To lose one plane is an accident,
to lose two …
An old joke runs something like this. A man, down on his luck, drives up to a cliff edge and says he’s going to drive right over it. All the people there take pity on him and have a collection to get him back on his feet. “Who where those people?” someone asks. “The passengers on his bus” comes the reply.
Given the popular suicidal pilot theory for the disappearance of Malaysia Airlines flight MH370 in March this year, one presumes this driver didn’t share his problems with his passengers first.
Red and Blue
Another tired old joke is the one about the struggling flag-carrier airline; loss-making year-on-year and only surviving through being propped up by the state. Malaysia Airlines comfortably fit this mould before the unfortunate and tragic disappearance of MH370 in March and the shooting down of MH17 in July. Stories of imminent bankruptcy tend to surround these struggling airlines like flies surround a pile of poo and they have risen in recent months in inverse proportion to this carrier’s appalling bad luck.
Airline passengers are a surprisingly forgiving (i.e. forgetful and penny-pinching) bunch though. All airlines have passenger-impacting problems from time-to-time – accidents, strikes and mechanical issues – that leave thousands of incensed people screaming they’ll never fly with them again. A few months go by, a few cheap deals are offered, a few competitor airlines piss off their clientele too, and things generally return to normal. Following MH317 in March, the airline’s reported load factor by June was down by only around 7% on a year earlier.
But is this the case with Malaysia Airlines at the moment? Though reports indicate it has plenty of cash to keep it going for the next year something could well be afoot in this case. The airline has not made many official announcements about it’s penurious situation but it did respond to press reports of a potential privatisation in early July with “…such a decision is in the hands of MAS major shareholder and the Government of Malaysia”
Something could well be afoot.
But what?
Red and Black
The media seems to like the “taking it private” story and since, only three weeks after the shooting down of MH17, the airline’s share price has already recovered to its post MH370 levels it suggests the market likes it too (or even perhaps knows something it shouldn’t)
And the story does have much to recommend it. Bankruptcy of a flag-carrier is embarrassing and potentially disruptive, and Malaysia is not constrained by the sort of state support rules that perhaps precipitated the demise of Sabena and Swissair, and which seem largely to be ignored in the ongoing survival of Alitalia.
The airline is also nearly 70% owned by Malaysia’s sovereign wealth fund and, trading at around its net asset value, bankruptcy wouldn’t appear to offer much financial benefit – especially if the government is going to end up intervening to save it anyway.
But there’s more than one way a government can intervene and more than one way to cut its losses. I wonder if the privatisation-bulls may be a touch too sanguine.
Black and white
It does appear that the fate of Malaysia Airlines largely rests with the government, but governments don’t have a great track record of running profitable airlines. Malaysia’s choice is between buying the remaining 30% of the airline and potentially bankrolling its ongoing losses, or taking an up-front loss on the 70% they do own.
Many national airlines have entered bankruptcy only to emerge leaner, fitter and stronger. Take the aforementioned Sabena for example, now flying as Brussels Airlines and 45% owned by Germany’s Lufthansa, or the aforementioned Swissair, now rebranded Swiss and 100% owned by Germany’s Lufthansa.
Hmmm, there’s a pattern here.
Black and blue
Many years ago I was working for a small IT startup which went titsup and called in the receivers. Within a day a buyer had been agreed for its assets; a buyer who intended to re-launch the service itself. By any measure this was suspiciously quick work on the part of the administrators and suspiciously quick planning on the part of the buyers. And there was very little that loss-making creditors (like myself) could do about it.
A bankruptcy filing followed by an, er, impressively quick announcement of another airline – a gulf carrier such as Etihad or Emirates for example – buying the assets (on the cheap compared to buying it as a going concern) with a commitment to keep the brand alive and the staff on the payroll sounds like a rather more sensible approach to me. The Malaysian government saves its airline, saves the jobs, relieves itself of the burden of trying to make it profitable and minimises the losses to its sovereign wealth fund.
Everyone’s a winner (well, except perhaps for the other 30% shareholders)
But then common sense and national airlines don’t often go hand-in-hand. There’s a reason for old jokes and most probably Malaysia’s sovereign wealth will soon be the lucky 100% owner of a loss-making airline after all.