Malaysia Airlines Looks to Delay AirAsia Deal - Southeast Asia Real Time - WSJ
Malaysia Airlines’ management is pleading for more time to enable a share-swap deal with the founders of budget airline AirAsia Bhd. to help stabilize the finances and operations of the state-controlled flag carrier.
Malaysian Airline System Bhd., as Malaysian Airlines is formally known, posted a record loss in 2011, losing 2.5 billion ringgit, or around $824 million, thanks to soaring fuel costs and one-time provisions, just a few months after the share-swap agreement with AirAsia’s founders, Tony Fernandes and Kamarudin Meranun.
Under the terms of the deal, Mr. Fernandes’s and Mr. Kamarudin’s holding company, Tune Air, will take a 20.5% stake in Malaysian Airline System and two board seats. State-investment agency Khazanah Nasional, the largest shareholder in Malaysia Airlines, will in turn take a 10% stake in AirAsia.
Some analysts have said the arrangement could introduce a more market-oriented mindset at Malaysia Airlines, which they say in the past has existed as much to serve government policy as to generate revenue. But some Malaysia Airlines employees have opposed the deal. Its employees’ union is especially fearful about the impact that AirAsia’s successful cost-cutting philosophy might have on Malaysia Airlines’ operations, including the possibility that the state-controlled carrier might have to lay off workers. AirAsia’s budget model has helped create a burgeoning demand for air travel across Southeast Asia, but without the frills—and higher ticket prices—of older airlines such as Malaysia Airlines. AirAsia is planning initial public offerings for its Thai and Indonesian affiliates in the coming months.
Malaysia Airlines union Secretary-General Abdul Malek Ariff said last week that Prime Minister Najib Razak had promised to review the $364 million share-swap agreement, which is close to being concluded, in a meeting in February, but added that they haven’t yet heard back from Mr. Najib. Government officials have acknowledged there was a meeting, but a government spokesman had no immediate comment on the matter Monday. AirAsia officials couldn’t immediately be reached for comment.
Either way, since February the dispute has become increasingly political in tone. The Malaysian political opposition alliance led by Anwar Ibrahim has pledged to look again at the share-swap if it is elected to power in general elections due by March 2013, and market speculation has increased that the deal could be under pressure.
In an unusual written statement issued Friday, Malaysia Airlines’ top management said the share-swap agreement with AirAsia’s founders will help the airline get back on a more stable footing, stating that the two rivals can cooperate in several key areas to reduce costs.
“Already, we are in the process of setting up joint-venture companies for procurement and training and potential maintenance services provided by Malaysia Airlines Engineering for the AirAsia fleet,” Malaysia Airlines Chairman Nor Yusof said, while asserting the company’s support for Chief Executive Ahmad Jauhari Yahya.
“I am writing in such a forthright manner because I have noted that our business plan has not been accepted by all of our stakeholders and has in fact met with turbulence in some sectors,” Mr. Nor said. “This turbulence has the potential to distract the attention of Malaysia Airlines’ management team and its 20,000 staff from the very crucial task at hand. That task is our top priority. It is the economic recovery and sustained future performance of Malaysia Airlines.”
Malaysia Airlines’ recovery plan, devised separately from the share-swap agreement, is ambitious. It hopes to launch a new regional, short-haul premium airline to complement AirAsia’s low-cost model and plans to introduce the Airbus A380 to its fleet.
In his statement, Mr. Nor said airlines around the world are facing a challenging business environment, and that “the market is punitive for those on a weak footing.”
After announcing its 2011 losses, the airline said it would raise funds to help strengthen its balance sheet. “Malaysia Airlines is a very sick patient, and its condition is quite critical,” the chairman said. “There are a full range of prescriptions available. Judge us by the result, not the choice of prescription.”