KUALA LUMPUR: Malaysia Airlines (MAS) and AirAsia Bhd inked a landmark deal yesterday that is set to reshape the aviation industry. By co-operating to leverage on their core strengths and expertise, the two carriers plan to lower competition and cut costs in the areas of aircraft purchases, engineering, ground support services, cargo services, catering and training.
As part of the deal, Tan Sri Tony Fernandes and Datuk Kamarudin Meranun of AirAsia will sit on the MAS board. Their company, Tune Air Sdn Bhd, via a share swap, will end up with 20.5% equity stake in MAS. There is a moratorium period covering the shares, but the details were not released yesterday.
In turn, MAS' parent, Khazanah Nasional Bhd, will take up a 10% stake in AirAsia and MAS director Datuk Azman Yahya will join the AirAsia board. Khazanah will remain the major shareholder in MAS with a 49% stake. The deal is said to be valued close to RM2bil based on Friday's closing, with MAS closing at RM1.60 a share and AirAsia at RM3.95 per share.
“The airlines will remain distant and separate, with separate boards. They will focus on their core competitiveness and it is about capturing growth opportunities (in a concerted way). It is a powerful combination,” said Khazanah managing director Tan Sri Azman Mokhtar. However, he denied that the deal was a bailout of MAS.
Fernandes, the group CEO of AirAsia, said the tie-up between the two airlines was a “fantastic step forward ... and we can make a lot of money”.
He also jokingly said he hoped the MAS staff “will now take down my picture with all the darts on it” in a reference to the keen rivalry between the two airlines.
As a sweetener to the deal, which has received mixed reactions from consumers and analysts, who worry about the creation of a monopoly, both the airlines' shareholders will be issued free warrants.
A MAS shareholder will get one warrant in AirAsia for every 30 MAS shares held, and an AirAsia shareholder will get one MAS warrant for every 10 AirAsia shares held. The free warrants will have a tenure of 2.5 years and a strike price at a 25% premium to the shares' Friday closing prices.
Both parties signed a comprehensive collaboration framework which will be hammered into a definitive agreement, but no timeframe has been set. The definitive agreement has a five-year tenure and comes with an five-year option for renewal.
MAS managing director Tengku Datuk Azmil Zahruddin has quit the airline along with seven other directors. Six new ones including Fernandes, Kamarudin, Land & General Bhd founder Tan Sri Wan Azmi Wan Hamzah, IJM Corp Bhd executive deputy chairman Tan Sri Krishnan Tan, Astro Malaysia Holdings Sdn Bhd CEO Datuk Rohana Rozhan and Axiata Bhd director David Lau Nai Pek were appointed to the MAS board yesterday.
The whole idea of the collaboration is to salvage MAS and realign its business to become a truly premium carrier along the likes of Singapore Airlines (SIA) and Emirates. The turboprop operations of Firefly, MAS' low-cost unit, will become a full-service carrier to ply regional flights. Both AirAsia and sister airline AirAsia X will stick with the low-cost airline model for short, mid and long-haul routes.
While many feel this deal will benefit MAS, some observers are of the view that the bigger beneficiary is AirAsia as it gets a slice of MAS. Aside from this, the cooperation will allow it to ply more lucrative routes and there will also be no competition in the low-cost segment, as Firefly will turn into a full-service carrier.
But Fernandes said “it is about growth and not a merger”. “It is realignment and about lowering fares. We don't think there is anything to worry about for the Malaysian public. This is driven by low cost. Be positive about it.”
MAS' newly appointed executive director, Mohd Rashdan Mohd Yusof, assured that no party would be worst off and the deal was mutually beneficially to both parties.
Asked if this would be the final time that MAS is restructured since it had already undergone several rounds of transformation, MAS chairman Tan Sri Md Nor Yusof said: “We have been distracted ... both sides, and this gives us an opportunity (to realign). The collaboration allows the entities to look at the regional market which has a population of over 600 million people in a more organised way.”
Azman added that “had we not done the earlier restructuring, MAS would have been in a much worse (state) and we would not have reached this stage. Today, we think we have organised ourselves and positioned ourselves. This is a start, but we still have a lot to do.”
On cost savings, Maybank Investment Bank said both airlines could save as much as RM1bil a year by realigning capacity to match market demand. It estimated that roughly 70% of the combined capacity of MAS and AirAsia is deployed on overlapping routes, which undermines yields, load factor and ultimately profitability.
A joint collaboration committee chaired by Azman Yahya will be set up to ensure that the collaboration goes according to plan. The other committee members include Mohd Rashdan, Fernandes and Kamarudin. With the departure of Tengku Azmil, the search for a new MD for MAS is on.
On whether the airlines will look at scaling back on aircraft orders, Fernandes dismissed this possibility, saying there would be no rationalisation of routes.
“We require every single aircraft ordered. It is about growth, especially with the Asean open skies policy by 2015,” he said.
CIMB Group CEO Datuk Seri Nazir Razak, who is the deal maker, added that the deal ensures long-term sustainable growth of all four airlines via the collaboration, shareholder alignment, optimisation of efficiency and an enhanced product offering and even partial interlining besides opening of new destinations.
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