Air Mauritius : Rs 500 million saved in the nick of time?

As the marriage partner of a small shareholder of Air Mauritius, it is with some sadness that I learnt (viz l?express 12 Sept. 06) of the halving of its profit from MRU 739m to MRU 319m. As with most things today, the main culprit sseems to be the high price of jet fuel. In another context, it would probably have been the Euro, the USD or the GBP.

It is however, quite comforting to learn that there is no mention of any black boxes, which in the past consisted of siphoning off AM money in car parks. So, we must believe that the board of directors have ensured that their company is now well rid of any such malpractices.

Due to the decline in profits, AM now announces that instead of the 295-seater Airbus A 340, it will be buying the 253-seater A 330. Apparently, this will save the company the colossal sum of MRU 500m. So far so good ! However, I have this little man in my head who keeps nagging me with this simple question : If profits were higher, would AM then have ?wasted? half a billion rupees of shareholders money on an aircraft that it does not seem to need after all ?

Because, if the A340 was really needed by the company, one would have expected it to maintain the order and the extra cost amorised as per normal accounting standards whilst earning additional revenue from the larger and longer range aircraft.

After all, as with any corporate decision on asset acquisition, one expects that the decision to acquire the A340 was taken with all due considerations for the commercial requirements of AM. In which case, it becomes more and more difficult to understand the switch to the A330. And, if the A330 suits the job as seems to be the case, then it was surely comercial nonsense in the first place to order an aircraft costing an additional MRU 500M. Which, please, is which ?

With muddled decision-making like this, it is little wonder that investing in AM shares has turned out to be one of the worst buys in the annals of the SE MDEX. Even with a script issue of one-for-one, the value of the share today stands at least two thirds of the original offer price of MRU60. A nominal loss of MRU 20 per share bought!

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