AirAsia, Malaysia Airlines form partnership

Associated Press
From right, AirAsia Chief Executive Tony Fernandes, Malaysia Airlines Chairman Md Nor Yusof, Khazanah Nasional managing director Azman Mokhtar, and Tune Group founder Kamarudin Meranun, pose together after a signing ceremony in Kuala Lumpur, Malaysia, Tuesday, Aug. 9, 2011.Budget carrier AirAsia and state-owned Malaysia Airlines formed an alliance Tuesday under a share swap deal to end their long rivalry and boost business.  (AP Photo/Lai Seng Sin)
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KUALA LUMPUR, Malaysia (AP) — Budget carrier AirAsia and state-owned Malaysia Airlines formed an alliance Tuesday through a share swap deal to end their long rivalry and boost business.

Tune Air, the parent of AirAsia, and government investment arm Khazanah signed an agreement to exchange shares. This will see Tune hold a 20.5 percent stake in Malaysia Airlines, while Khazanah gets a 10 percent stake in AirAsia.

Under the deal, Malaysia Airlines will focus on the premium market and cede low-cost routes to AirAsia. Analysts say it will help turn around the struggling state carrier and improve AirAsia's access to lucrative international routes.

However, some opposition lawmakers fear it will create a monopoly.

AirAsia Chief Executive Tony Fernandes defended the deal, saying it would allow both carriers to focus on growth and improve their services.

"I don't think there is anything to worry about for the Malaysian public," he said.

"We want to compete with the big players of the world and have a slice of the huge market out there," Fernandes said.

After the deal, Khazanah will still remain the key shareholder in Malaysia Airlines with a 49 percent stake.

HwangDBS Vickers Research said the deal would help reposition Malaysia Airlines as a premier long-haul carrier. The flag carrier plunged into the red in the first quarter amid high fuel prices.

For AirAsia, it can expect to get more access to international routes with Khazanah as its shareholder. AirAsia has long complained that the state carrier monopolizes profitable routes.

Malaysia Airlines Chairman Md Nor Yusof said the agreement marked "a new era of cooperation," with both airlines complementing each other and bolstering Malaysia's ambition of becoming a regional travel hub.

Md Nor said Malaysia Airlines will focus on being a full-service carrier, while its budget unit, Firefly, would be relaunched as a new regional full-service airline.

"This will mean better days for Malaysian aviation," said Khazanah Chief Executive Azman Mokhtar.

AirAsia, which started in 2001 with just two planes, has expanded rapidly across the region with a fleet of nearly 100 aircraft. It now offers long-haul flights through affiliate AirAsia X.

In June, AirAsia ordered 200 Airbus A320 airplanes, raising its total orders for A320 aircraft to 375 as it aims to become one of the world's largest airlines by 2020. It posted a record profit of 1.07 billion ringgit in the 2010 financial year.

Other analysts said the alliance would help cut costs with better bargains for aircraft purchases and allow Malaysia Airlines to compete with regional rival Singapore Airlines, which plans to set up a budget airline next year to operate medium and long-haul routes.

Dzulkefly Ahmad, lawmaker from the opposition Pan-Islamic Malaysian Party, expressed concerns the partnership would hurt the aviation sector. He said the tie-up comes ahead of a Competition Act to be implemented next year to restrict monopolistic practices in Malaysia.

"Monopolies are the single largest stumbling block in the process to reform the Malaysian economy," he said.

"It can only result in the consumers losing out," said Tony Pua of the opposition Democratic Action Party.

Khazanah has also proposed acquiring a 10 percent stake in long-haul carrier AirAsia X at a later date.

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