Share swap deal: AirAsia's Fernandes to gain 20% stake in MA

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Share swap deal: AirAsia’s Fernandes to gain 20% stake in MAS
By WONG SAI WAN
saiwan@thestar.com.my

*Khazanah clarified Sunday that it will remain the biggest shareholder in Malaysia Airlines (MAS). See media statements from Khazanah and AirAsia below.

KUALA LUMPUR: Malaysia Airlines (MAS) and AirAsia will swap shares in a surprise deal which will see Tan Sri Tony Fernandes becoming the single biggest shareholder.

Khazanah Nasional Bhd, which owns over 69% of MAS, is said to have concluded negotiations with Fernandes to come up with a deal to save the national carrier.

Sources said the deal, which was struck last week after negotiations over the past year, became urgent after MAS’ poor showing in the last two quarters.

Fernandes is set to get 20% of MAS equity under the deal that is to be signed next week, with some sources saying it has already received the Government’s approval and could be inked by tomorrow.

Industry players expressed surprise at the deal because of past animosity between the management of the two airlines.

Those who were aware of the negotiations were also surprised at the speed at which it was concluded.

At present, Khazanah, a strategic investment company, holds about 69% stake in MAS, and under the deal with Tune Air Sdn Bhd, it will get a similar stake in AirAsia. Fernandes and his co-founder partner Datuk Kamarudin Meranun hold 26.28% in the world’s biggest budget airline.

Fernandes declined to comment when asked about the deal.

Insiders in both airlines confirmed that the negotiations concentrated on the synergy such a share swap would bring.

First, there will be rationalising of routes. Between them, the two airlines cover most of the lucrative routes from Asia to Europe.

Second, when they are seen as a single unit, their bargaining power with airports and aircraft manufacturers will double, said a source close to the deal.

He pointed to the recent move to merge SapuraCrest Petroleum and Kencana Petro-leum via a share swap as an example for the AirAsia-MAS deal.

Insiders said it was unlikely the two airlines would merge into a single unit, but would operate though separate managements at operational level, while sharing common directors and policies.

Malaysia will get the best of both worlds a premier full-service carrier in MAS and the best budget carrier in AirAsia.

They have been competing with each other for too long, and it’s time to work together because there is more than enough to go around, said a senior government official.

The official added that the feud between the two had been going on for 10 years since Fernandes and others took over the ailing AirAsia from DRB Hicom.

AirAsia is twice as big as MAS in terms of market capitalisation. MAS is worth about RM5.3bil, while Fernandes’ outfit is worth slightly more than RM11bil.

AirAsia stocks closed at RM3.95 per share yesterday while MAS’ was at RM1.60.

A news portal, The Malaysian Insider, which broke the story of the deal yesterday, reported that Fernandes would likely appoint Khazanah’s executive director of investments Mohd Rashdan Mohd Yusof as chief operating officer after the share swap. Rashdan already sits on the MAS board.

Sources said no decision was made about the position of MAS CEO Tengku Datuk Azmil Zahruddin.

MAS recorded a first quarter net loss of RM242.3mil against a profit of RM310.6mil in the same period last year. Analysts expect the national carrier to make full-year operating losses due to high fuel costs and falling yields.

In contrast, AirAsia recorded a first quarter profit of RM171.9mil for this year and a record RM1.5bil in profits for 2010.

Sources said the merger would also force the two airlines to take stock of their future aircraft purchases if they are to enjoy any synergy.

AirAsia purchased 200 Airbus A320 aircraft earlier this year with an option to buy another 100, while MAS was set to make a decision on the replacement aircraft for its Boeing 747 and 777 fleet, which is more than 20 years old.

*MEDIA STATEMENT FROM KHAZANAH

Kuala Lumpur, 7 August 2011

We refer to media reports that Tan Sri Tony Fernandes and Dato’ Kamarudin Meranun will emerge as the single largest shareholder of Malaysian Airline System Berhad (MAS). These reports are incorrect. The aviation sector is a strategic sector to the economy and MAS remains a core holding in Khazanah Nasional Berhad’s portfolio. Khazanah will continue to maintain its position as the single largest shareholder in MAS.

As an active strategic investor, Khazanah constantly reviews ways to improve the performance of its portfolio companies and concurrently the competitiveness of key strategic sectors of the economy. Further announcements will be made at the appropriate time with regard to Khazanah’s position in MAS’ ongoing transformation plan.

*MEDIA STATEMENT FROM AIRASIA’S TAN SRI TONY FERNANDES & DATO’ KAMARUDIN MERANUN

Kuala Lumpur, 7 August 2011

"We refer to the press coverage over the last two days that has reported that we would become the single largest shareholder in MAS.

We wish to clarify that this is not true.

As the major shareholders of AirAsia Berhad and AirAsia X Sdn Bhd, we are committed to increasing shareholder value in both our core investments by continuously exploring various opportunities to enhance our franchise."

-What will happen next?

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What is next ?

" Everyone can no longer fly ".

Last month I had no idea about this share swap, interestingly I was thinking will Tony ever join MAS ?. Latter I thought it is not possible because Tony is from the competitor airline. But then I was wrong.

Looks competition is not good for Malaysia, monopoly is the best :frowning:

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hmmmm… Fernandez kena beli?

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[quote=“Bones”]What is next ?

" Everyone can no longer fly ".[/quote]

owh yeah…that is what i am afraid for…i believe i can no longer fly…

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wen Idris was wit MAS, they restructure and start untung balik…bila da untung,replace wit malay…then rugi balik…ish ish ish ish…

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[quote=“dornz”][quote=“Bones”]What is next ?

" Everyone can no longer fly ".[/quote]

owh yeah…that is what i am afraid for…i believe i can no longer fly…[/quote]
I have just made several plans to fly starting December. Looks like I too can no longer fly with cheap fares again liao! :frowning:

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Dun worry. Every 1 still can fly. It just Tony who want to share the loss of Mas. It’s a lot of $$ there… billion. Kalau kompeni tak rugi, towkay mana ada untung?

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i hope that tony make so much untung at mas so that he can reduce the tambang tiket for air asia by much much much more…hhahaha…

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Really? AirAsia saving MAS?

From http://malaysianewsnetwork.net/portal/2 … as-fiasco/

  1. As of the 1st Quarter of 2011, Air Asia paid up capital stands RM 2.76 billion and debts amounted to 7.7 billion with cash balances amounting to 1.7billion compared to Malaysia Airlines is an asset backed corporation. The paid up stands at RM 3.384 billion, where it is represented with a fixed asset value of RM 8.4 billion. The net asset is at RM 6.962 billion, where cash constitute RM 2.086 billion. It is very clear that MAS is in better position than Air Asia, so why the share swap which giving Air Asia 20.5% share in MAS?

  2. Air Asia shares ended yesterday at RM2.35, up by 17 sen. It was among the top ten biggest gainers of the day. In contrast, MAS ended flat at RM2.27 but still with the asset and paid up capital, MAS remains stronger than Air Asia. So again I asked why Air Asia got 20.5% in MAS and through Khazanah, MAS got only 10% in Air Asia.? Air Asia is good on paper but in reality they can hardly make any profit. So how to show the world that they are in the blue?

  3. In August 2010. AIR ASIA announced a deferment of their proposed aircraft purchases but sometime in June 2011 they reversed their decision and proceeded to place an order for an additional 200 new aircrafts at the Paris Air Show. As of 31 March 2011, based on data from their 1st Quarter report, AIR ASIAs capital commitments stood at RM 19 billion. With the above announcement, an additional RM 54 billion will be added as Capital Commitments. RM54 billion? Where the hell Air Asia going to get such money when their annual turnover only about RM1.1 billion.

  4. The proposed purchase of roughly 75 billion will be spread over a 15 year period ending 2026. In other words AIR ASIA has to ratchet up its earnings to an average of 5 billion per annum to meet its future dues. From 2006 to 2010, AIR ASIAs revenue grew by 10 fold from 110 million to roughly 1.1billion, an average growth of RM 200 million per annum. Still not enough to cover Air Asia future debt commitment, so what Air Asia will do?

  5. Its cash trove raised 6 fold from approximately 300 million to 1.7 billion but its debts skyrocketed from 1.05 billion in 2006 to 7.7 billion in 2010, an increase of 700% in 4 years time. One gets the ghastly feeling that this is a debt burden that is spiraling out of control. Tony brilliant business plan is actually putting Air Asia in the red mark, so what will he need to do?

  6. Bear in mind that Air Asia at one point of time, they owed Malaysia Airports over RM 65 million. Has Air Asia paid this debt? These are money for the government which can be used for the benefit of rakyat!

  7. Malaysia Airlines annual operating turnover is RM 12.98 billion versus Air Asias RM 3.948 billion. That is three times more sales for year 2010. Malaysia Airlines operating revenue from airline operation is at RM 11.649 billion against Air Asias RM 2.839 billion. Can you see now why Air Asia desperately wants MAS? Can you see how Air Asia will get their cash required to cover their future debt commitment?

  8. The Thirteen Million Ringgit Plus question is that how the hell could Khazanah give away 20.5% of a companys holding with bigger network, higher standard of service, three times more operating revenue, stronger assets, lesser debts, more cash and better paymaster track record to another company with lesser track record, just because they make so much net money in shorter time?

  9. For the second quarter ended June 2010, Air Asia posted a net income of RM198.93 million, while MAS suffered a net loss of RM532.73 million. So why MAS lost? Simple, the governments are putting MAS into an early grave by suffocating the management team with all sort of restriction! MAS management team too contributed to the operational loss by over spending and did not make any effort by investing serious marketing exposure like Air Asia did. This does not help to when they cut high revenue international sectors like Spain, Stockholm, Munich etc.

  10. Inside information too reported that whenever MAS formulate marketing plan to boost sales but that plan somehow or rather are being leaked out to Air Asia. MAS senior general manager for sales and marketing Datuk Bernard Francis gave a 24-hour resignation notice. Why? MAS are plague with moles that worked for Tony that feeds him information about MAS movement? Corporate espionage at its best! Tan Sri Dr. Mohamed Munir Abdul Majid has resigned from his post as chairman and director of the airline too early this month despite being eligible to be elected againwhy? I say it good riddance as he spends MAS money like his own but why resign?

  11. Those MAS managers stationed overseas who are supposed to sell seats, especially the 1st class seats which would subsidize those traveling on Y Class are not doing do their jobs. They have been at these places for donkey years and where their children practically grow to adulthood there. Perhaps the sales people in MAS are corrupt people. If you dont sell the 1st class seats, you dont make money. You make money only if planes are in the air. If need to have the planes fly, you will need destinations. How to have destinations when it has already been cut?

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  1. It is Air Asia Xs dream to be a major intercontinental carrier. Getting landing rights would be a G-to-G arrangement and national carriers usually get the first right of refusal. Now AirAsiaX is accessible to lucrative landing rights and destinations. But wait, it is not easy to get landing right unless Air Asia used existing operating carrier like MAS who has many code sharing with other major airlines and landing right. So another benefit to Air Asia?

  2. Air Asia could now expect to get a national carrier status. A private company with no loyalties to the country and its people will get such title, why? Tony has proven this by abandoning the rural routes. Fernandes took those routes to build up Air Asias capacity and also the numbers. The heavy subsidy was proven beneficial to his business model too. The moment the numbers went up substantially, Fernandes gave back the RAS away and Government insisted that Malaysia Airlines took the service back again, for the sake of Sabahans and Sarawakians. So who absorbed the lost? MAS off course!

  3. Malaysia Airlines did her fair share of national service and many Malaysians benefitted from this at the times where communications were poor or nonexistence. In 2005 when PM Flip-Flop Dato Seri Abdullah Ahmad Badawi agreed to Level Four Boys concocted Airline Rationalization Plan, where Malaysia Airlines to run the trunk route and feeder to the international destination where else Air Asia got the rest. This includes heavily subsidized Rural Air Service.

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  1. Tan Sri Azman is fully aware of the lucrative catering business in the airline industry in Malaysia was taken from MAS and handed over in a silver platter to LSG Sky Chef Brahim Sdn Bhd (LSG) during the Pak Lahs administration sometimes in 2004 to service and cater for all National and most International Airlines flying to and from Kuala Lumpur. It is believed that the contractual terms are one sided and unusually long! Guess who owns LSG? Let me give you a hint, he is related closely to our flip flop PM.

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  1. On aircraft maintenance, Air Asia will have excess to world 3rd best aircraft maintenance facilities. They no longer will need to send their aircraft to Europe for maintenance and pay on time. Air Asia will have access to MAS engineering facilities and need not pay them as they did with MAB. This will turn to profit but lost to MAS.

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  1. Readers will recall that Tony & Co and Kalimullah Hassan and Lim Kian Onn of ECM Libra are now associated via Air Asia X and other ventures. It seems where ever Pak Lah have gone, they will follow suit. Abdullah Ahmad Badawi, the man who failed this nation and her people miserably, is the current ADVISOR of MAS. Can you put the puzzle together? If Pak Lah manage to single handedly destroy Malaysia, what will you think happen to our beloved MAS where he is the ADVISOR?