Saturday, April 05, 2014

Malaysia Airlines may face bankruptcy after MH370 tragedy

The tragic and baffling disappearance of Malaysia Airlines flight MH370 has undoubtedly worsened the financial situation of the company as the airline was already suffering a deficit prior to the incident, according to the China Economic Weekly.

As of March 27, an international search has yet to find any definitive clues into what happened to the plane that disappeared en route from Kuala Lumpur to Beijing on March 8. Malaysia's prime minister, Najib Razak, announced on March 24 that the flight ended in the southern Indian Ocean with the loss of all 239 people on board. The announcement was met with anger in China, whose nationals made up two thirds of the passengers on board, where it was felt this conclusion should not have been reached before solid evidence of the flight's fate had been found.

Whatever the result be, Malaysia Airlines will have to bear the responsibility and compensate the passengers' families.

Standard & Poor's Financial Services predicts that the payout for compensation claims connected to flight MH370 will be a big as those related to the 9/11 terror attacks in the United States.

Malaysia Airlines has been incurring losses for several consecutive years. Its net loss was pegged at 4.7 billion yuan (US$763.7 million) in 2011 and 810 million yuan (US$130.4 millon) in 2012. Last year, the company's net loss ballooned to 220 million yuan (US$35.4 million) despite an annual sales growth of 9.9%.

Over the past year, share prices of the company have dropped by nearly a quarter, the weekly said, adding that its stock has plunged by as much as 20% since March 8.

The company has yet to offer a final compensation to the passengers' families as the plane remains missing and the cause of the incident remains unclear. According to international regulations, a carrier is obligated to pay an initial compensation to the family of the victims after the occurrence of an aviation incident and has to confirm the final amount of compensation when the causes are confirmed.

Whether the air carrier is responsible for the incident or not, it has to pay a compensation of €113,100 (US$155,700) for each casualty or death in accordance with the Montreal Convention. In other words, Malaysia Airlines is required to pay a minimum of 1.2 million yuan (US$193,200) to the family of each passenger and it will have to bear at least US$28 million in compensation costs.

The amount will increase however if it was proved that Malaysia Airlines was solely responsible for the incident.

Whether the largest air carrier in Malaysia will take responsibility for the plane's disappearance is still unknown, but the company's credibility has been hurt from the manner in which it has handled the aftermath.

The statements made by the company and the Malaysian government have been vague and contradictory, the weekly said, adding that Prime Minister Razak's announcement of the flight crashing in the Indian Ocean was not supported by any solid evidence.


Malaysian prime minister Najib Razak, at the podium, speaks during a press event on missing flight MH370, March 24.