MAS likely to incur hefty loss for financial year 2011

[Mohd Suhaimi Fariz 2]

Why bother to write down the value of A330F when it is not 100% sure Airbus will proceed with the program. (Note that Airbus pulled the plug on A320P2F program after it discovered that A320P2F will depress the value of A320 family.)

 

Isn't the P2F conversion already set - they've sign an agreement with ST Aerospace as reported by Flight http://www.flightglobal.com/news/articles/singapore-a330p2f-to-become-a-reality-with-help-from-st-aerospace-368286/

[flee 5]

One of the fundamental accounting concepts is Prudence - recognise losses immediately and profits only if they are realised. MH is exercising prudence when it wrote down the value of their A332Fs and they may adjust this provision in future, if the value did not fall as much as they had expected.

Edited March 2, 2012 by flee

[flee 5]

MAS may make cash call

 

KUALA LUMPUR: Malaysian Airline System Bhd (MAS) might ask its shareholders to pump in more money into the company via a cash call exercise, analysts speculated yesterday.

 

Among the national carrier’s biggest shareholders are the government-linked Khazanah Nasional Bhd and the Employees Provident Fund.

 

Collectively, the two control about 58 per cent of the company, with Khazanah owning the lion’s share of the airline.

The second largest stakeholder in the lossmaking carrier is the privately-held Tune Air Sdn Bhd with a 20.5 per cent stake.

 

The core owners of Tune Air are also the main drivers of AirAsia Bhd, Asia’s top budget carrier.

 

OSK Research and Hong Leong Investment Bank (HLIB) Research speculated there is a high possibility of MAS calling for cash call exercise due to the urgent cash it needs to fund the operating losses, potentially high restructuring cost and

new deliveries of aircraft.

 

“It (the cash call) depends if the existing shareholders will subscribe to it,” said the analyst.

 

Meanwhile, analysts said the airline does not need the government’s assistance to raise funds and strengthen its balance sheet.

 

“That wouldn’t be right. They should do it on their own,” an analyst said.

 

MAS yesterday said it hopes to finalise and announce a plan to raise funds and strengthen its balance sheet within the next 60 days.

 

Companies can raise cash from its existing shareholders via a rights issue exercise or it could even ask its shareholders to advance them cash.

 

Alternatively, a company can also place out its shares to a third party to raise money with proceeds from the placement going directly to the company.

 

Cash calls normally dilute the earnings per share of a company, hence it came as no surprise there were “sell” calls on MAS.

 

OSK, HLIB and MIDF Research maintained their “sell” recommendation on MAS. MAS shares fell five sen to close the trading day at RM1.38 a share, with some analysts saying that the share could drop to as low as 90 sen.

 

On Wednesday, MAS said it suffered a fourth quarter net loss of RM1.28 billion against a net loss of RM225.9 million in the same period a year ago The worse-than-expected losses were mainly driven by high fuel cost and additional provisions like redelivery of aircraft, impairment of freighters and stock obsolescence.

 

The loss triggered the question whether AirAsia will pull out its shares in MAS in the near future.

 

Analyst said it is highly unlikely since both companies are committed to work with each other.

 

"I don't think there will be any reasonable basis where the share swap can be terminated or cancelled," the analyst said.

 

Business Times reported yesterday that MAS remains confident that the worst is over and is looking at a breakeven this year despite the shocking loss.

 

However, analysts remained sceptical, saying that the outlook on MAS is still bleak and it is very unlikely that it will achieve a breakeven this year.

 

They claimed that there are still some concerns on fuel prices and MAS' aircraft deliveries. Therefore it is still too early for MAS to look at breaking even.

 

"It depends on how fast they (MAS) can turn around and they have to do something ... They have not done something meaningful since their turnaround announcement," said an analyst.

Source: http://www.btimes.com.my/Current_News/BTIMES/articles/20120302014936/Article/index_html

[JuliusWong 0]

Isn't the P2F conversion already set - they've sign an agreement with ST Aerospace as reported by Flight http://www.flightglo...rospace-368286/

Airbus did the same with EFW Dresden for A320P2F but pulled the plug last minute.

[alberttky 0]

MAS making miracle turnaround?

 

 

IT is a RM1.09bil issue and the question bandied around is, whether it was really necessary for Malaysia Airlines (MAS) to make such huge provisions.

Or was it a strategic move to show that Malaysia Airlines (MAS) is in dire straits, only to get the unions off its back as the latter are not keen on the share swap and collaboration with AirAsia?

These are some of the questions floating around, for those that find it incredible and difficult to comprehend how the national airline has still such a large chunk of items to write off after going through a cleansing of its balance sheet thrice over the past 10 years.

MAS reported a RM2.5bil net loss for financial year ended Dec 31, 2011 this week and this has shocked the country. It is the largest loss in its history.

Maybank Investment Bank analyst in his report says that after stripping off the accounting items, MAS core losses for the year was RM1.26bil. A year ago, the airline reported RM234mil in net profit.

Of the RM1.09bil, RM179mil is for stock obsolescence (mostly spares for the B737 aircraft), RM602mil for re-delivery of aircraft (it will return its leased aircraft and will incur some cost in making sure they are in pre-delivery condition), and RM314mil impairment of freighter aircraft (adjusting the freighters to current market value).

What was the thinking behind taking a big hit at one go is not known. However, Maybank IB says the root cause for the provisions and impairments is because the new management wants to scale back on the business. This means disposing 34 aircraft this year and of that, 17 are B737-400, 9 A330-300 and 8 B747-400.

“By disposing aircraft earlier than its lease tenure, there are penalties to be paid to the lessor for their lost business, and to make sure the aircraft is reconditioned back to its original state. It is a pricey affair, but works best on a cashflow basis as it allows the airline to right-size the business.

“They may only crystalise the provisioned amount over the next one to three yeas and they may even recover the amount partially,” he says. He adds that “post-2012, there will be a balance of 15 old B737-400, and should management want to let those go in a hurry, you can expect another round of write downs. But the quantum will be much smaller, by a factor of 80%-85% lower at around RM200mil. B737-400 are small aircraft and the value is fairly low.”

MAS has a new management onboard after the share swap and collaboration agreement forged between its parent, Khazanah Nasional Bhd and AirAsia's founders, Tune Air in August last year.

As a result of that, MAS and AirAsia now work together instead of competing furiously against each other.

MAS also has new board comprising of some very distinguished personalities and successful businessmen, who are keen to see MAS survive this time amid the challenges.

MAS new team is headed by its new group CEO Ahmad Jauhari Yahyaand his deputy Mohammed Rashdan Yusof. Several people in the core team have left after Ahmad took over and he has hired several expatriates to manage units such as marketing, route and revenue management.

The new management describes MAS as being “in crisis,” but this is not the first time it has been in that mode the past decade.

“Crisis is an understatement and they seem to be getting nowhere. They are restructuring again, including a financial re-engineering. The issues are just too many, there is a lot of baggage and the airline has gone through too many management changes over the past decade. Sometimes with all this changes, one tends to lose direction,” saysStandard & Poor's Equity Research aviation analyst Shukor Yusof.

He and several other analysts are still not convinced that something good is being done with the present restructuring because they have seen turnarounds that have not erased the failures.

“It will be very difficult for them, but if they manage to pull it through, it will be a miracle.

“The outlook in the second half also is not that good and jet fuel prices are rising, besides, their track record is against them. Unless, of course, if there is a massive infusion of funds,” says Shukor, adding that the market still prefers low cost travel.

The International Air Transport Association (IATA) said that airline profits worldwide in the fourth quarter of 2011 were down by 60%. It added that Asia-Pacific airlines saw their traffic rise 6% in January, compared with 2011. Capacity climbed 6.4% and load factor dipped slightly to 77.5%. Year-on-year traffic growth would have been softer were it not for the Chinese New Year boost.

It said aircraft deliveries declined in January and the number of seats added to the fleet had been growing at a rate of 8% to 9% in the fourth quarter of 2011, threatening to produce excess capacity.

MAS' aim is to be a premium carrier and be the best in class. It has thus far cut 9% of its unprofitable routes to stem losses and by mid-year will be launching a short-haul premium service to tap into the East Asian market. That is its strategy for growth, besides hoping to ink a joint venture with Qantas and will be part of the oneworld alliance by November.

But for now its next hurdle is to get money to buy all the aircraft it has ordered. This new fleet that it will take delivery will help it reduce its fuel bill, which was worth RM5.8bil in 2011.

This year the airline receive 23 aircraft, of which five are the A380, 13 B737-800 and 5 A330-300. The capital expenditure requirement for this year is RM6bil and RM3.5bil next year, totalling RM9.5bil for two years. Cash in hand is only RM1.1bil.

Shukor says the only way to get across is to get funding from the Government and other analysts is by betting on a cash call, but Ahmad has downplayed the possibility of a cash call during the media press conference this week.

The six A380 are going to cost about US$1.2bil and the first will arrive at the end of June. This means MAS has little time to decide on which is the best option for funding. Ahmad wants 60 days to come up with a financing plan.

Aircraft financing is an option and most of the bigger carriers such as Singapore Airlines, Air France and Emirates have bought their first few A380s based on the sale and leaseback (SLB) arrangements and that is what MAS would be opting for, says Shukor.

The carriers do not want to own the aircraft because there is no secondary market yet for the A380 so the SLBs are best given the uncertain residual value. Furthermore, the option alleviates the risks of putting debt on its books, he adds.

Going forward MAS really needs to think of ways to attract customers through more competitive fare pricing. How it is going to do that when rivals like Singapore Airlines and Emirates are far ahead in the game remains to be seen. But certainly, Ahmad is increasing the marketing budgets and the A380 offering will be its hallmark product.

It will take a lot of convincing, not just the analysts who have no buy call on the stock for now and are downgrading their earnings expectation for this year. MAS also has to win back passengers and have them pay the pricing MAS needs to work itself back to profitability.

Though Ahmad is confident of a small profit this year, many analysts need to be convinced there will be no more failures.

Tough it is, let's hope for a miracle.

 

 

 

http://biz.thestar.com.my/news/story.asp?file=/2012/3/3/business/10848288&sec=business

[Sanjay Thaker 0]

Just out of curiosity, has anyone got any idea what do they mean by "making sure the aircraft is in pre-delivery condition before returning it" . Perhaps someone familiar with the engineering side could explain what do they do with the aircrafts to ensure its in a pre delivery condition because while they were around, and while we've been using them, they seem to be in a condition worthy of carrying passengers all these while.