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No 'fire sale' of Malaysia Airlines
Publication Date : 14-08-2013
Talks about the sale of Malaysia's national airline Malaysia Airlines (MAS) have resurfaced, with several parties believed to have sent in proposals to the Malaysian government to buy over the loss-making airline, industry sources said. However, it is learnt that no deal has been formalised yet.
Industry talk has it that any move by the government to sell the airline could be inspired by the turnaround stories of Japan Air Lines and Philippines Airlines, which have sprung back to life after years in the doldrums and with new private owners now at the helm.
Industry experts opine that it is timely for the government to exit the aviation sector so that it is not called on to continuously support the ailing airline, which has posted losses in its last six quarters.
Minister in the Prime Minister’s Department Idris Jala, in reply to questions at a forum early yesterday morning said the government should stay out of the airline business although he added that MAS should not be sold at a loss.
“I think we should (stay out). What the government should do is not sell it at a loss. If you want to sell it, it must be at a right price because public money is involved as well as it is a public listed company. There should be no fire sale,” Idris said at the Global Malaysia Series featuring AirAsia group chief executive officer Tony Fernandes.
However, late last night, Idris issued a statement saying: “I wish to clarify that currently the government does not have any plans to sell MAS. Under the New Economic Model, we are currently implementing the recommendation to rationalise the government’s role in business.
“As part of this Strategic Reform Initiative, 33 companies have been identified but MAS is not one of them,” Idris said.
Interestingly, Idris said that MAS should have been sold when he was at its helm, as the share price then had risen then from 3 ringgit (US$0.92) to 6.20 ringgit ($1.89).
Speaking at the same event, Fernandes said that the government should play the role of a facilitator to businesses rather than have direct involvement or ownership.
Fernandes added that he would not buy MAS.
Recall that two years ago, he had done so under a share swap agreement that was eventually cancelled.
It is learnt that the push to sell MAS comes even from its biggest union – Malaysia Airlines System Employees Union (Maseu).
According to a union official who declined to be named, the union had in early August written to the prime minister urging the government to take over the stake in MAS from Khazanah Nasional Bhd and sell it to private investors.
“We support the idea that MAS should be privatised but it should be sold to someone with sound aviation background and expertise,” said a Maseu official.
Khazanah is the single largest shareholder in MAS with 69.37 per cent or 11.59 billion shares while the Employees Provident Fund has 1.04 per cent or 174.21 million shares. The government holds a golden share in MAS. Khazanah declined comment.
An analyst who declined to be named said, “MAS should be in private hands and we should do away with the notion that we need a national airline when other countries has disbanded that idea. It is no point having an ailing airline, with tax payers’ money being used to support it”.
The speculation on the sale of MAS has been going on for sometime and the names of several businessmen with aviation expertise have been bandied around as potential buyers.
MAS was once privatised to Malaysian tycoon Tajudin Ramli but that privatisation attempt did not go well as the government eventually bought back the airline from Tajudin.
MAS has since then undertaken several restructuring aimed at steering it back to profitability.
But that too has not worked. For its financial year ended 2011, MAS reported its worst ever loss of 2.5 billion ringgit. For the first quarter ended 31 March 2013, its net loss widened to 218 million ringgit from 171 million ringgit a year ago on the back of a 10.79-per cent increase in revenue to 3.39 billion ringgit.
To be fair, MAS is showing some improvement with their load factor – the number of seats that are filled up – are at an all time high. But yields – a measure of profitability from every flight – are still weak. Some analysts reckon that its management should be given time to deliver the profits. MAS’ management have said that the airline will be profitable next year.
One of its achievements is to become a member of oneworld airline alliance, which it has and the impact of that will be seen in the coming quarters, analysts say.
MAS has also begun reinstating some flights it axed earlier such as to destinations in Asia, including the lucrative Kuala Lumpur-Dubai-Kuala Lumpur route.
Idris was appointed CEO of the national carrier on 1 Dec 2005 to steer the company out of turbulence. MAS posted 10 consecutive quarterly profits during his tenure as the CEO between 2006 and 2008.
MAS shares shot from 3 ringgit to 6.20 ringgit a share when he was CEO. However, MAS’ share price has been adjusted following several corporate exercises including two rights issues. MAS shares closed at 31.5 sen (0.315 ringgit) yesterday, which is a steep discount to its net tangible assets of 56 sen as at March 31.
But even at its price of 31.5 sen, MAS is valued at some 5.26 billion ringgit, making it a tall order for anyone wanting to buy the company, considering also that they would have to pay a decent premium over this price if they want shareholders of MAS to accept the deal.
*US$1 = 3.27 ringgit