Malaysian Air, AirAsia Parents Said Set to Unwind Share Swap

Malaysian Airline System Bhd. (MAS) and AirAsia Bhd.’s (AIRA) biggest shareholders plan to unwind a stake swap following opposition from the state-backed carrier’s biggest union, two people familiar with the matter said.

Malaysian Air’s board will meet to discuss the proposal today, said the people, who declined to be identified as the information is private. The carrier and AirAsia, the region’s biggest discount airline, both halted trading in Kuala Lumpur pending material announcements.

The two airlines still intend to cooperate in areas including maintenance and pilot training, even as the cross- shareholding is abandoned, the Star reported today, citing unidentified people. The share swap, involving stakes then worth about $360 million, was agreed to in August as Malaysian Air sought to pare costs following losses.

“The share swap alone will do little to help turn around Malaysian Air,” Joshua CY Ng, an analyst at RHB Capital Bhd. said in a report today. “As such, the unwinding of it should also not inflict too much damage.”

Ng maintained his “underperform” rating and fair value of 1 ringgit. This implies the brokerage expects the stock to trade more than 5 percentage points lower than the KLCI over the next six to 12 months.

Job Fears

AirAsia’s largest shareholder Tune Air Sdn. agreed in August to swap 10 percent of the budget airline for a 20.5 percent stake in Malaysian Air from state-controlled Khazanah Nasional Bhd. The shares may be exchanged back at the original price, one of the people said today.

Malaysian Air has dropped 29 percent since the deal was announced on August 9, compared with a 6 percent decline in AirAsia’s stock and a 6 percent gain in the benchmark FTSE Bursa Malaysia KLCI Index.

Tony Fernandes, Tune’s biggest shareholder and AirAsia’s chief executive officer, declined to comment in a text message. Mohd Asuki Abas, a Khazanah spokesman said the company will issue a statement later, without elaborating.

The 15,000-member Malaysia Airlines Employees’ Union has met Prime Minister Najib Razak at least three times to seek a reversal of the share swap because of concerns that cooperation will result in job losses. 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.

“We are against the share swap and collaboration,” Alias Aziz, the union’s president, said by phone yesterday. “The collaboration will benefit AirAsia more than Malaysian Air despite us having more experience in areas like catering, maintenance and engineering.”

‘Quite Critical’

Malaysian Air’ condition is “quite critical,” Chairman Md Nor Yusof said in a statement on March 16, after the airline posted a net loss of 2.5 billion ringgit for last year, more than twice the 1.21 billion ringgit average of 15 analyst estimates compiled by Bloomberg. The carrier was considering all options to strengthen its balance sheet urgently, he said.

This may include an Islamic bond issue, the two people familiar with the matter said today.

Malaysian Air, based in Subang outside Kuala Lumpur, expects another full-year loss in 2012 though will strive to break even, Chief Executive Officer Ahmad Jauhari told reporters on Feb. 29. The company expects to save 302 million ringgit this year by paring flights to cities including Johannesburg and Buenos Aires, he said.

To contact the reporters on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net; Manirajan Ramasamy in Kuala Lumpur at rmanirajan@bloomberg.net

To contact the editor responsible for this story: Neil Denslow in Hong Kong at ndenslow@bloomberg.net

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