‘Tighten your belt’ and prepare for a MAS bailout!

MAS is likely to bleed even more red ink than it did in 2013

According to an April 28 Bloomberg report, MAS is set to be the biggest loser in the MH370 saga. However, the bigger picture is otherwise and more accurate. The biggest loser is the Umno-led Barisan Nasional government, meaning the loyal tax-paying rakyat.

It seems only another round of bailout amounting to billions of ringgit can keep afloat the pride of the national air carrier. And Malaysia can expect the government’s “business as usual” attitude, with corporate cronies continuing to milk the national coffer dry.

Malaysia Airlines has had negative operating cash flow for the past three years and looks like it needs another bailout from government investment company Khazanah Nasional Bhd. MAS might end up the ultimate loser in the missing MAS jet saga, as the incident may hasten the break-up of the 76-year-old unprofitable airline, Bloomberg reported.

The business portal said prior to the jet’s disappearance on March 8, MAS had run up losses of US$1.3 billion (RM4.25 billion) in the previous three years and was already struggling with increased competition and higher costs.

The incident, said Bloomberg, had put the carrier under global scrutiny, jeopardising its reputation and prompting boycotts from travel agents in China. Data compiled by Bloomberg showed that analysts were projecting losses through 2016 and MAS had been trading near the lowest since 2001 relative to its assets.

(The share closed at 22.5 sen on April 28.)

Malayan Banking Bhd was quoted as saying that the only way for MAS to survive the plunge was to split up. Such a move could fetch the government-controlled airline US$1.3 billion (RM4.2 billion), about 10 per cent higher than the company’s market value last week, it said.

“In this kind of environment, they have the sympathy of the whole world if they (MAS) want to do a restructuring,” James Lau, who helps manage US$300 million (RM978 million) at Pheim Asset Management Sdn in Kuala Lumpur, told Bloomberg.

“Shareholders would like to see them take the hard decisions.”

Bloomberg reported that the effects of the disappearance of MH370 were already visible with China taking the lead in boycotting MAS. Travel agents ELong Inc and Ly.com have stopped selling tickets for MAS flights, and Qunar Cayman Islands Ltd, a travel website controlled by Baidu Inc, has also joined the boycott.

Company filings showed that there were more vacant seats on MAS’ international flights, with planes on those routes in March were on average 74 per cent full, the lowest figure in almost two years.

In the same month in 2013, average seat occupancy was 80 per cent, the report said. The airline, majority owned by Khazanah, will lose another US$346 million (RM1.1 billion) by the end of 2016, according to analysts’ estimates compiled by Bloomberg.

“Things are not working,” said Mohshin Aziz, an analyst at Maybank in Kuala Lumpur.

“Doing the same thing over and over again and hoping for a different result is just plain madness.”

Bloomberg’s report corresponds with a Reuters analysis published on March 26, 2014, that MAS was bleeding cash even before the loss of flight MH370, prompting talk that it may need another bailout from Khazanah.

Reuters reported that MAS has had negative operating cash flow for three years – which means it is not generating enough cash to meet its day-to-day operating costs – and has had negative free cash flow, operating cash flow minus capital expenditure for six years.

“Even assuming this is a one-off and the travelling public realises it’s out of (the airline’s) control, we expect some quarters of declining bookings, further cuts in ticket prices and – without any change to its high cost base – MAS is likely to bleed even more red ink than it did in 2013,” Timothy Ross, Asia-Pacific transportation analyst at Credit Suisse, which forecast another three years of losses at MAS, said.

The Ant Daily