KUALA LUMPUR: The cash level of Malaysian Airline System Bhd (MAS) has decreased to less than RM1 billion, a trigger point that will normally raise the alarm for the national carrier.
During the conference call chaired by MAS managing director Ahmad Jauhari Yahya and executive director Mohamed Rashdan Yusof yesterday, the top management made it clear that there were no plans to call for a fresh round of fundraising.
Analysts were told that there were no plans for an equity fundraising and the management is confident of securing financing soon to pay for new planes that the airline is scheduled to take delivery.
“The officials say their talks with European credit agencies are going on well and are confident they can secure financing over the next 12 months to pay for the delivery of new planes,” said an analyst.
As at Sept 30, MAS’ cash position stood at RM968 million versus the RM1.53 billion in the preceding quarter.
During the period, MAS saw a cash outflow of RM516 million from operations and RM1.44 billion for purchase of new aircraft and engines. The outflow was offset by RM864 million from financing activities, of which a bulk came from aircraft refinancing.
The airline posted bigger-than-expected losses in the third quarter (3Q) ended Sept 30 and stayed in the red with a net loss of RM477.58 million on RM3.49 billion in revenue.
In 3Q, MAS saw a cash burn rate of about RM559 million, but some analysts estimated the rate was lower — at RM230 million.
“For the fourth quarter, the cash burn rate should be much lower ... around the region of RM100 million due to the seasonally stronger quarter,” said an analyst.
RHB Research said in a note yesterday MAS played “safe” in its strategy to turn around the ailing airline.
It said MAS did not unveil any “bold and dramatic” moves to turn things around, such as reducing headcount, revamping its procurement system, recapitalising its balance sheet and roping in a foreign equity partner.
Instead, it said, the measures announced during the briefing were “normal course of business of an airline” such as cutting unprofitable routes, redeployment of capacity, improving fuel burn and negotiating with aircraft manufacturers for better terms.
“We did not find any significant “traces of entrepreneurial spirit”, if this is supposed to come with the entrance of Tune Air (controlled by AirAsia Bhd’s Tan Sri Tony Fernandes) as a 20.5% shareholder of MAS,” it said.
RHB also noted that in the briefing, MAS was “pleased” with its decision to halt Firefly Jet, which otherwise would have resulted in RM75 million losses for the first nine months and may recur next year.
“But we are more inclined to see the losses as start-up losses and we believe Firefly Jet could have eventually rivalled AirAsia if it was not nipped in the bud,” it added.
The current cash level of RM968 million puts MAS near where it was during the first nine months of 2006, when the airline had a cash pile of about RM1.1 billion.
Although MAS has always guided its critical cash level is at 5% of total revenue, which works out to about RM600 million, there are some within the company who said that anything below RM1 billion is a cause for concern.
For 3Q, for instance, MAS saw a cash deficit of RM249.02 million from operations. This compares with a healthy RM496.62 million cash generated from operations in the previous corresponding quarter.
In the event it launches a cash call, Khazanah Nasional Bhd, which has a majority stake in the airline, will emerge as the largest subscriber of the issuance, followed by Tune Air Sdn Bhd with 20.5% and Employees Provident Fund 10.39%.
An analyst said MAS should revisit its plans to list its maintenance, repair and overhaul unit to raise cash.
This article appeared in The Edge Financial Daily, November 23, 2011.
During the conference call chaired by MAS managing director Ahmad Jauhari Yahya and executive director Mohamed Rashdan Yusof yesterday, the top management made it clear that there were no plans to call for a fresh round of fundraising.
Analysts were told that there were no plans for an equity fundraising and the management is confident of securing financing soon to pay for new planes that the airline is scheduled to take delivery.
“The officials say their talks with European credit agencies are going on well and are confident they can secure financing over the next 12 months to pay for the delivery of new planes,” said an analyst.
As at Sept 30, MAS’ cash position stood at RM968 million versus the RM1.53 billion in the preceding quarter.
During the period, MAS saw a cash outflow of RM516 million from operations and RM1.44 billion for purchase of new aircraft and engines. The outflow was offset by RM864 million from financing activities, of which a bulk came from aircraft refinancing.
The airline posted bigger-than-expected losses in the third quarter (3Q) ended Sept 30 and stayed in the red with a net loss of RM477.58 million on RM3.49 billion in revenue.
In 3Q, MAS saw a cash burn rate of about RM559 million, but some analysts estimated the rate was lower — at RM230 million.
“For the fourth quarter, the cash burn rate should be much lower ... around the region of RM100 million due to the seasonally stronger quarter,” said an analyst.
RHB Research said in a note yesterday MAS played “safe” in its strategy to turn around the ailing airline.
It said MAS did not unveil any “bold and dramatic” moves to turn things around, such as reducing headcount, revamping its procurement system, recapitalising its balance sheet and roping in a foreign equity partner.
Instead, it said, the measures announced during the briefing were “normal course of business of an airline” such as cutting unprofitable routes, redeployment of capacity, improving fuel burn and negotiating with aircraft manufacturers for better terms.
“We did not find any significant “traces of entrepreneurial spirit”, if this is supposed to come with the entrance of Tune Air (controlled by AirAsia Bhd’s Tan Sri Tony Fernandes) as a 20.5% shareholder of MAS,” it said.
RHB also noted that in the briefing, MAS was “pleased” with its decision to halt Firefly Jet, which otherwise would have resulted in RM75 million losses for the first nine months and may recur next year.
“But we are more inclined to see the losses as start-up losses and we believe Firefly Jet could have eventually rivalled AirAsia if it was not nipped in the bud,” it added.
The current cash level of RM968 million puts MAS near where it was during the first nine months of 2006, when the airline had a cash pile of about RM1.1 billion.
Although MAS has always guided its critical cash level is at 5% of total revenue, which works out to about RM600 million, there are some within the company who said that anything below RM1 billion is a cause for concern.
For 3Q, for instance, MAS saw a cash deficit of RM249.02 million from operations. This compares with a healthy RM496.62 million cash generated from operations in the previous corresponding quarter.
In the event it launches a cash call, Khazanah Nasional Bhd, which has a majority stake in the airline, will emerge as the largest subscriber of the issuance, followed by Tune Air Sdn Bhd with 20.5% and Employees Provident Fund 10.39%.
An analyst said MAS should revisit its plans to list its maintenance, repair and overhaul unit to raise cash.
This article appeared in The Edge Financial Daily, November 23, 2011.
