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Thursday September 15, 2011

MAS-AirAsia tie-up necessary

KUALA LUMPUR: Malaysia Airlines' (MAS) largest shareholder Khazanah Nasional Bhd has defended the collaboration agreement between the national carrier and budget carrier AirAsia Bhd signed a month ago, calling the decision a “necessary” move.

Critics have raised concerns over the comprehensive collaboration framework between the airlines and the share-swap deal agreed by major shareholders of MAS and AirAsia, with some parties highlighting that the share-swap deal was not a solution to turn around loss-making MAS.

Khazanah managing director Tan Sri Azman Mokhtar acknowledged that the collaboration was not sufficient on its own to turnaround MAS, but deemed it beneficial for both airlines.

“I would say the indications are quite positive and that there are many synergies to be had from the collaboration, such as procurement, learning from each other's strengths and co-branding, but the collaboration is a necessary, rather than sufficient, condition for success,” he told the media yesterday on the sidelines of the Forbes Global CEO Conference.

When asked what would be needed for the collaboration to bear fruit, Azman cited “route network, returns and management performance” as areas of focus.

Former MAS managing director Tan Sri Abdul Aziz Abdul Rahman had said the recent share swap deal between MAS and AirAsia was not a guaranteed fix to the ailing national carrier, which continues to suffer losses due to high operating costs.

Bernama quoted him yesterday as saying that MAS stakeholders should get to the root of the problem in terms of the airline's poor performance instead of hammering out a share swap.

Abdul Aziz attributed MAS' poor showing to two factors lack of good management in the last 15 years and the Government's failure to have an orderly air transport policy.

“As far as I am concerned, AirAsia was initially approved on the ground that it travels to international routes not taken by MAS instead of what happened later, the no-frills airline was also involved in domestic routes. With Malaysia being a “price-sensitive” market, this collaboration would also bring about continuous competition for MAS,” he said in a Bernama Radio24 interview.

On Aug 9, Khazanah announced that it would take up a 10% stake in AirAsia while Tune Air Sdn Bhd, the investment vehicle of AirAsia founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, would own a 20.5% stake in MAS under a share-swap deal.

Both Khazanah and Tune Air have agreed not to sell their shares for a period of 30 months under the share swap deal.

On top of the share swap, a collaboration agreement was signed simultaneously by MAS, AirAsia and AirAsia X, which would effectively see MAS concentrate on being a full-service premium carrier, AirAsia on being a regional low-cost carrier and AirAsia X, a medium-to-long haul LCC.

Meanwhile, Azman said earlier during a Forbes Global CEO conference session entitled “Backseat drivers: Building and managing your board” that “the fish gets rotten from the head”, underscoring the role of a strong board in providing stewardship and guidance.

He made three key points about Khazanah's management style for board members. “The first is the no bulldoze' principle. But we make an exception to this rule on two occasions, when there is bull' going on, and when there is dozing'.

“The second is the Vidal Sassoon principle, which basically means when you (the company) look good, we (the major shareholders) look good too,” he said.

On the third point, he said the best boards maintained an open culture: “Great boards have a fantastic culture of dissent.”

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