KUALA LUMPUR: RHB Research has maintained an underperform call on Malaysian Airline System Bhd after it was ordered by the Arbitral Tribunal of the International Chamber of Commerce to pay damages, interest and cost amounting to 7 million euros (RM34.5m) to ACL Advanced Cargo Logistic GmbH.

The award, announced on June 1, was over a breach of contract by not maintaining its European cargo hub at Frankfurt-Hahn airport for 10 years from 1999.

MAS is seeking advice on “challenging the award and resisting its enforcement”. MAS said that the award is not expected to have “a material adverse impact on the financial position of MAS…due to prudent provisioning in previous years”.

RHB Research said on June 2  that MAS has fully provided for the amount and hence there is no change in its forecasts. Had MAS won the arbitration and assuming that the amount would be written back, MAS’s FY12/09 net profit would have been 18% higher.

The risks include an even sharper-than-expected downturn in the global economy, and hence the regional air travel market; and a resurgence in prices of crude oil, hence jet fuel.

The research house said demand for air travel will remain weak on the back of the global economic slowdown. Not helping either, is the massive new capacity coming on-stream from both full-service and budget airlines in the region over the short term that will intensify competition and depress yields.

While cost pressure has eased tremendously with the sharp fall in crude oil prices, crude oil prices could resume its uptrend again.

“We believe it is premature to turn positive on airlines, including MAS. Fair value is RM1.65 based on 15 times FY12/10 earnings per share (EPS) that is in line with the average one-year forward price-to-earnings ratio (PER) for peers Singapore Airlines Ltd and Cathay Pacific Airways Ltd. Maintain Underperform,” it said.