For the detractors, their argument is classical and populist- a creation of monopoly that will not serve the best interest of the consumers. It is a valid concern but at this moment, should become the least of our worries. In fact, there are more urgent issues at stake that require in-depth deliberation. The forces of deregulation and regionalization/globalization for one will surely force airliners to keep price and network coverage in-check. Take the Jakarta-KL flight for instance - besides MAS/Garuda and Air Asia, there is also KLM that uses Boeing 757 for the route. On a comparable schedule, KLM price offers are at an average of only RM 80 premium then what is offered by AirAsia (and that with assigned seating, food and comfort of KLIA as well). Where AirAsia and MAS fail to provide adequate service to the liking of the marketplace, there will always be the likes of Tiger Airways, SIA,Thai etc. to pound at the opportunity. So for the consumerists, we should be on the look-out for at least two signals. On the more immediate front will be the liberalization of the KL-Sydney route currently monopolised by MAS. AirAsia X has loudly complained about the MAS advantage over the route and if they withdraw from this demand, it will prove that the MAS - AirAsia collusion is indeed bad for consumer. Since AirAsia X will be publicly traded soon, investors will be closely looking at its network expansion and they are bound to further encroach into MAS territory. To see them backing down from this demand will be dumbfounding and detrimental to AirAsia X business value. The second, more long-term signal will be the fate of Firefly. It is a counter strategy to AirAsia's low cost model. And the collaboration between MAS and AirAsia has made this counter strategy counter productive. The best way to advance consumer interest will be to spin-off Firefly into an independent entity (using management buy-out?) thus allowing the fledgling airline to unlock its value potential. The government has set up a special advisory panel headed by former PM Tun Abdullah Badawi. Since the panel tackles public interest, it has the moral obligation to make public its findings. Perhaps the idea of spinning-off Firefly should be explored by this panel.
The greater worry is actually on the Malaysian airline industry itself, specifically on AirAsia being that rare example of successful Malaysian enterprise gone global. This deal has only amplified AirAsia's exposure to unnecessary risk considerably by tying its fate to the money-losing MAS. Now there is a valid concern that MAS losses are threatening to pull AirAsia along as well. Yes, the share swap deal involves no hard cash infusion at the moment but god forbid, at a certain point of time, TuneAir may have to channel AirAsia's profits to prop up MAS. Need we to remember that MAS has a history of undoing the strength of its owners in Tajudin and Naluri/TRI. The issues facing the airline are more than enough to suck the energy out of its owners and divert focus that in the end not only saw Tan Sri Tajudin Ramli having to relinquish control of MAS, but also finally losing TRI-Celcom. History may again repeating itself, this time on TuneAir and AirAsia.
Time is of essence. The plan if of course to execute a quick turnaround plan for MAS, something of which Tan Sri Tony Fernandez and Dato' Kamarudin Meranun are experts in doing. But MAS, unlike AirAsia, is a different beast to tame altogether. That speed advantage may have been blunted by several factors.
People-wise, MAS is one of the most unionized organization in Malaysia and the union has been involved in some very public spat with Tan Sri Tony a few years back regarding flight privillege to the AirAsia CEO. Tony himself considers the word union as a dirty five-letter word thus the all out effort to ensure AirAsia free of union intervention. While the response has been diplomatic so far, MASEU will be mindful of Tony and Kamarudin "brash" cost-leadership style and changes will not be as smooth sailing as it is in the more nimbler AirAsia. Of course, this issue will become more relevant if Tony decides to move into management. And he should. If they are concern about protecting TuneAir market value in the long-run, he better be more hands-on with MAS.
The benefit from bulk purchases will also not come as directly and as quickly to make a significant impact on MAS balance sheet. Central to the cost structure is the hardware of both airlines; MAS being largely a Boeing-based operation while AirAsia placing its faith wholeheartedly on Airbus meaning that areas such as parts, engineering, training - items listed in potential cost savings in the CCF are all dissimilar. In this kind of collaboration, to argue that achieving economies of scale is a standard goal but the two airlines will first need to navigate the complicated service level agreements (SLAs) and maintenance bulletins issued by principals before both airlines can actually share and exchange resources. This is a time-consuming process yet MAS business turnaround is urgent and investors patience is thin. Even if there is an extremely quick and huge potential to be reap in this aspect, surely both parties did not need a share swap agreement to realize this? A less complicated operational agreement will do. The expectation is to hard wire the collaboration within 6 months. It begins to look that they will need more.
And certainly, Tony & Co must have knew about MAS legacy issues involving Naluri and Tajudin. Bar Council throw in more caution into the wind by reminding the fact that board members would be liable to any arising legal problems. As newly appointed directors of MAS, Tony and Kamarudin are now made accountable to a certain extent. But on the other hand, their inclusion into the Board is a shrewd move by Khazanah/MAS. The F1 Lotus brand ownership and countless other issues have proven that both personalities do not shy away from a fight. Their presence will make MAS Board more combative, not so much about fending-off all the legal claims but perhaps more importantly, to challenge the government bureaucracy that is stifling MAS performance and operational flexibility in the first place. One of the issues plaguing Idris Jala's MAS Transformation Plan is the reluctance of DCA and the relevant ministries to let MAS operates closer to market demand which involves restructuring of unprofitable routes and rescheduling of flights. We can certainly expect more confrontation between the new MAS and the bureaucrats in this near future as MAS seeks deeper cost cuts.
But the deal is speedy indeed, which brought our attention to the CIMB connection. They have a former executive and current Group chairman sitting in the board of Khazanah. In fact, Tan Sri Md. Nor Yusof is the Khazanah's signatory to the deal. And surely the Tun Abdul Razak clan-ship does play a role. In the high world of finance where connection is everything, non-CIMB bankers are sure green with envy. But let us put aside any claim of favouritism, cronyism or insider trading for a moment and examine CIMB's level of involvement and accountability in this deal.
To push for a merger between Golden Hope, Guthrie and Sime Darby, CIMB took the unconventional approach by setting-up Synergy Drive to move the deal. It is an arrangement where for the first time a merchant bank, with the full backing of the government, is initiating a merger of government-linked enterprises. Such underlies CIMB aggressiveness in deal-making. So given Tony's comment lamenting the speed of things, it is plausible this deal is initiated by CIMB. And if this arrangement proves to be a bad deal for Malaysia Inc, will CIMB take responsibility? Could they be making a bad advice to TuneAir, taking advantage of Tan Sri Tony's penchant for deal making at the expense of TuneAir-AirAsia long-term corporate health for a quick profit on transaction commission? But then of course, these are big ifs.
Still, this whole deal is about saving a Malaysian icon. While everybody is entitled to raise their concern, let us also not forget to wish Tan Sri Tony and Datuk Kamarudin, our Malaysian-bred aviators the best of luck as well. If they are successful, we can be proud and relieved that our 'Wau' can continue to fly high.
