News Backgrounder
Malaysia Airlines heading for break up?
June 1st 2014
Battered Malaysia Airlines (MAS) said the loss of its aircraft, MH370, and its 239 passengers and crew in March, had “a devastating impact” on the already struggling carrier. The Kuala Lumpur based airline said the mysterious disappearance of the aircraft and all onboard had produced the carrier’s worst quarter, to March 31, for two years. Read More »
MAS said its first quarter loss for the current fiscal year rose by almost two thirds, to US$138 million, over the same period last year. In its results statement MAS, which was already beset by high fuel costs and increasing competition from budget carriers, said “the additional stresses” of the mystery of MH370 and the resultant high number of cancellations had a dramatic impact on a traditionally weak first quarter. Ticket sales from China had collapsed by 60% since the aircraft’s disappearance.
To add to the carrier’s woes, the Malaysian government, which is the controlling shareholder in the airline, announced it would not put any more cash into the carrier, despite its desperate state. Speaking in Dubai last month, Malaysia’s Minister for Tourism and Culture, Nazri Aziz, said the country’s transport ministry had been asked to develop an action plan for MAS, but it would not include investing more money into the airline.
“To inject new capital is certainly not an option,” he said. MAS lost money for the last three consecutive years, including a $362.6 million deficit in 2013. Total losses for the three years were US$1.4 million. With the deficit forecast to continue this year, a major overhaul of MAS senior management and the carrier’s present strategy is expected.
Analysts also forecast more of the same for the bottom line in 2016, a prediction that has encouraged some experts to believe the present very grim situation might accelerate the breakup of 67-year-old airline, which was once one of the brightest stars in the region’s airline galaxy.
Bloomberg quoted analysts who said the airline would be worth US$1.3 billion if it was sold off, which is higher than the present value of the carrier. “In this kind of environment, they have the sympathy of the world if they want to do a restructuring,” a Kuala Lumpur analyst, James Lau, told Australian media. They suggest listing MAS’s profitable divisions and its associated aviation businesses.
“I don’t see any other way than creative destruction,” said Shukor Yusuf, formerly of Standard & Poors but now working as an independent airline analyst. “How much longer do you want to support a company that doesn’t make money?”
It is not yet clear how the rising costs of the search for the missing place will translate into MAS accounts. The search has been largely funded by insurers, in a consortium led by Lloyds. Kuala Lumpur-based broking house, TA Securities, believesthe biggest risk, at this juncture, is the cost of the long search, which is considered a major threat to earnings growth.
