Malaysia Airlines can’t go on if it continues to bleed, says analyst

PETALING JAYA: An analyst has warned that Malaysia Airlines cannot continue in its present form, amid reports that the government is studying options for the struggling national carrier including the possibility of shutting it down.

“Malaysia Airlines cannot go on if it is not profitable,” Pong Teng Siew, head of research at Inter-Pacific Securities Sdn Bhd, told FMT.

Problems at the beleaguered airline surfaced when its sole shareholder, national sovereign fund Khazanah Nasional Bhd, posted a pretax loss of RM6.3 billion for 2018, its first loss since 2005.

Some RM19.5 billion has been poured into the troubled carrier since the 1990s. The latest turnaround announced in 2014 saw the airline being delisted at 25 sen. Khazanah also cut 3,000 jobs at Malaysia Airlines in a bid to resuscitate it. The turnaround effort cost taxpayers RM6 billion.

Prime Minister Dr Mahathir Mohamad, who is also Khazanah chairman, said last week that the government is considering whether to close Malaysia Airlines down, sell it, or refinance its debts.

Pong said Malaysia Airlines has “legacy issues” and is in need of reforms as its internal controls are ineffective.

“For instance, there have been incidents in the past where government officers abused their flying privileges,” he said.

Malaysia Airlines tried privatisation before, selling a 32% stake to Malaysian Helicopters under entrepreneur Tajudin Ramli. This was deemed a failure, with the government buying back the shares from Tajudin at RM8 a share.

As with other industries, airline privatisation tends to be influenced by the desire to access private capital, private sector management or both. Working against this is the desire of governments to retain ownership of their national airline as an extension of economic policy for maintaining connectivity or reasons of national pride.

In the current scenario, most analysts say Malaysia Airlines should not be appraised from the latter perspective, especially when the government is faced by a national debt in excess of RM1 trillion.

Although a trade sale or IPO might be a way out, questions remain over who would want to buy into a loss-making entity.

Globally, the region which has undertaken the biggest number of airline privatisation exercises is Europe. Almost every major Western Europe national airline has been privatised, although governments retain stakes in Finnair (55.8%), TAP Portugal (50%), SAS (42.8% split between Denmark, Sweden and Norway) and Air-France KLM (17.6%)

Western European privatisations have followed the IPO route, floating shares on the stock market, or sale of a strategic stake for cash.

Privatisation by way of a strategic sale also allows access to private sector management skills. The strategic partner is typically another airline and often forges a commercial partnership.