Malaysian Airline System Bhd. (MAS) and AirAsia (AIRA) Bhd.’s parent companies will unwind a share swap after less than nine months following complaints by the flag carrier’s biggest union.
Khazanah Nasional Bhd., Malaysia’s state-investment fund, will exchange back its 10 percent stake in AirAsia for the 20.5 percent of Malaysian Air owned by the budget carrier’s biggest shareholder, it said in a statement yesterday. The shares Khazanah will get are worth about $29 million less than the ones it will give up, based on latest market prices. There won’t be any cash adjustment.
Malaysian Air, with a market value about half of AirAsia’s, still plans to cooperate with the discount carrier in areas including maintenance and procurement as it tries to pare costs and avoid a second straight annual loss. Its largest union met Prime Minister Najib Razak at least three times to complain about the share swap because of job concerns.
“The cross-holding of shares has become a distraction to management’s efforts to turnaround MAS and win stakeholders’ support for collaboration,” Khazanah Managing Director Azman Mokhtar said in the statement. “With this reset, we hope and believe that it will give all parties renewed impetus to refocus and move forward together.”
Khazanah will seek a waiver from stock-exchange rules so it doesn’t have to offer to buy all other shares in Malaysian Air. The two carriers were halted from trading yesterday.
Tony Fernandes, chief executive officer of AirAsia, and his deputy Kamarudin Meranun both quit as directors of Malaysian Air, which is based in Subang outside Kuala Lumpur. The two are shareholders in AirAsia’s parent, Tune Air Sdn.
“We can now have a clear focus on developing the Asean and Asian low-cost carrier market which has enormous growth potential,” Fernandes said in a statement. “The collaboration efforts will set us in good stead for the future.”
The two stakes were both worth about $360 million when the swap was agreed to in August. Malaysian Air has since dropped 29 percent, while AirAsia, the region’s biggest discount carrier, has fallen 6 percent.
Malaysian Air will no longer be restricted to focusing on full-service operations after this deal, according to a statement. The carrier had earlier agreed to cede the low-cost market to AirAsia as part of the share swap.
“Under the old arrangement, AirAsia was seen as benefitting more as MAS agreed to convert its low-cost carrier business to premium services,” said Ang Kok Heng, who oversees about 1.3 billion ringgit ($430 million) as chief investment officer at Phillip Capital Management Sdn. The new arrangement will benefit the two carriers equally as they will be cooperating on an operational level, he said.
The 15,000-member Malaysia Airlines Employees’ Union opposed the share swap as it benefited AirAsia more than Malaysian Air, even though the flag carrier had more experience in areas including catering, maintenance and engineering, according to Alias Aziz, the labor group’s president.
The government has been preparing for a possible early election in May or June, before the due date in early 2013, according to four officials who spoke in March on condition of anonymity because the talks are private.
Malaysian Air is now considering fundraising options, it said in a statement, following reports that it may sell 3 billion ringgits of bonds.
The carrier’s condition is “quite critical,” Chairman Md Nor Yusof said in a March 16 statement, after the airline posted a net loss of 2.5 billion ringgit for last year. That was more than twice the 1.21 billion ringgit average of 15 analyst estimates compiled by Bloomberg.
The airline expects another full-year loss in 2012 though will strive to break even, Chief Executive Officer Ahmad Jauhari told reporters on Feb. 29. It plans to save 302 million ringgit this year by paring flights to cities including Johannesburg and Buenos Aires, he said.
“Recovery is our main focus along with initiatives to strengthen the balance sheet and operations through improved productivity, increasing revenue and lowering costs,” he said in a separate statement yesterday. “These efforts will translate into improved financial results.”
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