7 Reasons Why Khazanah Should NOT Undertake the Share Swap Between MAS and AirAsia

The timing of the share swap could not have happened at a worst time as it will largely benefit AIRASIA shareholders even without their own effort and Khazanah has given away a large portion of their net worth in MAS for free.

By troubleshooters2011

1.MAS MANAGEMENT HAS INITIATED THE RIGHT STRATEGIES AND IMPLEMENTATION TO TURNAROUND THE COMPANY AND THEREFORE DO NOT NEED THE TIE-UP WITH AIRASIA

A quick analysis on the current state of MAS indicates that they are on the right track. The three key cost factors that need attention are fuel, maintenance and manpower cost. With regards to fuel cost, MAS has taken some steps to reduce the unpredictability of the movement of fuel price. With a bit of tweaking they will get it within control as you cannot totally eliminate uncertainties linked to fuel pricing.

On maintenance cost, the fleet renewal program will start to alleviate the impact of maintenance on the operating profits while shifting the cost towards the interest expense while creating a healthier balance sheet. If at all the national carrier is guilty, it is that the fleet renewal program should have been carried out earlier, say 2007 when MAS would have been able to hive off depleting assets at a higher value and not incurred high maintenance costs which would have increased y-o-y that has negative impact on the operating profits.

The reduction of manpower cost or the rightsizing of this cost can be properly planned through natural attrition and redefinition of job scopes that need key union and association buy in for success. This has always been done as a top down approach but in all fairness, engagement at the shop floor needs to be intensified as it is the personnel at this level that will impact the bottom line in terms of efficiency, productivity and effective implementation.


2. BASED ON THE EFFORTS OF PAST MANAGEMENT, MAS SHOULD REAP THE BENEFITS IN AROUND 2013, THE SHARE SWAP AND INPUT OF AIRASIA AT THIS JUNCTURE ARE SEEN TO BE OPPORTUNISTIC WITH A LARGE DOSE OF VESTED INTERESTS AT PLAY.

The timing of the share swap could not have happened at a worst time as it will largely benefit AIRASIA shareholders even without their own effort and Khazanah has given away a large portion of their net worth in MAS for free. This is blatant mismanagement at Khazanah and a thorough investigation should be launched to
see whether there is any personal/vested interest that has come into play on the decision making for a strategic national asset.


3. MAS SHOULD FOREVER REMAIN IN THE CONTROL OF GOVERNMENT’S HANDS AND SHOULD BE PRIVATISED INSTEAD OF BEING FORCED TO CO-EXIST WITH PRIVATE ENTITIES

MAS is a source of pride for the nation. It started getting into trouble when vested interest came into picture and started to encroach on its balance sheet and profitable entities. While the aviation business model has changed dramatically over the decades and previous laurels of achievement may not be replicated due to the changing times, the aviation space is a critical playing field for the nation. Every country assists its aviation companies in one form or another, so we should not be fooled to think that it’s a level playing field out there.

What is required is a dynamic BUSINESS Model for MAS to prosper further. One initiative that could be explored is to privatize it and fix it rather than the share swap that will work on a model of cannibalisation shrouded under the so-called comprehensive collaboration.


4. MAS AND AIRASIA RUN ON COMPLETELY DIFFERENT BUSINESS MODEL

MAS is a Malaysian company with global reach and serves not only a commercial agenda but a national agenda in terms of promoting Malaysia as a tourism destination, to facilitate trade between countries under a G to G environment and also to facilitate outreach to new destination for strategic and commercial
purposes.

AIRASIA is a commercial entrepreneur driven Malaysian Multi National Company (MNC) having partnering arrangements in each of its chosen point to point country of destination and hub.

Both derive their sources of income from different business approaches and with different objectives in mind. The objectives are not aligned and to align them would result in a different shift in strategy that could have a NEGATIVE impact on both companies' performance, more so for MAS than AIRASIA.


5. COLLABORATION FOR COMMON BENEFIT IS POSSIBLE WITHOUT CROSS SHAREHOLDING IN THE TWO COMPANIES

Collaboration between the two companies is definitely a plus but need not be at the expense of each other and encroaching on each other’s brand identity. What is currently prevailing between the two entities is a healthy competition and it keeps each entity on edge to ensure that they remain relevant aviation entities.

But collaboration such as in the oil and gas space between PETRONAS and EXXON for example for the Tapis fields, SHELL and PETRONAS in the Gumusut-Kakap fields, MURPHY and PETRONAS in the Kikeh fields and a more dramatic win-win partnering arrangement between giants SHELL and EXXON in the Brent oil fields in the North Sea of Northern UK demonstrates the joint collaboration between two competing entities can be achieved without sacrificing each entity’s identity and business objectives. SHELL and EXXON compete in other acreages in other countries around the world. What is needed is sincere partnering for common benefit.


6. KHAZANAH SHOULD LOOK AT ITS SHAREHIOLDING IN MAS AS A STRATEGIC NATIONAL INTEREST STAKE WHILE INVESTMENT IN AIRASIA AS PURELY A RETURN ON INVESTMENT STAKE

The move by Khazanah to invest in AIRASIA should be looked at purely as a commercial investment as it is investing in a company that is majority foreign owned if aggregated. Khazanah should look at AIRASIA for returns on investment and not as a strategic stake. AIRASIA is a company purely running on commercial adrenalin with an iconic entrepreneur. Khazanah has little say in AIRASIA and can easily be outvoted in the event parties invested in AIRASIA work in concert.

Its stake in MAS is crucial as it helps control its own skies while operating a free skies environment. Air travel has become commoditized and should the country be outplayed in the aviation space, we could see colonialisation of our airspace and others gaining more benefit flying over Malaysian airspace.


7. RISK PROFILE TO THE AVIATION INDUSTRY HAS INCREASED EXPONENTIALLY AS KHAZANAH HAS BEEN DRAWN IN TO SUPPORT BOTH ENTITIES IN THE EVENT OF ECONOMIC AND AVIATION DOWNTURN

By having cross shareholding, should anything untoward happens to the industry, Khazanah will have to help 2 entities as it would not make sense for AIRASIA to insist on the share swap if it did not provide them financial ‘cloud cover’. If Khazanah had kept AIRASIA shareholding as a ROI stock, the investment could be unlocked on reaching a specific return. As the shareholding in AIRASIA is only 10%, Khazanah is neither here nor there in terms of being able to influence policy; therefore it makes no sense to undertake a share swap where the vendors of AIRASIA have significant say in MAS but not vice versa.

Thank you.

Any rebuttals and cross examination by Khazanah, Tune Air or any interested parties are most welcome.

Our email address: troubleshooters2011@gmail.com