Now MAS Can Fly

MAS and Airasia now work hand-in-hand, could it mean no longer cheap air tickets from Airasia & Firefly?

From a share swap deal, now Tune Air (largest Airasia shareholder) holds 20.5% of MAS, and Khazanah (largest MAS shareholder) holds 10% of Airasia. However, surprisingly Tune Air which is owned by Airasia's chief Tony Fernandez & Kamarudin, just hold about 23% of Airasia's shares.

This collaboration is good for MAS and not so good for Airasia, as we can see from the share price reaction. Currently we all know that MAS is struggling in the mud, while Airasia is flying high with unlimited growth potential. Both airlines are from Malaysia, if given an equal chance to compete, I guess sooner or later MAS will become a history.

However, MAS represents the country's pride and the government will not let it die. So, cooperation between MAS and Airasia is inevitable in the future, just I don't expect it to happen so soon. If not, Airasia may face a lot of problems when the government need to save MAS.

I must admit that Airasia, steered by its founder Tony Fernandes has been very well managed. For MAS, it is the other way round. MAS previous directors were unable to lift MAS effectively but no worry to them, they still can get a good job in the government after leaving MAS... Now with Tony & Kamarudin appointed as directors of MAS, I think it will only do good to MAS.

More than 50% of Airasia shareholders are foreigners. I don't know how much its share price will be pulled down and when will it find a bottom. However, the long term prospect of Airasia should still remain good, because of less competition in the country and more expansion overseas, unless the world market is going into a double dip. Airasia buys into a currently-loss-making, but business-wise-strategic company.

As for MAS, now it can concentrate more to compete with other countries' luxury airlines, without worrying too much about local competition. Its share price already took off and may see more upwards potential, but be careful of 2nd quarter's result which will be released soon this month.

Cooperation between 2 rivals should be good. The outcome depends on how is it going to be executed later on.

As for ordinary people like us, we just hope that air tickets price will remain low.

How Real is MAS Privatization?

Nothing is certain in this world.

While every reserach houses are desperately calling a "sell" on MAS, MAS is flying high instead.

MAS at historic low of RM1.40 seems a bit "inappropriate" for a "Best Airline" award winner. However, news are all against it: loss-making Q1 and a high probability of another loss in Q2. MAS happily announced the purchase of another 20 Airbus, but its rival Airasia announced a purchase of 200 Airbus at the same time! Who will have the youngest fleet then?

    MAS admits defeat to Airasia by delisting?

MAS share price started to surge since last friday with heavy volume. Many retail investors scratch their head. Is it due to announcement of new planes purchase? It's unlikely as this is not a fresh news.

Then the next Monday the reason is known. A report came out in The Star: "Privatise Malaysia Airlines (MAS) but list Firefly, MAS Engineering, MasKargo and even its terminal services, suggested Maybank IB in a recent research report."

It is a "suggestion" by Maybank investment bank. As MAS's price is now very low, I guess investors who buy at current price can get some good earning if MAS really goes private. This may be the main reason that push the share price up.

The next day, MAS came out to clarify things. Interestingly, the chairman didn't say "No, it's not in the plan". He said: “No options are off the table. It's the shareholders' call. We can put the option on the table but it is still the shareholders call”, and the share price continue its rise.

The reply is fair enough. Everything has a possibility. If I were him, probably I'll give the same remark even though there is 0% possibility of privatization. Why not? At least it can give a much needed boost to MAS share price.

Delisting and relisting may be good for the company, but is it fair to long term shareholders who bought and accumulated its share at a much higher price?

Can MAS take off on time?

MAS posted a net loss of RM242 in Q12011. High fuel price is largely blamed for the loss as its fuel expense increases RM321mil QoQ.

Since the appointment of new MD/CEO in 2009, MAS is determined to be the number one airline in Asia by 2015. It has a 5-year fleet renewal plan and aim to have the youngest fleet in the region by 2015. Younger fleet is good because it is more comfortable for passengers, more fuel-efficient and cost less in maintenance. To achieve this, MAS needs to buy a lot of new planes - about 50 planes ordered. Debts will surely increase and it needs a sustained profit to cover. It can't afford to make loss after loss. Can MAS do this?

Recent 2011Q1 result:

 

(in RM mil)	2011Q1	2010Q1
Total Revenue	3195	3302
Operation Revenue	3142	2909
Net Profit	-242	311
Fuel expenses	1331	1010
Cash	1708	2540
Total borrowings	4151	3709
Short term borrowing	577	293

Total revenue falls but revenue from operation increases. Cash reduces and debt increases.

MAS financial result 2006-2010

 

	2010	2009	2008	2007	2006
Revenue (mil)	13588	11605	15570	15233	13407
Net Profit (mil)	237	523	272	853	-134
Load factor (%)	75.4	69.4	67.6	65.8	66.8

In 2009, MAS suffered an operational loss of RM600+mil. The reason it can still post a net profit of RM523mil in 2009 was due to the incredible fuel hedging gain of RM1.16bil!

In 2010, MAS received an one-off compensation of RM329mil from Airbus for plane delivery delay. If not due to this, MAS will also suffer net loss of RM92mil in 2010.

Thus, I regard 2009 & 2010 as loss-making years.

Latest 2011Q1 also registered loss. Now in 2011Q2, though the fuel price drops to slightly below UDS100, it is still above MAS's fuel hedging of USD88 in 2011 and 75% of fuel will be bought at market price. From its 2011Q1 presentation, MAS expects tough operating condition to continue in Q2, mainly due to: softening of demand, Japan impact, volatile fuel price, strengtening of MYR and traditionally weak Q2. When the CEO told the public that Q2 is "challenging", it usually means they will have a hard time. So, will 2011Q2 be another loss-making quarter? Will the ambitious re-fleeting project turn out to be a success or a burden?

Nevertheless, MAS recent tie up with Qantas and oneworld should be viewed as positive.

Aviation industry is extremely competitive and high risk. Global political unrest, volatile fuel price, natural disaster, terrorist attack, disease outbreak etc all have a significant impact on it, and on MAS share price as well. However, MAS will always get support from the government.

    MAS: supported at RM1.35

 MAS vs Airasia: Which company is better-managed?

	FY2010	(RM mil)	2011Q1	(RM mil)	Market
	Revenue	Net Profit	Revenue	Net Profit	Cap
Airasia	3993	1067	1048	172	8.58 bil
MAS	13588	234	3194	-242	4.85 bil

   

    New Airbus A330-300