ANALYSIS: Missing 777 to compound MAS's woes

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There is never a good time for an aircraft to disappear, but the mysterious case of the missing Boeing 777-200 could not have come at a worse moment for Malaysia Airlines (MAS).

The Malaysia flag carrier has endured a torrid few years and was just making some progress on its restructuring when its latest crisis struck. This sent its share price dipping some 8% at one point today when the stock market opened.

Last month, MAS also reported a more than tripling of its comprehensive loss for the 2013 financial year to M$1.05 billion ($318 million), compared to a M$381 loss in 2012. This was impacted by a major increase in depreciation, amortisation and impairment charges, as well as foreign currency losses.

Ravi Madavaram, an aerospace consultant at Frost & Sullivan says MAS’ business performance has been “turbulent” in the last five to six years, owing to competition in the Malaysian market and the reversal of a share-swap agreement with AirAsia.

“With the missing 777 incident, there will be some impact on the airline in terms of passenger perception. Passengers would be wary about what has happened, but to what extent, that remains to be seen. Only after getting more information, can we then tell,” he says.

With damage to the airline's reputation almost unavoidable with the MH370 case, Madavaram stressed however that MAS always had a "very good" safety history.

Flightglobal’s Ascend Online database shows that MAS has kept its safety record relatively clean over the last four years. The last accident involving the airline was in 2010. Between 1975 and 2010, it had 18 recorded accidents. Of these, four resulted in total aircraft losses.

The last fatal accident involving the carrier was in 1995 when a Fokker 50 overshot the runway on landing at Tawau airport. Thirty-two passengers and two pilots perished. Investigations later found the captain’s “poor decision-making” to be the main cause of the accident as he failed to follow standard operating procedures on landing.

MAS’ problems first started more than 10 years ago when AirAsia took away much of its short-haul traffic and also moved into its long-haul turf with AirAsia X. MAS responded by converting its subsidiary Firefly into a budget carrier, setting the scene for a capacity war.

The Malaysian government then tried to stop the years of acrimonious competition by proposing a share-swap agreement with national investment agency Khazanah to buy a stake in AirAsia and AirAsia X, and Fernandes and his business partner to take a stake in MAS. This marriage was, however, short-lived and the share-swap was called off in May 2012.

MAS has been working towards profitability since its group chairman declared the carrier to be “in crisis” in 2011. It narrowed its net loss for 2012 to M$433 million from the massive M$2.5 billion loss incurred in 2011.

The carrier presented a renewed business plan focusing on cutting costs and increasing revenues, and set a target to return to profitability by 2014.

The competition in Malaysia however became even fiercer last year when Malindo Air entered into the market, escalating the competitive situation. Speaking to Flightglobal late last year, group chief executive Ahmad Jauhari Yahya, who was hired in 2011 to turn MAS around, said the carrier did well in 2013. It added 20% capacity, resulting in a 30% hike in passenger traffic, using the same number of aircraft and staff as in 2012.

The carrier is also undergoing a fleet renewal programme that will see deliveries through 2017 as it works towards profitability. At the same meeting, Ahmad also said that MAS is evaluating the Airbus A330, A350 and Boeing 787 as possible replacements for its aging fleet of Boeing 777-200s. The carrier’s fleet of 777-200s, the majority of which are leased, will be gradually retired over the next two to three years.

As tension mounts with the search for the missing MAS 777 enters into the third day, Ahmad's job of bringing the carrier back into the red, only just got tougher.