MAS, AirAsia to announce decision to unwind share swap deal today

PETALING JAYA: Malaysia Airlines (MAS) and AirAsia Bhd will forge ahead with their collaboration agreement by signing several MoUs to potentially set up joint ventures (JVs) for joint procurement, pilot training and aircraft maintenance and repair, reliable sources said. This is expected to be announced today, alongside a decision to unwind the share swap agreement between the two airlines.

These were some of the areas identified under the comprehensive collaboration framework (CCF) inked last August, which also saw the exchange of shares that led to Khazanah Nasional Bhd taking a 10% stake in AirAsia and Tune Air Sdn Bhd a 20.5% in MAS.

Under the CCF, MAS would concentrate on being a full-service premium carrier, while AirAsia would remain a regional low-cost airline and AirAsia X a medium- to long-haul low-cost airline.

This follows a string of abandoned proposals by MAS, including the ending of talks with Australian carrier Qantas to create a premium airline and discussions for a new short haul premium carrier.

The unwinding of the share swap also means that AirAsia chief Tan Sri Tony Fernandes and his partner Datuk Kamarudin Meranun will probably give up their board seats on MAS.

However, their collaboration remains intact on the basis that there is no reason why both airlines can't get into mutually beneficial collaborative agreements, which could save both airlines' money and reduce outflows of money from the country.

Both airlines had initially agreed to cooperate on areas such as aircraft purchasing, engineering, ground support services, cargo services, catering and training.

Sources told StarBiz they will announce today plans to establish a JV company to explore the potential of oursourcing their procurement activities to save on costly items including fuel and aircraft parts.

The second proposed JV will look into collaborating on pilot training and infrastructure, and the third on component, maintainence support and repair services.

Fernandes had previously said in September that the CCF could help create the largest hub in Asia for pilot training and maintenance, repair and overhaul services, giving Malaysia an edge over Singapore.

Quoting people with knowledge of the matter, Reuters also reported yesterday that shares of MAS will be suspended from trading today due to a “pending corporate announcement”.

Besides ending the long-standing and at times bitter rivalry between MAS and AirAsia, the original intent of the share swap was to strengthen both carriers in anticipation of the 2015 enforcement of Asean's open-skies policy, by which time all domestic air-travel restrictions in the 10-nation region would be lifted, paving the way for full competition.

MAS, which is undergoing its fourth turnaround attempt since the wide asset unbundling brokered by Bina Fikir Sdn Bhd in 2002, posted a record RM2.52bil net loss in its financial year 2011, weighed down by an uptick in fuel prices as well as non-cash provisions and impairments.

The latest turnaround plan, which was unveiled in December, outlined an aggressive 12% capacity cut - the largest in its history - and targets to achieve some RM1.18bil to RM1.51bil in cost savings and additional income to make the airline profitable by 2013.

The plan also aims to narrow MAS' losses to a base case RM165mil net loss this year.

The airline's next hurdle is to raise enough money to pay for the 23 aircraft it has ordered, for which the capital expenditure is RM6bil this year and RM3.5bil next year. Its cash in hand is only RM1.1bil.

MAS has about 30 days left to come up with a plan to boost cash reserves and funding capacity, and it has not ruled out the possibility of a cash call or selling of non-core assets to raise cash.