MAS eyes RM2.67b from rights issue

Malaysia Airlines (MAS) (3786) is planning to raise RM2.67 billion through a rights issue to partly fund the purchase of new planes.

The national carrier has proposed a one-for-one rights issue of 1.67 billion new units at a price of RM1.60 per share.

"Proceeds will be used for the acquisition of wide-body aircraft and working capital," MAS managing director and chief executive officer Tengku Datuk Azmil Zahruddin told a media briefing in Petaling Jaya yesterday.

He added that the rights issue will also improve MAS' liquidity and financial flexibility through a well-capitalised balance sheet.
Khazanah Nasional Bhd and Penerbangan Malaysia Bhd (PMB) will undertake their entire entitlement totalling 69.3 per cent of shares held in MAS.

The airline, which is phasing out its older aircraft and replacing them with new aircraft models, has said it will fund new aircraft through equity and debt financing.

MAS signed an agreement yesterday with European plane maker Airbus for an order of 15 A330-300s with options for another 10. This is on top of its incoming six super-jumbo A380s and 35 B737-800s.

Tengku Azmil said the new aircraft models will help the airline lower its operating cost and increase fuel efficiencies. MAS will have the youngest fleet in Asia by 2015.

He added that the working capital from the rights issue will help the airline fund growth opportunities as it moves from a 100 per cent leased fleet to owning at least a third of its core fleet.

MAS also announced yesterday that it will acquire the six A380s and bundle four Boeing aircraft from PMB for RM3.19 billion.

The airline will pay PMB some RM1.54 billion for the six A380s. It will receive one super-jumbo jet monthly, starting August 2011.

The initial delivery was scheduled to begin in January 2011, but was delayed by eight months at Airbus' request, citing "production issues".

Tengku Azmil said MAS will receive a total compensation of RM330 million for the delay in deliveries.

Meanwhile, the airline will make an upfront payment of RM190 million to PMB for two B777s and two B747s, whereby PMB will sell the aircraft to MAS upon the aircraft being unencumbered.

This is a pre-payment for the operating lease rentals under the existing lease agreements between PMB and MAS.

Upon completion of the transactions, MAS will assume liabilities amounting to RM1.46 billion, which include future lease payments and purchase payments.

The proposed aircraft acquisitions are expected to add RM648 million to the airline's profit and loss over a three-year period beginning 2010, mainly because it will own the aircraft instead of leasing it.

"Although leasing provides the flexibility in aircraft utilisation, we pay a premium for this flexibility. We don't need such flexibility for the entire fleet because some aircraft will continue to be utilised in a downturn," said Tengku Azmil.

Both the rights issue and aircraft acquisition are expected to be completed by the end of March next year.

The airline's gearing will initially fall to 1.3 times after the rights issue and aircraft acquisition in 2010, but peak at 2.1 times in 2011 with the delivery of the six A380s.