MAS' plans for saving RM649mil

By TEE LIN SAY
Carrier plans to buy six A380s, ‘bundle’ four planes from PMB for RM3.19bil
PETALING JAYA: Malaysia Airlines System Bhd (MAS) will have a cost savings of RM648.9mil over the next three financial years (FY) beginning FY 2010 with its proposal to acquire six Airbus A380s and “bundle” four Boeing aircraft from Penerbangan Malaysia Bhd (PMB) for RM3.19bil.
The national airline will pay PMB RM1.54bil cash for novation of the purchase of the A380s from PMB to MAS under the deal.
It is also paying RM190mil cash and undertaking liabilities of RM1.46bil to bundle two B777 and two B747 aircraft.
Tengku Azmil Zahruddin and Airbus senior vice-president, sales, customer affairs, Thomas Friedberger at the MoU signing ceremony. They are flanked by MAS stewardesses
The bundling concept refers to MAS paying cash upfront as pre-lease rental to PMB, hence allowing a certain amount of discount to MAS.
At the end of the lease period, PMB will have an option to buy back the planes from MAS.
MAS is also expecting a compensation of about RM330mil for the delay in the deliveries of the Airbus A380 from January 2011 to August 2011.
MAS’ strategy, moving forward, is to transform from a 100% leased fleet to owning at least a third of the aircraft in its core fleet.
“While leasing ensures that we have the flexibility with our fleet, we pay a premium for this. In practice, we do not need full flexibility for the entire fleet,” MAS managing director and CEO Tengku Azmil Zahruddin told reporters at a press conference yesterday.
To fund this acquisition, MAS has proposed to offer 1.67 billion new shares to raise about RM2.67bil.
The rights shares will be offered to shareholders on the basis of one rights share for every one share held at a date to be announced later.
At RM1.60 each, the rights shares are priced at about 32.1% discount to the theoretical ex-rights price of about RM2.36 based on a five-day volume weighted average market price up to Dec 21.
Of the proceeds, RM500mil will be used for the acquisition of A330-300 aircraft, RM1.78bil for working capital, RM365mil for the repayment of bank borrowings and the remainder for estimated expenses.
PMB and Khazanah Nasional Malaysia, which collectively own 69.33% of MAS, have agreed to fully take up the rights issue.
The listing of the new rights share is estimated to happen in early March 2010.
Earlier, MAS and Airbus signed a memorandum of understanding covering the order of 15 A330-300 and acquired purchase options for another 10.
The total cost of the 25 aircraft is US$5bil.
These fuel-efficient aircraft will be delivered from 2011 to 2016 and will serve the growing markets of South Asia, China, North Asia, Australia and Middle East.
When all 15 A330 aircrafts are received by 2016, MAS expects annual savings gains of RM300mil.
MAS will also have the youngest, most fuel-efficient and environment-friendly fleet in Asia.
“This is the best time to order aircraft.
“When you order in a downtime, you get better deals and the aircraft is received when the economic cycle picks up,” Azmil said.
Maybank Investment Bank Bhd senior analyst Khair Mirza views the deal positively, saying that apart from cost savings, the acquisitions would bring in new revenue and improve yields due to the planes’ larger capacity.
Khair expects MAS to stage a turnaround in FY10. “Don’t be surprised if fourth-quarter earnings surprise on the upside, as cost has come down significantly. I think we should see some recovery in MAS’ yields,” he said.
Meanwhile, upon completion of the rights issue and proposed aircraft acquisition, MAS’ gearing ratio will fall to 1.3 times.
Gearing will peak in 2011 to 2.1 times due to the delivery five A380, five A330-300 and three B737-800.
Come 2016, with the increased capacity and new product offering from its new aircraft, MAS’ gearing will drop to one time.