The MAS-AirAsia share swap

DISCLAIMER

The drama surrounding the MAS-Airsia share swap seems to be gaining momentum and has become fodder for the daily gossip of the general public. The cancer seems to have spread internationally with the Italian office having a sit-in protest against MAS decision to close the operations there. Read the article here on YB Wee Choo Keong's (YB WCK) blog here .

The mainstream media have been extremely quiet on this issue of late. Although, The Star did have a small box in the Parliament section today (21-03-2012) quoting YB WCK's concern being raised in the Parliament lobby. here

Now, why am i so interested in the unfolding of this event? Simply because i am an aviation enthusiast and anything affecting the Malaysian aviation industry draws my attention. Maybe i will write a little something on that...

Now, a little background into the main actors in this saga.
AirAsia : An airline incorporated in Malaysia in 1993 by DRB-Hicom as a charter airline. In 2001, it was sold to Tune Air Sdn Bhd who changed it into a scheduled low-cost carrier and has not loooked back since. The co-founder's are Tony Fernandes (TF) and Kamarudin Meranun (KM). These two along with Dato' Pahamin A. Rajab and Dato' Abdul Aziz Abu Bakar transformed AirAsia into its current award-winning form.
For more information - Profile of AirAsia .

MAS (Malaysian Airlines System) : Started life as Malayan Airways Limited in 1937, with operations starting in 1947. With the changing political landscape over the years, it went through a few name changes. It assumed it's current form in 1973 and became known as Malaysian Airlines. The company has always been a national treasure and an asset that has been (alleged by some and perceived by most people) mismanaged during its life.
For more information - Profile of MAS (Malaysian Airline System)

THE SHARE SWAP AND THE CCF (COMPREHENSIVE COLLABORATION FRAMEWORK)

The main reason for all the brouhaha, i believe, is in the way that it was handled. A share swap was "quietly" negotiated and executed at lighting speed. This was announced on 08-08-2011 (auspicious right..)

Most people were caught unawares and the reactions were swift.
- Investment analysts downgraded the respective securities of both AirAsia and MAS. Source: (1) (1a)
- The staff at MAS were concerned about how their beloved airline was being managed. Source: (2)
- The proponents for fair competition jumped-in with their concern of anti-competition. Source: (3)

All this happened within a couple of weeks of the announcements of the share swap and CCF. Nobody seem to know what was going on.
On the surface, it seems that the deal is similar to one done in Ireland between 2006-2008 between Aer Lingus (the flag-carrier) and Ryanair (their low-cost competitor). Ryanair began buying shares in Aer Lingus until it purchased a 29.4% share of Aer Lingus then offered to buy the remaining shares at a 28% premium, with the Government holding on to their portion (25.4%). The government blocked that deal with the EU also having a say on the matter.
The main difference between the 2 cases is, Ryanair bought the shares in Aer Lingus in the open market at market prices paying cash, whilst AirAsia swapped shares at market prices without incurring any additional cost (other than the transactional ones) and dealing this in "secret".
The result of the Ryanair purchase of Aer Lingus has resulted in the flag carrier having to bite the bullet and made changes to streamline their operations and turn in a profit. Which they achieved in FY2010. In this case, Ryanair was an able competitor who was cash-rich and indeed helped push the flag carrier. Source: (4) I will have to dig further into this.
Why the comparison between Aer Lingus and Malaysia Airlines? Simple. AirAsia's modus operandi is modelled after Ryanair. One of AirAsia's director used to work for Ryanair and Aer Lingus which is reasonable as he has the experience working for the one of the most successful low cost airline.The consultant for AirAsia, AirAsia X, the share swap and CCF deal on the other hand is also working for MAS as Acting Commercial Head. Is that possible? Isn't that a conflict of interest? I guess that depend's on how you argue the case really. Conspiracy theories abound in the blogosphere as the common man is trying feverishly to stop any further "asset stripping" of our national treasure.

What has happened since th swap?
Since the swap the MAS BOD has included some AirAsia figures, 2 livery changes (the current one i'm not very agreeable to, for patriotic reasons but something on that later on) and route rationalisation that has seen MAS saving AirAsia X from its alleged losses on certain routes. YB WCK has alleged that MAS footed the bill for "rescuing" the stranded passengers who had booked AirAsia X flights for cancelled routes. Source: (5) If the allegations are true, then this would be contradictory to the reasons for the CCF in the first place. Source: (6) It could also be the case that MAS was paying this in return for AirAsia pulling these routes.
A blog set-up by retirees of Malaysian Airlines has just alleged that the real reason for this CCF is to help bailout AirAsia. Their investigation points to AirAsia expecting to incur huge capital expenditure for planes due to be delivered in 2012 and 2013. The "invisible hands" behind this deal they alleged are a prominent local bank and a government investment body. Source: (7)

The blog spews allegations of a faltering empire and the cronies that gather to save it from the brink of disaster. All with the help of a national asset. I will dig deeper into the financial commitments of AirAsia (in particular the aircraft purchases) and present the available information to substantiate some of their claims.

Come back again...

السلام عليكم
Peace be unto you