Right move to sell planes, but buyers hard to find

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KUALA LUMPUR: The potential sale of Malaysian Airline System Bhd’s (MAS) Airbus A380 and Boeing 777-200ER fleet would be the right thing to do to return itself to operational profitability by 2017, aviation analysts said, although finding a buyer could be difficult right now.

That’s because some analysts believe the window of opportunity — that is the time frame for MAS to offload its A380 superjumbos — has passed when Airbus delayed their delivery several times due to manufacturing problems in January 2007.

The analysts said when MAS finally took delivery of the first of six A380s in May 2012, it didn’t have the first mover’s advantage like Singapore Airlines (SIA) and Emirates. It also had to contend with strong competition from low-cost carriers and its reputation took a hit last year after the twin tragedies of flights MH17 and MH370.

Maybank Investment Bank Bhd aviation analyst Mohshin Aziz said a partial sale or lease of its aircraft fleet would be the right move for MAS as part of its restructuring plan.

“They are moving [in] the right direction by cutting staff and aircraft fleet so that there will not be any surplus of assets in the future,” he told The Edge Financial Daily by telephone yesterday.

However, Mohshin is of the view that there is currently no market for the sale or lease of the A380s, although MAS would be the first airline to retire an operational A380 fleet.

“They may try to sell [their aircraft], but may be forced to realise that they will have to scrap the plan in the end,” he said.

Mohshin said market sentiments could have been encouraging if the decision to sell its A380s was made during former MAS managing director Tengku Datuk Seri Azmil Zahruddin Raja Abdul Aziz’s time, as he reckoned that the delivery of the superjumbos was delayed several times until the time came when market sentiment was no longer favourable or beneficial to MAS.

As for the 777-200ERs, Mohshin noted that SIA had trouble trying to sell off its jets last year.

Currently, MAS operates 15 777-200ERs — the first 777-200ER was delivered in 1997. The average age of the aircraft is 8.5 years.

Aviation consultancy Endau Analytics founder Shukor Yusof said globally, the A380s are still being operated by their original buyers.

“Thus, even leasing companies are not interested in the A380s as there is no (secondary) market,” he said, noting that Airbus didn’t sell a single superjumbo to an airline in 2014.

“My view from the very beginning (when the A380s were purchased) was that it was a mistake to buy them. This happened during Tengku Azmil’s time.

“I was even on record [as saying] that the purchase would not serve any purpose to a carrier like MAS, but the airline shot down my views the next day when I wrote about it,” the former Standard & Poor’s aviation analyst said. 

Another analyst who declined to be named echoed Shukor’s sentiments, saying the decision to buy the six A380s was not a wise one.

“I won’t say it was a mistake to buy the A380s, but MAS did not have to buy so many.

“To some degree, it was also an ego and pride move as most of the bigger carriers were also buying them [at that time],” the analyst said.

On Sunday, MAS issued a statement to say that exploring fleet options to enhance the viability of its long-haul sectors was one area being looked into. This follows a Leeham News report that the national airline was to have offered for sale its six A380s and four 777-200ERs. It reported that the airline was allegedly open to outright sale or lease of the aircraft.

On Feb 17, Bloomberg reported that Turkish Airlines was considering leasing two of the A380s from MAS, giving the rapidly expanding carrier a test run at flying the world’s largest airliner.

The Edge Financial Daily was given to understand that the talks between the two airlines may have fallen through over pricing issues.

“The price could have been just not sensible for the Turkish airline to begin with. One must take into account that the A380s were made to suit MAS’ specifications and it could costs Turkish Airlines another US$25 million (RM90 million) to US$30 million per aircraft to make the changes,” a source said.

 

This article first appeared in The Edge Financial Daily, on May 6, 2015.