Home' Asian Aviation : AAV April 2012 Contents 20 AsianAviation | APRIL 2012
e new airline will be led by Mohammed Rashdan
Yusof as chief executive o cer, Short Haul while
overall operations will be managed by Ignatius Ong
Ming Choy as chief operating o cer, Short Haul.
e airline s operations will be divided into three core
functional areas, namely Commercial, Operations
and Support Ser vices. Talks with Qantas on a possible
Premium carrier joint venture broke down in March,
leaving MAS to focus on its core business.
e need for action is pretty clear. MAS reported an
unaudited full year loss of RM2.52 billion (US$841
million) for the nancial year to December 2011 as
fuel costs shot up by 33% and non-fuel costs by 15%.
Total revenues inched up 2% to RM13.90 billion.
Group expenditure was up 21% over the previous
year to RM16.20 billion. is was driven by a 33%
year-on-year increase in fuel cost to RM5.85 billion
and a 15% increase in non-fuel expenses to RM10.43
e increase in non-fuel expenses were mainly due
to provisions totalling RM1.09 billion made in the
fourth quarter for stock obsolescence, redelivery of
leased aircra and impairment of freighter aircra .
MAS plans to return 58 aircra to lessors by 2014
at a cost of around RM1.03 billion. It has so far
provided RM431 million, thereby necessitating an
additional provision of RM602 million. e other
provisions included RM179 million of additional
provision for engineering stock obsolescence and
RM314 million for aircra impairment relating to
its cargo eet.
"The bottom-line Group losses for 2011
underscore the imperative need for Malaysia
Airlines to immediately adopt strong measures to
stop the bleeding. ese include sta redeployment,
increasing productivity and e ciency, relentless cost
control and making further route reviews. We are
also implementing an aggressive sales & marketing
strategy", said Ahmad Jauhari Yahya, Malaysia
Airlines Group chief executive o cer.
MAS says it is working to strengthen its balance
sheet " e plan includes, but not limited to, debt
and/or equity market options. Khazanah Nasional
and Tune Air, the two largest shareholders, are
supportive of these initiatives. e Company will
make further announcements once the funding plan
is nalised," said the troubled carrier.
Investment research rm AmResearch warns: We
see the risk of a cash call looming. MAS is expected
to take delivery of ve A380s this year (we estimate
capex of circa RM3.1bil), with the maiden two
deliveries in 1H12. A tough operating outlook (1Q
and 2Q are typically weakest for MAS), coupled with
dwindling cash balance of RM1bil, suggests that the
group may be required to recapitalise to honour
aircra deliveries. Management is looking at several
options, including sale of non-core assets and debt-
raising, but does not rule out coming to the market,
though equity would be the most expensive option."
RHB Investment says that: "MAS was mindful
about its sharply lower cash reser ves of only
about RM1bn (gross) as at end-FY12/11 vis-à-
vis RM2.1bn a year ago. It is looking at three key
options to boost its cash reser ves comprising :
(1) Asset disposal (that ties in very well with its
plan to sell o stakes in non-core businesses, i.e.
maintenance, repair and overhaul (MRO), cargo
and ground handling operations to strategic
partners); (2) Raising new debt; and (3) Raising
new equity. MAS said that the last option, i.e. raising
new equity, is "low in the priority list" as it is "more
expensive vis-à-vis debt as a funding source". It also
admitted that it will be "challenging to go back to
the shareholders for more money" given the shape
MAS is in at present."
The Malaysia Airlines-AirAsia tie-up is an early
test for the country's new competition laws
which only came into effect at the beginning
of this year.
Chris Jose, competition and market regulation
partner at law firm Freehills points out that while
the new regulations cover anti-competitive
behaviour and abuse of market dominance,
they do not cover mergers and acquisitions.
"This is not all that uncommon during a
transitional period," he said, pointing out that
Singapore went through a similar process.
A critical issue will be the shutting down of
routes, Jose says.
MyCC, the Malaysian Competition Commission,
is headed by Shila Dorai Ra, who said in a recent
presentation in Singapore, "The new approach
is private sector led growth -- to promote
competition across and within sectors to revive
private investment and market dynamism."
She added, "Government will not seek to use
its regulatory powers to protect government-
linked companies from competition."
For the time being there will be a "soft
approach" focussing on anti-competitive
behaviour, she says. Among the MyCC's
targets are, "Consistent policies & legislations
that support competition" and to "Strengthen
credibility at national and international levels
that Malaysia subscribes to and supports
competition in its economy."
Air travel is picked out as one of the priority
areas, as is the transport industry in general.
"I would like to be very clear in stating that the share swap is
not part of the acute financial problems at Malaysia Airlines, it is
part of the solution," Tan Sri Md Nor Yusof, chairman, MAS
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