Malaysia Airlines flight 17

Malaysia Airlines' future in doubt after Ukraine downing

PUBLISHED : Friday, 18 July, 2014, 1:30pm
UPDATED : Saturday, 19 July, 2014, 2:07am

Shares of Malaysia Airlines tumbled the most in nine weeks on news it had lost a second plane in four months, and the fresh blow threatens to bring Malaysia's unprofitable national airline to an end unless the government buys it out, say analysts.

The carrier's stock at the Bursa Malaysia dropped by 11.11 per cent yesterday to 20 cents (about HK$0.50) after opening 15.6 per cent lower, the biggest intra-day fall since it hit a record low of 15.5 cents at the height of the search for the other missing plane. The Kuala Lumpur Composite Index fell by 0.54 per cent.

"This is a lost opportunity to recover from MH370," said a Kuala Lumpur-based analyst. "Even though we do not think yesterday's tragedy is Malaysia Airlines' error, the sentiment towards the airline will be negative."

The company, which has lost 4.57 billion ringgit (HK$11.1 billion) in value since the start of 2011, has been speeding up a restructuring of its business after being badly hit by the disappearance of MH370 in March.

An analyst with Hong Leong Investment Bank in Kuala Lumpur said no turnaround could be expected in the next half year and passenger traffic would suffer significantly in the coming two or three months.

"The most crucial thing at the moment is to have enough cash flow to sustain it for another year," he said. "Large amounts of capital injection would be needed," with the government being the only entity possibly ready to do that, he said.

The airline's 69 per cent shareholder, state fund Khazanah Nasional, reportedly proposed to privatise the airline earlier this month.

"If they go private it will be easier for them to have a turnaround," said the Hong Leong Investment Bank analyst, as listed companies were subject to various regulatory restrictions. The company would have to restructure and cut unprofitable routes, he said.

But chances are low that Malaysia's national carrier would go bankrupt as the government would seek to prevent that from happening, said both analysts.

Asian stocks fell for the first time in five days on the news. The Nikkei 225 fell the most - by 1.01 per cent. The Hang Seng Index was down by 0.28 per cent. However, the Shanghai Shenzhen CSI 300 Index gained 0.33 per cent.