MALAYSIA AIRLINES Financial Result For Year 2001/02

30th May 2002

For the year ended 31st March 2002, Malaysia Airlines (“the Group”) registered a loss after tax of RM 835.6 million amidst a severely disrupted operating environment following the September 11 attacks in the US. It is worthy to note that the Company’s aggressive measures to better manage cost and improve productivity have had some early success in containing operating loss within the expected range for the financial period. Despite the extreme speculations immediately post September 11, turnover for the year declined by only 5.1% to RM8.5 billion from RM8.956 billion the previous year. Passenger traffic for the last quarter of the financial year showed encouraging sign of a return of traveling confidence after the sharp contraction
In accounting for the result of the financial year, the Group had taken into account the adoption of two accounting standards, MASB 6 and MASB 20 required by the Malaysian Accounting Standard Board. These standards relate to the accounting treatment on the effect of changes in foreign exchange rates and recognition of aircraft maintenance and overhaul costs (see Appendix 1)

The Group recorded loss after tax of RM835.6 million versus RM417.4 million loss registered in the previous year.

It would be noted that the net loss in the previous year was pared by the following:


higher gains from disposal of aircraft/spares amounting to RM235.8 million compared to RM21.0 million in the current year.


- income recognised from an insurance claim on damaged aircraft amounting to RM223.2 million.

Adjusted for the aforesaid, the operating loss for the previous year would show a loss of RM855.4 million compared to the operating loss of RM835.6 million for the year ended 31 March 2002.
PASSENGER - International - The airline industry started with a dismal outlook with the onset of the downturn in the world economy led by the US economic slowdown. The situation was compounded by the September 11 incident in USA which had a severe impact on international travel. For the year under review, our international passenger declined by 10.2% to 7.089 million resulting in a corresponding drop in the international passenger-kilometres (pkm) of 10.8% lower at 30.145 billion pkm compared to last year. Total capacity offered was marginally higher by 1.1%. Consequently, passenger load factor declined by 8.7 percentage points to 65.5% resulting in a lower international passenger revenue of 8.1% to RM5.125 billion. International load factor for Quarter One and Quarter Two averaged at 66.0 % and declined in Quarter Three to 59.2% as a result of September 11. However, the load began to improve in Quarter Four to 71.1%

Domestic - Whilst the domestic passenger carriage rose by 1.0% to 4.563 billion pkm, it was not sufficient to offset the higher capacity growth of 14.6% due largely to increase in flights to Sabah and Sarawak. Consequently the domestic passenger load factor fell by 9.4 percentage points to 69.8%. On 1st August 2001, the Malaysian Government approved MAS’s requests for a fare increase for services within Peninsular Malaysia, which contributed to a 10.4% increase in revenue to RM1.263 billion. Load factor for Quarter One and Quarter Two averaged at 72.7 %. However, the load for the Quarter Three and Four remained low at 66.9% as a result of September 11 and the fare hike.

CARGO - Cargo traffic load factor at 59.0% was higher by 3.1 percentage points compared with last year’s 55.9%. Capacity declined by 9.3% to 2.982 billion tonne kilometres as a result of a cut back in freighter services. Load carried at 1.761 billion tonne-kilometres (tkm), was 4.2% lower than the preceding year. Overall, the cargo revenue earned during the year of RM1.258 billion demonstrated a decline of 8.9% compared to the preceding year. During the year, cargo operations incurred a loss before tax of RM242.9 million compared to RM169.9 million in the previous year.

CHANGE IN ACCOUNTING POLICIES - During the year the Group changed its accounting policies in compliance with Malaysian Accounting Standard Board (“MASB”) 6 - ” The Effect Of Changes in Foreign Exchange Rates” and MASB 20 - ” Provisions, Contingent Liabilities and Contingent Assets”. These changes have the effect of decreasing loss before tax for year 2001/02 by RM409.4 million and RM916.4 million for 2000/01.

FINANCIAL POSITION - The shareholders’ funds of the Group for the financial year 2001/02 was RM1.215 billion, a decline of RM38.6 million compared to the restated balance for the prior year. During the year the company issued RM800 million Redeemable Convertible Cumulative Preference Shares (RCCPS) with a tenor of 5 years. Our net tangible assets per share declined from RM2.14 to RM1.98. Total assets employed increased from RM13.989 billion as at 31 March, 2001 to RM14.675 billion as at 31 March, 2002. Our net current liabilities as at the end of the year stood at RM6.055 billion compared to RM2.1 billion at the end of the previous financial year. The increase can be explained as follows: - The reclassification of long term 50 billion yen bond (RM1.427 billion) due to mature in May 2002 - Short term bridging facilities of RM2.2 billion drawn down to fund delivery payments of aircraft. Essentially, the above short term liabilities will be converted to longer term obligations through the various sale and leaseback of 8 aircraft and properties by the Group. The Group’s gearing position worsened slightly with an increase in the debt to equity ratio from 7.3 to 7.4.

FLEET STATUS AND CAPITAL EXPENDITURE - During FY 2001/02, MAS took delivery of 1 B777-200 and 3 B747-400 aircraft. In April 2002, the Group took delivery of a B777-200. The Group is also scheduled to take delivery of one more B777-200 before end of May 2002. Three B737-400 aircraft leased out to other carriers were returned in June, July and November 2001 and were put back into MAS Service. The Group disposed of one DC10-30 aircraft during the year under review. A B747-400 freighter aircraft leased by MAS Kargo was returned to the Lessor in November 2001. One B747-300 Combi aircraft was disposed of in April 2002. As at 31 March 2002, MAS operate 98 passenger aircraft of which 42 are wide-body aircraft comprising 17 B747-400, 2 B747-400Combi, 1 B747-300Combi, 13 B777-200 and 9 A330-300 and another 56 narrow-body aircraft consisting of 39 B737-400, 1 B737-700 (BBJ), 10 F50 and 6 DHC-6. In addition, MAS Kargo operates a fleet of 4 B747-200 freighters.

NETWORK DEVELOPMENT - In April/May of 2001, new services were introduced into Bombay (4x/week), Bangalore (2x/week) and Hyderabad (1x/week) whereas the frequency to Delhi was doubled from 2x to 4x per week. During the financial year, the Guangzhou and Shanghai services were increased from 3x to 5x weekly, Xiamen from 2x to 3x and Saigon from 4x to 5x per week and Phuket services were raised to twice daily from 10x/week. The frequency of the Kuala Lumpur-Sydney-Melbourne-Kuala Lumpur was increased to daily from 6x/week. In total, MAS now operates 43 flights per week to 5 destinations in Australia, making us one of the largest operators there. The 2x daily A330/B777 frequencies to Jakarta were doubled to 4x daily with the injection of an additional 14 B737-400 services a week from January 2002. Services to Perth, Auckland, Brisbane and Surabaya on the other hand, were reduced from 14x to 11x, 7x to 5x, 7x to 4x and from 10x to 7x per week respectively in FY2001/02 while the services to Vienna and Zagreb was terminated in June 2001 while Hatyai and Chiangmai operations were completely withdrawn earlier in April and May respectively. Following a short reaction to September 11, we have reinstated all our international network except for two destinations, Cairns and Darwin. Today, we operate to 55 international destinations with a further 18 destinations operated by our codeshare partners. For the current year we have plans to add new destination and increase frequencies particularly to China, India and the Middle East.

PROSPECTS FOR 2002/03 - The airline industry is steadily recovering from the steep downturn in travel in the last quarter of 2001. Passenger traffic outlook for the coming year appears to be rather more encouraging for MAS given the improving global economic conditions and the return of confidence post Sept 11. Underscoring the improving economic cycle in the US, demand for cargo space is increasing which augurs well for MASKargo. In line with the traffic rebound and changes in leisure travel pattern, plans have been put forward to mount additional frequencies into Frankfurt, Beijing, Guangzhou, Saigon, Hanoi and Phnom Penh. Extra flights and additional capacity will also be mounted to Middle East to cater for the anticipated increase in demand during Summer. It is also anticipated that there will be a positive impact on loads from the World Cup in Japan/Korea and the Commonwealth Games in Manchester this year. Revenue yield, cost and productivity improvement initiatives launched by the company as part of its turnaround program are progressing well and will be pursued vigorously in the coming year.




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