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Malaysian Airlines Crash Heightens Firm’s Distress

  • Reuters

A Malaysia Airlines representative serves a customer at its ticket office in Jakarta July 18, 2014.

A Malaysia Airlines representative serves a customer at its ticket office in Jakarta July 18, 2014.

The second fatal incident involving Malaysia Airlines (MAS) in four months will deepen the slump in ticket sales and force the government to speed up any plan to rescue the stricken flagship carrier, bankers say.

An MAS jet en route to Kuala Lumpur from Amsterdam was shot down Thursday over eastern Ukraine’s rebel-held territory near the Russian border, killing all 298 people on board. Shares of the loss-making airline plunged as much as 18 percent on Friday.

The tragedy has triggered a call from world leaders for an international investigation and could prove a turning point for global pressure to resolve the crisis in Ukraine.

The catastrophe followed the mysterious disappearance of flight MH370 on March 8. The earlier disaster has led the airline to report its biggest loss in two years in the January-March quarter.

Plans for restructuring

Sources told Reuters this month that state investor Khazanah Nasional Bhd, which owns 69 percent of MAS, plans to take it private as the first step in a major restructuring.

“Even if this is pure coincidence, it's never happened in history that such an airline as a flag carrier has seen two wide-body aircraft disappearing in a few months,” said Bertrand Grabowski, DVB Bank's managing director in charge of aviation. DVB is a banker to MAS.

“The support from the government needs to be more explicit and perhaps more massive,” the London-based Grabowski said.

Khazanah, which has injected more than 5 billion ringgit ($1.6 billion) into MAS over the last 10 years, had previously said it was considering all options.

Government officials declined to answer any media query on MAS's future at a briefing in Kuala Lumpur on Friday.

Bankruptcy would be probable if no urgent action was taken, said Mohshin Aziz, a Kuala Lumpur-based analyst at Maybank, adding that MAS could run out of cash in about a year. It’s losing 5 million ringgit ($1.57 million) a day.

As MAS shares fall further and trade near record lows, prospects for fresh capital are diminishing.

The stock fell as low as 18.5 sen on Friday, trading near its lifetime low of 15 sen. The shares have lost nearly 85 percent of their value in the past five years versus a 64 percent rise in the main Malaysian market index.

MAS and Khazanah did not immediately respond to queries from Reuters.

Airline has struggled

For years, MAS has struggled to cope with high costs and a bloated workforce. It also faces intense competition from low-cost rival AirAsia Bhd on short-haul routes, and Gulf carriers and AirAsia X Bhd in the medium and long-haul markets.

Attempts to restructure the airline have been politically fraught. Its powerful labor unions oppose job losses, which has hampered previous revival plans.

Taking the airline private and restructuring it, slimming it down or possibly initiating a full-scale rebranding are among measures that could be considered, said Leo Fattorini, aviation partner at international law firm Bird & Bird.

The other option is to seek a tie-up with a foreign airline such as Etihad Airways, he said.

“You’ve got to ask whether the brand can survive this latest tragedy,” Fattorini said.