Tuesday, January 8, 2013

OSK: Talks that Malindo hit by financial constraints

PETALING JAYA (Jan 8, 2013): There are rumours that Malindo Airways' major shareholder, National Aerospace and Defence Industries Sdn Bhd (NADI) is reluctant to pour more capital into its joint venture (JV) with Indonesia's PT Lion Grup, said OSK Research Sdn Bhd.

"Despite these rumours, we understand that recruitment of cabin crews and pilots is ongoing, with the first batch of 20 fresh pilots coming in this month while some first officers and captains have started work," said its aviation analyst Ahmad Maghfur Usman in a report yesterday.

"However, due to the JV's limited capital, we gather that Malindo charges a fee for any new commercial pilot licence (CPL) holder with B737 NG type rating who is interested to become pilots. Charges are estimated to be US$30,000 for the first 500 hours, with no salary," he added.

Ahmad Maghfur reckons that this could be a sign of Malindo and Lion Air facing some financial constraints.

A type rating is a licence to fly a certain aircraft type that requires additional training beyond the scope of the initial licence and aircraft class training.

"We understand that AirAsia Bhd does not adopt this practice as it usually bears the cost of type ratings in exchange for a six-year bond. In the case of cadets, we understand that AirAsia provides some kind of financing scheme," said Ahmad Maghfur.

He sees Lion Air's attempt to enter the Malaysian aviation market with the setting up of Malindo will certainly see competition intensify in the low-cost segment and pressure yields going forward, but deems concerns over upcoming competition from Malindo denting AirAsia's profits as over-rated.

"The key routes Malindo is eyeing in the immediate term are AirAsia's most profitable Kuala Lumpur to Kuching and Kota Kinabalu routes.

"We think that as (Malindo's) 10 aircraft -- to kick start the first year of operation -- will be gradually delivered, any impact on AirAsia's overall yields will be mild given that the low-cost carrier is already flying 14 times and 12 times daily to both Kota Kinabalu and Kuching respectively."

While a price war may ensue if competition intensifies, Ahmad Maghfur believes that Lion Air has not been aggressive in its promotions in Indonesia and Malindo may adopt the same thinking, with it starting off with a small fleet, its discounts may not be too aggressive.

OSK is maintaining a "buy" call on AirAsia at RM2.93, with an unchanged RM3.39 fair value.
In a separate report, Ahmad Maghfur is positive on the deferment of the opening of KLIA2 in Sepang to June 28, 2013 from the original May 1, as delaying its opening will ensure that the new low-cost terminal begins operation without any glitches.

In fact, he sees any pullback in Malaysia Airports Holdings Bhd's (MAHB) share price in response to the delay in KLIA2's commencement date should open up opportunities for investors to accumulate the stock.

The research firm is maintaining its "buy" call on MAHB at RM5.49, with a RM8 fair value, saying the airport operator "continues to be buoyed by resilient demand for air travel as well as its cash generating business".

Article taken from TheSunDaily

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