Malaysia Airlines shares hit record low

SHARES of Malaysia's national carrier plunged to a record low yesterday as investors cashed out after Prime Minister Najib Razak mooted bankruptcy as a possibility because of the airline's seemingly insurmountable financial problems, made worse by negative sentiments and the dramatic drop in bookings after flight MH370 went missing on March 8.

Malaysia Airlines (MAS) shares plunged 18.6 per cent to 15.5 sen as reports of Mr Najib's comments to The Wall Street Journal published last Thursday spooked investors, many of whom had bought into MAS at 20-21 sen after the plane went missing in the belief that the government would rescue the airline by taking it private, albeit at a higher price.

Having lost some RM4 billion (S$1.6 billion) in the past three years, bigger losses of RM443 million for the quarter ended March reported last week - and analysts' projections of hefty losses for FY2014 and FY2015 - had also hurt sentiment.

At current prices, analysts say its valuations are more reflective of fair value.

Even as MAS's shares tanked, its main union, Malaysian Airlines System Employees union (Maseu), maintained that the airline could be returned to the black within a year if helmed by someone (in-house) with aviation experience.

A 20,000-strong union, Maseu wants MAS chief executive Ahmad Jauhari Yahya, whose previous experience includes media and power, to leave.

The union's executive secretary Mohd Jabbarullah Abd Kadir has spoken against the idea of allowing MAS to go bankrupt.

He insists the airline be assisted because it is 69 per cent government-owned via state investment agency Khazanah Nasional. The fact that it employs thousands, mostly ethnic Malays, is another consideration.

Even so, after three major business turnaround programmes in the past 15 years - and an estimated RM20 billion injected via government-backed bonds and cash calls - yet another bail-out will be difficult for taxpayers and minorities to stomach.

Moreover, the crisis is far deeper this time around as MAS's reputation and ticket sales have been considerably hurt by the mysterious disappearance of MH370 enroute from Kuala Lumpur to Beijing with 239 onboard. Nearly two-thirds of its passengers were mainland Chinese.

The possibility of MAS going bankrupt had not been contemplated openly, especially by any Malaysian leader, including Mr Najib, who had been persuaded by Maseu at the end of 2012 to scrap a proposed equity swap between controlling shareholders of MAS and budget carrier AirAsia, and a strategic alliance between both carriers.

The objective of the alliance was to have both carriers cooperate and operate in a manner of mutual benefit given the cut-throat competition and over capacity in the sector.

Bankruptcy is only one of several options being considered to salvage MAS. The sale and flotation of its more profitable units such as engineering and short-haul arm are further options but whether such measures can sustain it in the longer term remains uncertain.