http://news.ft.com/ft/gx.cgi/ftc?
pagename=View&c=Article&cid=FT3XTNOL6WC& live=true&useoverridetemplate=ZZZ3XDHE90C &tagid=ZZZA31PK20C

Malaysia government buys MAS assets

By Douglas Wong in Singapore

Published: January 7 2002

Malaysia Airline Systems, the national airline, on Monday announced some M$6bn (US$1.6bn) worth of asset sales to help repay M$7.8bn in debt and provide working capital.

The government, which last year bought 29.1 per cent of the loss-making carrier for M$1.79bn, will pay M$2.2bn for several MAS properties, M$400m above their book value.

MAS will also sell eight aircraft to the government or an international funding agency for about M$4bn. It will lease back the properties and the aircraft.

Mohd Nor Yusof, managing director, said: "With this, our balance sheet will be more presentable for us to talk to bankers about re-capitalising our business."

Of the proceeds, M$2.4bn would be used to take delivery of five new aircraft, M$1.5bn to repay yen bonds due in May, and M$1.3bn to repay short-term borrowings. The balance will be used for working capital.

Besides the property and aircraft sales, which will be completed by June, MAS also intends to sell its catering unit to a group led by Lufthansa, the German airline.

However, Mr Mohd Nor provided no details of previously announced plans to reduce the group's 21,000 workforce, and declined to say when he thought MAS would be able to enter the "strategic partnership" with a foreign airline.

He said that MAS was headed for a M$1.4bn loss for the year ended March 2002, a fifth straight year of losses, but that it would return to profitability by 2004. Mr Mohd Nor defended the role of the government in the asset sales.

"There is a clear rationale for government involvement considering the importance of aircraft travel," he said.

MAS will also reinstate some of the 12 routes it had previously dropped due to cost concerns including Manchester, Karachi and Istanbul.

Malaysia's government last year moved to take over a number of struggling companies weighed down by debt acquired before the Asian crisis. Prime minister Mahathir Mohamad's economic adviser and the former central bank governor Nor Mohamed Yakcop is assisting in the MAS restructuring.

Analysts were generally positive about the announcement, which introduces a timetable to address the carrier's most pressing concerns.

"But this is only the first step. MAS and other Malaysian companies still have to show that they can introduce capable managements in ever-more competitive businesses," said Hugh Peyman of Asian consultants Research Works.

The announcement was made after the market closed. MAS shares, which have fallen 12 per cent in the past 12 months, were unchanged at M$3.16.