Malaysia Airlines will not get any more subsidies: Minister

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malaysia-airlines-prayTroubled Malaysia Airlines (MAS) will not be given any more financial support by the government, said the country’s Tourism and Culture Minister Datuk Seri Nazri Aziz according to an interview with Dubai-based Gulf News.

Nazri said that the transport ministry had been tasked with coming up with an action plan for MAS. This news, coupled with the bleak outlook given by the MAS management to analysts on May 6, now raises questions about the airline’s immediate-term financial performance.

The report quoted Nazri as saying that the Government does not want to put “any more money” into the airline after the MH370 incident.

“To inject new capital is certainly not an option,” Nazri had said.

The government, via it sovereign wealth fund Khazanah Nasional, holds 69.4 per cent in MAS. Last year, the airline had undertaken an 3-bilion-ringgit rights issue, whereby Khazanah had pumped in 2.7 billion ringgit for its portion of the rights issue.

Its cash balance was 3.87 billion and total assets were 21.86 billion as at the end of 2013.

But the MH370 flight incident has been an expensive search. Although the search has been funded mainly by insurers, comprising a consortium led by Lloyds, how that is going to translate into MAS’ accounts is not clear.

Stock analysts of TA Securities in a report said “we are worried about the hidden risks that might be associated with the missing flight, as well as the substantial cost involved in the search operations”.

It added that the biggest risk at this juncture was how long the search operations would take and how costly it would become.

MAS has also had to cancel flights after the missing flight MH370 incident and ticket sales have been slow in China, a route that accounts for 10 per cent of MAS’ total revenue. TA Securities believes the possible loss of income could be a major threat to future earnings growth.

It has been two months since MH370 went missing and MAS has set up a separate management crisis unit to deal with the incident so that the airline can refocus on its operations. The airline plans to redirect more resources to defend its market share and revitalise its corporate image and branding.

Alliance Research in a separate report after meeting the MAS management on Tuesday said the airline might spin off its maintenance, repair and overhaul division.

“There will be a review of the network, which could reduce the frequency of unprofitable routes or see them being dropped altogether. But management will continue to implement cost-cutting initiatives with a focus on labour and maintenance expenses. They may also spin-off non-core businesses such as the MRO division,’’ Alliance Research said.

But the airline would continue to face headwinds and its yields and load factors were likely to deteriorate following the MH370 incident, with the negative impact potentially manifesting in the second and third quarters, it added.

“The MAS management could face strong opposition from labour unions in implementing labour productivity initiatives,’’ the house added.

MAS’ share price has remained depressed for some time now, but even at such depressed levels, there are no “buy’’ calls for the stock as analysts do not see a clear future for the airline. Out of the 14 research houses tracking the stock, 85 per cent had a “sell” call and the rest a “hold’’ call.

MAS is expected to announce its first-quarter results by the end of the month and analysts expect it to remain very much in the red. For the full year, they are projecting another 1 billion ringgit in net losses. MAS had reported a net loss of 1.17 billion ringgit at the end of its last financial year.

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Reading Time: 3 minutes

Troubled Malaysia Airlines (MAS) will not be given any more financial support by the government, said the country’s Tourism and Culture Minister Datuk Seri Nazri Aziz according to an interview with Dubai-based Gulf News.

Reading Time: 3 minutes

malaysia-airlines-prayTroubled Malaysia Airlines (MAS) will not be given any more financial support by the government, said the country’s Tourism and Culture Minister Datuk Seri Nazri Aziz according to an interview with Dubai-based Gulf News.

Nazri said that the transport ministry had been tasked with coming up with an action plan for MAS. This news, coupled with the bleak outlook given by the MAS management to analysts on May 6, now raises questions about the airline’s immediate-term financial performance.

The report quoted Nazri as saying that the Government does not want to put “any more money” into the airline after the MH370 incident.

“To inject new capital is certainly not an option,” Nazri had said.

The government, via it sovereign wealth fund Khazanah Nasional, holds 69.4 per cent in MAS. Last year, the airline had undertaken an 3-bilion-ringgit rights issue, whereby Khazanah had pumped in 2.7 billion ringgit for its portion of the rights issue.

Its cash balance was 3.87 billion and total assets were 21.86 billion as at the end of 2013.

But the MH370 flight incident has been an expensive search. Although the search has been funded mainly by insurers, comprising a consortium led by Lloyds, how that is going to translate into MAS’ accounts is not clear.

Stock analysts of TA Securities in a report said “we are worried about the hidden risks that might be associated with the missing flight, as well as the substantial cost involved in the search operations”.

It added that the biggest risk at this juncture was how long the search operations would take and how costly it would become.

MAS has also had to cancel flights after the missing flight MH370 incident and ticket sales have been slow in China, a route that accounts for 10 per cent of MAS’ total revenue. TA Securities believes the possible loss of income could be a major threat to future earnings growth.

It has been two months since MH370 went missing and MAS has set up a separate management crisis unit to deal with the incident so that the airline can refocus on its operations. The airline plans to redirect more resources to defend its market share and revitalise its corporate image and branding.

Alliance Research in a separate report after meeting the MAS management on Tuesday said the airline might spin off its maintenance, repair and overhaul division.

“There will be a review of the network, which could reduce the frequency of unprofitable routes or see them being dropped altogether. But management will continue to implement cost-cutting initiatives with a focus on labour and maintenance expenses. They may also spin-off non-core businesses such as the MRO division,’’ Alliance Research said.

But the airline would continue to face headwinds and its yields and load factors were likely to deteriorate following the MH370 incident, with the negative impact potentially manifesting in the second and third quarters, it added.

“The MAS management could face strong opposition from labour unions in implementing labour productivity initiatives,’’ the house added.

MAS’ share price has remained depressed for some time now, but even at such depressed levels, there are no “buy’’ calls for the stock as analysts do not see a clear future for the airline. Out of the 14 research houses tracking the stock, 85 per cent had a “sell” call and the rest a “hold’’ call.

MAS is expected to announce its first-quarter results by the end of the month and analysts expect it to remain very much in the red. For the full year, they are projecting another 1 billion ringgit in net losses. MAS had reported a net loss of 1.17 billion ringgit at the end of its last financial year.

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