MAS - privatise?

The cricis of the missing MAS flight MH370 will likely set back its turnaround plan.

Due to the unfortunate incident, investors now expect MAS to face turbulence for the rest of 2014.

Khazanah Nasional holds a 69.37% stake in MAS.

Negative sentiment may affect MAS’ load factor at least in the near term. While MAS is already operating at historically high load factors – bearing even those of SIA and Cathay Pacific – the main concern is a further erosion of its passenger yields. The lower yield is the result of the airline discounting its fares to fill up its seats.

Anticipating lower yield following the MH370 incident, industry observers had projected wider losses for the airline in FY2014 ending Dec 31.

Besides lowering fares, MAS will need to work extra hard to regain flyers’ confidence in the airline.

Hence, expect tougher challenges ahead for MAS to turn around.

Meanwhile MAS may need to compensate the next of kin of flight MH370 passengers. It is too early to estimate how much compensation MAS may need to pay but the financial impact on the airline is not expected to be significant relative to its revenue.

Further deterioration in its operating condition could eat into its RM3.75 billion cash pile as Dec 31 2013 fast. The cash was mostly from a rights issue that raised rm3 billion in the middle of 2013.

MAS which is undergoing a fleet replacement programme, needs about rm1 billion a year to stay afloat.

Industry observers say the current (March 2014) could be a reason to revisit plans to privatize MAS. If there is any indication to privatise MAS, this incident is all the more reason to do so and fix the airline.