SQ in Deep Shit as Tony Fernandez Buys MAS

[JayBee]

sos : http://www.thestar.com.my/news/story.asp?file=/2011/8/7/nation/9255271&sec=nation

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.

 

[GOD IS MY DOG]

don't worry...................the coming depression and credit crunch will wipe out this pretender once and for all...................

 

[Windsor]

don't worry...................the coming depression and credit crunch will wipe out this pretender once and for all...................

MAS not an easy airline to run due to the ingrained mindset of the staff. Many are on the take plus lots of pilferage and mostly staffed by the bumis. Tony may meet his waterloo if he is not careful.

 

[groinroot]

MAS not an easy airline to run due to the ingrained mindset of the staff. Many are on the take plus lots of pilferage and mostly staffed by the bumis. Tony may meet his waterloo if he is not careful.

True. Tony should have waited until the airline is about to go bust, then move in and sack all the deadwood.

 

[sense]

Could have wait a while longer for a better deal.

 

[johnny333]

MAS not an easy airline to run due to the ingrained mindset of the staff. Many are on the take plus lots of pilferage and mostly staffed by the bumis. Tony may meet his waterloo if he is not careful.

How is it any different from SIA

 

[Windsor]

How is it any different from SIA

I used to visit MAS quite often before as they were one of my clients. Friday afternoon after lunch many of the staff disappeared presumably for prayers. They never came back to office after and I don't mean only the rank and file.

MAS has been in trouble and badly managed since the day they split up with SIA. They suffered heavy losses mostly through dubious deals such as the one with a German ground handling company. MAS will be a good investment provided Tony can swing it. It will not be an easy task as he need to overhaul the entire airline, such as replacing some of the management staff, retaining only the good ones.

 

[Windsor]

By P Gunasegaram, The Star
ALL is not well with Malaysia Airlines (MAS) (see our cover story this week). While the situation is dire, it is not impossible for the airline to recover its fortunes but it needs some nifty strategic changes and deft execution.
While key officials say they want the airline to be Asia’s top one by 2015, they don’t say clearly in terms of what. MAS is already among the best in the world in terms of service but that does not spell profit with the airline slipping into an operating loss of RM267mil for the first quarter of this year.
This airline has been through tough times, slipping into massive losses at several points during its history. With help it has come back from the brink of failure but it has not been able to show the kind of sustained profitability that other airlines such as Singapore Airlines have exhibited.
MAS’ fortunes have deteriorated so much that low-cost carrier AirAsia overtook it in terms of market value earlier this year (see chart) and seems set to widen its lead as it made a profit in the latest quarter while MAS reported a substantial loss.
MAS has a good product going by the continuing rave reviews for its cabin services. That alone is not enough to make it profitable. As with any business, you arrive at a profit or loss after subtracting costs from revenue.
For an airline, the revenue is dependent on capacity and how much it grows or reduces its routes, the load factor which is a measure of capacity utilisation, and the crucial pricing through which you maximise revenues.
This is to be juxtaposed with costs, of which the major and most volatile one is oil prices on which the jet fuel price depends. Sometimes, your cost savings justify a cutback in routes but a prudent airline will also consider the long-term impact of such a move because you don’t want to constrain future growth.
Because airlines are so dependent on oil costs, they try to hedge their positions to cap their costs but when wrongly or improperly done, this can wipe out airlines.
In fact in 2009 MAS had to provide a massive RM3.95bil in provisions for it’s hedging which nearly oblitereated its shareholders’ funds, requiring it to ask an exemption from de-listing procedures under Bursa Malaysia’s Practice Note 17.
In that episode, MAS had hedged at an oil price of US$100 per barrel but what it failed to do was to structure the hedge so as to benefit fully from any fall in the oil price below US$100. Paradoxically, as the oil price collapsed, MAS’ profits collapsed too.
For the subsequent quarters, MAS made enormous profits because the oil price rose again, reversing some of the earlier provisions but there were massive operational losses nevertheless.
For the latest quarter, MAS again blames rising oil prices for the losses but there is no explanation as to how many other airlines still manage to make profits, albeit at lower levels.
One has to suspect that this lies in revenue management. Perhaps it does not have enough business class or first class seats. Perhaps it has got its pricing wrong and is cannibalising some of its own market via cheap offerings and through its low-cost airline, Firefly. Perhaps it has given up too many routes to be able to grow rapidly.
Perhaps, MAS has become so obsessed with cutting fares and offering value comparable to low-cost airlines that it is losing its own high yielding market by people who book earlier to take advantage of lower fares.
Perhaps the airline is not very clear about where it should stand in terms of the kind of strategy it must adopt to maximise its revenue. You don’t leverage great service by offering value (read low-cost) fares. In fact you do the exact opposite.
Yes, one must agree that new airplanes are more cost efficient and that could make the difference between profit and loss, but does that imply that MAS has been negligent in its fleet planning?
In terms of broad strategy, MAS should just focus on being an excellent full-service carrier, market it as such and leave low-cost operations to subsidiary Firefly. It should get the best people and systems to manage its fleet and price its fares.
It should focus on continued cost reduction in other areas without seriously undermining its service standards, its promotional efforts and its brand reputation and positioning.
And it should engage in prudent hedging policies which allow it to take advantage of falling oil prices instead of being locked into high-cost oil when the price of oil is falling.
Once it has sorted all this out and is back on the firm path of profit, then it can talk about being Asia’s number one airline in every respect, not just service.

 

[johnny333]

MAS has been in trouble and badly managed since the day they split up with SIA. They suffered heavy losses mostly through dubious deals such as the one with a German ground handling company.....

My cynical comment was targeted at SIAs upper management. Isn't SIA headed by an inexperienced general? During the SARS crisis SIA laid off plenty of experienced employees. Many of these positions are probably occupied by cheap foreign talent

 

[Windsor]

My cynical comment was targeted at SIAs upper management. Isn't SIA headed by an inexperienced general? During the SARS crisis SIA laid off plenty of experienced employees. Many of these positions are probably occupied by cheap foreign talent

Sorry I did not realised it was a cynical comment. Anyway, I don't have any new knowledge of SIA as I dealt mostly with SIAEC and Purchasing during Pillay's tenure. My colleague handled SIA after I moved over to the regional airlines.