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M'sia Airlines will not get anymore financial aid: minister
Publication Date : 08-05-2014
Troubled Malaysia Airlines (MAS) will not be given any more financial support by the government, said Tourism and Culture Minister Nazri Aziz.
A report out of Dubai quoting Nazri yesterday said the transport ministry had been tasked with coming up with an action plan for MAS.
This news, coupled with the bleak outlook given by the MAS management to analysts on Tuesday, now raises questions about the airline’s immediate-term financial performance.
The Gulf News in Dubai on Tuesday had quoted Nazri as saying that the government does not want to put “any more money” into the airline after the MH370 incident.
“To inject new capital is certainly not an option,” Nazri had said.
The government, via Khazanah Nasional Bhd, holds 69.4% in MAS. Last year, the airline had undertaken a 3 billion ringgit (US$922 million) rights issue, whereby Khazanah had pumped in 2.7 billion ringgit for its portion of the rights issue.
Its cash balance was 3.87 billion ringgit and total assets were 21.86 billion ringgit as at the end of last year.
But the MH370 flight incident has been an expensive search. Although the search has been funded mainly by insurers, comprising a consortium led by Lloyds, how that is going to translate into MAS’ accounts is not clear.
Yesterday, TA Securities in its report said “we are worried about the hidden risks that might be associated with the missing flight, as well as the substantial cost involved in the search operations”.
It added that the biggest risk at this juncture was how long the search operations would take and how costly it would become.
MAS has also had to cancel flights after the missing flight MH370 incident and ticket sales have been slow in China, a route that accounts for 10% of MAS’ total revenue.
TA Securities believes the possible loss of income could be a major threat to future earnings growth.
It has been two months since MH370 went missing and MAS has set up a separate management crisis unit to deal with the incident so that the airline can refocus on its operations.
The airline plans to redirect more resources to defend its market share and revitalise its corporate image and branding.
TA Securities said MAS would restart its marketing and promotional activities and that ticket prices might be kept low to regain consumer confidence.
Alliance Research in a separate report after meeting the MAS management on Tuesday said the airline might spin off its maintenance, repair and overhaul (MRO) division.
This news is not entirely new but MAS has often denied it was going to sell it, although it was part of one of its turnaround plans crafted several years ago.
“There will be a review of the network, which could reduce the frequency of unprofitable routes or see them being dropped altogether. But management will continue to implement cost-cutting initiatives with a focus on labour and maintenance expenses. They may also spin-off non-core businesses such as the MRO division,’’ Alliance Research said.
But the airline would continue to face headwinds and its yields and load factors were likely to deteriorate following the MH370 incident, with the negative impact potentially manifesting in the second and third quarters, it added.
“The MAS management could face strong opposition from labour unions in implementing labour productivity initiatives,’’ the house added.
MAS’ share price has remained depressed for sometime now, but even at such depressed levels, there are no “buy’’ calls for the stock as analysts do not see a clear future for the airline.
Out of the 14 research houses tracking the stock, 85% had a “sell” call and the rest a “hold’’ call.
TA Securities has a “sell” call on the stock at 13 sen, while Alliance believes the stock is fully valued at 16 sen. MAS’ share price closed at 22.5 sen yesterday.
MAS is expected to announce its first-quarter results by the end of the month and analysts expect it to remain very much in the red. For the full year, they are projecting another 1 billion ringgit in net losses. MAS had reported a net loss of 1.17 billion ringgit at the end of its last financial year.
*US$1 = 3.25 ringgit