Malaysia Business News From Newspapers, Blogs, Broker House.

Tuesday, May 1, 2012

--Malaysian Airline, AirAsia to cancel share-swap agreement signed last year, a person familiar with the situation says

--Agreement cancelled amid reports of protests by Malaysian Airline employee unions

--Agreement was aimed at helping to turn loss-making Malaysian Airline around

 


(Recasts leads, adds background in the 3rd, 5th and 6th paragraphs, analyst comment in paragraph 7.)



 


By Ankur Relia



Of DOW JONES NEWSWIRES



 


KUALA LUMPUR (Dow Jones)--Shareholders of Malaysian Airline System Bhd. (3786.KU) and low-cost airline AirAsia Bhd. (5099.KU) have decided to cancel a share-swap agreement signed last year amid resistance from employee unions at the state-owned airline, a person familiar with the situation said Wednesday, a move that will likely hurt the national carrier's turnaround plans.



The agreement, signed in August last year, was aimed at turning around the state-owned flag carrier Malaysian Airline and entailed cooperation in aircraft purchasing, engineering, ground support services, cargo services, catering and training in a bid to cut costs and lower competition. Malaysian Airline reported its fourth straight quarterly loss in February as higher fuel costs continued to bite, and warned that 2012 would be a difficult year for the airline industry.



The cancellation comes after Chairman Md Nor Yusof said in March the collaboration agreement that involved the share-swap with AirAsia shareholders was "a key foundation stone" towards containing losses and strengthening the company.



"Malaysia Airlines is a very sick patient, and its condition is quite critical," he said at the time.



Under the agreement signed in August, Malaysian Airline shareholder Khazanah Nasional Bhd planned to get a 10% stake in AirAsia, while AirAsia's major shareholder, Tune Air Sdn. Bhd., was to receive a 20.5% stake in Malaysian Airine.



Media reports said Malaysian Airline employee unions were putting up strong resistance against the deal, which they said would lead to aggressive cost cuts. Union officials couldn't be reached for comment.



RHB research analyst Joshua CY Ng said Malaysian Airline has structural and operational problems that will require the company to undergo a restructuring program in order to sustain itself and cut costs.



The deal is being called off at a time when Prime Minister Najib Razak is trying to bolster electoral support ahead of an upcoming national election expected within months. The Malaysian Airline employees union have reportedly met with the Prime Minister to discuss the deal, which they fear will result in job losses at the airline.



Shares of both AirAsia and Malaysian Airline have been suspended from trading Wednesday pending an announcement, the two airlines said in separate exchange filings.

 


KUALA LUMUR (AFP)--Recent police clashes with election-reform protesters in Malaysia have dented premier Najib Razak's reform credentials and may force him to push back elections, analysts say.



Najib was widely expected to set a June date for what is predicted to be a close battle between his ruling coalition and the opposition led by Anwar Ibrahim, but observers say Saturday's protest may have changed his thinking.



Tens of thousands took to the streets of the capital Kuala Lumpur to demand clean elections, defying government curbs on the rally.



Angry demonstrators broke through barricades and clashed with police, who fired tear gas and chemical-laced water on crowds and arrested 512 people. All have since been released.



Analysts say the events may have tarnished Najib's efforts to win votes by pledging to loosen the long-ruling coalition's authoritarianism.



"(Najib) will definitely push back elections to the latter part of the year or even to next year," said Khoo Kay Peng, an independent political analyst.



Khoo said the curbs on the rally and the police reaction may jeopardize Najib's standing among more liberal voters.



"If Najib holds elections in June, his component parties' and his own party's urban seats will be wiped out," Khoo said.



Activists and the opposition say Malaysia's electoral system is riddled with fraud and pro-government bias, accusing Najib of foot-dragging on reforms. He denies the allegations.



Portraying himself as a reformer, Najib has criss-crossed the country, drumming up support in key constituencies and indicating polls were near.



The ruling coalition he now heads has governed Malaysia since independence in 1957 but had its worst-ever showing in 2008 elections, raising the specter of the coalition finally losing power.



Najib will face voters at a time of slowing economic growth, a flowering of public debate aided by the Internet, and growing impatience with entrenched corruption and a controversial system of racial preferences for majority Malays.



About 60% of Malaysians are Muslim Malays, but there are sizeable ethnic Chinese and Indian minorities.



Najib was stung by heavy criticism of a police crackdown on a clean-polls rally last year. He has since launched a campaign to repeal some authoritarian laws and pledged to expand civil liberties to regain voter support.



But Saturday's events could undercut much of that, said Ibrahim Suffian, director of Merdeka Centre, Malaysia's leading polling organization.



"For sure, Najib will reconsider holding early polls. Those who attended (the rally) will vote the opposition because of the harsh treatment by the police. They will question Najib's reform agenda," he said.



Police say 25,000 attended the rally while Bersih--the election-reform activist group that organized it--put the figure at ten times that.



"There were Malays, Chinese and Indians of all ages (at the rally). There is an awakening and a lack of fear to express themselves. It is a messy situation for Najib," Suffian said.



Najib took over in 2009 after the previous year's election debacle led the dominant United Malays National Organisation party to dump his predecessor, Abdullah Ahmad Badawi.



Wong Chun Wai, chief editor of the pro-government The Star--Malaysia's top English daily--said in a column after the protest that elections would be pushed back to at least September.



However, James Chin, a political science lecturer at the Malaysian campus of Australia's Monash University, said the weekend's events were a mixed bag for Najib and unlikely to impact the polls timing.



"Urban voters will abandon Najib because of the police action on the protesters. But in rural areas, voters will see Najib as a strong leader who can guarantee stability," he said.



 


(END) Dow Jones Newswires



May 01, 2012 23:54 ET (03:54 GMT)

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