Dropped deal won’t affect AirAsia, say analysts

They see challenging times ahead for MAS, but business as usual for the low-cost carrier

PETALING JAYA: While analysts remain sceptical about Malaysia Airlines' (MAS) turnaround plan, some of them opine that AirAsia Bhdwill not be impacted by the unravelling of the share-swap deal betweenKhazanah Nasional Bhd and AirAsia.

Analysts expect MAS to have a challenging time ahead, but they said it would be business as usual for AirAsia.

“Reversal of the share swap could dampen sentiment in MAS shares. MAS will need to move on from here, and its immediate problem is to solve its cashflow,” an analyst said, adding that there were many areas where MAS and AirAsia could work together to save cost.

To recap, last August, major shareholders of MAS and AirAsia agreed to swap shares, with Khazanah agreeing to sell 20.5% of its over 68% stake in MAS to Tune Air Sdn Bhd, while Khazanah bought a 10% stake in AirAsia from Tune Air. As part of the deal, Khazanah was to possibly take a 10% stake in AirAsia's sister company, long-haul low-cost carrierAirAsia X.

It was reported that the Malaysian Airlines System Employees' Union (Maseu) had met with Prime Minister Datuk Seri Najib Tun Razak to express its objection to the comprehensive collaboration framework (CCF) between the two airlines, which involved the share swap.

Kenanga Research believes that the cancellation of the share-swap deal would not bring any material impact to its forecasts. “However, the sentiment in MAS will be negatively affected as the management risks losing the value-added contribution from AirAsia's Tan Sri Tony Fernandes to turn around the operations of MAS.”

“Furthermore, with jet fuel prices hovering at US$130 (RM390) to US$140 (RM420) per barrel, coupled with the low seasons in the first and second quarters, MAS is likely to face a challenging time turning around its earnings in the current financial year ending Dec 31, 2012 (FY12),” it said.

Separately, Kenanga said there were more expectations and surprises for AirAsia in FY12 apart from its CCF with MAS, such as the launch of Japan AirAsia and listing of Thai AirAsia and Indonesia AirAsia.

“At first glance, the share swap will only bring the additional benefits for AirAsia via maintenance and bulk purchasing. Nonetheless, we opine that the cancellation of the share swap will less likely affect its business fundamentals throughout FY12 and FY13 (as compared with MAS),” Kenanga said.

OSK Research said the cancellation of the share-swap deal would not come as a surprise as MAS's unionised workforce had been applying intense pressure to call off the deal. But OSK said it saw some drawbacks in this development as some areas in the CCF between the two competing carriers might not present win-win situations for both airlines.

“As a case in point, the CCF for aircraft purchases may not benefit AirAsia as it already enjoys an upper hand in purchasing Airbus planes (being one of Airbus's top customers). Furthermore, with no equity interest aligned, given the reversal of the share swap, we think the CCF would not be the ultimate goal sought by a stronger carrier,” it said.

Earlier, OSK said AirAsia would still benefit from the capacity cuts by MAS, which was unlikely to boost its capacity anytime soon in view of its ailing financial condition.

“Furthermore, we think the share-swap reversal could boost the sentiment in AirAsia, as foreign investors prefer the low-cost carrier as a standalone business without any link to the Malaysian Government,” it added.

[Source]