UPDATE 1-Malaysia's MAS, AirAsia swap shares in $364 mln deal

KUALA LUMPUR Tue Aug 9, 2011 6:30am EDT

KUALA LUMPUR Aug 9 (Reuters) - Malaysian Airline System (MAS) and rival AirAsia said on Tuesday they will swap shares in a partnership that analysts say will eliminate overlaps and boost the bottomline of both companies.

Under the deal, which is valued at about $364 million, Tune Air, controlled by AirAsia founders Tony Fernandes and Kamarudin Meranun, will take a 20.5 percent stake in MAS while state investment arm Khazanah Nasional will hold 10 percent in AirAsia, confirming an earlier Reuters report.

After the restructuring, MAS will dominate the premium travel airspace and AirAsia the low-cost service, allowing each to focus on their respective markets.

MAS would also have a new board of directors including Fernandes, Kamarudin, builder IJM Corp's executive deputy chairman Krishnan Tan and pay-TV Astro's chief executive Rohana Rozhan. MAS' managing director Azmil Zahruddin will leave to join Khazanah as an executive director.

"Why do we do this? I think we can make a lot of money," Fernandes told reporters at a briefing to announce the share swap.

"(The agreement) allows us to refocus on growing the airline 100 percent and each of us will have routes to grow."

The share swap would also see MAS shareholders receiving one AirAsia warrant for every 30 MAS shares held while AirAsia shareholders will get one MAS warrant for every 10 AirAsia shares.

This is the second major restructuring for MAS in the last 10 years, and some critics have painted the latest exercise as a bailout of the national carrier which was rescued with about $472 million of state money in 2001.

"There is no bailout, no conditional government money or AirAsia money coming in," Khazanah chief executive Azman Mokhtar said.

TUMULTUOUS HISTORY

Analysts say the new structure is expected to help MAS, which has had a tumultuous history stretching back to 1997 when unprofitable routes pushed it into the red during several quarters.

"We believe MAS will benefit more from the deal than AirAsia in the near term as we expect more transformation moves will take place at MAS," HwangDBS Vickers research analyst Juliana Ramli wrote in a note.

"While both parties are likely to enjoy better purchasing power as a combined entity, we think more importantly, the deal could help reposition and turn around MAS as a premier long haul carrier."

In 2005, MAS suffered its worst year, reporting a net loss of 1.3 billion ringgit which was blamed on high fuel prices and operational costs.

The airline recovered in the two quarters following the economic crisis, but it stumbled again in the last quarter.

In contrast, AirAsia has posted profits over the last four quarters. It reported a net profit of 171.9 million ringgit in its first quarter, which was down a quarter from the same period a year ago.

The budget airline is planning initial public offerings in Bangkok and Indonesia to expand in the region and recently drew up plans to buy an extra 100 Airbus A320neo jets, potentially taking a record-breaking order to 300.

Fernandes also said AirAsia would not scale back its plane order as it expected demand for air travel to remain strong.

"This is about growth," he said.

Based on Thomson Reuters I/B/E/S, one out of 17 analysts have a buy call on MAS stock, with seven holds and the rest being underperform or sell calls.

Sixteen of 25 analysts tracked by Thomson I/B/E/S have either a buy or strong buy call on AirAsia's stock, and seven with a hold. ($1 = 3.019 Malaysian Ringgit) (Editing by Liau Y-Sing and Muralikumar Anantharaman)

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