Malaysian Airline System Bhd. (MAS), the carrier reeling from the disappearance of Flight 370 more than two months ago, won’t seek bankruptcy and will instead speed up an overhaul to help it break even next year. The stock rose.
“Our turnaround story was moving along -- MH370 certainly didn’t encourage that,” Hugh Dunleavy, the airline’s director of commercial operations, said in an interview with Bloomberg Television’s Haslinda Amin yesterday. “That certainly has been a major hiccup in the road. So now we have to go back and fix that.”
The stock, which plunged the most since 1998 this month amid investor concern the government may let the company fail, rose to the highest level in 11 days in Kuala Lumpur trading today after Dunleavy’s comments on bankruptcy. The carrier has said the jet’s disappearance put additional stress on operations, forcing it to review its business plan after reporting the biggest loss since 2011.
“Retail investors, traders, are banking on any good news,” said Daniel Wong, an analyst at Hong Leong Investment Bank Bhd. in Kuala Lumpur. “The company should have enough funds for them to maneuver till the end of the year but if losses prolong till mid-2015, they will need to reconsider their options.”
Malaysian Air shares gained 2.9 percent to 18 sen in Kuala Lumpur today, trimming the drop this year to 42 percent. All but one of 15 analysts tracked by Bloomberg say investors should sell the stock.
A review of operations may take about three months, and implementing the changes may require another six to nine months, Dunleavy said. Bankruptcy is not an “option at this stage,” he said.
Bookings from China dropped 50 percent to 60 percent after MH370, carrying mostly Chinese passengers, vanished March 8, he said. To date, no debris from the Boeing (BA) wide-body airliner has been retrieved.
The Malaysian government today released raw satellite data that was used to conclude that Flight 370 was lost in the Indian Ocean. Flight 370 with 239 passengers and crew vanished from civilian radar on March 8 while headed north over the Gulf of Thailand. It then doubled back over Peninsular Malaysia and flew south into some of the world’s most remote waters. The hunt for the aircraft has become the longest in modern aviation history.
“Now is the time to take a close, hard look at all aspects of our business model and find out those that are core to us, let’s enhance those, make them as efficient as possible,” Dunleavy said in the interview at the airline’s training academy near Kuala Lumpur. “Those that are less core, or where we think another group can do it more efficiently, we should start looking at it.”
The Subang Jaya, Malaysia-based company last reported an annual profit in 2010. The flag carrier missed its target to be profitable last year as rising prices for fuel, maintenance and financing wiped out revenue gains.
“Most buying are from retailers now, and funds are unlikely to invest in MAS, as it is difficult to answer to stakeholders if they lose money investing in MAS now,” Ang Kok Heng, who helps manage $428m as chief investment officer of Phillip Capital Management Sdn. in Kuala Lumpur, said in a phone interview. Investors buying now “stand to gain if the government decides to privatize MAS” or if there is a takeover from other parties, he said.
The company lost a total 4.57 billion ringgit ($1.4 billion) since the start of 2011. Analysts project losses through 2016 for the airline, according to data compiled by Bloomberg.
“Obviously, MH370 has put a rather significant hurdle to that objective,” Dunleavy said of a plan to return to profit. “I don’t believe we will achieve that for this year, but I believe what we will be doing, what we are doing is looking at our current business plans, revamping those, looking at all opportunities to escalate the rate of the changes we are putting in so that 2015 will be the break even year.”
The airline pointed to unfavorable foreign exchange rates as an additional challenge. Winning back customers and a “relentless cost focus” will be part of the recovery, it said earlier this month.
The vanishing of MH370 put the carrier under global scrutiny, jeopardizing its reputation and prompting boycotts in China. It has also hurt the country as a travel destination, with Chinese tourists canceling their visits to the Southeast Asian nation, according to Malaysia’s tourism promotion agency.
The disappearance triggered a “major short-term reaction in consumer behavior,” with the airline observing high cancellation of existing bookings and a reduction in long-haul bookings in favor of short-haul ones, the company said May 15.
Listing Malaysian Air’s profitable divisions and selling stakes in two aviation businesses could raise 4.15 billion ringgit, Malayan Banking Bhd. analyst Mohshin Aziz said in an April 16 report. Government investment company Khazanah Nasional Bhd. owns a 69.4 percent stake in the airline, according to data compiled by Bloomberg.
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