May 2, 2012 / 5:41 AM / 7 years ago

UPDATE 2-Malaysia Airlines, AirAsia drop share swap

(updates with statement to stock exchange)

By Yantoultra Ngui

KUALA LUMPUR, May 2 (Reuters) - Malaysian Airline System Bhd (MAS) and budget carrier AirAsia Bhd have called off a proposed $364 million share swap deal, according to a statement filed to Bursa Malaysia on Wednesday.

Prime Minister Najib Razak, who could face national elections as early as June and was widely seen as the main driver of the plan, has come under pressure from MAS’s 20,000-strong labour union to drop it.

Placating workers, who said the tie-up resembled a takeover by AirAsia founder Tony Fernandes, may help Najib win back Selangor state where the national carrier is based.

Under the deal, Tune Air Sdn Bhd, controlled by Fernandes and his deputy Karmazin Merman, would have taken a 20.5 percent stake in MAS and two board seats and the Malaysian government’s investment arm Khazanah Nasional would have had 10 percent of AirAsia.

The government holds a majority stake in MAS through Khazanah.

The two airlines said they would move ahead with a collaboration agreement covering areas such as aircraft maintenance and support and repair services.

The share swap was aimed at helping the carriers compete against rivals like Tiger Airways Holdings Ltd and Singapore Airlines Ltd once the Southeast Asian open-sky policy comes into effect in 2015.

Shares of MAS have tumbled 28 percent over the last three months while AirAsia shares have slid 11.7 percent so far this year. Shares of both companies were suspended earlier. (Additional reporting by Siva Sithraputhran; Editing by David Cowell)

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