Malaysia Airlines's move to carry out share swap deal with low-cost carrier AirAsia Bhd in the near term, has caught industry players by surprise.
With the share swap deal, both airlines may no longer be competing directly with each other but instead, leverage on each others' strengths and capability, so said HwangDBS Vickers Research here today. It also said both parties are likely to enjoy better purchasing power as a combined entity.
"We think more importantly, the deal could help reposition and turnaround Malaysia Airlines as a premier long haul carrier," the research house added, in its research note.
The shares of both airlines were suspended from trading today for two days pending an announcement to be made by the companies. At Friday's closing, AirAsia's share stood at RM3.95 while Malaysia Airlines was at RM1.60. So one can except a great deal movement in the stock market these couple of days
HwangDBS Vickers Research also said the partnership would see both airlines expanding their fleet size to an estimated 228 aircraft, the largest in the region.
For AirAsia, being a large entity and having Khazanah Nasional as a shareholder, enables it to be in a better position to gain more routes and landing rights both locally and internationally.
Under the deal, the airlines are expected to operate as separate entities at the operational level but would likely share common directors and policies. It could also lead to a change in management in the national carrier, said the research house.
Meanwhile, ECM Libra in its research note said the partnership would allow AirAsia to continue what it does best with less predatory competition, while Malaysia Airlines can concentrate on serving the premium segment with better revenue yield.
It also said that there are opportunities for cost-savings as both airlines would be able to bargain better for future aircraft purchases, as well as minimise duplication of resources such as that in the maintenance, repair and overhaul (MRO) area.
It was reported that the swap deal will involve Khazanah Nasional taking up a substantial stake in AirAsia's major shareholder, Tune Air Sdn Bhd. Tune Air on the other hand, may take up to a 20 per cent stake in Malaysia Airlines via the subscription of new shares at a price likely to be at a premium to the market price.
Will this swap be the end of a low cost carrier or an end to a premium airline is yet to be seen.
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