After seven months since the major shareholders of Malaysia’s national carrier Malaysia Airlines (MAS) and AirAsia announced that it would undertake a share swap, the deal is apparently going through a rough landing.
Rumor has it that the deal is scrapped after unions representing MAS employees protested against the share swap agreement that would result in a large number of staff losing their jobs. The deal is also being investigated for running against anti-competition laws.
Much as one would like to think that this alliance was made for commercial reasons, political stakes run equally high if not higher in this deal as Malaysia’s 13th general elections are widely expected to be held within the next few months.
It was reported that the government had second thoughts on the alliance and even planned to take MAS private by taking over the stake of its investment arm Khazanah Nasional in MAS and make an offer for the remaining shares in the liner from budget carrier magnate Tony Fernandes.
Under the deal AirAsia’s major shareholder and boss, Fernandes, was supposed to take 20.5% shares in MAS, while Khazanah takes 10% of AirAsia. At first glance, analysts said Fernandes got the better deal. But Fernandes was also known for turning around ailing companies, in a similar fashion to how he bought AirAsia for RM1 and take over RM40 million of debt 11 years before he turned it into an a popular budget liner in Southeast Asia that is aggressive in growth expansion.
While there is still no confirmation that the deal is called off, there is mounting pressure for the Malaysian government to step in following protests from unions that represent about 20,000 MAS staff that are averse to the deal. The union has threatened to back the Opposition if the matter is not resolved.
On the other hand, there is also much to consider in terms of whether the alliance has actually made business sense for both airlines.
When the deal was first announced, it was received with mixed reviews with some saying that it would help reduce overlapping of flight routes between the two rivals and effectively increase cost savings. The deal also showed signs that the government was weary of MAS’ constant losses and in need of a maverick to turn it around. Others saw it as the dawn of a cartel in the country’s aviation industry.
Questions on how the alliance would really benefit the aviation industry as well as customers constantly arise when both airlines claimed that by not having overlapping routes, that would reduce competition between two carriers as they focus on each others’ niche. The alliance was also supposed to give way to a super-luxury business via a new brand.
Indeed, even before that happened the first result of that alliance were the cancellation of some routes. AirAsia X- the budget carrier’s long-haul flights unit – retreated from India and Europe, as well as most recently, Christchurch, New Zealand, to open routes to Australia.
Reduced competition between the two carriers, however, does not seem to bring value to customers, as some have complained that AirAsia also reduced number of flights between East and West Malaysia, causing travel costs within the country to balloon and eventually requiring the Transport Ministry to intervene in order to resume those flights.
Meanwhile, MAS posted yet another year of heavy losses, signalling that it needed more than a share swap deal to fix its legacy problems.
However, in an unprecedented move, MAS’ chairman MD Nor Yusof released a statement recently in what appears to be an appeal for the alliance to go on. “Malaysia Airlines must be allowed to focus on pulling itself out of its current financial crisis.”
“Malaysia Airlines is a very sick patient and its condition is quite critical. Indeed, there is a full range of prescriptions available. Judge us by the results, not by the choice of prescription,” he said.