After MH370, Malaysia Airlines under scrutiny

Greg Wood | AFP | Getty Images

A safety incident involving a Malaysia Airlines plane on Monday while not uncommon, may well highlight investor sensitivity towards airplane incidents following last month's mysterious disappearance of Flight MH370, analysts say.

Malaysia Airlines (MAS) shares jumped over two percent after one of the carrier's planes carrying 166 people turned back and landed safely in Kuala Lumpur early on Monday. The company said that one of the tires on the main landing gear of the aircraft burst during takeoff.

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Shares in the beleaguered Malaysian airline remain down 12 percent from where they traded before Flight MH370 disappeared on March 8 shortly after takeoff from Kuala Lumpur to Beijing. The search for the plane, which is suspected to have gone down in the southern Indian Ocean, continues.

"An incident such as today's one does happen – it happened to Singapore Airlines at the weekend too, so generally diversions happen and are necessary for safety reasons," said Paul Yong, vice president, equity research, at Singapore's DBS Bank.

"But when you have a significant and in this case an unprecedented incident in the case of MH370 then there can be more of an impact," he added.

Race to find MH370's black boxes

A Singapore Airlines flight was forced to return to base over the weekend after taking off from the city's Changi Airport following a fault with air conditioning units on board the aircraft.

"We also had the Singapore Airlines incident at the weekend and the press is sensitive to these air incidents," said Timothy Ross, head of transport research for Asia-Pacific at Credit Suisse. "The aviation industry continues to get safer and when you have countless millions of flights each year and that number is growing at 5-6 percent per annum, the incident rate in absolute terms is going to rise."

Spotlight on MAS

MAS has been under scrutiny following last month's plane disappearance. There has also been talk that the carrier, which has had a negative operating cash flow for three years, may need further financial assistance from the state.

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"I think the world is scrutinizing them [MAS] closely but look at another airline that had a similar tragic occurrence last year – Air Asiana –they took the blame on that, implemented rigorous changes in the way they monitor safety and essentially their sales and volumes are probably ahead of where they were this time last year," said Ross.

He was referring to an incident involving an Asiana Airlines jet, which crashed in San Francisco last July, killing three on board and injuring dozens.

Shares in the South Korean airline have rallied almost 10 percent since the crash in July, when they fell almost 10 percent to their lowest level in more than three years.

DBS' Yong, talking about the impact of the disappearance of Flight MH370 on MAS, added: "Perhaps what is more important when you have more specific incidents such as MH370 is that investors think about the impact on demand."

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"Obviously China is a huge market in recent years, so investors think about the reputational damage that may have been caused," he added.