Shares in Malaysian Airlines logged a second day of sharp declines to hit a record low on Monday, raising pressure on the state-run carrier to come up with a plan to restore investor confidence after missing flight MH370 and widening losses.
Malaysian Airline System Bhd last week reported its worst quarterly loss in over two years. Investors were also spooked after the Wall Street Journal on Friday quoted Prime Minister Najib Razak as saying the government could not rule out bankruptcy for the airline.
An official at Najib's office said the comment was from an interview that took place in April, well before the airline's quarterly results were released last Thursday.
Shares in Malaysian Airlines fell as much as 21 percent to a low of 15 sen, equivalent to just 5 U.S. cents, in heavy trade on Monday morning, adding to a drop of 9.5 percent on Friday. By late afternoon it was trading at 15.5 sen, a drop on the day of 18.4 percent.
The airline's market value has plunged about 50 percent so far this year.
"It's a bit drastic what's happening to the stock, but I think it will struggle to make profit in the next year or two years and investors are cashing out now," said Jerry Lee, an analyst with RHB Investment Bank.
The airline said on Thursday that the dramatic impact of the disappearance in March of flight MH370 had pushed it to its worst quarter in over two years, with a sharp drop in passenger traffic likely preventing it from returning to profit this year.
The airline and its key stakeholders are in talks with banks for a strategic overhaul that could include the partial sale of its engineering unit and an upgrade of its aging fleet, sources involved in the discussions have told Reuters.
Bankers said declaring Malaysian Airlines bankrupt was not a decision the government would take lightly as it could harm the airline's chances of selling off profitable units.
"I would still think that sales of their profitable units is the most likely scenario instead of a complicated bankruptcy," said one banker who declined to be named as he was not authorized to speak to the media.
"If you don't service the debt and let it go into default, the name gets tarnished forever," the banker added. State investor Khazanah Nasional Bhd owns 69 percent of the company.
Japan Airlines emerged from bankruptcy to become Asia's most profitable airline in 2012. Chua Boon Kian, Kuala Lumpur-based research analyst with MIDF Amanah Investment Bank Berhad, said it would be premature to completely rule out bankruptcy for Malaysian Airlines.
"I expect the company to file for bankruptcy within the next couple of quarters," Chua said. "It is unlikely the government will inject any new equity."
A Reuters analysis of Malaysian Airlines' financial statements shows that its cash balance of 3.25 billion ringgit ($1 billion) at the end of the first quarter would be exhausted in about six quarters if it continued to bleed losses at its current pace.
The airline has had negative operating cash flow for the past three years, which means it is not generating enough cash to meet its day-to-day operating costs.
Malaysian Airlines reduced its unit costs during the last quarter, but several analysts said it was too large to function profitably, and should cut down loss-making routes and sell certain assets.
"It needs to break into smaller units, sell assets which have value, and restructure routes which are not making money," said Mohshin Aziz, an analyst with Maybank Investment Bank Research.
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