Plane mishap adds pressure on MAS

KUALA LUMPUR - The loss of MH370, with its 12-man crew and 227 passengers, was the last thing that the beleaguered Malaysia Airlines (MAS) needed.

MAS shares hit a record low yesterday, falling almost 18 per cent at the open, but regaining slightly to close at RM0.24 (S$0.09). This was down 4 per cent from Friday's RM0.25.

Most analysts agree it's a storm MAS is ill-equipped to ride out.

For an airline battling costs, the financial nuts and bolts of the investigation and recovery process could prove hideously expensive.

Things will add up quickly.

Apart from providing accommodation for relatives of passengers in both Kuala Lumpur and Beijing, MAS has promised to fly at least four relatives of each victim to the exact crash site, once located.

The airline has also hired a United States disaster recovery firm whose fees are undoubtedly costly - at a time when the loss-making airline is trying to pare costs down to the bone.

It isn't clear, however, how much of all this will be borne by the insurance companies, but that will inflict a price down the road too.

More worrying is the reputational loss inflicted on the airline.

The incident has grabbed global headlines and although many international commentators generally lauded the airline's safety record, there would be some degree of brand damage.

MAS' handling of the incident will also be subject to scrutiny.

For the financial year ended Dec 31, 2013, the airline's loss more than doubled to RM1.15 billion, from RM424.8 million in the same period of 2012. While revenue rose more than 9 per cent to RM15.12 billion, the airline's costs kept pace.

MAS' continued losses are a recurrent nightmare for state sovereign wealth fund Khazanah Nasional, which owns 63 per cent of the airline. The state agency has ruled out selling the carrier, but could be mulling over different options.

The airline's management hopes that a turnaround will happen this year, but analysts remain sceptical. In a recent report, pessimistically headlined "Escape while you can", Hong Leong Investment Bank said as much.

Hong Leong also predicted that MAS would continue to post losses this year (an estimated RM891 million) and next year (an estimated RM490 million).

And that was before MH370.

This article by The Business Times was published in MyPaper, a free, bilingual newspaper published by Singapore Press Holdings. 

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