BN should close down MAS
Koon Yew Yin, The Malaysian Insider
The long-term MAS price chart shows that it has dropped from RM2.10 in 2007 to 18 sen today. As a serious long-term investor, I have had a closer look at the cheap share price. Why is it selling at 18 sen, or less than one fifth of its par value?
My intention in writing this piece is to help the BN government decide to put in the final nail and to bury MAS so as to save tax payers’ money. Obviously, the government did not pay enough attention to my previous articles “Why MAS share price is on cheap sale?” and “Why MAS is still flying” which I published about a year ago. It will be relevant to include some of the points I mentioned in my previous article in this new one.
The latest first quarter 2014 results ending March show that MAS lost RM443 million. In 2013, 2012 and 2011 the company lost RM1.1 billion, RM433 million and RM2.4 billion respectively. It is beyond logic as to why the government wants to continue to use tax payers’ money to support MAS.
As usual, there are the incorrigibly optimistic cheerleaders for the airline who are unable to see the writing on the wall. These “experts” – including the fat cat management of MAS – are still saying that the company is in recovery mode and will soon be returning to profitability.
The market, however, sees the prospects for the airline differently. During the past few days, the airline share has been trading around the 18 sen level. This is about the lowest share price that the airline has recorded for many years. Without the support of government-linked funds and left to market forces alone, the share price of MAS would definitely drop to a single digit figure.
Should the government continue to bail out MAS?
With the most recent losses, the total losses of MAS is now more than $4 billion. In any normal business, any company incurring such large and sustained losses would have closed down or gone into bankruptcy. This has not yet happened to MAS but I think the time is right – in fact, long overdue – for the government to withdraw the open cheque book extended to MAS.
When planning the future of MAS, it is important that the government not only avoids past mistakes but also takes a rational approach based on economic fundamentals. One line of simplistic thinking is that there is a bright and profitable future for MAS since the number of air travellers continues to increase by about 5-7% per year.
But if you look at the history of airline industry profitability, this is not the case for airlines worldwide. The fact is the airline industry requires huge capital and produces poor returns on capital employed. Hence, year after year, many airlines produce poor profit margins or outright losses.
Why is it that an industry with year-on-year rises in sales cannot generate good returns to shareholders?
