Sunday, May 18, 2014


In an interview with the The Wall Street Journal, the prime minister said that bankruptcy might be among several options as a way to restructure the national flag carrier, after years of losses and bitter conflicts with its labour unions.

Acting Transport Minister Datuk Seri Hishammuddin Hussein said that Putrajaya would not rescue MAS following the airline’s dismal performance.

Ahmad Jauhari Yahya, the airline’s CEO, however thinks there is still time to revive MAS without an expensive bailout or a move to seek bankruptcy.

The Journal also warns that the "worse may yet to come" for Malaysia Airlines (MAS) despite the carrier recording a RM443 million loss for the first three months of 2014. The real repercussion due to the disappearance of MH370 could only be felt in the April-June 2014 quarter.

It is worth nothing that MAS’ net gearing was estimated at 195% as at Dec 31 2013 and is expected to leap to 461% in FY2014.

If predicting comes true – that MAS will be in the red until at least 2016 – the airline faces the risk of exhausting its cash pile of rm3 billion based on its cash burn rate of rm1 billion a year.

An announcement on MAS’ reset plan may be made by end May 2014, pending board and shareholder approval, and that the implementation of a scheme was likely to be in July 2014.

Such a plan could involve a court order for creditor protection, possibly bankruptcy, to enable MAS to renegotiate its contracts with suppliers and the terms of employment for staff and crew, as well as a general reduction in its headcount.

MAS could be saved from itself if there was new political will to restructure, and that its forecasts, target price and even recommendation might be raised.

Nonetheless derating catalysts include MAS’ stubborn losses.

Current (May 2014) forecast assumed that industry-average yields would continue to decline in financial year 2014 (FY14) vs FY13, but that a gradual recovery was expected in FY15-FY16, as such low yield levels were unsustainable for the Malaysia-based short-haul airlines.

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