RAM's group chief economist says MAS would not have problems in getting the RM9 billion funding because both Malaysia's banking and capital markets are actually flush with liquidity.
THE RM9 billion fund raising proposal announced by Malaysia Airlines last week is a vote of confidence by Malaysia's financial system in the airline's future, a prominent economist said today.
Dr Yeah Kim Leng, group chief economist of RAM Holdings Bhd, said MAS would not have problems in getting the funding because both Malaysia's banking and capital markets were actually flush with liquidity.
He said Malaysia had surplus liquidity and high savings and both the government and the private sector currently did not face problems raising funds in the market.
"What we notice here, projects which are viable or bankable projects normally would not face any problems. In fact, we are short of good projects in order to raise private investment value.
"Because of Malaysia's surplus liquidity and a strong banking system, the credit risk spreads as well as the amount of funds, the cost of financing still remained relatively low, especially for projects having good credit quality.
"The other positive thing we notice here is that other international issuers are also coming to Malaysia to raise funding," he revealed.
The RM9 billion financing plan is made up of three components - the issuance of up to RM2.5 billion Islamic sukuk by June this year, the government setting up a special purpose vehicle to raise RM5.3 billion to pay for eight aircraft, including six A380 superjumbo, which will then be leased back to Malaysia Airlines, and RM1.2 billion for the remaining wide-bodied aircraft purchases this year, funded by a loan facility to be wrapped up very soon.
Dr Yeah said the market was also quite comforted by the fact that Malaysia Airlines' chief executive officer Ahmad Jauhari Yahya had laid out his restructuring plans and come out with a Turnaround Plan.
The plan entails structural cost cutting, improvements to its operational efficiency, rationalising all its contracts and ensuring that its staff force is of the right size as well as starting a Voluntary Separation Scheme (VSS).
"I think if you look at it and given sufficient time, perhaps over two years, if it can undertake all these structural reforms, then it will be placed on very sound footing and the rest will be up to the impact on how the airline industry will pan out over the next few years.
"But Malaysia Airlines will be in a better position to cope with the competition which is getting very intense on the one hand and on the other hand, because of rising cost pressure due to rising fuel prices,"Dr Yeah said.
Ahmad Jauhari said last week said the airline had made some "tough decisions" in its turnaround plan like cutting unprofitable routes especially in long haul and re-looking at all contracts, including its 25-year catering contract.
Dr Yeah welcomed the the move on revisiting the catering contract signed under the old management as such a long-term deal "doesn't make business sense in the first place".
"So Malaysia Airlines will have to contend with all these challenges so that is why I think Malaysia Airlines with this RM9 billion funding has been given a window of opportunity that it should not miss in terms of putting itself in a very competitive position to sustain its operations in the long term," he said.
The RAM Holdings chief economist said the national carrier had now been presented with an opportunity to regain lost ground as MAS had won numerous international awards in its history.
"I think given this opportunity, the current management is on the right track and with the support of the staff, it's well placed to actually move forward," he added.
On the stiff resistance by employees' unions that caused the unravelling of Malaysia Airlines/AirAsia's share-swap deal on May 2, he said in the service industry, staff issues were very important, and for Malaysia Airlines especially, it has to ensure its long-term competitiveness by raising its service quality to meet business objectives of running a top-class airline.
"Now that they have solved the funding issue, I think it is up to the management and staff to come together and execute the turnaround plan in the most effective manner," said Dr Yeah. Bernama