Tuesday, August 9, 2011

Is Tony Fernandez Buying Trouble?

Hantu Laut

What would be the strike price in the share swap between MAS and AirAsia ? Is the strike price going to be higher or lower than the market price?

The exercise would call for at least 1 Air Asia share for 2 MAS shares but the valuation could be more because Air Asia market share price is more than twice that of MAS. However, it is up to MAS and Air Asia, they can ignore the market price and set a strike price they both agree on.

It was initially rumoured that the cross holding would give Tony Fernandez's Air Asia majority share in MAS which was later refuted by MAS biggest shareholder Khazanah Nasional Bhd, Malaysia's Sovereign wealth fund. Khazanah has 14.06% direct holding and 52.29% indirect holding through wholly owned Penerbangan Malaysia.It appears that even after the exercise Khazanah would still be a majority shareholder in MAS.

The share swap is between MAS and Air Asia not with Tune Air as reported by the Editor of Malaysian Insider here. Tune air would have indirect interest in MAS through Air Asia.If such holdings were of significant size this would make it difficult for either company's shareholders to displace the existing management; if both were majority holdings it would be impossible to vote out either set of directors.

Unless he has control over the policies and major decisions in MAS I can't see the rational of Fernandez buying into MAS if Khazanah still call the shot.The swap, if successful, would also give Khazanah significant share in Air Asia if they have not already own some shares in Air Asia through nominees.It would also give Khazanah significant role in policy matters. However, if two firms cross hold each other, it is difficult to displace the management in one without the consent of the other corporation.Being a shrewd businessman I am sure Fernandez has something under his sleeve that we have yet to see.

MAS string of failures was not due solely to the CEO, the board of directors should take the bigger blame for the mess the airline is in. One should envisage the problem of working with a bunch of bureaucratic civil servants to appreciate the difficult working environment one can be subjected to.Remember the days when nasi lemak cost the airline RM70.00 a plate.Nasi lemak is certainly not gourmet food, you can get better nasi lemak from street vendors for as little as RM2.50.

Political interference has also contributed to some of MAS losses.The few years that MAS made money under Idris Jala was made more out of assets stripping rather than profits from its operations.Even if they did, the profits were insignificant.

Below Singapore Airlines group financial highlights.

Year ended↓ Revenue
Operating profit
Profit before
taxation (S$m)↓

31 March 1999 7,795.9 6,941.5 854.4 1,116.8

31 March 2000 9,018.8 7,850.0 1,168.8 1,463.9

31 March 2001 9,951.3 8,604.6 1,346.7 1,904.7

31 March 2002 9,382.8 8,458.2 924.6 925.6

31 March 2003 10,515.0 9,797.9 717.1 976.8

31 March 2004 9,761.9 9,081.5 680.4 820.9

31 March 2005 12,012.9 10,657.4 1,355.5 1,829.4

31 March 2006 13,341.1 12,127.8 1,213.3 1,662.1

31 March 2007 14,494.4 13,180.0 1,314.4 2,284.6

31 March 2008 15,972.5 13,848.0 2,124.5 2,547.2

31 March 2009 15,996.3 15,092.7 903.6 1,198.6

31 March 2010 12,707.3 12,644.1 63.2 285.5

All those years Singapore Airline were making profits MAS was losing substantially or profited under extraordinary gains while under Jala's management.It's a 5 star airline with 5 star losses.

Jala left in the nick of time when Najib pulled him out of MAS to join his cabinet.Soon after he left, the airline started showing losses again.Obviously, they have no more assets to strip or major asset unbundling, the formula used in the financial restructuring in 2002 after suffering huge losses.The Binafikir formula have a short shelf life, the airline is back in the red.

Would Tony insists to absorb Firefly into Air Asia and MAS to cease selling low fares to its passengers and stay as a full-fledged carrier? I expect these would be some of the conditions thrown at Khazanah if they were to bring Tony to the board of MAS.

Since the deal between MAS and Air Asia is not yet set in concrete anything can happen, negotiation can still break down if Tony doesn't get what he wants.


SM said...

Bro HL,

I think it's the Government using "strong arm" tactics against Fernandes. Do this or we will make sure you & AirA sia suffer.
By doing this swap & getting Fernandes & Air Asia's names involved in MAS, the Government hopes that invsetors will be lulled into thinking that MAS' fortunes are changing. If not why else?
Like you said, unless Fernandes has "full say" to what MAS needs to do to improve, why does he even want to get involved?
The other strange thing about this is, which large Multinational Company offers Shares to it's main competitor (unless there's some hanky panky involved)?
There must be something going on under the table. This swap would have been planned a long time ago (they don't suddenly get up one morning & the next day have a share swap) & maybe the Government is "compensating" Fernandes? Hey, we know Malaysia Boleh, right?!

Bedul said...

We see who is cleverer? Who kelentong who?
You must know Tony Fernandes always wants to win.

Anonymous said...

Buying 200 planes in one go is big business. Unless you have someone to guarantee your purchase I doubt any plane maker will want to deal with if it is against your future earnings as repayment. The local banks who arranges the loan will definitely want some collateral no matter how good your track record is. With 200 planes coming almost monthly, you need new routes and the present hurdles AA has to overcome with MAS to get new routes especially the high capacity ones are not helping much with Tony's expansion plan.
Another reason why Tony need the merger is in the event of future loan default, who else is better than the government to bail it out?
They have thought about all these along time ago, it is just the time to execute the plan.

yoko ono said...

let the mad mb pkr tan sri khalid run air asia and mas. everyone who is poor flies FREE. every 3 mths,he can ask treasury for money! (like free water)

Pak Zawi said...

Bro HL,
Now the merger is inked and more details are available, what is your take on the merger? Read Big Dog's latest post on the merger.