Stakeholders object MAB-AAX lopsided merger proposal

Several stakeholders have objected to the merger proposal which is deemed as a bailout for AAX

by AZREEN HANI/ graphic by TMR

KHAZANAH Nasional Bhd is pushing for the Malaysia Airlines Bhd (MAB) and AirAsia X Bhd (AAX) merger but the proposed marriage is facing a strong resistance from the fund’s stakeholders due to the lopsidedness of the deal, according to a source.

The deal, if crosses the line, will see the loss-making national carrier bailing out the long-haul no-frill carrier which continues to post huge losses. Khazanah, the sole shareholder of the national carrier, is looking to axe the ailing carrier from its books after a botched RM6 billion capital injection into MAB since 2014.

The state-owned sovereign wealth fund believed the merger would be the way forward for the national carrier which continues to record losses after a massive restructuring and termination of 6,000 staff.

AAX posted a net loss of RM207.11 million for the second quarter of this year (2Q19). The long-haul low-cost carrier recorded a net loss of RM312.69 million last year and RM244 million for the whole of 2015.

A source who spoke under the condition of anonymity said several stakeholders have objected to the MAB-AAX merger proposal which is deemed as a bailout for AAX.

It is believed that the proposal would require the government to inject money to cover MAB’s operational expenditures, recapitalise the airline and settle all its outstanding debts prior to the merger.

“Basically, AAX shareholders would get a ‘cleaner’ MAB. Why sell when the government has to clean it up prior to the sale? In fact, there is no single benefit for MAB to merge with AAX. The latter is not even profitable. The ‘merger’ would only benefit AAX’s shareholders and not MAB or the Malaysian public.

“It seems like the management of Khazanah is pushing to bail out AAX in the pretext of saving MAB. This is not what they are tasked to do,” the source who is familiar with the matter told The Malaysian Reserve (TMR).

Analysts have sounded their reservations of AAX’s business model which exposed the carrier to the same cost structure of a full-fledged airline.

Maybank Investment Bank Bhd’s analyst maintained its ‘Sell’ call for AAX shares, and ranked it as the riskiest Asia-Pacific airline.

AirAsia Group Bhd stated that the decline in 2Q19 net profit was caused by higher maintenance and overhaul costs, as well as a RM10 million fine from the Malaysian Aviation Commission.

AirAsia co-founder and group CEO Tan Sri Dr Tony Fernandes had dismissed talks of a possible merger with MAB, claiming the low-cost carrier is on a transformational path.

However, the source confirmed that Khazanah management’s negotiation with AAX’s main shareholders is already at an advanced stage. Fernandes is a major shareholder in AAX.

Khazanah has also hired Morgan Stanley to explore strategic options for MAB, including a potential stake sale.

The appointment of Morgan Stanley by Khazanah was viewed negatively by analysts. Endau Analytics founder Shu

kor Yusof was reported as saying that the hiring is “a waste of public fund” and shows that Khazanah management is “bereft of ideas” in solving the problem that the management itself has created in the first place.

Last July, Khazanah — in a statement to TMR — said it was currently working with the Malaysia Aviation Group on the way forward for MAB, including evaluating all strategic options to revive the company’s performance.

“The government has said it is also open to proposals from external parties, including potential acquisitions by the private sector,” it said.

The government has received several proposals on the takeover of MAB — one of which came from a group of businessmen led by AirAsia Group co-founder and former chairman Datuk Pahamin Ab Rajab, who is reportedly seeking about RM1 billion to support its takeover bid for MAB.

Recently, a financial daily reported that Japan Airlines Co Ltd could be one of the interested parties to buy MAB’s stake.

Japan Airlines president Yuji Akasaka said in June that it was too early to say whether the carrier would consider an investment in MAB although further talks are possible, according to The Edge.