Ya, we should instead award the MAS management for 3 b possible hedging loss , the highest ever suffered by a listed co.

You mean Financial and Risk Management are not part of their duties of the Directors ? Not possible to cut loss like AA ?

And the question of solvency at stake ? No going concern problem bocs we can print any amount of RM like the US ?

Whose money is involved ?

This post has been edited by SKY 1809: Jun 14 2009, 06:56 PM

LOL didn't mean that we have to give awards to MAS BOD.
Yes, indeed they were making some bad decisions. However, i believe that they came up with that decisions after they've done enough research & analysis. And if the decisions turn out bad, part of it is pure bad luck.

Nobody can predict the future, can we ?

To a certain extent, they can't cut losses like AA . They are in a more wider routes and a more complex rules and regulations entered with various parties.

And currently, apart from the POSSIBLE hedging losses, they are able to to enter into new contracts that will bring in more income to the company.

They have agreed to code share with Turkish airlines and they're mulling many other ways to help the company's cashflows.

Have they ask for bailouts ? And if we are determine to see MAS at par with SIA, shouldn't we be supporting them ? We were ashamed that SIA's market caps is 10x higher than MAS, but if we travel, doesn't AA and other airlines our preferred airlines ?

There will not be solvency problems, because the income generated, even during the current economic conditions can sustain MAS operations.

I do believe that once the economy recovers, MAS position will be better.

I do believe that MAS is not the best airline company around, but I really think that they have done so much better under the leadership of Idris Jala.

And the problems faced by MAS is not isolated, there are many more airlines having financial difficulties, due to the economic conditions.

Whether MAS needs bailout or not is depended on the solvency aka cashflow position.

MAS is doing wrong decision at both time

When oil price was low, no hedge at all. So suffer the high fuel cost when oil price surged. So make loss

So after that start to hedge at 100, then oil price plummeting, so suffering the hedge loss. So again make loss.

If the company is always running at hedge one, the company benefit from the hedge previously when oil price surged.
Or
if the company is always running at no hedge or little hedge, then at least now getting the benefit of low oil price.

Aka you have at least one + and one - from your consistent or proper strategy.
Not double -ve as they are facing now.

The situation just suggested the company has no proper set of hedging strategy. Just like ordinary people when seeing share up time, go to chase, while when seeing share down time, don't want to buy. So always ended loss.

Don't get me wrong.
I am not blaming the company management currently as Idris Jala is newly appointed and couldn't do much about previous loss suffering. But what they need to do is have a full set of proper hedging position be it right or wrong for the outcome of the oil price.

Indeed you are correct.

I am a bit perplexed that people are so easy in criticizing when there is nothing much that can be done, especially in the case of new management running the business, taking over from the old management who have turned the company into such shamble.

They do need better hedging strategy, and I hope they've learnt their lesson.

They could have also done mistake in determining when the economy will recover, thus the hedging loss. Then again, future is for everyone to guess, and they've guessed wrongly.

Hm if MAS decided not to implement the new FRS139, then the public wouldn't know abt it after all, wouldn't they? The implementation of FRS139 is only mandatory starting January 2010, and yet they've chose to disclose it earlier so that the public are better informed. But then again, maybe it is a bad move after all, because if not then we wouldn't even have this thread

So let us all hope that there won't be any bailouts from the Govt, and that this mistake won't happen again.

Can you suggest a good strategy to hedge 12 - 48 months ahead as in MAS case.
Note:It's MAS policy to hedge 80% of fuel requirement.


"The CEO will be replaced!"

We proposed Ahmad Badahwi can?

My suggestion is employ me as the CEO
RM20k amonth +0.1%share option

The best thing to do for MAS is to review its fuel contract and see if it can get out.
Don't hedge for now. They are not oil traders, just concentrate on
running the company lean and mean. Just pay the damn spot price!

Or.. they can start laying off people! Yeah.. that's right.
Cut out the excessive number of crews and personnel or 'potong gaji'.
This will definitely cut out more costs.

This post has been edited by danmooncake: Jun 14 2009, 11:47 PM

I agree with you.

Mas March 09 Q losses is mainly due to them adopting FRS139 ,which provides that companies must marked to market(MTM）all their open positions held in financial instruments including derivatives.

As at the end of March 09,oil prices had tumbled to below USD 45 per barrel.Since MAS had hedged their fuel at around USD100,by MTM,the unrealised loss will be around USD55 per barrel(yes,crude oil and fuel oil are not the same, I am just drawing a comparison here ),hence the 557m hedging loss as booked in the March 09 Q results.

Now,the crude oil prices has climbed back to USD 71 per barrel.If MAS were to prepare their account now,and assuming that all their hedging contracts remain the same,their losses will be reduced by USD26 per barrel and will actually show a beautiful set of profit figures.

No doubt,MAS will tumble tomorrow,but any big drop(limit down will be ideal) will be an opportunity.

My two sens.

This post has been edited by lklatmy: Jun 15 2009, 12:07 AM

But one thing shall be taken note of, operating also loss money.

MAS loss money on all 3 derivatives
Fuel loss = 10 bil. (did MAS really believe oil will hit US$200?)
Interest rate loss = 2.2 bil
Foreign exchange loss = 2.7 bil

It seems the fuel derivatives loss 7.6 bil already happen in 2007

so waht is the fair prioce now? rm1.2?

3786 MAS MALAYSIAN AIRLINE SYSTEM BHD
Application for Practice Note 17/2005

Malaysian Airline System Berhad (MAS)
- Application for Practice Note 17/2005
MAS wishes to announce that it has applied and been granted a conditional
waiver (Conditional Waiver) until 31 December 2009 from being categorised as an
Affected Listed Issuer under PN 17 due to its triggering of the criteria under
Paragraph 2.1 of PN 17 in relation to shareholders equity. This Conditional
Waiver is subject to four conditions imposed by Bursa Malaysia Securities
Berhad (Bursa) as stated herein below.
With an early adoption of FRS 139 and a net unrealised mark-to-market (MTM)
loss on derivative financial instruments of RM3,328 million, the Group Equity
Holders Fund as at 31 March 2009 is negative RM458 million. The net unrealised
MTM position is mainly due to fuel hedging contracts with maturity over a
3-year period up to 31 December 2011. The unrealised fuel MTM position will
fluctuate subject to the movement in the fuel forward curve.
The Board has approved the early adoption of FRS 139 to allow MAS financial
statements to be directly comparable to most major international airlines and
to improve transparency of the financial statements.
MAS adopts a competitive fuel hedging policy, whereby it strives to have
similar fuel cost with its peer competitors. MAS gradually built its hedging
portfolio throughout the year. Due to the unprecedented collapse in fuel prices
in late 2008 and early 2009, these contracts are in MTM loss position. These
are unrealised losses as the fuel hedging contracts will mature over a 3-year
period up to 31 December 2001. The unrealised MTM position will fluctuate based
on the movement in the fuel forward curve. As at 31 March 2009, the unrealised
fuel MTM loss is RM3,383 million. On a comparable basis, using fuel forward
curve as at 29 May 2009, the unrealised fuel MTM loss has reduced by RM1,150
million. The total fuel volume hedged as at 8 June 2009 is 21.9 million barrels
for the periods up to 31 December 2011. As of 31 March 2009, MAS has hedged 47%
of its fuel requirement at USD103 per barrel for the rest of 2009. The average
hedged fuel prices for 2010 and 2011 range from USD90 per barrel to USD100 per
barrel.

Due to the unrealised net MTM losses, the Group Equity Holders Fund is
unfavourably impacted. As at 31 March 2009, on FRS 139 basis, the Group Equity
Holders Fund technically triggers the criteria under Paragraph 2.1 of PN 17 in
relation to shareholders equity. A significant portion of the negative equity
as at 31 March 2009 (on FRS 139 basis) is due to the unrealised net MTM
position (RM3,328 million).
Notwithstanding the voluntary early adoption of the new accounting standard and
the net unrealised MTM position, the Group's operations remain robust and the
'going concern' assumption remains valid.
In approving the early adoption of FRS139, the Board has also noted and
considered the following:
i) the Group's cash balance remains strong, at RM3.77 billion as at 31 March
2009 including negotiable instrument of deposits;
ii) on non-FRS139 basis, the Group Equity Holders Fund will be at RM3,396
million as at 31 March 2009; and
iii) on FRS139 basis and using comparable fuel forward curve as at 29 May
2009, the Group Proforma Equity Holders Fund would have been RM692 million as
at 31 March 2009.
The reduction in the Group Equity Holders Fund does not trigger any default or
cross default of its financial facilities.
As part of the plan to improve its equity, MAS plans to gradually lock in the
MTM gain when the opportunity arises (fuel forward curve moves upward) and
deliver underlying operating profit. On the underlying performance, MAS
continues to fast track the implementation of its Business Transformation Plan
(BTP 2), anchored on the 4-pillar strategy of dynamic pricing, network
optimisation, cost management and innovation. The Board of MAS is committed to
these ongoing measures and strategies to cease or avoid triggering the PN17
criteria by 31st December 2009.
As part of MAS enhancement in its risk management practices in relation to its
fuel hedging policy, MAS will continue to selectively buy put options which
will reduce the existing fuel hedging downside exposure. This will provide
certain protection with respect to unrealised MTM exposure in the event the
fuel price moves downward.
In granting MAS the Conditional Waiver from PN 17, Bursa has set the following
conditions:
Condition 1: The Conditional Waiver is only in respect of unrealised MTM losses
for fuel hedging contracts arising from the adoption of FRS 139. If MAS
triggers the PN 17 criteria due to reasons other than the above (e.g. realised
losses from hedging contracts), the above Conditional Waiver will not apply;
Condition 2: MAS must ensure full compliance with FRS 139 in recognising and
measuring all the financial assets, financial liabilities and certain contracts
to buy or sell non-financial items as stipulated in FRS 139 in all its
financial statements issued in the financial year 2009;
Condition 3: MAS is to take all necessary measures to cease or avoid triggering
the PN 17 criteria by 31 December 2009. In the event that the Company triggers
or continues to trigger the PN 17 criteria after the expiry of the Conditional
Waiver (i.e. 31 December 2009), MAS will be required to fully comply with PN 17
requirements;
Condition 4: MAS must take the following disclosures in its quarterly
report(s):
i) a Proforma balance sheet position in its quarterly report (QR) ended 31
March 2009, showing shareholders equity based on MTM valuation of the fuel
hedging contracts as at 29 May 2009 under the FRS 139 reporting principles;
ii) a Proforma balance sheet position without FRS 139 in all its QRs for
financial year 2009;
iii) total realised and unrealised losses due to fuel hedging contracts under
FRS 139 for financial year to-date in all its QRs for financial year 2009; and
iv) the status of the measures as referred to in Condition 3 above in all its
QRs for financial year 2009.
The Conditional Waiver granted by Bursa was after taking into consideration of,
amongst others, the following factors:
i) high volatility of the underlying assets (i.e. fuel) hedged by MAS which is
subject to MTM valuation giving rise to fluctuations in the Group Equity
Holders Fund. In this regard, it is noted that the Group Equity Holders Fund
was negative for the quarter ended 31 March 2009 based on the pricing of fuel
price at the material period but positive based on the comparative fuel forward
curve as at 29 May 2009; and
ii) the MTM losses of the Groups fuel hedging contracts are unrealised losses.



12/06/2009 07:24 PM

MAS - Underperform. TP: 2.85


Attached File(s)
 researchview_MAS_150609.pdf ( 195.89k ) Number of downloads: 12

Thanks Pana. Here is one report from CIMB, TP 1.95.


Attached File(s)
 MAS_Mar_09_results.pdf ( 320.97k ) Number of downloads: 8

The problem is, for long term investing, I can't see why we should be paying 3.xx for a company that in negative equity and no forseable profit future yet which there is surely no dividend in the next 3-5 years future.

I don't mind betting at 1.xx - 2.00

My view only.

Just to add,
MAS is an airliner company, they should hedge according to the operation needs, not act as like oil traders to guess which way oil price will go.
This is not the company objective.

Just like what plantation companies are doing, as long as the CPO price is profitable, they hedge the CPO price by selling at futures first disregard how future is look like be it up or down. You don't bet the market as long as business is profitable which is the company objective.

Maybe they are trying to achieve its delta hedge? But MAS didn't disclosed the hedges they are in, just leaving words like 'various hedges', but after booking in that kind of price to their COGS (assumed effective hedge), MAS should be continue to red for the rest of the year (if oil price don't up).

Buying this might be exposure to fuel future also, if any unrest happened at place like Iran, they might be there to ripe the profit. But always no good looking for profit from others misfortune.

Just my 2 cents.

no dividend doesnt mean the company doing not well, it could be a positive signal which they have project going on or to expand
dividend is draw out from retain earning. it could be a -neg. signal if pay dividend , which could mean they have no project or expand in future

if pay dividend yet gonna expand, which they need to issue share or whatever to collect fund again ,it cost alot from the charging ..> which isnt a wise choice..

not moving much.. Classic PROTON / PERWAJA case?

I do not have any privilege information but judging from the wording of the March09 Q announcement and the explaination that follows,it appear to me that MAS is doing hedging of their fuel needs,not trading.But the hedge gone awry due to the fall of crude oil prices in March/april this year.

Referring to MTM hedging losses in fuel oil,in today's THEEDGE Malaysia,many other major airlines are also incurring hugh hedging losses,to name some,SIA 1.18b,AirChina 994m,Cathay Pacific980m,ChinaEastern 908m.

Obviously,MAS is not alone.

Mas price din't fall much today,reflecting that there is no big sellers.The market is efficient,others know what we know.

Since MAS din't drop as much as I expect today,but if it drift slowly over a protracted period,I won't buy even at RM2. since chances of a quick rebound is minimal.

A few broking firms are recommending a sell on Mas today.

Please judge your own.

This post has been edited by lklatmy: Jun 15 2009, 12:31 PM