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Malaysian Air Likely Near End Of Days As Publicly Traded Company
Perspective | 23 July 2014
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Malaysian Airline System, reeling from its second disaster in four months, is likely near the end of its days as a publicly traded company.

The company planned to present a revival plan to its state-run parent Khazanah Nasional in the week ending 25 July, people familiar with the matter said on 21 July, asking not to be identified because the talks are private. The options range from Khazanah taking Malaysian Air private to bankruptcy, according to one of the people, with both routes involving a delisting.

While Malaysian Air says its focus is on the victims and families of Flight 17, the loss of 537 lives and two planes since March is straining the carrier’s ability to stay in business. Even a month before the latest disaster, Khazanah was estimating that the unprofitable airline only had enough funds to last it about a year.

“They don’t have the luxury of time,” said Mohshin Aziz, an analyst at Malayan Banking in Kuala Lumpur. “There’s never ever been an airline that had to go through two monumental tragedies in the space of four months.”

Flight 17 was en route to Kuala Lumpur from Amsterdam carrying 298 passengers and crew on 17 July, when it was shot down over eastern Ukraine. The disaster occurred four months after Malaysian Air Flight 370 disappeared with 239 people aboard, leading to the longest search for a missing plane in modern aviation history.

‘Emergency Responders’
Asuki Abas, a spokesman for Khazanah, couldn’t be reached on his mobile phone for comment. The Wall Street Journal reported on 20 July that Khazanah was increasingly leaning toward taking the carrier private, citing unidentified people.

“Our focus during this very challenging time is to work with the emergency responders and authorities and mobilise full support to provide all possible care to the family members of those onboard MH17,” Malaysian Air said in an e-mailed response to queries about the revival plan. “This is not the right time to address this question.”

Shares of Malaysian Air, rated hold or sell by all 15 analysts tracked by Bloomberg, have fallen 35 percent in Kuala Lumpur trading this year. Khazanah, Malaysia’s sovereign wealth fund, owns 69.4 percent of the carrier.

Rebels Deny
On the political front, President Vladimir Putin has defied international anger over Russia’s alleged role in the shooting down of MH17 as the US and Europe threaten further sanctions against his increasingly isolated country.

President Barack Obama said on 18 July the US had concluded that a surface-to-air missile launched from the territory held by pro-Russian forces in eastern Ukraine brought down the Malaysian Air plane. Putin has blamed the Ukrainian government, saying the crash wouldn’t have happened had it not fomented the conflict in the east.

For Khazanah, privatising Malaysian Air could mean the fund would need to buy the 31 percent it doesn’t own in the company, a stake valued at about RM1 billion (US$315 million) based on the stock’s 21 July closing price.

“If they do go through with this privatisation, they will be killing a few birds with one stone,” said Terence Fan, an assistant professor at Singapore Management University who researches the aviation business. “They can make the cash flow, maybe have some thorough strategic change and use this as a chance to rebrand themselves.”

Mounting Losses
Should Malaysian Air opt to file for bankruptcy, it could be the biggest for an airline in terms of assets since AMR Corporation in 2011, according to data compiled by Bloomberg.

Malaysian Air’s Hugh Dunleavy, the airline’s director of commercial operations, had in May ruled out a bankruptcy.

The carrier’s options also include renegotiations with the labour union, according to a person familiar with the matter.

Malaysian Air employees generated an average US$220,000 of revenue in the last three years, compared with US$524,800 at Singapore Airlines and US$245,000 at Thai Airways International, according to data compiled by Bloomberg.

Still, taking the company private remains the preferred option, rather than a bankruptcy, with a decision coming as soon as next month, the people familiar with the matter said. Khazanah said in June that the carrier had funds to last about a year.

Even before Flight 370’s disappearance, Malaysian Air had racked up RM4.1 billion in losses over the previous three years. The incident put the carrier under global scrutiny, jeopardising its reputation and prompting boycotts in China, whose nationals accounted for most of the passengers in the March flight that vanished.

Capital Raising
Losses at the Subang-based airline widened to RM443.4 million in the January-to-March period, the most in nine quarters, as travel agents in China stopped selling the carrier’s tickets after the disappearance of MH370 and as competition intensified.

Analysts are projecting losses to persist until at least through 2016, according to data compiled by Bloomberg.

Malaysian Air had cash and cash equivalent of RM3.3 billion at the end of March, down 13 percent from three months earlier. The company may need to raise funds by selling new shares to stay in business, according to Daniel Wong, an analyst at Hong Leong Investment Bank in Kuala Lumpur.

Under Review
The airline carried 3.1 percent fewer passengers in June from a year earlier, and filled 77 percent of its seats, down from 84 percent a year earlier, Malaysian Air reported.

Malaysian Air may also modify plans for future plane orders after the disappearance of Flight 370 tarnished its reputation.

The airline had anticipated ordering as many as 100 jets and was considering a range of models from both Airbus Group NV and Boeing Co, a person familiar with the purchase strategy said in February. The carrier needs fuel-efficient jets to cut costs amid rising competition from discount airlines such as AirAsia.

Chief executive officer Ahmad Jauhari Yahya said in an interview in June that the carrier’s fleet plan was under review.

“Even the strongest airlines would be falling on their knees on these two incidents,” Mohshin at Malayan Banking said.

Singapore Airlines  9.160 +0.10 +1.10%   
Business: Co provides air transportation services to destinations spanning a network spread over 6 continents. [FY19 Turnover] SIA (80%), Budget Aviation (10.5%), SilkAir (6.2%), SIAEC (3.1%), others (0.2%).

Insight: May-19, FY19 revenue edged up 3.3% to $16.3b. Pass... Read More

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