Time to look east for MAS

Modern planes: MAS needs to re-vitalise its fleet with more modern airplanes that include the B787 Dreamliner series and more of the A350s and the B777-9s.

The airlines industry is one tough industry to be in. Whether in the US, Europe or Asia, governments have from time to time come to the rescue of their national carriers mainly due to catastrophic incidents like the Sept 11 terror strike, unsustainable business models or even simply due to a massive debt load.

Operationally, airlines are in a highly leveraged business due to the cost of acquisition of aircraft, which comes with not only high borrowing cost, but as well as a non-cash item called depreciation and amortisation, which eats into an airline’s accounting profit. Together with the vagaries of jet fuel prices and gyrating load factors, managing an airline and showing profits year-in year-out is one tough call for any CEO. Even the likes of Cathay Pacific or Singapore Airlines find it tough to sustain a predictable earnings model.