Sunday, August 14, 2011

Why I do not like the MAS - Airasia deal?

I am an investor of Airasia. This deal in fact should have called the Airasia - MAS deal as who knows after 10 years, Airasia can be valued at 2x MAS. How much things have changed. While I like Airasia as a business and how well the company has executed in turning itself into a respectable airline, I do not like the deal at all. Let's see what are the differences between MAS and Airasia.
  1. Airasia is a privately owned company and MAS is a government controlled company although it is listed. It is much easier to run a privately controlled company while there are too many hands trying to reach at the cookie jar of a government controlled. Imagine what will happen if there are changes in the group of people running the government. Will Tony Fernandez have much say in the running of MAS with his group's 20% stake?
  2. Airasia again is a privately owned airline while MAS is a national airline. For a private airline, you can do a Thai Airasia deal. You can also do a Indonesia Airasia deal. So is doing a Japan Airasia deal. Can MAS do that? Little chance. A national airline will have to compete against SIA, Cathay Pacific, Emirates Air. These airlines are definitely financially stronger competing in a similar space as MAS. While Airasia is a competing airline as well, it is different as it reaches out to a different group of consumer group.
  3. Analysts say that the MAS - Airasia deal will lower costs as MAS and Airasia can possibly share spare parts etc., i.e. some of the costs. That theoretically sounds good as in an investment bankers pitch but executing it is very difficult. Airasia only operates Airbus 320 and 330 (for Airasia X). MAS on the other hand has much more variety in their fleet. How is that costs sharing helping?
  4. The deal could potentially reduce competition. I do not like anti-competition deal. It is bad for consumers. I like companies which are competitive as that DNA will make them more competitive naturally. Look at MAS, you think it will ever be successful? The mindset of the people behind the company was totally wrong from day 1 and it will be a tough task to change that. Not even Tony.
  5. To me Airasia should just go ahead and do more international deals like what they have done in different countries as the expertise and strength in negotiating financial and airplane deal could have brought them into those positions. With the deal with MAS, I do not know how other government could have viewed that.
  6. You think Tony could change MAS? Today if you ask around, private corporations are beginning to warm to getting their employees to take Airasia or any budget airlines. Reducing costs will help companies to be competitive. Who are the ones who still insists on taking business class of a national airline? People behind the government. Can Tony introduce no frills or reduce the service level on those flights?
  7. If you look at the Tune group, they thrive on providing value - meaning if anyone is willing to accept a reduced service by paying less, they are able to provide that to you. Hence with these kind of expertise, they will not be able to bring that same model to MAS, a premium service provider. In short, running a low cost airline is very different from running a national airline. I do not think Tony is able to execute well in that space.
I feel that the share swap deal was a deal for Tony and his group as at the time the deal was executed, Airasia's price was rising while MAS' price was poor. When you see Nazir's face in that deal, it was just a deal to make certain group's happy. It was not meant to be a deal that will change the face of the airline business in Malaysia or anything that will benefit Malaysians.

Serious Investing!

Friday, August 12, 2011

MAS - Airasia deal: When politicians plot, public gets shafted

As an investor in Airasia, perhaps I can show my disgust by reproducing the below article by Mariam Mokhtar. I have to say I totally agree with her as I do not think Tony Fernandez and gang can turnaround MAS, and if they are able to do so, why should they.

Tony, as a CEO of Airasia, just concentrate on building Airasia. You are not a superhero.

When politicians plot, public gets shafted

The fly-by-night people in charge of MAS are no better than a posse of cowboys. Why do we continue to tolerate the wasteful antics of our politicians who indulge in a game of real-life Monopoly and who use taxpayers’ money to bail out ailing companies?

In a perverse reversal of the saying “King Midas and his golden touch”, it appears that whatever BN-Umno politicians “touch” will always turn to dust and ashes.

This deal that is struck with MAS and AirAsia is another smack in the face for the public. What sort of responsible government allows such a merger to take place? By agreeing to this merger, the government has neglected to address healthy competition which in essence should benefit the airline customers, companies and the Malaysian economy.

What about fair trading practices? Or conflict of interest? Or share prices? Maybe the Securities Commission should start probing both AirAsia and MAS about insider trading or any other irregularities. What about the jets each carrier uses, the agreements and maintenance contracts signed with Boeing and Airbus? Who honours what?

However, the most scandalous revelation is that all government-linked companies, have been instructed by Nazri Aziz, Minister in the Prime Minister’s department, to cease all civil suits against Tajuddin Ramli, the former chairman of MAS and settle out of court.

Yet again, Tajuddin has been let off scot-free and the public, denied justice. Any court revelations now would not look good for Barisan Nasional, especially as the general election draws near.

With this latest defrauding of the public purse, how much of the taxpayers’ money has gone unaccounted for? This government is neither transparent nor accountable. It does not adhere to its own catch-phrase, “People First, Performance Now”. It doesn’t even match up to its own Key Performance Indicators.

In the late 1960s and 1970s, working for MAS was both a privilege and carried great prestige. Today, there is a different portrait of the MAS employees. Many are unhappy and morale is at an all-time low. Disaffection with MAS is felt by cabin, flight and ground crews including engineering and maintenance staff.

Jala’s forte

When Singapore Airlines (SIA) and MAS emerged from the ashes of the now-defunct Malaysia-Singapore Airlines (MSA), SIA went from strength to strength while MAS was left in the doldrums.

When former prime minister Dr Mahathir Mohamad gave his blessing to Tajuddin to be installed as the chairman of MAS, the airline started to go downhill. Tajuddin received the support and protection from his influential patron, the former finance minister, Daim Zainuddin, which spelt further doom for MAS.

In these days of rising fuel costs and tight profit margins, the airline industry is more competitive than ever. However, the Malaysian Cabinet denies putting government officials in charge of a global brand.

These officials are clueless about most things and have no experience of running an airline. The first thing to effect a turnaround should have been to disband the senior management, all of whom are mere government puppets.

If there was one brief moment of respite for MAS staff, it was when Idris Jala took over and was “praised” for turning the company around. But even simpletons realise that selling your best assets just to make the books look good, is not financial wizardry. Many in MAS are still angry with Jala.

Asset stripping was Jala’s forte. He also engaged in cost-cutting by reducing many of the privileges enjoyed by the staff without addressing the problems created by Umnoputras and BN politicians who treated the airline like it was their own private transport.

Jala, having collected his performance bonus, then entered the government’s bloated political √©lite club via the back door and became a senator and Minister in the Prime Minister’s Department.

So if Jala has turned MAS around, why is the MAS-AirAsia merger necessary? Was it to help MAS or AirAsia? No one really knows as this deal is shrouded in mystery.

Mahathir remarked that the MAS-AirAsia merger was a “very good idea” as “AirAsia can learn about the experience of MAS and MAS can learn how to reduce costs as done by AirAsia”.

How prophetic. Anyone with half a brain will know that MAS is run along government lines. “You do as we say” is the norm and the person who kowtows to the government will be rewarded with a title and other benefits. And if others want to haul you to the court for non-payment of debts, the government does a good service in whitewashing and “proving” your innocence.

Being held accountable

When will we have a head of MAS who is brave enough to say “No” to the government? MAS was a fine airline decades ago and many Malaysians were proud to fly with it. These days, MAS is overpriced and uncompetitive.

AirAsia is nothing to shout about. Customer service is non-existent and it is not cheap flying AirAsia on some long-haul flights. The merger will be another nail in the coffin with regard to competition.

Billions of ringgits of taxpayers’ money are unaccounted for. The scandals of Bumiputra Malaysia Finance, Bank Bumiputra Malaysia Berhad, Felda, Defence Ministry, Perwaja, PKFZ, Proton, Sime Bank/UMBC are a few from a long list.

Perhaps Islamic institutions like JAIS should start condemning and investigating these criminal acts against the rakyat rather than running around and meddling in charity dinners like a blue-arsed fly, in the recent allegation of proselytisation.

Tajuddin must be tried, and if found guilty, punished by the courts for his alleged corruption when he led MAS. His alleged accomplices – ministers, former prime ministers and the current PM – should also be held accountable.

Maybe pigs will fly before there is any sign of judicial retribution.

Mariam Mokhtar is a FMT columnist