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Joined: Tue Jan 30, 2001 8:55 am

MAS Charts New Flight Path To Profit

Wed Jul 31, 2002 7:11 pm

Malaysia Airlines (MAS) unveiled yesterday, July 30, 2002 a new business model that would accelerate its return to profitability a year earlier than previously estimated. It is now aiming for a modest profit of MYR 94 million (USD 24.7 million) for the financial year to March 21, 2003 after five year of massive losses.

The restructuring plan entails MAS:
- Transfering MYR 6.9 billion (USD 1.82 million) liabilities to Penerbangan Malaysia Berhad (PMB)
- Transfering 73 aircraft worth MYR 5.1 billion (USD 1.34 billion) to PMB
- Issuing 482.5 million new shares at MYR 3.85 (USD 1.02) per share to PMB for assumption of net liabilities of MYR 1.85 billion (USD 486.8 million)
- Selling 70% of MAS Catering for MYR 175 million (USD 46.1 million) to Gubahan Saujana Sdn. Bhd.
- Selling MYR 1.48 billion (USD 389.5 million) of various MAS properties to Ministry of Finance (MOF) Inc.

After the exercise, MAS will:
- Operate international passenger & cargo (domestic and international) services
- Operate domestic routes on behalf of the government for a fee - for the government, which would assume responsibility for any future profit or loss on these domestic routes.
- Remain listed on the Kuala Lumpur Stock Exchange (KLSE)

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RE: MAS Charts New Flight Path To Profit

Wed Jul 31, 2002 7:13 pm

Sorry, forgot to add, if you want more information, click on the link below:

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RE: MAS Charts New Flight Path To Profit

Thu Aug 01, 2002 7:23 am

To me - it seems rather much like a 'six and two threes'. So the debt gets transfered into this new paper airline PMB... and...
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Joined: Wed Apr 24, 2002 5:43 am

RE: MAS Charts New Flight Path To Profit

Thu Aug 01, 2002 9:15 am

Let's take stock of what is happening.... This is by no means comprehensive and purely my opinion.

The Good:
(1) Makes MAS' balance sheet look "cleaner" by removing depreciating assets and debt payments. Some additional liabilities are added though, in the form of lease payments
(2) MAS is not exposed to fluctuations in value of used aircraft
(3) MAS has fixed lease payments - both on the land and the planes. This adds a measure of certainly, helps them to manage cash flow and expenses better.
(4) With the removal of debt payments, earnings per share will probably go up.
(5) MAS will no longer be responsible for losses on domestic routes. They will get payments from PMB no matter what costs and revenues are going to be. Again this adds a certain measure of certainty.
(6) MAS gets another cash injection from the sale of their catering unit, property and other assets.

The Bad:
(1) How deep are PMB's pockets going to be - they are taking on a lot of debt and risk, especially with the domestic operations and fluctuating value of used aircraft.
(2) How "arms length" will the two firms be when PMB owns such a large chunk of MAS?
(3) Other shareholders' stakes will be diluted.

The Ugly:
It brings more players into the fray, and those players are government-linked. For many airlines, that isn't a good thing as it compromises their independence and decision-making.

My personal conclusion: A creative solution that resolves some immediate- and intermediate-term problems by transferring risk away from MAS. Long-term problems aren't necessarily resolved, though... these include accountability and proper (rational) decision-making. Those are the issues that need to be tackled urgently.

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