The Business Times

MAS shares suffer as blame game begins

Still no news on missing plane after 72 hours

Published Mon, Mar 10, 2014 · 10:00 PM
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THE blame game over the disappearance of flight MH370 over waters between Malaysia and Vietnam early Saturday morning has started.

Speculation is swirling over a possible management shake-up in Malaysia Airlines (MAS), and an editorial in a China newspaper closely allied to Beijing has criticised MAS and Malaysia's airport security.

MAS shares took a beating yesterday, with the already-oversold counter falling 20 per cent in early trade before clawing back to close just 4 per cent lower at 24 sen.

More than 72 hours after the plane and its 239 passengers vanished off Malaysian and Vietnamese radar screens, no answers about the whereabouts of the jet have surfaced.

US officials have stressed that there was as yet no evidence of terrorism. And no debris has been spotted. All that has emerged are two oil slicks - one off Vietnam and the other, 145 km off the east coast of peninsular Malaysia.

The director-general of Malaysia's Department of Civil Aviation, Azharuddin Abdul Rahman, described the incident yesterday as "an unprecedented missing aircraft mystery".

MAS can ill-afford this crisis. It has announced three straight years of losses, culminating in a RM1.2 billion loss for its 2013 financial year - despite having undergone several rounds of restructuring and shedding "unprofitable" routes to Europe, the US, South America and even the Middle East.

The market's opinion of its stock has been brutal. The MAS share price has collapsed some 60 per cent since September 2011, which coincides with the time from which chief executive Ahmad Jauhari Yahya, who was from the power generation business, took the helm.

This could be why speculation about his longevity on the job has begun.

Hong Leong Bank, in a report released yesterday, said that it did not discount the possibility of changes at MAS's top levels, given the disappointing financial results, the severity of the current incident and last October's crash of a MASwings jet, killing three.

MASwings is a regional airline running rural air services in East Malaysia.

Hong Leong Bank said, however, that it expected "minimal expenses" to be borne by MAS, and that the insurance companies would shoulder the costs. Even so, the bank affirmed its "sell" order on the airline, estimating a "target" price of 20 sen.

The reputational damage done to MAS could deepen, going by the note struck in Global Times, the Chinese newspaper close to Beijing. The following ran in a Malaysian news portal, citing Global Times' editorial: "If it is due to a deadly mechanical breakdown or pilot error, then Malaysia Airlines should take the blame. If this is a terrorist attack, then the security checks at the Kuala Lumpur airport and on the flight are questionable. If it is due to some natural or uncontrollable factors, all airlines across the world, including Malaysia Airlines, should draw a lesson."

For MAS, much will depend on the outcome of the final investigations, but more immediately, the crisis will compromise its ability to increase yields. It will probably be forced to slash fares to ease passenger fears about safety.

But the crisis could also present opportunity. Shukor Yusof, a Malaysian aviation analyst at Standard and Poor's in Singapore, wrote this in The New Straits Times yesterday: "But if there is any good that can come out of this sad event, it is this: it is a time for MAS and its shareholders to reflect and undergo self-criticism.

"The airline business is brutal. Money and time spent supporting an airline that continuously fails must cease. Take the first step. Make that change."

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