MAS-AirAsia share-swap to be called off

Sources close to Malaysia Airlines (MAS) and AirAsia confirm that that the cross-ownership agreement between the two airlines will be cancelled on Wednesday because of growing opposition to the deal.

Both airlines will, however, announce that they plan to collaborate, and possibly set up joint ventures, in key operational areas such as ground handling, training and maintenance, and repair and overhaul, add the sources.

Trading in the shares of both airlines was suspended on Bursa Malaysia on Wednesday morning pending an announcement.

Sources close to MAS say a board meeting was held on Wednesday morning and employees were told to expect an update on Wednesday afternoon.

The agreement, which was signed last August, would have seen AirAsia's parent Tune Air take a 20.5% stake in network carrier MAS. National investment agency Khazanah Nasional, MAS's largest shareholder, was to take a 10% stake in AirAsia and 10% stake in long-haul unit AirAsia X.

AirAsia Group chief executive Tony Fernandes joined the MAS board and Khazanah's Azman Yahya joined the low-cost carrier's board after the agreement. Ahmad Jauhari, a former Khazanah executive, replaced Tengku Azmil as MAS managing director after the deal was signed.

The agreement, however, ran into opposition "from day one" as the MAS employees felt they were not consulted and subsequently sidelined, says one source close to the flag carrier.

"It became a political issue once the unions began to voice their opposition. The elections are around the corner, and the opposition parties are taking this up. The government can't afford to let this become a sore point," adds the source.

Another source says Fernandes effectively began to run MAS after the agreement, but his "abrasive style" and the AirAsia links did not go down well with the employees.

Several senior and experienced executives from the airline, as well as the MAS Aerospace Engineering and MASkargo units, left as the operations were restructured.

In December, former Etihad Airways executive Shihaj Kutty was appointed to lead revenue management. Former Westjet executive Hugh Dunleavy came on board to head a business unit responsible for network, alliance and strategy. Ex-AirAsia head of finance Rozman became the chief financial officer of MAS in February. Azhari Dahlan, AirAsia's former head of engineering, became chief executive of MAS Aerospace Engineering in February as well.

"Many of the new guys are perceived as being very close to the AirAsia guys, and did not appear to take on the views of those who report to them but have been with MAS for a long time. That led to resentment as well," said the source.

Even if the airlines say that they plan to collaborate on ground handling, training and maintenance, and repair and overhaul, that too could face opposition.

"Honestly, the MAS guys do not want to work with AirAsia - and it is true of the AirAsia guys at the ground level to a large extent," says a second source. "They have spent the last 10 years competing with each other, and each airline has its own culture. To try to be friends out of the blue is, probably, asking too much."