Wednesday, October 5

MASwings accident tarnishes airlines’ good safety track record

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KUCHING: The aircraft belonging to Malaysia Airline System Bhd’s (MAS) subsidiary MASwings which crashed in Kudat, Sabah on Thursday, may have tarnished the airline’s good safety track record, according to analysts.

Analysts Jerry Lee and Ahmad Maghfur Usman of RHB Research Institute Sdn Bhd (RHB Research) noted that whatever the cause, an aircraft crash tarnishes the safety record of an airline operator.

In MAS’ case, it will impact its good record, which it has maintained over the past 10 years.

It may affect consumer confidence on the safety of its services, which, in turn, can hurt the airline’s passenger loads,” the analysts opined.

Although MASwings is a community flight operator that services the East Malaysian market, the analysts pointed out that the incident may still have some negative spillover at group level.

Our sensitivity analysis on a plus minus one per cent change in passenger traffic assumptions suggests that financial year 2013 forecast/2014 forecast (FY13F/14F) earnings will change plus 23.4 per cent/minus 78.2 per cent,” they projected.

As a result, they reckon that AirAsia Bhd (AirAsia) could be a ‘safer’ flight, having kept its safety record clean in the past 10 years.

It has only had one non-fatal incident back in January 2011 when one of its aircraft skidded off a runway in Kuching, Sarawak, in heavy rain.

The airplane came to rest on the grass strip adjacent to the runaway with no casualties.

They further noted that AirAsia X Bhd has also managed to keep a clean sheet since starting operations in 2007.

As such, RHB Research retained its ‘neutral’ stance on MAS and kept its RM0.34 per share fair value unchanged at this juncture.

However, it will monitor closely any developments in the investigation. Given this unfortunate incident, it also expect some selling pressure on the counter.

In the aviation space, we prefer exposure to Malaysia Airports Holdings Bhd and AirAsia. Given the share price strength in the former, we now make the latter our top pick.

“We also maintain our ‘overweight’ stance on the sector,” the analysts concluded.