July 18 (Bloomberg) -- Malaysian Airline System Bhd. shares tumbled the most in nine weeks after one of its planes was shot down in Ukraine, four months after the disappearance of Flight 370 contributed to the carrier’s biggest loss since 2011.
The stock lost 11 percent to 20 sen at the close in Kuala Lumpur, extending this year’s drop to 35 percent, while Malaysia Airports Holdings Bhd. fell 4.9 percent. The FTSE Bursa Malaysia KLCI Index retreated 0.5 percent and Malaysia’s ringgit weakened 0.2 percent versus the dollar. The Bloomberg World Airlines Index slipped 0.1 percent, following a 2 percent tumble yesterday amid speculation the crash will deter fliers.
Malaysian Air’s Flight 17, carrying 298 passengers and crew, was shot down yesterday over eastern Ukraine in an attack that the government in Kiev blamed on pro-Russian rebels. The carrier, which has lost 4.57 billion ringgit ($1.4 billion) since the start of 2011, had been speeding up an overhaul of its business after the disappearance of Flight 370 spurred the longest search for a missing plane in modern aviation history.
“This is shocking,” Geoffrey Ng, an adviser for strategic investments at Fortress Capital Asset Management Sdn., which oversees about 1 billion ringgit, said in Kuala Lumpur. “Investors will want to sell first and get more information later. This will raise concerns about the safety culture of airlines in general.”
The incident threatens to compound the troubles at a carrier that has already shelved its expansion plans after Flight 370 vanished March 8, spurring the world’s longest search for a missing jetliner in modern aviation history.
The Ukraine disaster also is unfolding amid speculation the Malaysian government would hasten a breakup of the airline as the stock plunges. None of 15 analysts covering the company suggest investors buy the airline’s stock, according to data compiled by Bloomberg. Thirteen analysts say investors should sell the shares and two say hold, the data show.
“Two such accidents in such a short time is an attack on the whole airline system,” Kapil Kaul, South Asia chief executive of CAPA Centre for Aviation in New Delhi, said by telephone today. “This will hurt the entire aviation system in Malaysia.”
Cathay Pacific Airways Ltd., the biggest international carrier in Asia, dropped 0.6 percent in Hong Kong trading. Delta Air Lines Inc., American Airlines Group Inc. and United Continental Holdings all retreated more than 3.4 percent in the U.S. yesterday.
Ukraine’s state security service said it intercepted phone conversations among militants discussing the missile strike, which knocked Flight 17 from the sky within 50 kilometers (31 miles) from the Russian border. The separatists denied the accusation.
U.S. officials said the weapon probably was a Russian-made model used widely in Eastern Europe. The Boeing Co. 777 crashed en route to Kuala Lumpur from Amsterdam in the main battleground of Ukraine’s civil war.
The jet didn’t make a distress call, Malaysian Prime Minister Najib Razak told reporters at the Kuala Lumpur International Airport today. The aircraft’s flight route was declared safe by the International Civil Aviation Organisation, and the International Air Transportation Association has said the airspace the plane was in was not subject to restrictions, Najib said.
The escalation of Ukraine’s crisis, combined with Israel’s movement of ground forces into the Gaza Strip, fueled a selloff in global equities yesterday. The MSCI All-Country World Index dropped 0.9 percent, and lost another 0.1 percent today.
Malaysian Air’s major shareholder and sovereign wealth fund Khazanah Nasional Bhd. said last month it had time to come up with a restructuring plan as the carrier has funds to last about a year.
Asuki Abas, a spokesman for Khazanah, said by phone the fund will “focus its energy on supporting Malaysian Air in emergency efforts.” He declined to comment further.
The Subang Jaya, Malaysia-based carrier last reported an annual profit in 2010. Malaysian Air missed its target to be profitable last year as rising prices for fuel, maintenance and financing wiped out revenue gains. Analysts project losses through 2016 for the airline, according to data compiled by Bloomberg.
Even before Flight 370’s disappearance, Malaysian Air had amassed losses of $1.3 billion in the previous three years. Split up, the government-controlled airline could fetch $1.3 billion, an amount that’s more than 20 percent higher than the company’s current market value now, based on analysts’ estimates.
Malaysian Air may also modify plans for future plane orders after the disappearance of Flight 370 tarnished its reputation.
“Malaysian Air will have a tough road ahead to rebuild its image,” Hong Leong Investment Bank Bhd. analysts wrote in a report today. “Consumer sentiment on its safety record will be deeply affected, which has further hampered its hope to turn around by 2015.”
The MH370 incident had put the carrier under global scrutiny, jeopardizing its reputation and prompting boycotts by travel agents in China, whose nationals accounted for most of the passengers. It had 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.
“This is beyond unlucky,” Mohshin Aziz, an analyst at Malayan Banking Bhd. in Kuala Lumpur, said in a note to clients. “It will take a very long time to overturn this.”
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