MAS may need to raise fresh capital: HLIB Research
Published on: Friday, July 25, 2014
PETALING JAYA: The tragic incident of flight MH17 is expected to have minimal direct impact to Malaysian Airline System Bhd's (MAS) cash flows, but MAS may need to raise fresh capital to keep the airline afloat by 2015."Similar to MH370, we expect compensations for the 298 victims in MH17 to be covered by insurance. The aircraft should also be covered by insurance. Hence, minimal direct impact to MAS cash flows," HLIB Research analyst Daniel Wong said in a research report last Friday.With two major incidents within six months, he said consumer sentiments on MAS' safety record will be deeply affected, which further hampered its hope to turnaround by 2015.
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Wong added that MAS will have a tough road ahead to rebuild its image. At the meantime, MAS will continue its aggressive campaigns, which are offering higher discounted fares, affecting its cash flows. Furthermore, MAS position in oneworld alliance may be affected due to the poor record."We place heavy concern on the sustainability of MAS cash flows. As at end of the first quarter (Q1 2014), MAS has RM3.2 billion cash in hand with operating cash flow loss of RM350 million in Q1 2014 alone. With the expected worsening load factor and lower yields for the remaining 2014, we believe MAS may need to raise fresh capital to keep MAS afloat by 2015," he said.He also said there will be further sell-down pressure on MAS counter amid the incident in the immediate term.
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"Related counter Malaysia Airports Holdings Bhd will be affected, while AirAsia Bhd may be well-received."HLIB Research maintained its negative rating on MAS with an unchanged target price of 15 sen.
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Last Thursday, MAS' Boeing 777 aircraft with the flight code MH17, which was on a scheduled flight from Amsterdam to Kuala Lumpur, was believed to have been shot down over eastern Ukraine near the Russian border, killing all 298 passengers and crew onboard.Reports say that the plane was shot down by a surface-to-air missile at 33,000ft, about 20 miles before entering Russian airspace.The flight departed Amsterdam at 12.15pm local time and was scheduled to arrive in Kuala Lumpur at 6.10am local Malaysian time on Friday.Prime Minister Datuk Seri Najib Razak said in a statement last Friday that the aircraft's flight route was declared safe by the International Civil Aviation Organisation and International Air Transportation Association has stated that the airspace the aircraft was traversing was not subject to restrictions.MAS confirmed that the aircraft did not make a distress call. The airline also said in a statement that the B777-200 aircraft that operated MH17 had a clean maintenance record."The aircraft's last maintenance check was on July 11, 2014. The next check was due on Aug 27, 2014. The maintenance was conducted at MAS' hangar at KLIA. The aircraft had a clean bill of health," it said.Stay up-to-date by following Daily Express’s Telegram channel.
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