AirAsia in Tie-Up to Save Ailing Malaysia Airlines

Fast-growing budget flyer AirAsia will acquire 20.5 percent of flag-bearer Malaysia Airlines under a strategic tie-up announced Tuesday aimed at turning around the loss-making national carrier.

The deal gives Malaysia-based AirAsia's CEO Tony Fernandes -- who took over the no-frills carrier a decade ago and made it one of the industry's biggest success stories -- a key voice in salvaging his struggling rival's fortunes.

"I think we can make a lot of money. We can be more productive if we put our energies together rather than working against each other... Our objective is to grow," Fernandes told reporters at a joint press conference.

"We have to stop thinking small. We want to compete with the big players like Emirates," he said.

Under the deal, Malaysia's state investment arm Khazanah Nasional, which held nearly 70 percent of the national carrier before the deal, will get a reciprocal 10 percent stake in Tune Air, AirAsia's parent company, he said.

The arrangement, first reported by Malaysian media at the weekend but only confirmed Tuesday, marks a coup for the brash Fernandes, who has often been at odds with the national carrier over air fares and access to lucrative routes.

"There is no need for MAS and AirAsia to cut routes (following the tie-up). This is not about rationalisation. This is about growing the market... There is plenty of market for these two airlines," he said.

The partnership will see both carriers review their network services and seek cooperation on routes and opening "flights to new destinations currently not served" by either.

A statement by Malaysia Airlines said a four-person committee including Fernandes would take over management of the national carrier.

As part of that arrangement, Malaysia Airlines managing director Azmil Zahruddin Raja Abdul Aziz will resign to make way for the new leadership, the statement said.

It added the agreement would have to clear a full anti-trust review.

Shares in both companies have been suspended since Monday in advance of the announcement.

Since taking office in 2009, Prime Minister Najib Razak has embarked on an ambitious programme to overhaul the economy and public sector, including selling off stakes in troubled state-owned companies like Malaysian Airlines.

Analysts said the tie-up bodes well for the national carrier's future.

"I think basically Fernandes will have a say, especially now that the challenge is to actually transform MAS. He can use his expertise and his creative leadership in pushing MAS to greater heights," analyst Yeah Kim Leng of research firm RAM Holdings told AFP.

"A key synergy will be that the budget carrier can feed into MAS's long-haul flights to destinations currently not served by AirAsia and vice versa," he added.

"This provides an integration of their routes so they can have a more extensive reach and compete against other full-service carriers."

Fernandes has been rapidly expanding AirAsia's route system and undercutting Malaysia Airlines with its bargain airfares on routes in which they compete.

Sources close to the deal have said it would also allow the carriers to work together to cut rising costs by sharing maintenance and affect bulk purchases of parts and aircraft.

Source : AFP

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