Putrajaya to undo MAS-AirAsia share swap, cooperation pact remains

The Malaysian Insider understands that stocks of both Malaysian carriers will be suspended on Monday ahead of the announcement on Wednesday. Tuesday is a public holiday for Labour Day.

"The deal will be unwound next week. That's the end of that," a source told The Malaysian Insider, confirming rumours that swirled for the past few months of a break-up between the flag carrier and Southeast Asia's largest budget carrier.

According to the source, state asset manager Khazanah Nasional Berhad is to take back a 20.5 per cent stake of Malaysia Airlines (MAS) it exchanged with Tune Air Sdn Bhd, the majority owner of AirAsia, for 10 per cent stake in the low-cost carrier. Both carriers' share prices have declined since the deal was made last year. AirAsia closed a sen lower at RM3.37 a share yesterday while MAS also shed a sen to RM1.24 per share.

When the deal was announced last August 9, AirAsia was trading at RM3.95 a share while MAS was at RM1.60.

The Malaysian Insider had reported on March 9 that Putrajaya was reviewing the deal after the MAS Employees Union (Maseu) had met and urged Prime Minister Datuk Seri Najib Razak to unravel the deal, which would have broken MAS into separate long- and short-haul operations.MAS also operates the Firefly community airline and MASwings for rural air services in Sabah and Sarawak.

However, MAS has aborted plans for the short-haul operations, castin doubts over its business transformation plans it announced last December as part of the comprehensive collaboration framework (CCF) signed between both carriers.

The CCF and share swap has come under scrutiny from the Malaysia Competition Commission (MyCC) due to concerns of a domestic monopoly.

“I cannot make any announcement ... we are still investigating (the share-swap agreement). When the time is right, we will tell you,” MyCC chairman Tan Sri Siti Norma Yaakob was quoted as saying recently.

But another source said the CCF between both carriers will continue as Malaysia needs to fight off other airlines coming in when the Asean Open Sky Policy takes off in 2015. The policy will see increased competition with unlimited flight frequencies between Asean's 10 major cities.

"The CCF remains. Both airlines will work together despite not having common main shareholders," added the source.

Khazanah and Tune Air agreed to the share swap last August, after four previous unsuccessful attempts for an alliance between MAS and AirAsia, which soared from a decade ago when Tan Sri Tony Fernandes and partners bought the two-aircraft operation and its debts for RM1.

Khazanah’s CIMB Bank advised both parties in the deal, which was seen as the last attempt to save MAS despite an earlier rescue programme in 2001 planned by advisory firm BinaFikir Sdn Bhd.

MAS has slightly more than 20,000 staff although former MD Datuk Seri Idris Jala had cut it down to 17,000 when he left in 2009. Industry analysts say the flag carrier could just do with one-third of its current staff especially with cuts in routes in the past six months.

Cutting staff could improve costs but is seen as a major political liability in Selangor, where MAS has most of its operations and the state that Najib wants to win back in the next elections.

The entire airline group posted a net loss of RM1.28 billion for the fourth quarter of last year, bringing its total net loss for 2011 to RM2.52 billion. MAS, however, did see a marginal increase in group revenue, going up two per cent from the previous year to RM13.9 billion in 2011.

The airline attributed the losses to the increase in fuel price, which rose up from US$95 per barrel in 2010 to US$133 per barrel in 2011.

The bigger-than-expected losses were also due to additional provisions like redelivery of aircraft, impairment of freighters and stock obsolescence.

MAS hopes to finalise and announce a plan to raise funds and strengthen its balance sheet by May. This is critical as the carrier’s plan to deploy 23 new aircraft this year would cost some RM6 billion.



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