MAS, AirAsia boards form SPV for procurement; undo share swap

The tie-up between the two former rivals met with resistance from politicians and employees. — File pic

KUALA LUMPUR, May 2 — The boards of Malaysia Airlines and AirAsia have agreed to set up a company to buy aircraft, parts and oil for economies of scale ahead of the Asean open skies policy, despite unwinding a nine-month-old share swap that saw opposition from politicians and the flag carrier’s unions.

The Malaysian Insider understands that both carriers, together with AirAsia X, will sign an agreement this evening to co-operate on procurement and other areas.

“The boards have agreed to unwind the share swap. No money is exchanged as it was on a willing-buyer, willing-seller basis,” a source told The Malaysian Insider.

It is learnt that AirAsia chiefs Tan Sri Tony Fernandes and Datuk Seri Kamaruddin Meranun will leave the MAS board, a bone of contention among staff of the national carrier that lost RM2.52 billion last year.

The Malaysian Insider reported last Satuday that state asset manager Khazanah Nasional Berhad is to take back a 20.5 per cent stake in 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 shares closed at RM3.33 a unit on Monday while MAS was RM1.22 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 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, casting doubts over the 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.

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 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 employees despite former managing director Datuk Seri Idris Jala having cut this to 17,000 when he left in 2009. Industry analysts say the flag carrier could do with just 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 election.

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 did, however, 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 (RM285) 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.