MAS plans to double Asia-Pacific routes

Malaysian Airline System Bhd intends to almost double its Asia-Pacific
destinations in three years as part of a turnaround plan prompted by
five straight quarterly losses.

The carrier may fly to 25 cities
in countries including China, Japan and India by 2015, compared with 13
regional destinations now, Chairman Md Nor Yusof said in an interview
yesterday in Subang, near Kuala Lumpur where the carrier is based.
Flights on some existing routes will also be increased by as much as 50
per cent, he said.

"The airline business is closely linked to
the economic cycle and there is a consensus that the Asia-Pacific
region is the bright spot," Md Nor said. "There's plenty of reasons to
be optimistic."

The carrier may also make some job cuts as part
of the restructuring to be announced at a June 21 annual shareholders'
meeting, Md Nor said without elaboration. The new proposal comes after
parent companies of Malaysian Air and AirAsia Bhd last month unwound a
share swap agreement following complaints by the national carrier's
biggest union.

Malaysian Air was unchanged at RM1.15 at close of
trading in Kuala Lumpur today. The stock has dropped 12 per cent this
year, compared with a 3 per cent gain in the benchmark FTSE Bursa
Malaysia KLCI Index.

"Despite the ongoing reforms, such as
network reviews, we expect Malaysian Air to continue to report losses
in its 2012 financial year," Annuar Aziz, an analyst at Credit Suisse
Group AG said in a report today. "The weakness in the passenger network
has been matched by weak cargo demand."

Downgraded

Annuar
downgraded the stock to underperform from neutral, cutting its price
target to 90 sen from RM1.50. This means its total return is expected
to underperform Malaysia's benchmark index by as much as 15 per cent
over the next 12 months, Credit Suisse said.

East Asia and the
Pacific region is forecast to expand 7.6 per cent this year and the
growth may accelerate to 8.1 per cent in 2013, compared with 2.5 per
cent and 3 per cent for the global economy, the World Bank said in a
report on June 12.

Malaysian Air will stick to its existing
planes orders, Md Nor said. The carrier took delivery of the first of
six on-order Airbus SAS A380 superjumbo last month. It will start
services with the plane on July 1 with a trip to London.

Waiting List

"The bookings for the A380s have been good and there is a waiting list at the moment," Md Nor said, declining to elaborate.

The
airline, which earlier planned to own new planes, has now turned to the
Malaysian government to purchase the A380s and two A330s worth RM5.3
billion. The carrier can lease the planes from the government with an
option to buy them at the end of the contract, Md Nor said. Talks are
still on with the Finance Ministry, he said.

Malaysian Air will
cooperate with AirAsia in areas including procurement, aircraft
maintenance and training as it seeks to pare costs, Md Nor said.
Khazanah Nasional Bhd, which controls 69 per cent of the carrier,
exchanged back its 10 per cent stake in AirAsia for 20.5 per cent of
Malaysian Air last month.

Fifth Loss

Malaysian Air posted
a loss of RM171.8 million in the three months ended in March because of
higher fuel costs and competition from low-cost carriers. It may report
an annual loss of RM529 million, according to the average of 12 analyst
estimates compiled by Bloomberg. The carrier had a loss of RM2.5
billion in 2011.

The airline this month sold RM1 billion of
Islamic bonds that didn't have a set maturity in the country's first
offering of such debt. It has commitments from investors to buy the
remaining RM1.5 billion of the so-called perpetual sukuk, according to
Chief Executive Officer Ahmad Jauhari.

The funds will be used
for working capital and to refinance existing loans, the carrier said
in a May 22 statement. The company has RM4.3 billion of bonds and loans
including the sukuk sold this month, according to data compiled by
Bloomberg. -- Bloomberg