Ukraine Crash Deals New Blow to Malaysia Airlines

By Dow Jones Business News, 
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By Jon Ostrower, Rory Jones and Jason Ng

The crash of a Malaysia Airlines jetliner in Ukraine came just months after the disappearance of another of the carrier's planes, a second serious blow for a company already on a shaky financial and operational footing.

Airline executives had little information to offer about Flight 17 late Thursday in Kuala Lumpur. The Boeing 777 had at least 280 passengers and 15 crew members on board. But the crash seemed certain to subject the airline to a second round of official and media scrutiny, even as the incident was still shrouded in mystery.

Malaysia Airlines confirmed late Thursday that it had lost contact with the plane that afternoon as it was plying Ukrainian airspace near the Russian border during a flight from Amsterdam to Kuala Lumpur.

The disaster comes as the state-controlled airline is still trying to recover from the March disappearance of Flight 370. Investigators haven't found that plane, and Malaysia Airlines executives were criticized in the early days of that investigation for reacting too slowly to the unfolding crisis. Travelers have canceled flights, and the airline's long-standing financial troubles, coupled with the disappearance, had already raised questions over its future.

"It is almost unparalleled for an airline," said Oliver Lamb, managing director of Sydney-based Pacific Aviation Consulting. "These two things have happened at a time when the airline is in financial difficulty."

U.S. intelligence officials said Thursday it had confirmed Flight 17 had been shot down by a surface-to-air missile. Who exactly fired then missile remains a mystery. An adviser to a Ukrainian government official on Thursday accused pro-Russia separatists of shooting the plane down, an allegation that at least one rebel leader has denied. Whatever the determination, Malaysia Airlines is expected to face intense regulatory scrutiny over its procedures and its decision to fly over the war-torn area in the first place.

Some airlines in recent months have deliberately avoided the airspace near eastern Ukraine over concerns about the unstable political and military situation. A Ukrainian Antonov AN-26 military cargo aircraft and a Ukrainian Sukhoi SU- 25 fighter jet were downed this week. Still, other airlines continued to use the airspace, and a commercial jet's cruising altitude of some 30,000 feet would keep it out of range of shoulder-fired antiaircraft weapons.

"The fact that it's not their fault does not mean they get away from the image of being unsafe," said Andrew Charlton of Aviation Advocacy. After Flight 370, he said, "this isn't like any other airline."

The two disasters come amid a shaky financial footing for the airline. Despite an expanding Asian commercial- aviation market, the carrier was facing increased competition from low-cost carriers who have been beefing up their fleets. Malaysia posted a loss of 1.17 billion ringgit ($359 million), last year. In the first quarter of this year, it had a loss of 443 million ringgit.

In June, tourism minister Mohamed Nazri Abdul Aziz said that as of April, more than 30,000 bookings had been canceled or delayed, in part because of Flight 370's March 8 disappearance. Malaysian Prime Minister Najib Razak has said the government was looking at all potential options to resuscitate the ailing carrier.

Mr. Najib said on Thursday that the government is launching an immediate investigation into the latest incident.

This month, the airline's largest shareholder, the Malaysian government investment fund Khazanah Nasional Bhd., said it was considering taking the airline private, The Wall Street Journal previously reported.

Mark Sherwin, president of CorpWorld Group Inc., a crisis-management firm in Toronto, said Malaysia Airlines' speed in reacting to the crisis will be key to how it weathers the current disaster. Credibility comes by how well and how quickly a company communicates in such a situation, he said.

"If a company, especially having been through a very recent crisis, cannot demonstrate it has learned and can act appropriately in a second crisis, damage to the brand could be fatal," he said.

The aircraft involved in Flight 17 is a sister ship of the missing Flight 370, a Boeing 777-200ER that has been the backbone of the airline's long-haul fleet since the late 1990s. The disappearance of Flight 370 sparked the largest search effort in aviation history and is still under way as the investigation covers a massive swath of undersea search zone in the southern Indian Ocean.

Gaurav Raghuvanshi and Susan Carey contributed to this article.

Write to Jon Ostrower at jon.ostrower@wsj.com, Rory Jones at rory.jones@wsj.com and Jason Ng at jason.ng@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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