By Chan Quan Min
Talk about privatising Malaysia Airlines surfaced last month on an extremely vague indication of a possible divestment by the government. But there is some truth to the rumours and media outlets covering the issue did not mention the two frontrunners for a possible deal. However, now is certainly not the right time to sell. KiniBiz explains why.
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Last month, local media outlets went to town on talk that the national airline would be privatised. Media attention on the issue grew to inordinate proportions but died down as quickly as the talk started.
Flash in the pan it may be, but there is some truth in the privatisation rumours. Two pretty big name tycoons were rumoured to have been interested in purchasing a controlling stake in Malaysia Airlines from the government earlier this year, KiniBiz learned.
Idris Jala
Former Malaysia Airlines CEO and Minister in the Prime Minister’s Department Idris Jala set off the rumours on Aug 13, when he said the government should exit the aviation sector.
Speaking at the Global Malaysia Series, a programme hosted by Pemandu, Jala said that it would be prudent for the government to eventually sell off its stake, but cautioned that it must be done at the right price.
“We should not sell it at a loss. If we want to sell it, it must be at the right price, because public money is involved and it is a public-listed company. There should be no fire sale and it must be done at the right time,” Jala said.
The media went on overdrive on his comments prompting Pemandu to issue a statement to clarify that Jala’s statement was only hypothetical.
Business newspapers filled their pages over the next week with commentary on the privatisation rumour, which really began as an innocent question to Jala about the government’s role in various business sectors.
Former prime minister Dr Mahathir Mohamad also put forward his views on the issue. He was all for privatisation, calling for the national airline to be sold as an answer to the airline’s chronic profitability problem.
Mahathir said privatising Malaysia Airlines would force the management to become more focused towards maximising profit.
If Malaysia Airlines is to be privatised in the near future, this would not be the airline’s first time under private control. Mahathir’s administration during the nineties privatised the carrier, selling a one-third stake to well connected corporate high-flyer, Tajudin Ramli.
Tajudin was CEO between 1994 and 2001 when Malaysia Airlines was nationalised as part of a corporate rescue package.
Malaysia’s transportation tsar
In February earlier this year rumours surfaced that businessman Syed Mokhtar Albukhary was looking into a possible purchase of the flag carrier. KiniBiz reported this in a February exclusive.
Syed Mokhtar already controls several key transportation infrastructure assets via his many companies.
The low-profile business tycoon’s only infrastructure asset related to the aviation sector at the moment is the Sultan Ismail Airport serving Johor Bahru, owned by Senai Airport Terminal Services Sdn Bhd.
Senai Airport, as the Sultan Ismail Airport is more popularly known, was acquired from a Khazanah controlled entity, Malaysia Airport Holdings (MAHB) for RM80 million in 2003.
Syed Mokhtar is better known to the public as the man behind two vital southern container and bulk goods port assets, Port of Tanjung Pelepas Sdn Bhd (PTP) and Johor Port of Pasir Gudang under his flagship company MMC Corp. He is also understood to be tying up loose ends on the purchase of Penang Port Sdn Bhd.
MMC Corp is also reportedly doing a due diligence of Keretapi Tanah Melayu (KTM), the state controlled railway company. Through another company DRB-Hicom, Syed Mokhtar has control over the national carmaker, Proton Holdings.
Buying Malaysia Airlines will give Syed Mokhtar another prize national company to add to his collection of transportation-related assets.
It is rumoured that any deal to purchase Malaysia Airlines would not go through without a long-term fuel subsidy by the government included in the contract.
Another business personality rumoured to be contemplating the purchase of Malaysia Airlines is Weststar Aviation Services Sdn Bhd group managing director, Syed Azman Syed Ibrahim.
While Syed Azman is known to many as the AP King, his company Weststar Aviation is active in aircraft maintenance and repair.
No sale without Khazanah’s cooperation
The federal government owns a majority stake in the national airline through its investment arm, Khazanah Nasional.
Recent experience suggest that Khazanah Nasional is not adverse to divesting its stake in Malaysia Airlines or exploring possible equity arrangements.
In late 2011 Khazanah announced a surprise share swap agreement between AirAsia and Malaysia Airlines in a move reportedly aimed at boosting the fortunes of the national carrier. The deal did not go through and was unwound a few months later.
It is clear that any privatisation cannot happen without the involvement of Khazanah which owns a lion’s share of Malaysia Airlines, 69.4% to be exact, according to the latest annual report issued by the national airline, for the financial year ending December 2012.
Selling the airline now would mean having to accept a dramatically lower price than a few years ago. Malaysia Airlines’ stock has been trading in the range of approximately 30 to 35 sen for the past few months. The airline’s market capitalisation at the end of August 2013 was a paltry RM5.7 billion.
In 2007 Malaysia Airlines’ share price was at its peak, trading at approximately RM6. Since then the stock has been on the downward slide in a reflection of its declining fortunes and numerous attempts to raise funds from shareholders. Today it is a penny stock.
Not a good time for the government to sell
The timing could not be worse for divesting the government’s stake in Malaysia Airlines. For one, the share price is at an all time low.
The airline also appears to be at a turning point with things set to improve. In the year to date Malaysia Airlines CEO Ahmad Jauhari Yahya along with his revenue and network management team lead by Hugh Dunleavy and Shihaj Kutty have delivered stunning improvements in the airline’s operational statistics.
As discussed in earlier issues, the first-half of the year has seen the airline increase seat capacity by some 20%. Despite this Malaysia Airlines reported that the June 2013 load factor was at a 10-year high of 84.3%.
While record numbers of passengers are now boarding Malaysia Airlines’ planes, yields have taken a hit. It is believed that this is due to heavy discounting by the airline to attract these record passenger numbers.
But Jauhari’s work is not finished. He has promised to deliver a profitable outcome by end-2014, a full three years after the started his business turnaround of the company.
Selling the airline now would be unfortunate for Jauhari’s team which is beginning to deliver changes, although we cannot be sure at this stage of the implications on the company’s bottom-line.
Over the remainder of the year we will also see further progress in fleet revitalisation and Malaysia Airlines should then be on equal footing with its competitors on product offering so we can expect some improvement in the airline’s stock.
Selling Malaysia Airlines now would also be unfortunate for the public because the government, and to be exact Khazanah would surely not be getting the best price. As publicly owned assets ought to act in the public’s interest, the government should only sell Malaysia Airlines at a reasonable value.
But this does not discount the fact that government intervention in the aviation sector has not resulted in the best outcome for Malaysia Airlines. For instance, the national carrier has been forced to fly unprofitable routes as part of ‘national service’.
Indeed a potential buyer of Malaysia Airlines, should a decision be made on its sale would have to be wary of the implications of purchasing, along with the company’s brand and assets, an obligation to serve the whims of politicians.
If and when privatisation does eventuate, Jala’s advice should be taken at face value – no fire sale, sell only at the right price. This would happen only after a successful turnaround of the company.
Yesterday: Third time lucky for Malaysia Airlines turnaround?
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