Wednesday May 23, 2012
RM9bil fund raising to enable MAS to continue uninterrupted
PETALING JAYA: Malaysia Airlines (MAS) yesterday surprised the market place with a massive RM9bil fund raising proposal that involves the issuance of bonds and taking a loan.
In addition, there is a plan where the Government will set up a company that will pay for eight aircraft for RM5.3bil including the six A380 superjumbo which will then be leased back to MAS for its flight operations.
However, the airline's books were still marred with red ink as it reported another quarter of loss to the tune of RM171mil for the three months ended March 31, 2012.
This is the fifth consecutive quarter of loss for the airline and though the amount has narrowed compared to the previous corresponding quarter in 2011 where it reported RM242mil net loss, but when stripped of the non-cash items, the net loss for the first quarter in 2012 was RM347mil.
It is essentially the RM199mil forex gain that narrowed the losses for the first quarter.
Revenue for the quarter was slightly down to RM3bil from RM3.1bil recorded in 2011, but its operating expenses were lower at RM3.42bil from RM3.53bil after the airline embarked on a series of cost cuts since the new management took the helm last year.
MAS' loss per share for the period was at 5.14 sen versus 7.25 sen previously.
Managing director Ahmad Jauhari Yahya said in a statement yesterday that MAS made some “tough deci-sions'' as per its turnaround business plan.
“We cut unprofitable routes especially in long haul where yields were low. This helped us to immediately improve our revenue per available seat km performance year-on-year,” he said, adding that newer aircraft helped reduce its fuel cost.
MAS reported a huge RM2.5bil net loss last year and the biggest hurdle it faced was getting financing for its aircraft purchases and to fund its operations going forward.
It has 23 aircraft deliveries slated for this year and this month it will have to take delivery of its first of the six A380 aircraft. Over the past few months MAS deputy CEO Mohammed Rashdan Yusof and his team had been working out a financing plan to meet all its financing obligations including its ability to redeem the RM415mil redeemable convertible preference shares that comes due by October.
“Its financial results for the quarter were worse than expected and the way we see it, the operational issues are still not resolved. Yields are still not impressive and load factor not showing signs of improvements. However, MAS has resolved its major funding issue and if implemented according to plan, MAS will be on solid ground to say afloat for at least another year,'' said an analyst who requested anonymity.
The RM9bil financing plan is crafted in three pillars the issuance of up to a RM2.5bil Islamic sukuk by June this year, the Government setting up a special purpose vehicle (SPV) to raise RM5.3bil to pay for eight aircraft, and the capex of RM1.2bil for the remaining wide-bodied aircraft purchases in 2012, funded by a loan facility which will be wrapped up very soon.
MAS said that by June, it planned to issue RM2.5bil in 10-year sukuk, pending regulatory approvals. MAS expects to draw down the first tranche of the RM1bil sukuk in June to repay the RM1bil bridging loan it had taken from CIMB Bank in March. Under the second pillar, the Minister of Finance Inc will set up a SPV that will buy eight aircraft by issuing RM5.3bil long-term bonds (guaranteed by the Government) and lease the aircraft back to MAS.
The six A380 were initially ordered by Penerbangan Malaysia Bhd but subsequently MAS took over the order. However, under this new financing plan, MAS will assign the rights to the SPV which will own the aircraft and MAS will pay for the leases over the period of the funding. MAS said five of the eight aircraft will be delivered this year, of which two will come in by end of this month. The remaining three will be delivered early next year.
MAS said that should its plans fall short, it would fall back on its parent company Khazanah Nasional Bhd to step in to provide financial support in the form of an equity capital injection to finance any unfunded aircraft capital expenditure and also for working capital needs.
“Such financing would only be forthcoming if and when required and subject to targets to be agreed,” said MAS in a statement.
“We are grateful to our stakeholders, shareholders and fund providers for giving MAS the opportunity to secure a solid financial platform for the recovery of the airline by allowing us to take delivery of all our planned aircraft purchases. The new planes will not only significantly improve our fuel efficiency but also our revenue-generation ability,'' Rashdan told StarBiz.
With the RM9bil injection, MAS would have all the funding it needs going forward and it would certainly be on a better footing, but analysts are wondering how fast it can get other parts of its restructuring exercise sorted out, such as all its cost cuts and how fast it can rev up its sales to help the airline return to profitability.