AirAsia, Malaysia Airlines end share swap deal

EILEEN NG

KUALA LUMPUR, Malaysia (AP) — Budget carrier AirAsia and state-owned Malaysia Airlines said Wednesday they have terminated a share swap deal signed last year but will continue plans to collaborate in areas such as procurement, training and aircraft maintenance.

Analysts said the move wasn't a surprise because of pressure on the government from Malaysia Airlines' 15,000-strong workers' union ahead of general elections widely expected in the next few months. The union feared the tie-up would prompt a restructuring plan with job and salary cuts to help the loss-making carrier return to the black.

"The unwinding of the share swap appears to be politically driven. The government doesn't want to alienate any voters ahead of general elections," said Mohamad Amirullah Yaacob, an analyst with Kenanga Research.

Under the pact reached last August to end their rivalry and boost business, Tune Air, the parent of AirAsia, got a 20.5 percent stake in Malaysia Airlines. In return, government investment arm Khazanah got a 10 percent stake in AirAsia.

Khazanah said the "cross-holding of shares has become a distraction to management's efforts to turn around" the flag carrier, but didn't elaborate. It said no cash will change hands with the unwinding of the pact.

The two airlines said in statements to the stock exchange that plans for Malaysia Airlines to focus on the premium market and AirAsia on low-cost routes "shall cease to be operative" following the move.

AirAsia Chief Executive Tony Fernandes and his deputy Kamarudin Meranun have also resigned from Malaysia Airlines' board as of the end of April, the carriers said.

Instead, they said the airlines would form an entity to give them better bargaining power in procuring fuel, components and other items, and would also explore plans to tie up to provide aircraft component maintenance and repair services.

Analysts said abandoning the pact doesn't make much of a difference to AirAsia but casts a pall on Malaysia Airlines' future. The flag carrier is struggling to rebound after suffering a hefty 2.52 billion ringgit ($832 million) loss last year, reversing a profit of 234 million ringgit ($77 million) in 2010.

It is unclear how the flag carrier will position itself with competition expected to intensify going forward, analysts said. They said Malaysia Airlines, which has said it will cut routes by 12 percent this year, has a bloated work force of 20,000 employees which makes it inefficient.

"The issue is how will Malaysia Airlines fix itself. It is facing turbulent times amid an environment of high jet fuel prices and intensifying competition," said Ahmad Maghfur Usman, an analyst with OSK Research.

Malaysia Airlines said it will make an announcement soon on plans to raise funds for new planes to be acquired this year, including five superjumbo A380 aircraft.