ACC495: Blue Sky Limited (“Blue Sky”) is a budget airline that is listed on the Main Board of the Singapore Stock Exchange: Corporate Governance and Risk Management Assignment, SUSS

Question 1

Blue Sky Limited (“Blue Sky”) is a budget airline that is listed on the Main Board of the Singapore Stock Exchange. It operates in the Asia Pacific region.

In 2020, Blue Sky’s passenger carriage had dropped by 85% as air travel demand was severely curtailed by the COVID pandemic worldwide. The viability of the business was at stake. In March 2021, Blue Sky reported its first annual net loss in its 20-year history of S$ 35 million for the 12 months ended 31 December 2020.

In April 2021, the group decided to diversify its business to the restaurant and catering business.

The new business group will operate under the brand name “Makan Sutra”. The core business of the Makan Sutra group (MSG) will be the operation of food and beverage (F& B) outlets and food catering. MSG will employ 500 staff from Blue Sky who would otherwise be redundant and retrenched if the COVID pandemic situation does not improve for a prolonged period.

The Head of Inflight Catering was appointed the CEO to head the MSG business. The Human Resource Department was responsible for the skills conversion programs to train and equip the Blue Sky staff for their new job roles.

Employees who are not keen to be deployed to MSG will have to resign from the company.

MSG’s business comprises:

a. Catering Business under MS Catering & Supplies (“MSC”)

Blue Sky acquired a 100% stake in a local family business with an established food catering business in Singapore. The group paid S$1,188,000 for the acquisition. The founder of the catering business will remain as Advisors to the business for three years before making a complete exit from the company. The central kitchen will prepare the ingredients and semi-processed food such as laksa paste, sambal, sauces, soup stock, etc., to be delivered to the F&B outlets. The long-term plan for MS Catering & Supplies is to be Singapore’s major food manufacturer supplying semi-processed ingredients, sauces, and pastes to restaurants and hawkers all over Singapore.

b. F&B Outlets under Makan Sutra Café (“MS Café”)

The in-flight food served by Blue Sky is very popular among travelers and is well known for local Singapore favorites like chicken rice, nasi lemak, char kuay teow, and roti prata, just to name a few. MSG opened its flagship restaurant, MS Café in Jewel Changi Airport in June 2021, serving the Blue Sky In-flight service menu and other local Singapore favorites. By the end of 2022, Makan Sutra plans to operate at least 6 MS Cafés all over Singapore.

c. An online platform has also been developed for e-orders pick-up and home deliveries. MS Café works with the Speedy Panda, Tapao King, and Road Runner for food deliveries to customers. Designed to enhance customers’ dining experience through a personalized digital journey, MS Café will launch a mobile application featuring a smart menu equipped with Artificial Intelligence and Machine Learning, which is able to recommend popular dishes based on “dish out” time, past ordering patterns as well as demographic taste.

Question 2

Fast forward to March 2023, MSG has expanded to 6 F&B outlets island-wide. MSC’s revenue has also increased by 50% after it expanded its range of products and production capacity. Other than supplying its products to MS Café outlets, MSC also expanded its customer base to wholesale and distribution business to restaurants and hawkers.

With the group’s expansion, the group has been facing a tight manpower crunch. With the increase in the foreign worker’s levy, revision in the tiered work permit or visa regime, and tightened foreign workers quota, MSG has to tap into alternative sources of manpower.

Both MSC and MS Café employ part-time Singaporean staff. The respective business units have been developing their own pool of “permanent part-time staff” to alleviate the resource crunch. The Group Human Resources (HR) of MSG determines the hourly rates to be paid for part-time staff.

There has been increasing staff morale issues with some permanent staff complaining that the part-time staff is earning more than them. There have also been complaints about the part-time staff clocking excessive hours and that Supervisors and Team Leads are bringing in their friends and relatives to take up part-time positions.

Both full-time and part-time staff are currently using manual punch cards for clocking in and out and their working hours including any overtime pay are verified and approved by the Supervisors or Team Leads.

In addition, there have been complaints that the service level at MS cafés has deteriorated as the part-timers were not doing things right.

There was also a recent whistle-blowing report by staff at MSC that they are issues relating to food hygiene and safety. Due to a significant increase in sales orders to fulfill, the production team has decided to extend the shelf lives of many of the food sauces and pastes so that there is a longer production cycle. In addition, due to a significant proportion of part-time staff being deployed and difficulty in getting staff who are experienced in food processing, food hygiene, and safety procedures are not being followed.

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