Unfortunate Incident For MASwings
An aircraft belonging to MAS subsidiary MASwings crashed in Kudat, Sabah, yesterday. Two people were killed and four were injured in the incident, which may have tarnished the airline’s good safety track record. We believe that AirAsia is now the safest airline under our coverage. We maintain our OVERWEIGHT call on the sector and NEUTRAL on MAS, pending investigation results.
MASwings crash in Sabah. A MASwings’ Twin Otter aircraft crash-landed in Sabah while attempting to land at the Kudat airstrip at 2.55pm yesterday. There were 16 people onboard, including the pilot and co-pilot. The airplane struck the side of a house in Kampung Sinsan, 165m to the right of the runaway. It was reported in the media that the co-pilot and a passenger were killed while four others were injured.
Investigation on going. The results of the air crash investigation have yet to be revealed, but media reports indicate that the aircraft may have been hit by crosswinds while attempting to land on the 900m long runway, known as a short take off and landing (STOL) strip in the industry. Note too that the control tower was unmanned at the time, that the pilots had to make their landing based on their own instrumentation, and that the Twin Otters are not equipped with sophisticated avionics.
Impact on MAS. 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. Although MASwings is a community flight operator that services the East Malaysian market, the incident may still have some negative spillover at group level. Our sensitivity analysis on a +/- 1.0% change in passenger traffic assumptions suggests that FY13F/14F earnings will change +/- 23.4%/78.2%.
Safer flight. We reckon that AirAsia (AIRA MK, BUY, FV: MYR3.94) 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 Jan 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. AirAsia X (AAX MK, BUY, FV: MYR1.65) has also managed to keep a clean sheet since starting operations in 2007.
NEUTRAL on MAS. We retain our NEUTRAL stance on MAS and keep our MYR0.34 FV unchanged at this juncture. However, we will monitor closely any developments in the investigation. Given this unfortunate incident, we also expect some selling pressure on the counter. In the aviation space, we prefer exposure to Malaysia Airports (MAHB MK, BUY, FV: MYR8.47) 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.
Publish date: 11/10/13