Friday, March 2, 2012

MASsive Loss

MAS posts record loss of RM2.5b
1 March 2012

KELANA JAYA: National carrier Malaysian Airlines System Bhd (MAS) has posted its worst ever net loss of RM2.52 billion for the year ended Dec 31, 2011 – with the red ink dwarfing its previous ignominy of RM1.3 billion loss in 2005.

Roughly half of this net loss, at RM1.28 billion, was recorded during the last quarter. Worse, such hefty losses failed to reflect the only good news for the airline – that it chalked up a marginal increase in group revenue (up two per cent to RM13.7 billion) and carrying 1.3 million more passengers (totaling 17 million) than the previous year.

Acknowledging this grim performance, group chief executive officer Ahmad Jauhari Yahya said: "The bottom-line group losses for 2011 underscore the imperative need for MAS to immediately adopt strong measures to stop the bleeding.

"These include staff redeployment, increasing productivity and effi ciency, relentless cost control and making further route reviews. We are also implementing an aggressive sales and marketing strategy."

For an immediate turnaround, deputy group chief executive officer Mohammed Rashdan Yusof said: "We need to strengthen the balance sheet. We have RM1 billion in cash but we have low equity levels and need to redress that with support from our shareholders. "We are not ruling out a cash call but the first option is to dispose of non-core assets. We are looking at finalising our business plan in the next 60 days."

Also, the strategic tie-up with AirAsia Bhd via a share swap involving Khazanah Nasional Bhd is yet to yield any real gains as Rashdan explained: "The initiatives have not taken hold. We will probably see gains in the first quarter of this year and in subsequent months.

"Looking back, last year's performance was severely impacted by a 21% increase in expenditure at RM16.2 billion (2010: RM13.41 billion), attributed to a 33% increase in fuel cost to RM5.85 billion (2010: RM4.38 billion) and a 15% increase in non-fuel expenses to RM10.43 billion (2010: RM9.03 billion).

"The increase in non-fuel expenses were mainly due to provisions totalling RM1.09 billion made in the fourth quarter for stock obsolescence, redelivery of aircraft and impairment of freighter aircraft," said Ahmad Jauhari.

"The recent rationalised network plan that we will operate has resulted in a surplus fleet. An additional provision of RM602 million has been made for aircraft redelivery to enable Malaysia Airlines to retire and return 58 aircraft from now up to 2014.

"The bulk of these will take place in 2012 comprising the older uneconomical 18-19 year old aircraft. By the end of 2012, our fleet size will be 80 aircraft with an average fleet age of 7.7 years."

The cargo division also suffered, in line with an overall global slowdown of the industry. Revenue dropped 14%, capacity decreased 9% whilst yield increased 2%. MASkargo recorded a pretax loss of RM19 million in 2011 from a profit of RM141million previously, due to higher fuel costs and impairment of its A330 freighter fleet.

Aircraft purchases also remain an issue. "Earlier in 2008 and 2010, MAS had placed firm orders for a total of 50 aircraft plus options for an additional 30 aircraft to be delivered from 2010 to 2017," said Ahmad Jauhari. "In 2011, MAS had exercised 10 of those options.

It has a current fleet of 91 aircraft with an average fleet age of 12.2 years and in 2012, MAS will be taking delivery of another 23 new aircraft."

Chairman Tan Sri Md Nor Md Yusof concluded: "The results make for unpleasant reading. The company is in crisis. The board and I remain confident that we now have a team and business plan in place that will bring the necessary sacrifices to ensure a turnaround and recovery."

Moving forward, in view of the bleak global aviation outlook for this year, MAS is currently finalising a plan to strengthen its balance sheet to increase its cash reserves and funding capacity.
The plan includes, but not limited to, debt and/or equity market options, said Ahmad Jauhari, adding that Khazanah Nasional and Tune Air, its two largest shareholders, are supportive of these initiatives.

"MAS will make further announcements once the funding plan is finalised.

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