There are so many talks about national carrier Malaysia Airlines merging with Air Asia on a share swap deal. A lot of people are very skeptical with this merger.
Tuesday August 9, 2011
Rivals MAS and AirAsia to become allies
By ANITA GABRIEL and JEEVA ARULANPALAM
starbiz@thestar.com.my
PETALING JAYA: National carrier Malaysia Airlines and low-cost carrierAirAsia Bhd‘s major shareholders Khazanah Nasional Bhd and Tune Air Sdn Bhd will today announce a landmark share swap deal worth just over RM2bil which will turn the long-time bitter rivals into collaborating partners.
According to sources, under the share swap deal, Khazanah will acquire a 10% stake in AirAsia from Tune Air, a private vehicle controlled by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun.
As at July 6, 2011, Tune Air owned a 26% stake in AirAsia. Sources also said Khazanah was in talks to acquire a 10% stake in long haul low cost carrier AirAsia X but this would be announced at a later date.
As part of the agreement, a source said MAS would issue new shares to Tune Air which would end up with a 20% stake in the national carrier. Khazanah, which has a controlling stake of 69% in MAS, will continue to remain the single largest shareholder in the national airline after the exercise.
The source added that MAS, which was in dire need for fresh capital, would also make a rights issue very soon.
The valuation of the swap will be based on the recent share price of both companies as the exercise involves non-controlling stakes. Trading in both counters are suspended until today for two days pending a material announcement. MAS and AirAsia were last traded at RM1.60 and RM3.95 respectively.
“There is really little that’s innovative about all of this. The reality is that if you look at the big players in the industry, they have a low cost arm and a premium arm. If anything, MAS is just playing catch up only now,” said an observer.
A special executive committee comprising three to five members including MAS newly-appointed chairman Tan Sri Md Nor Yusof anddirector Mohammed Rashdan Yusof as well as Tony and/or Kamarudin will be set up to run the daily operations of the carrier in the interim while the search for a new chief executive officer will commence soon.
The source said MAS CEO Tengku Datuk Azmil Zahruddin would step down from his post to make way for these changes while Rashdan, who is Khazanah’s executive director of investments, would likely play a more active role in the airline until a CEO is identified.
“The exco will be a subset of the board, which will take over the running and management of the airline in the interim. The main decision maker at the airline will be Md Nor,” said the source.
CIMB Investment Bank Bhd has been appointed advisor for the share swap deal representing both parties.
“If you stand back and look at this deal, you can see the value it will bring to a full-service carrier (FSC) like MAS. The trend among FSCs is that they are gradually deriving a bulk of their revenue less from the airline operations and more from ancillary services such as maintenance, repair, operations (MRO) services and so forth. These services are huge profit centres. Currently, AirAsia outsources these services. With this partnership, MAS can be the outsourcing agent,” said an analyst.
“This way, MAS which has a staff strength of 20,000 can use its people more productively. There won’t be a need to lay off staff as both airlines will be run separately,” said the source.
The deal’s defendants say this deal marks a “great opportunity to create Malaysia as an airline hub”. “The whole idea is not for Tony to run MAS. It is to realign both airlines’ interests to allow them to grow with a more clear business model MAS in premium segment and AirAsia in budget segment as opposed to being in each other’s way,” said an analyst.
A source said this deal “has been cooking for so long but in the absence of a structure that could work and concerns over a clash of cultures, it had failed to take off.”
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Probably Malaysia Airlines would benefit AirAsia aggressive marketing program and approach from this merger. But then again, where is the real beef for Malaysia Airlines?
Compare to Air Asia, Malaysia Airlines is an asset backed corporation. The paid up stands at RM 3.384 billion, where it is represented with a fixed asset value of RM 8.4 billion. The net asset is at RM 6.962 billion, where cash constitute RM 2.086 billion.
AirAsia’s debts stand at RM 7.7 billion where else it cash position is only at RM 1.7 billion. Apparently even though voted as the best low cost carrier, AirAsia is said to be a bad paymaster. At one point of time, they owed Malaysia Airports over RM 65 million and whenever actions wanted to be taken against them, they run to their patron, then PM ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi.
This merger is exactly like when ECM Libra ‘took over’ Avenue Capital Resources Bhd. in a very controversial takeover laced with manipulation and failure of disclosures, where the latter is valued four times more than the former. The minority shareholders were denied of the rights to a Mandatory General Offer.
The culprit who are thought to be behind this is Rashdan “Danny” Yusoff and Datuk Omar Ong. Rashdan, who was then a partner in Binafikir Consulting which offered the ‘Wide Asset Unbundling’ (WAU) scheme to rescue Malaysia Airlines a few years ago is now a Director of Malaysia Airlines. Omar recently was appointed to the BOD of AirAsia.
It is expected that the outcome of this, would be share swap deal where Khazanah Nasional Bhd. relinquish 17% of its holding to Tune Air, the parent company of AirAsia and AirAsia X. In return getting Khazanah would get 20% in AirAsia and 15% in AirAsia X. Of course it is rumoured that CIMB is the adviser to this deal.
The clear winner of this deal is Tony Fernandes. As a single largest shareholder in Tune Air, he would earn a seat in Malaysia Airlines Bhd. He would have a say in how, what, where and how much of Malaysia Airlines’ strategic business decision. With Omar on his BOD and being so close to Prime Minister Dato’ Seri Mohd. Najib Tun Razak, all strategic decision involving air travel and airline business would be unequivocally favourable to Fernandes’s side.
AirAsia could now expect to get a national carrier status.
It is AirAsia X’s dream to be a major intercontinental carrier. Getting landing rights would be a G-to-G arrangement and national carriers usually get the first right of refusal. Now AirAsiaX is accessible to lucrative landing rights and destinations.
Malaysia Airlines did her fair share of national service and many Malaysians benefitted from this at the times where communications were poor or non existence. In 2005 when PM ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi agreed to ‘Level Four Boys’ concocted ‘Airline Rationalisation Plan’, where Malaysia Airlines to run the ‘trunk route’ and feeder to the international destination where else AirAsia got the rest. This include heavily subsidized Rural Air Service. The most important element of the plan was Malaysia Airlines were prohibited to lower down its fair.
Fernandes took those routes to build up AirAsia’s capacity and also the numbers. The heavy subsidy was proven beneficial to his business model too. The moment the numbers went up substantially, Fernandes gave back the RAS away and Government insisted that Malaysia Airlines took the service back again, for the sake of Sabahans and Sarawakians.
Danny and Omar is about looking at numbers. Nothing else. And Khazanah MD Tan Sri Azman Mokhtar is all for that. Azman and Danny were the partners who told Malaysia Airlines to strip off her assets back in 2002 under the WAU scheme. If Malaysia Airlines needed marketing and work process boost, stripping the corporation and offering it to vultures like Fernandes is not the solution.
If this part of PM Najib’s Economic Transformation Plan, then probably majority of Malaysians may not be with him. The Malays still have not forgotten the how Shamsul Azhar brought in Wee and promoted Non Malays are Vice Presidents of Petronas, with the expense of the Malays.
*Updated 400pm
Sources within said Malaysia Airlines MD Tengku Dato’ Azmil Raja Abd. Aziz was ‘shown the door’ minutes ago. He is going in Khazanah as Executive Director (Investment). Fernandes is said to have called all the executives for a meeting tomorrow.
*Updated 430pm
The new indpeendent-non-executive BOD members for Malaysia Airlines are Tan Sri Wan Azmi Wan Hamzah, Tan Sri Tan Boon Seng, Dato’ Rohana Rohzan and David Low. Rohana was Omar Ong’s partner in Ethos Consulting. DannyYusof is now designated Executive Director of Malaysia Airlines.
Fernandes and Dato Kamaruddin Meranun non independent and non exective directors with effect on 11 August 2011.
In interim, the corporation would be amanged by an executive committee chaired by Tan Sri Mohd. Nor Yusof. Members are Dato’ Mohamed Azman Yahya, Danny, Fernandes and Kamaruddin. They will oversee operations until new MD is appointed.
It is expected the new MD would be someone ‘Not unfamiliar to the company’.
-bigdogdotcom
Be realistic about it. What Tony could do is to spin Air Asia from no assets to big assets even before IPO. That’s day light robbery but in Malaysia bolehland anything could happen.
ReplyDeleteNow with MAS he could be as you said ‘multitasking man’ what? Excuse me, could he turn around MAS instead he claim to have his own (current LCCT) hangar that bring Malaysia backward 50 years since he said KLIA is very expensive! But now he has his luxury hangar again not that expensive with RM2b budget given by the Government! So KLIA still not enough with 35m pax per year capacity running at 18.3 pax per year currently! At the end now Tony has his own 35m pax per year with KLIA2. Another spinning master of Tony.
Surely Tony doesn’t work alone, he has the help of that Azman Mohktar, Rashdan Danny, Omar Ong (who mastermind Wee, a civil engineer from Shell to head E&P Petronas – never happen in history of oil company – a competitor to lead another?) and of course with the ‘Yes’ of our beloved Dayus PM Najib – all done. Nobody to argue how could the equation of 20.5% be equal of 10% exchange? How about mismatch business culture. What synergy? There will be no equilibrium in bringing-in full service and no service!!! It is just how you are branding it. A perception of shot memory of a normal human being – nothing more and nothing less!
Please all Malays either UMNO or else don’t elect again this Dayus PM Najib. It is simply that this Dayus PM Najib and old gangs of Md Nor Yakcob are all essentially anti-Malay professionals! Think Muhyiddin is much more Malay loyal…..