Fears of escalating cost at Malaysia Airlines

  • Business
  • Tuesday, 11 Mar 2014

PETALING JAYA: Malaysia Airlines’ (MAS) share price fell in early trade yesterday after one of its Beijing-bound jetliners went missing early Saturday morning, only to regain ground later in the day to close a mere one sen lower at 24 sen per share.

The share had fallen to 20.5 sen before bouncing back.

The missing aircraft, a Boeing 777-200 with 239 passengers on board, has raised fears that the airline, which has been unprofitable for several quarters, will see its cost escalate as search and rescue operations continue.

This is despite the fact that the aircraft and its passengers are adequately insured.

US-based Willis Group Holdings plc is the insurance broker and insurers for the aircraft comprise reputable names in the aviation market, including Lloyd’s and globally renowned insurance companies.

“There will still be an impact even though the aircraft is insured. The quantum is not known at this stage,’’ Maybank Investment Bank Bhd senior analyst Mohshin Aziz said.

Further financial losses were expected and the recovery was going to be more difficult than previously, said a source.

“Even though the missing aircraft is covered by insurance,moving forward, MAS may have to contend with higher insurance premiums since there has been an incident, and given the fact that MAS is still unprofitable, that adds to its cost,’’ the source added.

The airline shocked the market with a RM1.17bil net loss for full-year 2013, as it grappled with high fuel and staff costs and fiercer competition coming from low-cost carriers in the region.

After the last set of financial results were released, some analysts revised their financial projections and felt the airline would take longer to be profitable again. With this latest incident, the recovery period will drag on further.

In 2000, Singapore Airlines’ (SIA) flight SQ006, which was on its way to Los Angeles from Singapore via Taiwan, crashed in flames on a closed runway at Chiang Kai-Shek Airport (now called Taiwan Taoyuan International Airport) during take-off.

The incident, which destroyed the aircraft and killed 83 people, was SIA’s first serious accident and marred its otherwise good safety record.

The airline undertook a massive public relations exercise to regain confidence, and today, remains one of the top airlines in the world.

The Saturday incident also comes close to the Matta Fair which begins this Friday.

On Saturday, flight MH370 lost contact with the Subang Air Traffic Control 50 minutes after departing the KL International Airport at 12.41am. The flight was carrying 239 passengers and crew from 14 nations.

There has been all kinds of speculation as to how the jetliner went missing, from a possible mid-air explosion to mechanical failure to an act of terrorism, as there were two people with stolen passports on board. Search and rescue operations continue.

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