Struggling, Malaysian Airline may need government bailout

Tue Mar 25, 2014 5:03pm EDT
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By Anshuman Daga and Yantoultra Ngui

SINGAPORE/KUALA LUMPUR (Reuters) - Even before the loss of its Flight MH370, Malaysian Airline System (MAS) MASM.KL was bleeding cash, prompting talk that it may need another financial rescue from state investor Khazanah Nasional Bhd, its majority shareholder.

The flag carrier's cash and short-term investments at end-December were close to $1.2 billion - less than its average operating costs of the two previous quarters, and a signal that it may soon need fresh funding or bank loans.

MAS, Southeast Asia's fourth-largest airline by market value, has had negative operating cash flow for three years - which means it is not generating enough cash to meet its day-to-day operating costs - and has had negative free cash flow - operating cash flow minus capital expenditure - for six years.

No one has yet calculated the cost to the airline of the lost plane, which is now assumed to have crashed into the Indian Ocean earlier this month with 239 passengers and crew on board. While the plane was insured, there will likely be compensation payouts to the relatives of those who died.

"What this accident is going to create is an acceleration of the downward trend that we've seen at MAS for years, and the need to restructure," said Bertrand Grabowski, who heads German bank DVB's aviation and land transport finance divisions.

"The only way out is shrinking, in terms of capacity and route network."


MAS has based its recent strategy on having more plane seats filled by cutting ticket prices as it battles rivals AirAsia (AIRA.KL: Quote) and Indonesia's Lion Air, which have expanded capacity. Bankers and analysts say the loss of Flight MH370 will dent bookings at MAS, making a fresh capital raising more likely.   Continued...

A traveller stands at the viewing gallery overlooking Malaysian Airline System (MAS) aircrafts at Kuala Lumpur International Airport in Sepang outside Kuala Lumpur December 23, 2009. REUTERS/Bazuki Muhammad