The MH17 crash has all but assured Malaysia Airlines cannot continue in its current form and face being taken out of public hands, say reports
Bloomberg reports Malaysia Airlines System (MAS) will this week present a plan to its state-owned parent company Khazanah Nasional with options including taking the company private or entering bankruptcy. Both results would mean the end of its days as a publicly traded company.
MAS has been in a precarious position since the disappearance of MH370 and is reportedly spending cash at an unsustainable rate. Even before the March disaster, the airline was running at a loss.
Though slightly improving following a 60 per cent drop in passengers after MH370, the airline reported passenger numbers and percentage of seats filled fell again in June. Bloomberg reports 76.8 per cent of seats were filled in June compared to 84.6 at the same time last year.
Shares in Malaysia Airlines have fallen 35 per cent in Kuala Lumpur trading this year.
If MAS files for bankruptcy it would be the largest airline in the world to do so since the parent company of American Airlines, AMR Corp, in 2011. The company has since merged with US Airways Group forming American Airlines in 2013.
Mohshin Aziz from Malaysian broker Maybank is convinced the airline cannot survive without drastic restructuring.
“Even the strongest airlines would be falling on their knees on these two incidents,” Mr Aziz told Bloomberg.
Malaysia Airlines could run out of cash next year
In a note to investors three weeks ago, Mohshin Aziz took a dim view of the airline’s prospects, advising clients to sell MAS shares after the airline announced it would restructure some time next year.
“We had initially hoped for a restructuring in the next one to two months,” Mr Aziz wrote.
“Our analysis alludes that MAS financials are very weak in their current form. With a cash burn rate of MYR5 ($1.6 million) a day, MAS could exhaust its entire free cash resources … by the end of 2015.
“Hence a revival plan by end-2014/mid-2015 may come in a tad too late.”
The airline has been a serial loss maker for years, with a string of heavy losses after the Asian Financial Crisis in 1997 before returning to profitability in the first few years of the new millennium.
Since 2005, however, it has notched up five years of heavy losses, including the past three years.
It now is in the process of burning through the proceeds of last year’s capital raising as losses accelerated through the March quarter.
After the March disappearance of MH370, passenger numbers dropped 60 per cent following a disastrous public relations performance.
Kazanah Nasional has injected more than $1.6 billion into MAS in the past decade. It now faces a stark choice – either stump up more cash to take it private or crystallise a massive loss with a sale.
– with ABC