Observers: Unwinding pact with AirAsia a step backward for MAS

PETALING JAYA: The clock is ticking on the nascent alliance between Malaysia Airlines (MAS) and AirAsia Bhd on whether the share swap and comprehensive collaboration framework (CCF) will survive amid political pressure to unwind the alliance.

Analysts contacted were unable to comment given the fluid nature of the developments that are said to be taking place behind the scenes.

Among the investment community, there are both detractors and supporters of a potential move to unwind the share swap and CCF.

The eight unions and associations at MAS are against the share swap, and some politicians have thrown in their support.

But there are others, including AirAsia chief Tan Sri Tony Fernandes, who believe the share swap and CCF may be a “good way to re-focus'' MAS.


An AirAsia aircraft (front) moving past a MAS plane at the KL International Airport. Among the investment community, there are both detractors and supporters of a potential move to unwind the share swap and CCF. —EPA
“The share swap is causing so much controversy, and it is inevitable that it has to be undone,'' a source said.

Some were quick to say an announcement on the unbundling will made on Wednesday, but this could not be verified at press time.

There are reasons why the CCF and the share swap were crafted in the first place; it was to stop the local airlines from fighting each other and to prepare them for the onslaught of competition when Asean implements the open-skies policy by 2015.

“Just look around the region; the carriers are getting prepared and are ahead of us by four or five steps while we are struggling. By unbundling the share swap we will be taking five steps backward,'' argued a source.

He felt that the regional carriers were moving faster to position themselves ahead of 2015. Singapore Airlines (SIA) has both premium and low-cost airlines within its group to allow it to serve the low to high-end market. Thai Airways has done the same and Garuda is also getting there.

“With the share swap, MAS could be the premium carrier and AirAsia, the low cost airline. Together they could have been a force to reckon with in the highly competitive environment. There are areas they could work together and compete at the same time,'' said another source.

The share swap and CCF were inked in August last year.

Even if the share swap is called off, MAS and AirAsia will still need to work together as that is a global trend for airlines.

“Both may get into a memorandum of understanding (MoU) or a joint venture (JV) to work on areas that were identified in the CCF such as engineering, ground support, aircraft purchasing, cargo services and training. May be an MoU or JV is a better model given the objections to the share swap,'' a source said.

However, another source pointed out that “it would never be the same, as without a share swap there will be no economic alignment and the cooperation between the airlines will be limited.''

Any decision to unwind the share swap is not going to go down well for Malaysia Inc, said Shukor Yusof, an aviation analyst at Standard & Poor's Equity Research in Singapore.

“It will send the wrong signals to the investing community. You don't need to succumb to pressure and drop the share swap. What are the implications? All these should have been well thought off in the first place,'' he said.

An unwinding of the share swap would mean AirAsia's Fernandes and Datuk Kamarudin Meranun may have to step down from the MAS board and also give up their 20% equity stake in the airline.

“The AirAsia founding members were just trying to help to turn MAS around. AirAsia by itself is doing very well, so they could have done without a share swap,'' said another analyst, adding: “AirAsia has evolved from a one-country airline to become a regional player, and its evolution will continue with or without the share swap and CCF but can the same be said of MAS?''

An industry expert feels that MAS would continue to report losses if drastic steps are not taken to change the way things are done at the airline.

“MAS has to invest in short-term losses but it is for the long term gains. Cutting its workforce and network will not work as these are seen as quick shortcuts which will not resolve the problems the airline is facing,'' he said.

He reckons that for MAS to turn around, and for it to be able to compete with the likes of SIA, Cathay Pacific and Emirates, it has to get into the same frequency battle like other premium carriers. It needs to have the network breadth, its product has to be ahead of the curve and this includes having next-generation aircraft and all the latest fittings including real flat beds. It also needs to have a customer relationship management system so that it is able to serve its customers better.

He said carriers like Emirates had invested in all that and that was why it was one of the best airlines globally today. And if MAS wanted to be in that rank it had to invest, he added.