NICHOLAS IONIDES SINGAPORE
Malaysia Airlines (MAS) has firmed up details of a sweeping restructuring which covers asset sales and separates loss-making domestic operations from international services in a move that will effectively turn it into a "virtual airline".
The carrier announced on 30 July that after six months of work it had agreed all details of the transactions with its government owners and conditional contracts had been signed. They are due to be formalised in the coming months.
The restructuring will see assets and liabilities transferred to entities under government control in debt-for-equity swaps and sale/leaseback deals. Assets will then be leased back by the publicly listed carrier on "normal commercial terms". A separate transaction covers sale/leasebacks on eight widebody aircraft and key property assets previously agreed with the government to reduce the carrier's debt.
International passenger services and cargo operations will remain in the hands of the airline, but loss-making domestic passenger operations will be transferred to an entity under government control and will be operated by MAS on behalf of the state for a fee. The carrier has been in financial difficulty for years and has a substantial debt that the restructuring will eliminate. Last year MAS was renationalised in a controversial deal, after which the government started working on the overhaul aimed largely at eliminating the debt and returning MAS to profitability. In May MAS reported its fifth consecutive year of losses for the 12 months ended March.
The changes will leave a government company with 69.3% ownership of MAS - an airline with an unusual business model that has yet to be put to the test. Analysts reacted cautiously to the changes, saying it is difficult to put a valuation on the reformed airline operation. Many analysts also say it is extremely difficult to make earnings forecasts for the company and as a result some potential investors will avoid the stock.
The carrier says that the restructuring will make it an "asset-light airline company, focusing on international passenger and cargo businesses, with a completely de-geared balance sheet".
"Earnings are expected to show immediate improvements," it says. At the same time the carrier has signed a conditional agreement to sell 70% of its loss-making catering unit to a consortium involving a local group and Lufthansa subsidiary LSG Sky Chefs. MAS says the new company will have the right to provide in-flight catering services for all its flights out of Kuala Lumpur and Penang airports for the next 25 years.
Meanwhile, net losses for the first quarter of 2002 ended June were cut to 80.8 million ringgit ($21.2 million) from 320.7 million ringgit for the same quarter last year. Revenue increased to 2.16 billion ringgit from 2.08 billion ringgit.
Source: Airline Business
