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Corporate woes deepen for Malaysia Airlines

Jul 18 2014 13:18

Malaysia's newly appointed Transport Minister Liow Tiong Lai (R) addresses the media at a hotel near the Kuala Lumpur International Airport (AFP)

Singapore - Shares in struggling Malaysia Airlines sank on Friday after one of its jets crashed in Ukraine, dealing it a blow just months after the loss of Flight MH370, with analysts warning of the firm's collapse without government help.

All 298 people aboard MH17 from Amsterdam to Kuala Lumpur died on Thursday when it came down in violence-wracked eastern Ukraine, with the United States saying it was hit by a surface-to-air missile.

Some industry experts say the incident was beyond the airline's control and while its reputation will be further tarnished, the effect could be limited if it avoids the mistakes made in the MH370 case.

But others warn that even if Thursday's tragedy is proved to have been caused by outside forces it faces an uphill fight to regain passenger confidence.

The flag carrier was already in financial trouble when MH370 disappeared in March en route from Kuala Lumpur to Beijing with 239 people on board. The plane has yet to be found despite an extensive international search.

"MH370 sent shivers down people's spines, but most people realised it was an out-of-the-ordinary occurrence, so bookings recovered," Gerry Soejatman, a consultant with the Jakarta-based Whitesky Aviation chartered flight provider, told AFP.

"MH17 is like lightning striking twice. The effects on bookings will be bigger," he said.

Crucially, two-thirds of passengers on MH370 were from China, its key market, and the firm said sales in the country dived 60% after the disappearance.

News of a second tragedy could prove to be a hammer blow to its chances in China, a country where a brand's link to anything to do with death can be extremely damaging.

Risk of collapse

"The effects will be huge and may cause the airline to collapse without government support.

The loss of two wide-bodied aircraft also puts a serious dent in its capability, and their financial performance will reflect this," said Soejatman.

The airline, which is 70%-owned by state investment vehicle Khazanah National, posted a net loss of $137m in January-March.

Song Seng Wun, a Singapore-based regional economist with Malaysian financial giant CIMB, said: "Definitely, massive help is required from the government and taxpayers again if the company is to see through this darkest period."

Malaysia Airlines (MAS) shares plunged more than 11% late afternoon in Friday trade on the Kuala Lumpur stock exchange and it has now lost more than a third of its value since the end of 2013.

Thursday's crash took place in eastern Ukraine, where government forces are engaged in a fierce battle to quell a rebellion by pro-Russian insurgents.

Kiev described the incident as a "terrorist act", but Russian President Vladimir Putin said Ukraine bore responsibility.

Bill Rylance, chief executive officer of WATATAWA, a Singapore-based communications consultancy advising Asian companies and governments, said the impact on the carrier would depend on whether it bore any responsibility, and its response.

"If culpability lies entirely with ground forces in rebel-held eastern Ukraine, then typically there would be very little residual damage to the reputation of the airline, providing it does and says all the right things in response," Rylance told AFP.

The carrier is already facing questions over why is was flying over a conflict zone, while others were diverting, although Malaysian Prime Minister Najib Razak said international air authorities had deemed the flight path secure.

"Unfortunately, for Malaysia and its national flag carrier, it comes when the MH370 mystery is still a running news story," he said.

"No matter how isolated and unrelated the incidents, the unanswered questions and criticisms about the handling of the MH370 situation will reverberate again in the reportage of this latest disaster."

Rylance said "perceptions are shaped not only by facts and reasoned analysis but also by emotions" which are not always rational.

"This latest disaster will further tarnish the reputations of MAS and Malaysia not because of the incident itself but because it re-amplifies the negative perceptions stemming from their handling of the MH370 situation," he added.

Australian aviation expert Neil Hansford, chairperson of Strategic Aviation Solutions, said the blame cannot be put on the carrier.

"This is just bad luck. You don't expect to have a problem at 30 000 or 40 000 feet," he said.

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