RHB disappointed by preview of ‘simplistic’ MAS turnaround plan

November 22, 2011

KUALA LUMPUR, Nov 22 – Malaysia Airlines (MAS) lacks a plan for deep structural reforms said RHB Research Institute following a briefing by airline management ahead of the official unveiling of the national carrier’s turnaround strategy.

The research house said in a report today that the plan lacked cost cutting measures, revamps to the procurement systems or recapitalisation of its balance sheet.

RHB also said that it didn’t detect any evidence that the new collaboration with AirAsia has rejuvenated the airline.

“We did not find any significant ‘traces of entrepreneurial spirit’, if this is supposed to come with the entrance of Tune Air (controlled by AirAsia’s Tan Sri Tony Fernandes) as a 20.5 per cent shareholder of MAS,” said the report.

The report revealed that in the MAS briefing the management had said that they would cut unprofitable routes, improve fuel burn, negotiate better terms with aircraft manufacturers and redeploy capacity based on yield.

“We have to admit that we came out of MAS’ analysts’ tele-conference this morning feeling a little disappointed,” said RHB.

“Dubbed a preview to MAS’ grand turnaround plan scheduled to be officially unveiled next month, we did not find indications of any bold and dramatic moves that will turn things around, but just some logical things an airline will do in its normal course of business.”

RHB said that MAS’ key structural issues include a mature and saturated full-service segment and its main hub Kuala Lumpur not being a natural market for higher-yielding full-service business travelers unlike Singapore and Hong Kong.

It added that it hoped MAS would rope in a leading international airline as equity partner to help strengthening processes, revitalise work culture, broaden market reach and presence, and effect more constructive branding or co-branding exercises.

MAS reported a third quarter loss of RM477.6 million today, bringing total losses so far this year to RM962 million.

The airlines’ lacklustre financial performance in recent quarters had resulted in the share swap between MAS and AirAsia on August 9.

It saw state investment arm Khazanah taking a 10 per cent stake in Asia’s top budget carrier in exchange for a 20.5 per cent stake in the flag carrier.

This paved the way for AirAsia boss Tan Sri Tony Fernandes to sit on the MAS board, ostensibly to help turn the ailing airline around.

The share swap and accompanying collaboration framework agreement raised public concerns that it would give rise to an industry cartel.

Firefly’s budget jet operations were shuttered last month.

The Finance Ministry revealed on November 3, however, that the share swap between MAS and AirAsia is being probed by Bursa Malaysia and the Securities Commission (SC) for insider trading.