In late 2019, Malaysia Airlines Berhad (MAB) began to appear in Malaysian news headlines again. It was reported that the government has received several proposal with the aim of being a strategic partner to the ailing airline. The Malaysian Prime Minister, Tun Dr. Mahathir Mohamad has reportedly said that all options need to be considered and some of the proposals is considered as “no-go”. The airline has been struggling to be profitable with years of transformation programme have yet to demonstrate significant success.
Focus Malaysia reported that Tun Dr. Mahathir Mohamad said the government has received 5 proposals. While the newspaper has named the first four of them as AirAsia Group Berhad (AAGB), Japan Airlines (JAL), Air France-KLM SA and Malindo Airways Sdn Bhd (Malindo). The fifth proposal has yet to be ascertained from the news reports.
Japan Airlines Co Ltd (JAL)
Japan Airlines is proposing an RM 1.12 bil of cash injection into Malaysia Airlines. In return, it will have a 25% stake in MAB. However, it was reported that the synergy will not be sufficient to cover losses incurred by MAB.
Focus Malaysia reported that AAGB estimates synergies of RM 1.4 bil per year. Besides, the synergy is also expected to solve industry’s overcapacity as well as enabling access to AirAsia’s digital and other aviation business.
There are several concerns on the merger or synergy. The first one is a possible monopoly, given the significance of market share both of them have for Malaysian domestic and Southeast Asia regional destinations. The second one is about the access to AirAsia’s digital and other aviation business. This part of AAGB is expected to bring in more revenues compared to the AirAsia airline business itself. Therefore, MAB may not have a bright future as far as profit is concerned.
Being a European carrier, the synergy is expected to bring in more benefits to the airlines in terms of maintenance, repair and overhaul (MRO).
Malaysia Airlines has been seeing itself in red for so many years already. IN 2014, it was taken private by Khazanah as part of a multi-year restructuring exercise by the Malaysian government.
Malindo offers a one-year “trial period” before the final decision on merger takes place. It hopes that the scale of economies will help both airlines save cost and earn a better revenue.
Go or No-go?
The first foreign CEO appointed during the restructuring exercise was Christoph Mueller, who then resigned before his contract tenure ends with Malaysia Airlines. The optimists may think that he will be successful in bringing the necessary changes to the airline. However, his premature resignation has led the skeptics into believing that he was not successful in turning around the company to profitability.
With MAB now is having a Malaysian as its CEO, we can only hope for the best for the airline. Perhaps it is the best time for everyone in the airline to think of what will be the best solution for the company to be profitable.
How JAL proposes to turn around Malaysia Airlines – Focus Malaysia