair and overhaul of Customer Support selected aircraft Centre (M) Sdn. Bhd. environmental control (“Hamilton”) systems, aircraft pneumatic [31 December] components and propeller system

LSG Sky Malaysia 30 30 Catering related services, Chefs-Brahim’s cabin handling and Sdn. Bhd. (“LSG”) cleaning services [31 December]

GE Engine Malaysia 30 30 Repair and overhaul of Services Malaysia aircraft engine Sdn. Bhd. (“GEESM”) [31 December]

Honeywell Aerospace Malaysia 30 30 Repairing, servicing, Services (M) overhaulling and testing of Sdn. Bhd. aircraft auxiliary power (“Honeywell”) [31 December]

Pan Asia Pacific Hong Kong 24 24 Provision of aircraft Aviation maintenance services Services Limited [31 March]

Taj Madras India 20 20 Inflight catering of food Flight Kitchen and beverages Limited [31 March]

Aerofine Meat Malaysia 49 49 Dormant Sdn. Bhd. [31 March]

The financial statements of the above associates are coterminous with those of the Group, except for Pan Asia Pacific Aviation Services Limited, Taj Madras Flight Kitchen Limited and Aerofine Meat Sdn. Bhd. which have a financial year end of 31 March to conform with their holding company’s financial year end. For the purpose of applying the equity method of accounting, the last audited financial statements available and management financial statements to the end of the accounting period of these companies for the financial period ended 31 December 2008 have been used.

167167

16. INVESTMENTS IN ASSOCIATES (CONTINUED)

The summarised financial information of the associates are as follows:

2008 2007 RM’000 RM’000

Assets and Liabilities Current assets 432,958 547,632 Non-current assets 188,781 248,793

Total assets 621,739 796,425

Current liabilities 352,658 565,493 Non-current liabilities 52,541 56,781

Total liabilities 405,199 622,274

Results Revenue 1,291,670 1,497,347 Profit for the year 59,558 84,197

17. OTHER INVESTMENTS


Quoted shares, at cost: - outside Malaysia - 1,377

Unquoted shares, at cost: - in Malaysia 24,100 24,100 - outside Malaysia 40,733 40,733

64,833 64,833 Other Government and Municipal Bonds 113 115

64,946 64,948

Total 64,946 66,325

Market value of quoted shares: - outside Malaysia - 32,303



18. NEGOTIABLE INSTRUMENTS OF DEPOSIT


Negotiable instruments of deposit 1,045,000 825,000

The maturity structure of negotiable instruments of deposit are as follows:


Maturing within one year 795,000 485,000 One year to two years 250,000 340,000

1,045,000 825,000

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

The range of interest rates of the NIDs is 3.75% to 6.50% (2007: 4.15% to 5.45%) per annum. NIDs’ carrying values approximate their market value.

19. INTANGIBLE ASSETS

Software and Landing Group related costs slots Total At 31 December 2008 RM’000 RM’000 RM’000

Costs At 1 January 2008 93,285 25,314 118,599 Additions 27,450 - 27,450

At 31 December 2008 120,735 25,314 146,049

Accumulated Amortisation At 1 January 2008 15,437 - 15,437 Charge for the year (Note 6) 24,359 - 24,359

At 31 December 2008 39,796 - 39,796

Net Book Value 80,939 25,314 106,253

169169

19. INTANGIBLE ASSETS (CONTINUED)

Software and Landing Group related costs slots Total At 31 December 2007 RM’000 RM’000 RM’000


At 31 December 2007 93,285 25,314 118,599


At 31 December 2007 15,437 - 15,437

Net Book Value 77,848 25,314 103,162

Company At 31 December 2008


At 31 December 2008 89,887 25,314 115,201


At 31 December 2008 28,370 - 28,370

Net Book Value 61,517 25,314 86,831

At 31 December 2007


At 31 December 2007 72,801 25,314 98,115


At 31 December 2007 12,266 - 12,266

Net Book Value 60,535 25,314 85,849



19. INTANGIBLE ASSETS (CONTINUED)

Impairment Tests for Landing Slots (a) Impairment test for assets with indefinite useful life

The carrying amount of intangible assets with indefinite useful life is as follows:


Landing slots 25,314 25,314

The recoverable amount of the landing slots is based on value in use calculations, using information on current year and preceding year route results. Value in use for Year 2009 is derived from present value of future cash flows expected to be derived from the landing slots or budgeted route results which have been extrapolated using certain estimates and reasonable approximations.

20. INVENTORIES


At cost: Catering and general stores 12,208 10,302 3,133 3,133 Consumable aircraft spares 8,937 8,936 8,937 8,936

21,145 19,238 12,070 12,069

At net realisable value: Catering and general stores 60,715 85,128 60,715 85,128 Consumable aircraft spares 297,870 260,900 297,870 260,900

358,585 346,028 358,585 346,028

379,730 365,266 370,655 358,097

171171

21. TRADE AND OTHER RECEIVABLES


Current Trade receivables 1,527,644 1,701,092 1,483,871 1,659,607 Less: Provision for doubtful debts (446,548 ) (528,303 ) (407,837 ) (488,889 )

1,081,096 1,172,789 1,076,034 1,170,718

Due from a fellow subsidiary (Note a) 44,641 52,591 44,641 52,591 Due from immediate holding company 18,988 - 18,988 - Due from subsidiaries - lease rental (Note b) - - 16,711 - - others - - 75,808 35,943 Due from associates 3,261 524 3,261 524 Security deposits 75,819 80,140 75,386 79,430 Prepayments 94,424 126,326 94,057 125,720 Deferred maintenance costs (Note c) 101,159 90,948 101,159 90,948 Tax recoverable 31,554 52,693 34,872 29,674 Sundry receivables 584,367 237,533 476,858 209,641 Less: Provision for doubtful debts (15,197 ) (5,595 ) (23,400 ) (19,238 )

939,016 635,160 918,341 605,233

2,020,112 1,807,949 1,994,375 1,775,951

Non Current Due from a fellow subsidiary (Note a) 202,423 243,377 202,423 243,377 Due from a subsidiary - lease rental (Note b) - - 282,224 - Deferred maintenance costs (Note c) 124,519 72,878 124,519 72,878

326,942 316,255 609,166 316,255



21. TRADE AND OTHER RECEIVABLES (CONTINUED)

(a) Due from a Fellow Subsidiary

Group and Company 2008 2007 RM’000 RM’000 Current Due not later than one year 44,641 52,591 Non Current Due later than one year and not later than five years 180,829 201,589 Due later than five years 21,594 41,788

202,423 243,377

247,064 295,968

The amount due from a fellow subsidiary represents prepaid lease rentals. It is unsecured, interest free and will expire on 28 May 2014. (b) Due from a Fellow Subsidiary - Lease Rental

Company 2008 2007 RM’000 RM’000 Current Due not later than one year 16,711 - Non Current Due later than one year and not later than five years 46,550 - Due later than five years 235,674 -

282,224 -

298,935 -

The amount due from a subsidiary represents aircraft lease rentals. It is secured, subject to interest ranging from 4.7% to 4.8% per annum and will expire between 31 July 2023 to 30 November 2023.

(c) Deferred Maintenance Costs

Group and Company 2008 2007 RM’000 RM’000 Current Due not later than one year 101,159 90,948 Non Current Due later than one year and not later than five years 100,120 72,878 Due later than five years 24,399 -

124,519 72,878

225,678 163,826

173173

21. TRADE AND OTHER RECEIVABLES (CONTINUED) (c) Deferred Maintenance Costs (continued)

Deferred maintenance costs relates to maintenance costs incurred for aircraft, engines, auxiliary power units or landing gears prior to the return obligation stated in the lease agreements. Deferred maintenance costs is capitalised and amortised over the actual flying hours as the aircraft is flown up to its return condition.

Upon the expiry of the lease or disposal of the aircraft, the net carrying amount is recognised in the income statement.

The amounts due from immediate holding company, subsidiaries (other than lease rental) and associates are unsecured, interest free and have no fixed terms of repayment.

The Group’s normal trade credit terms ranges from 14 to 30 (2007: 14 to 30) days. Other credit terms are assessed and approved on a case by-case basis.

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

22. CASH AND BANK BALANCES


Cash on hand and at banks 613,190 1,350,767 588,917 1,325,143 Term deposits with: - Licensed banks 2,680,248 1,488,533 2,662,000 1,478,000 - Other financial institutions 278,305 1,595,038 278,305 1,590,146

Cash and bank balances 3,571,743 4,434,338 3,529,222 4,393,289 Less: Deposits pledged with banks (631,120 ) - (631,120 ) -

2,940,623 4,434,338 2,898,102 4,393,289

Included in cash and cash balances as at 31 December 2008 is RM631,120,000 (2007: RM Nil) deposits pledged for banking facilities, held within the Group’s and the Company’s cash and bank balances, which are not immediately available for use in the business.

The range of interest rates of the deposits at the balance sheet date is as follows:

Group Company 2008 2007 2008 2007 % % % %

Licensed banks 2.65 - 3.70 3.51 - 3.76 2.65 - 3.70 3.51 - 3.76 Other financial institutions 0.125 - 3.63 1.60 - 3.60 0.125 - 3.63 1.60 - 3.60

The range of remaining maturities of the deposits as at the end of the financial year is as follows:

Group Company 2008 2007 2008 2007 Days Days Days Days

Licensed banks 2 - 344 3 - 246 2 - 344 3 - 246 Other financial institutions 1 - 358 1 - 112 1 - 358 1 - 112

Other financial institutions are investment banks in Malaysia and other foreign banks.



23. NON-CURRENT ASSETS HELD FOR SALE The non-current assets classified as held for sale on the Group’s and Company’s balance sheet date are as follows:

Carrying amounts Group RM’000

Aircraft, Property, Plant and Equipment As at 31 December 2007 2,501

Company

Aircraft, Property, Plant and Equipment As at 31 December 2007 2,465

24. SALES IN ADVANCE OF CARRIAGE Sales in advance of carriage represents the value of unutilised tickets up to 12 months (2007: 18 months).

25. EMPLOYEE BENEFITS Employee Share Options Scheme (“ESOS”)

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

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

(i) Offer

The offer is made to any eligible employee selected based on the criteria of allocation at the discretion of the ESOS Committee. Each offer shall be made in writing and is personal to the eligible employee and is non-assignable and non-transferable.

(ii) Maximum number of shares available under the ESOS

The total number of the new ordinary shares in MAS which has a par value of RM1.00 each (“MAS Shares”) which may be made available under the ESOS shall not exceed 10% of the total issued and paid-up share capital comprising ordinary shares of the Company at the time of offer.

In the event that the number of new MAS Shares granted under the ESOS exceeds the aggregate of 10% of the issued and paid up share capital of the Company, no further option shall be offered until the number of new MAS Shares to be issued under the ESOS falls below 10% of the Company’s issued and paid-up share capital.

(iii) Eligibility

The selection of any director or employee for the participation of the ESOS shall be at the discretion of the ESOS Committee based on the eligibility criteria stipulated in the By-Laws.

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

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

175175

25. EMPLOYEE BENEFITS (CONTINUED) Employee Share Options Scheme (“ESOS”) (continued)

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

(iv) Termination of option

In the event the grantee ceased to be in the employment of the Group such option shall cease to be valid without any claims against the Company, unless approved otherwise by the ESOS Committee.

(v) Duration and termination of the ESOS

The ESOS shall be in force for a period of 5 years from the effective date of the scheme. The ESOS Committee shall have the discretion, to extend the tenure of the ESOS for another 3 years or shorter immediately from the expiry of the first 5 years.

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

(vi) Maximum allowable allotment

The number of MAS Shares allocated, in aggregate to the directors and senior management of the Group shall not exceed 50% of the total MAS Shares available under the ESOS. The number of MAS Shares allocated to any eligible employee who, either singly or collectively through persons connected with the eligible employee, holds 20% or more in the issued and paid up share capital of the Company, shall not exceed 10% of the total MAS Shares available under the ESOS.

(vii) Subscription price

The subscription price upon the exercise of the option under the ESOS shall be the weighted average market price of the MAS Shares for the 5 Market Days immediately preceding the offer date, or the par value of the MAS Shares, whichever is higher.

(viii) Exercise of option

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

- Offer in Year 1 of the option period



(ix) Rights attaching to the new MAS shares

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

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

Year 1 Year 2 Year 3 Year 4 Year 5

40% 30% 30% - -



- 40% 30% 30% -



- - 40% 30% 30%





(x) Alteration of share capital

In the event of any alteration in the capital structure of the Company during the option period, whether by way of a rights issue*, bonus issue or other capitalisation issue, consolidation or subdivision of MAS Shares or reduction of capital or any other variation of capital, the Company shall adjust the number of MAS Shares which a grantee is entitled to subscribe for upon the exercise of each option and/or the subscription price.

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

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

(b) a special issue of new MAS Shares to Bumiputera investors nominated by Ministry of International Trade and Industry, Malaysia and/or other government authority to comply with the Government policy on Bumiputera capital participation;

(c) a private placement/restricted issue of new MAS Shares by the Company;

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

(e) an issue of new MAS Shares upon exercise of options pursuant to the ESOS; and

(f) a share buy-back arrangement by the Company, pursuant to Section 67A of the Act.

* Subsequent to the commencement of the ESOS, MAS had implemented a Rights Issue in November 2007 as disclosed in Note 31(a). Pursuant to Paragraphs 13.1 and 13.9(e) in the by-laws, MAS has made the relevant adjustments to both the exercise price of the options and the number of the options allocated to maintain the value of the options in light of the alteration of its capital structure by way of a Rights Issue.

(xi) Utilisation of proceeds

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

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

Number of Share Options (‘000)

Exercisable At Movements during the year At at 1 January Granted Exercised Forfeited Expired 31 December 31 December

2008 2007 Options (WAEP : RM5.09) 30,844 - - (2,193) - 28,651 28,651

2008 Options (WAEP : RM3.71) - 110,081 (10) (1,266) - 108,805 108,805

30,844 110,081 (10) (3,459) - 137,456 137,456

2007 2007 Options (WAEP : RM5.09) - 31,118 - (274) - 30,844 30,844

177177



Movements in share option reserve on share options granted under ESOS during the financial year were as follows:

Group and Company RM’000

At 31 December 2008 At 1 January 2008 27,880 Granted 51,111 Exercised (5 ) Provision reversal (2,784 )

At 31 December 2008 76,202

At 31 December 2007 At 1 January 2007 - Granted 28,088 Provision reversal (208 )

At 31 December 2007 27,880 (b) Details of share options outstanding during the end of the financial year:

Exercise price RM Exercised period 2008 2007 Options 5.09 5.11.2007 - 31.12.2011 2008 Options 3.71 30.6.2008 - 31.12.2011

2007 2007 Options 5.09 5.11.2007 - 31.12.2011 (c) Fair value of share options granted during the financial year

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

2008 2007 Fair value of share options granted on - 29 June 2007 (RM/share option) - 0.92 - 1.33 - 20 June 2008 (RM/share option) 0.43 - 0.63 - Share price (RM) 3.34 5.90 Exercise price (RM) 3.71 5.09 Expected volatility (%) 30.06 28.37 Attrition rate (%) 4.53 - 7.93 3.51 - 6.89 Exercise multipliers (times) 1.2 and 1.5 1.2 and 1.5 Risk free rate (%) 3.80 3.31 Expected dividend yield (%) 0.46 0.67

The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the option grant were incorporated into the measurement of fair value.



26. TRADE AND OTHER PAYABLES


Current Trade payables 1,403,509 1,857,688 1,200,776 1,572,272 Due to immediate holding company - 71,860 - 71,860 Due to subsidiaries - - 328,826 360,213 Due to associates 25,686 49,346 25,686 49,346 Other payables 689,523 588,630 655,155 539,169 Accruals 290,107 438,867 258,688 423,724

2,408,825 3,006,391 2,469,131 3,016,584

Non Current Due to subsidiaries - - 112,241 -

The normal trade credit terms granted to the Group ranges from 14 to 150 (2007: 14 to 150) days.

The amounts due to immediate holding company, and associates are unsecured, interest free and have no fixed terms of repayment.

Included in the amounts due to subsidiaries is an amount of RM120,652,000 that is secured, bearing interests ranging from 5.2% to 5.5% (2007 : Nil) per annum and is repayable over 12 years. The other amounts due to subsidiaries are unsecured, interest free and have no fixed terms of repayment.

Included in other payables is Redeemable Preference Shares of RM500 (2007: RM500).

27. PROVISIONS


At 1 January 681,828 347,714 669,963 347,714 Additional provisions 498,964 633,754 496,371 621,889 Utilisation of provisions (363,089 ) (299,640 ) (363,089 ) (299,640 )

At 31 December 817,703 681,828 803,245 669,963

Provisions are mainly in respect of aircraft maintenance and overhaul costs. The Company leases a majority of its aircraft and engines whereby under the terms of the leases, these aircraft and engines are to be returned substantially in the original state when they were leased. Provisions are made based on the estimated hours flown and estimated costs of maintenance required. These estimates are based on past experiences and are regularly reviewed to ensure they approximate actual costs.

179179

28. BORROWINGS


Short term borrowings Revolving credit - unsecured 425,000 - 425,000 - Finance leases - secured (Note 30) 8,411 - - -

433,411 - 425,000 -

Long term borrowings Term loan - unsecured 500,000 500,000 500,000 500,000 RCPS Liability Component - unsecured (Note 29) 373,336 359,672 373,336 359,672 Finance leases - secured (Note 30) 112,241 - - -

985,577 859,672 873,336 859,672

Total borrowings 1,418,988 859,672 1,298,336 859,672

The term loan has a tenure of 3 years from the drawndown date of the facility, i.e. 31 January 2007. The repayment term is one bullet repayment at the end of the tenure. The term loan interest for 2008 (Year 2) and 2009 (final year) is fixed at KLIBOR plus 1.53% per annum (2007 (Year 1): 5.58% and 2008 (Year 2): 5.18%).

The revolving credits drawn down from various financial institutions is RM425 million for tenures between 3 to 6 months with all-in-rates ranging between 4.35% to 4.60% per annum.

29. REDEEMABLE CONVERTIBLE PREFERENCE SHARES (“RCPS”)

On 31 October 2007, the Company issued 417,747,955 RCPS of RM0.10 each at an issue price of RM1.00 each. The total proceeds received from the issuance of the RCPS is split between a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated by discounting the future estimated cash flows at the prevailing market interest rate available to the Group then. The difference between the total proceeds received from the issuance of the RCPS and the fair value assigned to the liability component, representing the conversion option is accounted in shareholders’ equity.

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

On 30 December 2008, the Company paid a tax-exempt non-cumulative preferential dividend of 3.0 sen per RCPS on 417,747,955 number of RCPS amounting to RM12,532,439, being the dividend for the first anniversary of the RCPS from the issuance date. The dividend was accounted for by reducing the liability component of the RCPS.

During the financial year ended 31 December 2008, the Company received two conversion notices to convert a total of 680,400 RCPS into new MAS Shares. The Company has elected to exercise its Cash Settlement Option and paid cash equivalent to the value of the new MAS Shares entitlements of 168,000 new MAS Shares amounting to RM473,760, based on the weighted average market price of MAS Shares for the ten market day period ending on and inclusive of the date of the receipt of the relevant conversion notices by the Company.



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

The RCPS are accounted for in the balance sheets of the Group and of the Company as follows:


RCPS - Liability Component At 1 January 359,672 - Fair value recognised as liability component - 359,672 Interest accrued - Recognised in the income statement (Note 7) 26,670 - Dividend paid for 1st anniversary of RCPS (12,532 ) - RCPS surrendered for conversion by RCPS holders (474 ) -

At 31 December 373,336 359,672

RCPS - Equity Component At 1 January 58,076 - Value recognised as equity - 58,076

At 31 December 58,076 58,076

The following are the salient terms of the RCPS: (a) Conversion Period - four years commencing from the first anniversary after the date of issuance on 31 October 2007.

(b) Conversion Price - fixed at RM4.05, which is the theoretical ex-rights market price of MAS Shares during the Rights Issue as disclosed in Note 31(a).

(c) Conversion Right - each RCPS carries the entitlement to convert into new MAS Shares at the Conversion Price through the surrender of the RCPS.

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

(e) Ranking of the RCPS - The RCPS shall rank pari passu amongst themselves. On a winding-up or upon a reduction of capital or other return of capital (other than on redemption or on the exercise of the Cash Settlement Option):

(i) the RCPS shall confer on the holder thereof the right to receive, in priority to the holders of any other class of shares (except for the Special Share and RPS of RM0.10 each) in the Company, cash repayment in full of the nominal amount (and the premium payable and the amount of any dividend that have been declared and remaining in arrears) of that RCPS; and

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

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

(g) Redemption Date - any RCPS, which has not been converted during the Conversion Period will be mandatorily redeemed by the Company at the issue price of RM1.00 each within thirty days after the Conversion Period ends.

(h) Cash Settlement Option - The Company has the right to provide RCPS holders who elect to convert their RCPS into MAS Shares, payment in cash equal to the value of their new MAS Shares entitlements, based on the weighted average market price of MAS Shares for the ten market day period ending on and inclusive of the date of the receipt of the relevant conversion notice by the Company.

181181

30. FINANCE LEASE LIABILITIES

Group 2008 2007 RM’000 RM’000

Future Minimum Lease Payments: Not later than one year 14,225 - Later than one year and not later than five years 52,451 - Later than five years 82,344 -

Total minimum future lease payments 149,020 - Less: Future finance charges (28,368 ) -

Present value of finance lease liabilities 120,652 -

Analysis of Present Value of Finance Lease Liabilities: Not later than one year 8,411 - Later than one year and not later than five years 36,055 - Later than five years 76,186 -

120,652 - Less: Amount due within twelve months (8,411 ) -

Amount due after twelve months 112,241 -

Under the finance leases, the Group has the option to buy the aircraft from the lessor at a predetermined price.

Should the Lessee exercise the option to buy at the purchase option date, the purchase price comprises total sum of (i) The purchase option price and (ii) Rent of the aircraft due and payable on the purchase option date.

The finance lease has a tenure of 12 years, bearing interest ranging from 5.2% to 5.5% per annum.

31. SHARE CAPITAL

Number of shares Amount 2008 2007 2008 2007 ’000 ’000 RM’000 RM’000

Group and Company

Authorised: Ordinary shares of RM1.00 each 9,000,000 9,000,000 9,000,000 9,000,000

One Special Rights Redeemable Preference Share of RM1.00 each (Note a) 1 share 1 share RM1 RM1

Redeemable Convertible Preference Shares of RM0.01 each 100,000,000 100,000,000 1,000,000 1,000,000



31. SHARE CAPITAL (CONTINUED)

Number of Shares Amount 2008 2007 2008 2007 ’000 ’000 RM’000 RM’000

Group and Company

Authorised: (continued) Redeemable Convertible Preference Shares of RM0.10 each At 1 January 418,000 - 41,800 - Created during the year - 418,000 - 41,800

At 31 December 418,000 418,000 41,800 41,800

Redeemable preference shares of RM0.10 each 1,000 1,000 100 100

109,419,000 109,419,000 10,041,900 10,041,900

Issued and fully paid: Ordinary shares of RM1.00 each At 1 January 1,670,992 1,253,244 1,670,992 1,253,244 Issued during the year: Exercise of ESOS (Note 25) 10 - 10 - Rights Issue (Note a) - 417,748 - 417,748

At 31 December 1,671,002 1,670,992 1,671,002 1,670,992

One special rights redeemable preference share of RM1.00 each (Note b) 1 share 1 share RM1 RM1

1,671,002 1,670,992 1,671,002 1,670,992

(a) Rights Issue

On 1 November 2007, the Company announced that the final subscription result and basis of allotment of the excess under the Rights Issue was 417,747,955 Rights Shares of RM1.00 each and 417,747,955 RCPS of RM0.10 each on the basis of 1 Rights Share and 1 RCPS for every 3 existing shares held (“Rights Issue”). The issue price for the Rights Shares was fixed at RM2.70 each, the conversion price for the RCPS was fixed at RM4.05. The Rights Shares issued were granted listing and quotation with effect from 5 November 2007.

(b) Special Rights Redeemable Preference Share (“Special Share”)

The Special Share would enable the Government through the Minister of Finance Incorporated (“MoF”) to ensure that certain major decisions affecting the operations of the Company are consistent with the Government’s policy. The Special Share, which may only be held by the MoF or its successors or any Minister, representative, or any person acting on behalf of the Government of Malaysia, carries certain special rights as provided by Article 5 of the Company’s Articles of Association (as amended at the Extraordinary General Meeting held on 19 April 1995). These special rights include:

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

(ii) the right to repayment of the capital paid up on the Special Share in priority to any other member in the event of a winding-up of the Company; and

(iii) the right to require the Company to redeem the Special Share at par at any time.

183183

31. SHARE CAPITAL (CONTINUED)

(b) Special Rights Redeemable Preference Share (“Special Share”) (continued)

Certain matters, in particular the alterations of specified Articles of Association of the Company, require the prior approval of the holder of the Special Share. The Special Share does not carry any right to vote at General Meetings but the holder is entitled to attend and speak at such meetings.

32. RESERVES

The nature and purpose of each category of reserves are as follows:

(a) Share premium reserve

The share premium reserve relates to the amount paid by shareholders for shares in excess of the nominal value.

(b) Equity component of RCPS

This reserve represents the fair value of the equity component of RCPS, as determined on the date of issue.

(c) Share option reserve

The share option reserve represents the equity-settled share options granted to employees. This reserve is made up of the cumulative value of services received from employees recorded on grant of share options.

(d) General reserve

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

33. DEFERRED TAXATION

Group 2008 2007 RM’000 RM’000

At 1 January (3,692 ) (40,551 ) Recognised in the income statement (Note 10) 4,037 36,859

At 31 December 345 (3,692 )

Presented after appropriate offsetting as follows:

Deferred tax assets (1,348 ) (4,007 ) Deferred tax liabilities 1,693 315

345 (3,692 )

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

Deferred tax liabilities of the Group: Accelerated capital allowances RM’000

At 1 January 2008 8,923 Recognised in the income statement (5,159 )

At 31 December 2008 3,764



33. DEFERRED TAXATION (CONTINUED)

Deferred tax liabilities of the Group: (continued) Accelerated capital allowances RM’000

At 1 January 2007 20,066 Recognised in the income statement (11,143 )

At 31 December 2007 8,923

Deferred tax assets of the Group:

Unused tax losses and unabsorbed capital allowances Provisions Total RM’000 RM’000 RM’000

At 1 January 2008 (1,482 ) (11,133 ) (12,615 ) Recognised in the income statement 786 8,410 9,196

At 31 December 2008 (696 ) (2,723 ) (3,419 )

At 1 January 2007 (59,659 ) (958 ) (60,617 ) Recognised in the income statement 58,177 (10,175 ) 48,002

At 31 December 2007 (1,482 ) (11,133 ) (12,615 )

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


Unused tax losses 778,000 778,000 774,000 774,000 Unabsorbed capital allowances 936,000 936,000 936,000 936,000 Other deductible temporary differences 1,131,000 1,063,000 1,072,000 1,049,000

2,845,000 2,777,000 2,782,000 2,759,000

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

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

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34. OPERATING LEASE ARRANGEMENTS


Due not later than one year 1,985,496 1,916,204 1,659,443 1,661,824 Due later than one year and not later than five years 5,233,960 5,139,619 4,594,311 4,672,886 Due later than five years 1,689,474 1,719,735 1,069,181 1,432,874

8,908,930 8,775,558 7,322,935 7,767,584

35. SEGMENTAL INFORMATION

(a) Business Segments

The Group operates predominantly in two business segments, being airline operations and cargo services.

(i) Airline operations - operation of aircraft for passenger

(ii) Cargo services - operation of aircraft for cargo and mail services

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

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

Continuing Operations Discontinued Airline Cargo Operations - 31 December 2008 Operations Services Others Elimination Total Others Consolidated RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Revenue External sales 12,369,203 2,590,983 75,117 - 15,035,303 - 15,035,303 Inter-segment sales 1,165,878 - 30,251 (1,196,129 ) - - -

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

Results Segment results 295,594 22,392 8,649 (21,178 ) 305,457 122 305,579 Finance costs (60,770 ) - (60,770 ) Share of results of associates 19,974 - - - 19,974 - 19,974

Profit before taxation 264,661 122 264,783 Taxation (19,086 ) - (19,086 )

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



35. SEGMENTAL INFORMATION (CONTINUED)

(a) Business Segments (continued)

Continuing Operations Discontinued Airline Cargo Operations - 31 December 2008 Operations Services Others Elimination Total Others Consolidated (continued) RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Assets Segment assets 9,761,835 348,614 87,769 (201,321 ) 9,996,897 83 9,996,980 Investments in associates 73,268 - - 73,268 - 73,268 Unallocated assets 1,348 - 1,348

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

Liabilities Segment liabilities 4,256,921 232,142 38,099 (73,367 ) 4,453,795 144 4,453,939 Unallocated liabilities 1,420,681 - 1,420,681 Consolidated total liabilities 5,874,476 144 5,874,620

Other Segment Information Capital expenditure 761,567 2,044 202 - 763,813 - 763,813

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

Amortisation 16,743 6,614 1,184 - 24,541 - 24,541 Writeback of impairment losses recognised in income statement (45,254 ) - - - (45,254) - (45,254 )

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(a) Business Segments (continued)

Continuing Operations Discontinued Airline Cargo Operations - 31 December 2007 Operations Services Others Elimination Total Others Consolidated RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Revenue

External Sales 11,978,955 2,687,052 (35,776 ) - 14,630,231 21,160 14,651,391 Inter-segment sales 960,059 - 136,700 (1,096,759 ) - - -

Total revenue 12,939,014 2,687,052 100,924 (1,096,759 ) 14,630,231 21,160 14,651,391

Results

Segment results 906,848 126,182 10,646 (168,449 ) 875,227 43,218 918,445 Finance costs (46,886) - (46,886 ) Share of results of associates 12,570 - - - 12,570 - 12,570

Profit before taxation 840,911 43,218 884,129 Taxation (29,590 ) (1,796 ) (31,386 )

Net profit for the year 811,321 41,422 852,743

Assets Segment assets 9,613,124 425,489 90,073 (129,248 ) 9,999,438 89 9,999,527 Investments in associates 58,447 - - - 58,447 - 58,447 Unallocated assets 4,007 - 4,007

Consolidated total assets 10,061,892 89 10,061,981

Liabilities Segment liabilities 4,923,594 323,329 38,935 (30,074 ) 5,255,784 261 5,256,045 Unallocated liabilities 859,987 - 859,987 Consolidated total liabilities 6,115,771 261 6,116,032

Other segment information Capital expenditure 406,410 2,675 2,218 - 411,303 - 411,303

Depreciation 302,412 33,016 9,182 - 344,610 - 344,610

Amortisation 11,064 2,393 331 - 13,788 - 13,788 Writeback of impairment losses recognised in income statement (2,101 ) - - - (2,101 ) - (2,101 )




(b) Geographical Segments

The following table provides an analysis of the Group’s revenue by geographical segment:

Continuing Operations Discontinued Operations Total 2008 2007 2008 2007 2008 2007 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue

Orient and North America 2,270,902 2,652,403 - - 2,270,902 2,652,403 Europe and Middle East 3,148,726 3,339,768 - - 3,148,726 3,339,768 Australia and New Zealand 1,629,460 1,754,527 - - 1,629,460 1,754,527 Asia 3,029,416 3,192,228 - - 3,029,416 3,192,228 Africa and South America 249,711 249,231 - - 249,711 249,231

10,328,215 11,188,157 - - 10,328,215 11,188,157 Other revenue 4,707,088 3,442,074 - 21,160 4,707,088 3,463,234

15,035,303 14,630,231 - 21,160 15,035,303 14,651,391

The Group’s revenue by geographical segment is based on flown revenue.

Assets, which consist principally of flight and ground equipment that support the entire worldwide transportation system, are mainly located in Malaysia. An analysis of assets and capital expenditure of the Group by geographical distribution is therefore not included.

36. SIGNIFICANT RELATED PARTY TRANSACTIONS

(a) In addition to transactions detailed elsewhere in the financial statements, the Group and the Company had the following transactions with related parties during the financial year.


Expenses Expenses charged by subsidiaries: - Handling and cleaning services - - 2,471 2,562 - Inflight meals - - 6,638 7,252 - Other inflight services - - 11,705 11,152 - Trucking, clearance and warehousing services - - 6,227 5,545

GEESM, an associate - Engine maintenance services rendered and purchase of aircraft spares and equipment 333,654 428,485 333,654 428,485

Taj Madras Flight Kitchen Limited, an associate - Catering services 1,801 1,858 1,801 1,858

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36. SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

(a) In addition to transactions detailed elsewhere in the financial statements, the Group and the Company had the following transactions with related parties during the financial year. (continued)


Expenses (continued) Pan Asia Pacific Aviation Services Limited, an associate - Transit and cabin services 5,499 5,868 5,499 5,868

LSG, an associate - Purchase of meals and beverages 201,684 234,678 201,684 234,678

Honeywell, an associate - Aircraft maintenance services 5,194 5,973 5,194 5,973

Hamilton Sundstrand, an associate - Aircraft maintenance services 10,118 7,864 10,118 7,864

Evergreen Sky Catering Corporation, a company in which the Company has substantial shareholding - Catering services 7,686 9,132 7,686 9,132

Miascor Catering Services, a company in which the Company has substantial shareholding - Catering services 1,375 633 1,375 633

Abacus International Holding a company in which the Company has substantial shareholding - Computer reservation system access fee 38,451 39,922 38,451 39,922

Income Dividend received from: - subsidiaries - - 2,132 10,906 - associated companies - - 11,448 22,993

Income received from subsidiaries: - hire of belly space - - 1,032,470 960,059 - aircraft maintenance and overhaul - - 99,561 58,998 - handling and cleaning services - - 4,790 5,258




(a) In addition to transactions detailed elsewhere in the financial statements, the Group and the Company had the following transactions with related parties during the financial year. (continued)


Income (continued) GEESM - Rental and shared services income received 11,904 15,649 11,904 15,649

LSG - Rental and shared services income received 23,160 22,889 23,160 22,889 - Laundry and cleaning services - 685 - -

Transactions with holding company and its fellow subsidiaries

Expenses Hire of aircraft paid/payable to PMB 541,148 639,592 541,148 639,592 Lease rental paid/payable to Aircraft Business Malaysia Sdn. Bhd. 265,751 283,846 265,751 283,846

Income Residual value sharing on sale of aircraft from PMB - 209,333 - 209,333

The above transactions and transactions detailed elsewhere were undertaken at mutually agreed terms between the parties in the normal course of business and the terms and conditions are established under negotiated terms.

(b) Compensation of key management personnel (“KMP”)

Total KMPs’ remuneration (including Board of Directors)


Total 6,382 7,828

191191


(b) Compensation of key management personnel (“KMP”) (continued)

Total KMPs’ remuneration (including Board of Directors)


Salaries and other emoluments 981 2,120 Bonus 202 971 Defined contribution plan 192 148 Share options granted under ESOS 729 750

2,104 3,989

For the details of Board of Directors’ remuneration, please refer to Note 9.

The share options were granted on the same terms and conditions as those offered to the other employees of the Group (Note 25).

Significant Related Party Transactions with KMPs (Including Board of Directors)

There was no significant related party transactions with KMPs (including Board of Directors) during the financial year.

37. COMMITMENTS


Capital commitments: Due not later than one year - approved and contracted for 856,239 477,979 856,239 456,949 - approved but not contracted for 113,204 181,522 106,700 177,960

969,443 659,501 962,939 634,909

Due later than one year - approved and contracted for 10,438,780 524,689 10,438,780 514,620 - approved but not contracted for 85,273 333,582 85,273 333,582

10,524,053 858,271 10,524,053 848,202

Total capital commitments - approved and contracted for 11,295,019 1,002,668 11,295,019 971,569 - approved but not contracted for 198,477 515,104 191,973 511,542

11,493,496 1,517,772 11,486,992 1,483,111

The outstanding capital commitments relate to purchase of aircraft, enterprise resource planning system, passenger services system and other expenditure projects.



38. CONTINGENT LIABILITIES

(a) Guarantees (unsecured)


Corporate guarantees given to third parties in respect of credit facilities provided to an associated company 5,267 4,903 Bank guarantee given to third parties in respect of services provided and derivatives contracts acquired 785,795 124,355 Bank guarantee given to PMB on aircraft lease 20,799 18,537 Performance bonds given in respect of services provided to third party 5,505 234

817,366 148,029

(b) Liabilities assumed by the immediate holding company


Term loans - secured 118,101 236,841 - unsecured 81,166 104,554 Finance lease payables (secured) 420,862 430,081

620,129 771,476

1,437,495 919,505

In connection with the Widespread Asset Unbundling (“WAU”) exercise undertaken by the Company in 2002, the Company continues to be the named borrower of finance leases and term loans which have been taken over by the immediate holding company and is still contractually bound to meet these borrowings in the event the immediate holding company defaults on the payments. As such, the outstanding balance of the borrowings assumed by the immediate holding company is included within the Group’s and the Company’s contingent liabilities.

The above finance leases and term loans mature as follows:

Finance Term loans Leases Total RM’000 RM’000 RM’000

Due not later than one year 120,073 22,367 142,440 Due later than one year and not later than five years 54,060 398,495 452,555 Due later than five years 25,134 - 25,134

199,267 420,862 620,129

(c) As at 31 December 2008, the Company has lease obligations amounting to RM244,781,542 (2007: RM219,048,854) which are covered by interest bearing funds amounting to RM235,910,764 (2007: RM202,307,996) placed with financial institutions at the inception dates of the respective lease agreements under defeasance arrangements. The defeased lease obligations, together with the related fund placements and payments, are therefore not included in these financial statements.

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38. CONTINGENT LIABILITIES (CONTINUED)

(c) (continued)

The Group has in operation 109 (2007: 100) aircraft and 28 (2007: 29) engines under operating leases. Of these, 4 (2007: 6) aircraft relate to the borrowings assumed by the immediate holding company which are included in the Group’s and the Company’s contingent liabilities.

The directors are of the opinion that the immediate holding company, being a wholly owned subsidiary of KNB, will be able to meet all payments to the Company in respect of the above liabilities as and when they fall due.

(d) Shahjalal Aviation Systems Ltd (“Shahjalal”) was a general sales agent and had filed a claim in Dhaka, Bangladesh against the Company for a sum of BDT2,670.0 million (RM133.8 million) purportedly due to them on account of commission charges, loss of business and goodwill under the general sales agency. The Company had earlier filed a claim against Shahjalal for a sum of BDT152.0 million (RM7.6 million) which was subsequently reduced to BDT87.8 million (approximately RM4.4 million) after adjustments of the bank guarantee and other amounts, together with interest, on account of unremitted passenger and cargo sales.

The Court had delivered judgment on the 13 January 2009 that the Company’s claim for the amount of USD1.5 million (RM5.2 million) from Shahjalal is decided in the Company’s favour. The claims filed by Shahjalal against the Company for unlawful termination of a general sales agency agreement has been dismissed.

(e) On 16 September 2004, the Company received notice that Advanced Cargo Logistic GmBH (“ACL”) had initiated proceedings against the Company at the International Court of Arbitration in Paris, France. The claim against the Company for alleged breach of a ground handling contract (“ACL Agreement”) is damages in the sum of EUR62.7 million (RM304 million).

On 23 April 2007, the Company received a partial award from the Arbitral Tribunal dated 4 April 2007 declaring that the Company has breached the ACL agreement but made no ruling on the Company’s liability to compensate ACL for the damages suffered as a result of the breach. The Arbitral Tribunal has fixed the hearing on the quantum of damages and costs on 3rd until 6th November 2008. ACL has since in its statement of claim on quantum, revised its claim to EUR34.1 million (RM166 million).

The partial award makes no monetary award and, at this time, has no ascertainable financial and operational effect on the Company and the Group. The legal effect is being analysed by the Company’s Malaysian and Swiss counsels.

(f) On 11 February 2004, the Company filed a suit at the High Court of Malaya against Air Maldives Ltd. (“AML”) to claim for the sum of USD35.5 million being unpaid fees and charges payable by AML to the Company for airline related services rendered by the Company pursuant to numerous agreements. The Writ of summons was served by the Company on AML on 25 July 2007. AML has entered appearance on 22 October 2007. AML had on 19 March 2008 served their defence together with a counterclaim of USD 43.6 million on the Company.

The Company is seeking legal advice in relation to the counterclaim and has filed an application to stay the counterclaim.

(g) Securiforce Sdn. Bhd. and Securiforce Hi-Tech Cargo Sdn. Bhd. (collectively, the “Plaintiffs”) served a writ of summons and statement of claim on the Company and its wholly-owned subsidiary, MASkargo, on 16 June 2005. The Plaintiffs’ claim is for special damages of RM4.9 million and general damages of RM250 million as well as unspecified exemplary damages as a consequence of what is alleged by the Plaintiffs to be a termination by the Company, in breach of a purported contract consisting of various documents involving services rendered by the Plaintiffs to the Company and MASkargo. The Company and MASkargo are challenging the claim.

(h) On 5 April 2006, the Company and MASkargo filed a civil suit in Malaysia against its former Executive Chairman, Tan Sri Tajudin bin Ramli and three (3) other Defendants, Ralph Manfred Gotz, Uwe Juergen Beck and Wan Aishah binti Wan Hamid. The claim against the Defendants is for losses amounting to RM174.6 million for, amongst others, breach of fiduciary duties committed by the Defendants and conspiracy to defraud the Company. The First, Second and Fourth Defendants have filed applications to strike out the suit, whilst the third Defendant has applied to set aside the Service of the Amended Writ of Notice to be Served Out of Jurisdiction on him.

(i) On 26 May 2006, the Company, MAS Golden Holidays Sdn Bhd and MAS Hotels and Boutiques Sdn Bhd (collectively , the “Plantiffs”) filed a civil suit (“Original Suit”) in the High Court at Kuala Lumpur against its former Executive Chairman, Tan Sri Tajudin bin Ramli and four (4) other Defendants for damages of approximately RM90 million together with further damages to be assessed, resulting from inter alia breach of fiduciary duties and/or knowingly assisting or benefiting from such breach of fiduciary duties.

In response to the Original Suit, Tan Sri Tajudin bin Ramli, Promet (Langkawi) Resorts Sdn. Bhd. and Kauthar Venture Capital Sdn. Bhd. had on 9 October 2006 jointly filed and served a defence and counterclaim (“Counter Claim”) on the Plaintiffs, the Company directors and the Government alleging that the Defendants in the Counter Claim (except for the Government) had conspired to injure them or had caused injury to them through malicious prosecution of the Original Suit.



38. CONTINGENT LIABILITIES (CONTINUED)

(j) On 15 May 2007, the Company received Notice from the Secretariat of the ICC International Court of Arbitration in Paris, France that Air Maldives Ltd. (“AML”) had commenced arbitration proceedings against the Company for alleged continuous breaches of the Company’s duties under a Management Agreement between the Company and AML dated 16 January 1996 (“Arbitration”).

Pending further particulars of AML’s claim in the Arbitration, the effects of the claim on the financial position of the Company cannot be ascertained. The Company is currently seeking legal advice to challenge the claim.

(k) On 27 December 2007, the Company and MASkargo were served with “Statement of Objections” from the European Commission in relation to its freight investigation under Article 81 of the European Community Treaty, the general prohibition against anti-competitive behaviour. The Statement of Objections is a routine stage in the European Commission’s investigations under the said Article 81 and is not a final determination of an infringement, nor does the Statement of Objections indicate any quantum of fines that might be ultimately imposed.

The Group has sought legal advice and replied to the statement of Objections from the European Commission.

(l) (i) Meor Adlin against MAS;

(ii) Stephen Gaffigan against MAS;

(iii) Micah Abrams against MAS;

(iv) Donald Wortman against MAS;

(v) Bruce Hut against MAS;

(vi) Dickson Leung against MAS;

Between 18 January and 26 March 2008, the Company has been served with various complaints filed in the United States District Court for the Northern District of California (San Francisco) and the United States District Court for the Central District of California (Los Angeles) filed on behalf of various Plantiffs against the Company and a number of other airlines. The cases involves allegation of price fixing on transpacific passenger fares and related surcharges.

At this juncture, no infringement has been established. The recently served complaint does not make any mention of the quantum of damages sought against the Company. The Company is currently seeking legal advice in relation to the complaint.

(m) On 15 December 2008, the Company was served with a “Statement of Claim” from the Commerce Commission of New Zealand in relation to its air freight investigation under Section 27 of the Commerce Act. The Statement of Claim does not indicate any quantum of fines that might be ultimately imposed.

The Company and its lawyers are reviewing the Statement of Claim.

39. CONTINGENT ASSETS

As mentioned in the prior year’s report, the Company is entitled to an 80% share of the gain on disposal of certain aircraft unbundled to PMB under the Agreement for Aircraft and Finance Agreements Unbundling. The gain will be computed based on the excess of the value realised over the decayed cost of the aircraft. The decayed cost for each aircraft at future dates is stipulated by the WAU agreement. Based on published industry price data, the Company’s share of the gain on disposal if the applicable aircraft were to be disposed as at 31 December 2008 is RM880,211,000 (2007: RM786,289,000).

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40. FINANCIAL INSTRUMENTS

(a) Financial Risk Management Objectives and Policies

The Group operates globally and generates revenue in various currencies. The Group’s airline operations carry certain financial, credit and commodity risk, including the effects of changes in fuel prices, foreign currency exchange rates, interest rates and the market value of its investments. The Group’s overall risk management approach is to mitigate the effects of such volatility on its financial performance and reflect an inclination towards risk averse policies.

The Group’s policy is not to trade in derivatives but to use these instruments to hedge against anticipated exposures.

(b) Fuel Price Risk

The Group’s earnings are affected by changes in the price of jet fuel. The Group manages this risk by using instruments such as swaps, collars and swaptions. The Group’s risk management strategy is to maintain a competitive hedge with regards to its competitors. The Group’s risk management policy is to hedge up to 80% of the annual budget volume for the 12 months and up to 50% of the volume for the tenure of such contract up to 48 months.

As at 31 December 2008, the Group and the Company have entered into various fuel hedging transactions for periods up to 31 December 2011 in lots totalling 26,450,000 barrels (2007: 8,400,000 barrels).

Group and Company Notional Amount 2008 2007 RM’000 RM’000

Fuel derivatives: - Due not later than one year 3,970,973 1,944,404 - Due later than one year 2,206,890 1,098,467

6,177,863 3,042,871

(c) Interest Rate Risk

The Group’s earnings are affected by changes in interest rates, the impact of which is on interest income and expense from short term deposits, interest bearing financial assets and liabilities, and operating lease payments.

The Group’s policy on managing its interest rate risk is by maintaining a prudent mix of fixed and floating rate investments and borrowings.

As at 31 December 2008, the Group and the Company have entered into various instruments such as caps and swaps with the following notional amounts and maturities pertaining to USD obligations:


Interest rate derivatives: - Due not later than one year 177,388 2,253,929 - Due later than one year 2,038,072 1,841,729

2,215,460 4,095,658

The contracted interest rates relating to interest rate derivatives at the balance sheet date vary from 2.2% to 5.0% (2007: 3.7% to 5.5%) per annum.



40. FINANCIAL INSTRUMENTS (CONTINUED)

(d) Foreign Exchange Risk

The Group is exposed to the effects of foreign exchange rate fluctuations because of its foreign currency denominated operating revenues and expenses. The Group’s largest exposures are from United States Dollar (“USD”), Euro (“EUR”), Great Britain Pound (“GBP”), Japanese Yen (“JPY”) and Australian Dollar (“AUD”).

The Group seeks to reduce its foreign exchange exposure arising from transactions in various currencies through a policy of matching, as far as possible, receipts and payments in each individual currency. Surpluses of convertible currencies are sold, either spot or forward, for RM and USD.

The net unhedged financial assets and financial liabilities of the Group that are not denominated in their functional currencies are as follows:

Net Financial Assets/(Liabilities) Held on Non- Functional Currencies USD EUR GBP JPY AUD Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Functional currency of the Group:

At 31 December 2008 Ringgit Malaysia 1,099,318 (35,197 ) (26,237 ) (35 ) (49,302 ) 988,547

At 31 December 2007 Ringgit Malaysia 464,127 (22,138 ) 198,232 (153 ) 86,454 726,522

Functional currency of the Company:

At 31 December 2008 Ringgit Malaysia 1,224,961 (34,993 ) (26,235 ) (35 ) (49,302 ) 1,114,396

At 31 December 2007 Ringgit Malaysia 664,926 (21,685 ) 198,232 (153 ) 86,481 927,801

As at 31 December 2008, the Group and the Company have entered into various foreign exchange instruments such as outright forward and options with the following notional amounts:


Foreign exchange derivatives: - Due not later than one year 2,783,975 792,870

(e) Liquidity Risk

The Group manages its liquidity risk by maintaining sufficient levels of cash or cash convertible investments and available credit facilities to meet its working capital requirements.

Surplus funds are mainly invested in high quality short term liquid instruments, usually bank deposits. Some surplus funds are invested in NIDs, which are principal protected deposits (see Note 18 for more details).

197197


(f) Credit Risk

Credit risk is the potential loss from a transaction in the event of default by the counterparty during the term of the transaction or on settlement of the transaction. Credit exposure is measured as the cost to replace existing transactions should a counterparty default. The Group has credit risk associated with travel agents, industry settlement organisations and credit provided to direct customers. The Group minimises this credit risk through the application of stringent credit policies and accreditation of travel agents through industry programmes.

Other than the amount due from/to related companies, the Group does not have any significant exposure to any individual customer or counterparty nor does it have any major concentration of credit risk related to any financial instruments.

(g) Fair Values

The aggregate net fair values of financial assets and financial liabilities which are not carried at fair value on the balance sheets of the Group and of the Company are represented as follows:

Group and Company Carrying Fair Note amount value RM’000 RM’000

Financial assets - 31 December 2007 17 1,377 32,303

The method and assumption used to estimate the fair value of the financial assets are determined by reference to stock exchange quoted market bid prices at the close of the business on the balance sheet date.

The carrying amounts of all other financial assets and liabilities at the balance sheet date are not materially different from their fair values due to the relatively short term maturity of these financial instruments.

The notional amount and fair value of financial instruments not recognised in the balance sheet at the balance sheets date are as follows:

Group and Company Group and Company Note Notional Amount Fair Value 2008 2007 2008 2007 RM’000 RM’000 RM’000 RM’000

Contingent assets 39 - - 880,211 786,289 Fuel derivatives 40 (b) 6,177,863 3,042,871 (3,825,796 ) 270,014 Interest rate derivatives 40 (c) 2,215,460 4,095,658 (31,704 ) 29,426 Foreign exchange derivatives 40 (d) 2,783,975 792,870 30,035 1,869

The methods and assumptions used by management to estimate the fair value of the financial instruments are as follows:

(i) The fair value of the contingent asset is determined by reference to the published industry price data of the aircraft;

(ii) The fair value of the fuel forward derivatives are determined by marking to market value the existing fuel position;

The negative fair value of fuel derivatives of RM 3,825,796,000 represents the fair value of fuel derivative contracts maturing between year 2009 to 2011 based on estimates of forward prices of crude oil and jet fuel as at 31 December 2008.

The crystallization of the fair value gain or loss is dependant on the prices of crude oil and jet fuel upon maturity.




(g) Fair Values (continued)

(iii) The fair value of the interest rate derivatives are determined by the amount that would be payable or receivable assuming these contracts are liquidated at the balance sheet date, and is calculated as the present value of the estimated future cash flows; and

(iv) The fair value of the foreign exchange forward derivatives are determined by using the rates assuming the contracts are liquidated at the balance sheet date.

The notional amount and net fair value of contingent liabilities as disclosed in Note 38, amounts due from subsidiaries and associates are not disclosed as it is not practicable to estimate their fair values reliably due to the uncertainties of timing, costs and eventual outcome.

41. SIGNIFICANT EVENTS

(a) On 20 August 2008, the Company entered into a Memorandum of Understanding with GMR Hyderabad International Airport Limited, India (GHIAL) to set up a Maintenance, Repair and Overhaul facility to provide maintenance services on narrow and wide body aircraft at the Rajiv Gandhi International Airport in Hyderabad, India. On 28 November 2008, the Company announced that both parties are working towards developing a business plan and finalising the details of the intended venture.

(b) On 31 March 2008, the Company announced its narrowbody fleet acquisition plan in ordering up to fifty five B737-800 aircraft, of which a firm order was placed for 35 B737-800 aircraft with an option for another twenty aircraft. The total cost of the 55 aircraft is USD4.2 billion at list prices. The Company also has the option to swap the B737-800 for the larger B737-900. The delivery of the first aircarft is expected from September 2010 onwards. The Company also announced that it would take delivery of all six A380-800 in 2011 with the first aircarft to be delivered in January and the sixth in August. The Company is now looking into the widebody aircraft replacement and will intensify its discussion with the manufacturers. The fleet acquisition plan is to support the Company’s Business Transformation Plan in its network expansion.

(c) On 28 February 2008, the Company entered into a sale and purchase agreement with Avions De Transport Regional, GIE (ATR) to purchase five ATR72-500 aircraft plus an option to purchase another five of the same for the operations of its subsidiary, MASwings Sdn. Bhd. The catalogue price of the aircraft is USD17.9 million, beginning with the first delivery in 2008.

(d) On 19 December 2007, Malaysian Aerospace Engineering Sdn. Bhd., a wholly-owned subsidiary of the Company had signed a Memorandum of Understanding with Qantas to establish a joint venture company to provide airframe maintenance services from Malaysia. On 30 December 2008, the Company announced that there is no material change in the status and both parties are finalising the details of the joint venture agreement.

(e) On 1 March 2007, the Company entered into a conditional Share Purchase Agreement (“SPA”) for the disposal of 100% equity of the Company’s wholly-owned subsidiary, MAS Hotel & Boutiques Sdn. Bhd. (“MHB”), a company involved in the business of providing hotel and boutique facilities, to Kingdom Langkawi B.V.

On 5 April 2007, the SPA was partially completed and MHB was disposed with a gain of RM36.1 million. Full completion of the SPA was subject to the fulfilment of a final condition precedent in relation to the transfer of a Mangrove Land by March 2008. The consideration for the said land of RM35 million and its related gain was deferred subject to the fulfilment of the condition precedent.

On 31 March 2008, the condition precedent in relation to the transfer of the Mangrove Land was not fulfilled and no extension of time was agreed between both parties. Accordingly:

i. The transfer of the Mangrove Land by the Company to the purchaser did not take place.

ii. The deferred consideration of RM35 million was not paid by the purchaser to the Company, as consideration for the transfer of the Mangrove Land; and

iii. The purchaser of MHB (whose sole shareholder is the purchaser after the partial completion) was not required to purchase the Mangrove Land from the Company.

199199

42. DIVIDENDS

The amount of dividends paid by the Company since 31 December 2007 were as follows:

First and final tax exempt dividends of 2.50 sen per share, on 1,670,991,820 ordinary shares, in respect of the financial year ended 31 December 2007, declared on 23 June 2008 and paid on 31 July 2008 amounting to RM41,774,796.

43. COMPARATIVES

The following balance sheet comparative figures have been reclassified to conform with current year’s presentation:

As previously As stated Re-classification restated RM’000 RM’000 RM’000

Group Trade and other receivables 1,799,781 8,168 1,807,949 Trade and other payables (2,998,223 ) (8,168 ) (3,006,391 ) NIDs - Non-current assets - 340,000 340,000 NIDs - Current assets - 485,000 485,000 Cash and bank balances 5,259,338 (825,000) 4,434,338 Aircraft, property, plant and equipment 2,060,879 239 2,061,118 Non-current assets held for sale 2,740 (239 ) 2,501

Company Trade and other receivables 1,767,783 8,168 1,775,951 Trade and other payables (3,008,416 ) (8,168 ) (3,016,584 ) NIDs - Non-current assets - 340,000 340,000 NIDs - Current assets - 485,000 485,000 Cash and bank balances 5,218,289 (825,000 ) 4,393,289 Aircraft, property, plant and equipment 2,002,251 239 2,002,490 Non-current assets held for sale 2,704 (239 ) 2,465

The following income statement comparative figures have been reclassified to conform with current year’s presentation:

As previously As stated Re-classification restated RM’000 RM’000 RM’000

Group Operating revenue 14,686,130 (55,899 ) 14,630,231 Operating expenditure (14,413,413 ) 55,899 (14,357,514 )

44. CURRENCY

The financial statements are presented in Ringgit Malaysia (“RM”) and all values are rounded to the nearest thousand (“RM’000”) except when otherwise indicated.



REGIONAL OFFICES

Americas100 North Sepulveda Blvd Suite 400, El Segundo California 90245 U.S.A

Tel 310 726 6201 Fax 310 535 9185

Zaiful [email protected]

Australia/New Zealand/South West PacificLevel 7, 16 Spring Street, Sydney, NSW 2000, Australia

Tel 61 2 9364 3502 Fax 61 2 9364 3566

Abdul Manaf [email protected]

ChinaUnit 1008B, 10th Floor, Tower B Pacific Century Place, 2A Gong Ti Bei Lu Chao Yang District, Beijing 100027, China

Tel 86 10 6505 0341 Fax 86 10 6539 2905

Christopher [email protected]

Continental Europe WTC Schipol Boulevard, 155, Tower D 9th Floor, 118 Bg Schipol Airport The Netherlands

Tel 31 20 521 62 52Fax 31 20 521 62 51

Huib Gorter [email protected]

Malaysia & AseanGround Floor, Admin Building 3AMAS Complex B , Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan, Malaysia

Tel 603 7863 3975 Fax 603 7845 7153

Dato’ Bernard [email protected]

Middle East & Africa1st Floor, National Bank of Um Al Quwain Khaleed Bin Waleed Street, Bur Dubai P.O. Box 8399 Dubai U.A.E.

Tel 971 4 397 0221 Fax 971 4 397 1286

Merina Abu [email protected]

North Asia2nd Floor, No. 29 Mori Building, 4-2-1 Shinbashi Minato-ku Tyo 105-0004 Japan

Tel 81 3 3432 8505Fax 81 3 3432 1827

Yap Kiang Thiam [email protected]

South Asia16th Floor, Dr Gopal Das Bhawan 28, Barakhamba Road New Delhi 110001, India

Tel 91 11 4151 2121 Fax 91 11 2335 8834

Azahar [email protected]

UK/EuropeNo. 247-249 Cromwell Road, London SW5 9GA, United Kingdom

Tel 44 207 341 2060 Fax 44 207 373 2314

Syed Abdillah [email protected]

SUBSIDIARIES

FlyFirefly Sdn. Bhd. 3rd Floor, Admin Building 1, MAS Complex ASultan Abdul Aziz Shah Airport47200 Subang, Selangor Darul Ehsan, Malaysia

General LineTel 603 7840 4241

Call Centre Tel 603 7845 4543

Operating Hours: Daily 0800 - 2100 hrs

www.fireflyz.com.my [email protected]

Malaysia Airlines Cargo Sdn. Bhd. 1M Floor, Core 2, Advanced Cargo Centre KLIA Free Commercial Zone Southern Support Zone Kuala Lumpur International Airport 64000 Sepang, Selangor Darul Ehsan, Malaysia

Tel 603 8777 1601 Fax 603 8783 3070

www.maskargo.com

Ariza Abu [email protected]

MASwings Sdn. Bhd. 1st Floor, Lot 239Beautiful Jade Centre 98000 Miri, Sarawak, Malaysia

Tel 1 300 88 3000 (Within Malaysia) 603 7843 3000 (Outside Malaysia)

[email protected]

CUSTOMER AND LOYALTY PROGRAMME

Customer Response Unit Admin Building 1A, MAS Complex A Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan, Malaysia


[email protected]

EnrichMalaysia Airlines (106010-W)P.O. Box 8002, Kelana Jaya, 46780 Petaling Jaya, Selangor Darul Ehsan, Malaysia

Tel 1 300 88 3000 (Within Malaysia) 603 7843 3000 (Outside Malaysia) Fax 603 2163 3689 (Malaysia)

Operating Hours: Mondays-Fridays, 0900–1700 hrs

[email protected]

Australia/New ZealandEnrich Customer Service Centre, EDS Building Level 6, 108 North Terrace, Adelaide SA 5000, Australia

Tel 13 26 27 (Australia) 0800 777 747 (New Zealand)Fax 61 8 8413 9393 (Australia) 0800 441 236 (New Zealand)

[email protected]

GradsKuala LumpurMalaysia Airlines (106010-W)P.O. Box 8002, Kelana Jaya, 46780Petaling Jaya, Selangor Darul Ehsan, Malaysia

Tel 1 300 88 3000 (Within Malaysia) 603 7843 3000 (Outside Malaysia)Fax 603 2163 3689

[email protected]

Corporate Directory

201201

KuchingGround Floor, MAS Building Song Thian Cheok Road 93100 Kuching, Sarawak, Malaysia

Tel 082 220 617Fax 082 411 767

Kota KinabaluCorporate Travel Department 1st Floor, Admin Building Jalan Petagas, P.O. Box 10194 88802 Kota Kinabalu, Sabah, Malaysia

Tel 088 515 530Fax 088 231 929

RESERVATIONS AND TICKETING

1 300 88 3000 (24 hours)

KL Sentral Tel 603 2272 4248

Kuala Lumpur International AirportTel 603 8776 4321

PutrajayaTel 603 8888 6324

SkyPark SubangTel 603 7842 4353

OTHER BUSINESS UNITS

Corporate Travel Ground Floor, Admin Building 3B MAS Complex B, Sultan Abdul Aziz Shah Airport47200 Subang, Selangor Darul Ehsan, Malaysia

Tel 603 7863 3166

Baharom Mohd. Yatim [email protected]

Tel 603 7863 2629

Shanti [email protected]

Government & Student Travel Department (Jabatan Perjalanan Kerajaan & Pelajar) No. R 26, Mezzanine Floor Kompleks Perbadanan PutrajayaPusat Pentadbiran Kerajaan Persekutuan Presint 3, 62050 Putrajaya, Malaysia


Hamzah Ayob [email protected]

Rafidah Abdul Rahman [email protected]

Azlan [email protected]

Mohd Nasir [email protected]

Ground Handling Management 2nd Floor, Admin Building Southern Support Zone Kuala Lumpur International Airport 64000 Sepang, Selangor Darul Ehsan, Malaysia

Tel 603 8777 9514 / 9513 / 2995 Fax 603 8777 2738

Jaffar Derus [email protected]

Noor Safura [email protected]

Salmiah [email protected]

Malaysia Airlines Academy Learning Management Services No 2, Jalan SS7/13 Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia

Tel 603 7800 7500 Fax 603 7804 3144

[email protected]

MAS Engineering & Maintenance Commercial Department 4th Floor, Hangar 3, Engineering Complex Sultan Abdul Aziz Shah Airport 47200 Subang, Selangor Darul Ehsan, Malaysia

Tel 603 8777 2688 Fax 603 8787 2252

Mohd. Roslan bin [email protected]

Tel 603 7840 4268 Fax 603 7846 7103

Tan Wee [email protected]

Tel 603 7840 3547 Fax 603 7846 3797

Chan Kum [email protected]

MASholidays/MICE Ground Floor, Admin Building 3B MAS Complex B, Sultan Abdul Aziz Shah Airport47200 Subang, Selangor Darul Ehsan, Malaysia

Tel 603 7863 2752 Fax 603 7842 4303

[email protected]

MASkargo Animal Hotel 1M Floor, Zone D, Advanced Cargo Centre KLIA Free Commercial ZoneSouthern Support Zone Kuala Lumpur International Airport64000 Sepang, Selangor Darul Ehsan, Malaysia

Tel 603 8777 2193 (Admin Officer) 603 8777 2133 (Warehouse / Supervisor) 603 8777 1847 (Counter) Fax 603 8777 1848

www.maskargo.com

Simulator Sales & Marketing Simulator Building - Complex A-AA0202Sultan Abdul Aziz Shah Airport47200 Subang, Selangor Darul Ehsan, Malaysia

Tel 603 7840 2673 Fax 603 7847 3903

[email protected]

[email protected]

Every reasonable effort has been made to ensure the accuracy of all information at time of publication. However, information contained within is subject to change without prior notice.

Please go to www.malaysiaairlines.com to obtain the latest directory.

ANNUAL REPORT 2008 CORPORATE DIRECTORY

Shareholder’s CDS Account No. No. of ordinary shares held

I/We, ........................................................................................................................................................................... (Full Name as per NRIC in capital letters)Company No./NRIC No .......................................................... of ........................................................................................................................... (Full address)being a member(s) of MALAYSIAN AIRLINE SYSTEM BERHAD (“the Company”), hereby appoint:-....................................................................... NRIC No. (new) ....................................................... (old) ....................................................... or failing him/her....................................................................... NRIC No. (new) ....................................................... (old) ....................................................... or failing him/her

the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the Thirty Eight Annual General Meeting of the Company to be held at the Auditorium, 1st Floor, South Wing, MAS Academy, No. 2, Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan on Monday, 22 June 2009 at 10.00 a.m. and at any adjournment thereof, on the following resolutions referred to in the Notice of the Thirty Seventh Annual General Meeting. My/our proxy is to vote as indicated below:-

Resolutions For Against

Resolution No. 1 Adoption of Audited Financial Statements for the financial year 31 December 2008 and the Reports of the Directors and Auditors.

Resolution No. 2 Approval of Directors’ fees.

Resolution No. 3 Re-election of Keong Choon Keat as Director

Resolution No. 4 Re-election of Martin Gilbert Barrow as Director

Resolution No. 5 Re-election of Tan Sri Dr. Mohd. Munir bin Abdul Majid as Director

Resolution No. 6 Re-election of Tan Sri Dr. Wan Abdul Aziz bin Wan Abdullah as Director

Resolution No. 7 Re-appointment of Messrs Ernst & Young as Auditors and to authorise the Directors to fix the Auditors’ remuneration.

Resolution No. 8 Authority under Section 132D of the Companies Act, 1965 for Directors to issue shares.

For appointment of two proxies, percentage of shareholdings to be represented by the proxies:- No. of shares Percentage (%)Proxy 1 Proxy 2 TOTAL 100

As witness my/our hands this ............................ day of ............................, 2009 .................................................................. Signature of Member / Common Seal

NOTES:

1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy/proxies and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.

2. In the case of a corporate member, the instrument appointing a proxy shall be under its Common Seal or under the hand of its officers or attorney, duly authorised in that behalf.

3. A holder may appoint more than two (2) proxies to attend the Meeting. Where a member appoints two (2) or more proxies, he shall specify the propotions 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 the 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.

Form of Proxy

Symphony Share Registrars Sdn. Bhd.

Level 26, Menara Multi-PurposeCapital Square, No. 8 Jalan Munshi Abdullah50100 Kuala Lumpur, Malaysia

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