The Air Asia and MAS Split

Many people have been asking my opinion about the share swap cancellation between Air Asia (AA) and MAS.  Apparently, the government has decided to cancel the swap due to strong internal opposition, and it is believed the in-house unions are the major opposition.

Many people (especially MAS staff) are not happy about the 'intrusion' of Tony Fernandes, the CEO of AA, into the life of MAS. Tony was invited into MAS by Khazanah into MAS board with the view to assist in turning around MAS and the same time reducing the competition between AA and MAS.  A noble intention but it didn't work. Why?

To get the reason for this one has to look at the history of AA and MAS.

AA is totally an entrepreneurial company, developed by Tony from dumps to what it today - RM 3 billion turnover with  RM 0.5 b billion profit. Tony bought AA from DRB Hicom in 2002 for free but with RM 40 million debts and two old Boeing 737s to take away. And within a span of three years in operation Tony was able to repay the debts and bought new aircraft for the airlines.  Amazing isn't it? 

What Ferry Malaysia had failed to do 20 years ago AA has achieved in doing it- the close integration of East and West Malaysia with people movements crossing the South China Sea.  This and the double digit growth  rate Tony has achieved and the many JVs with regional nations has made the government, with no choice but to listen to what this man want to say. Arguably, Tony has transformed the civil aviation industry in Asia! 

I am sure you can imagine the culture Tony has created in AA.  Self driven staff with high motivation, multi skilled, full of enthusiasm,  never accept no for and answer, constant and fast change and going for low cost forever.    Lean organization makes communication and accountability work effectively  And with high ratings achieved within a short time Tony is also very good in another important skill that is leverage. Tony leverages for new aircraft purchase, creditors, fuel purchases, suppliers, financial institutions and other regional airlines and governments.  He uses his good track record to leverage all transactions to his advantage. 

Now lets look at MAS history. 

MAS was established in 1949 by the government then with the purpose to provide logistics to Malayans and has evolved into a monopoly entity until 10 years. Today  MAS belongs to Khazanah a government GLC. it adopts the government bureaucracy style. big organizational structure, government style protocols.

By virtue of its age and government support MAS has managed to create a RM 14 billion turnover but alas RM 2,5 billion loss. 

The government also made MAS do many social responsibility like rural air services in Sabah and Sarawat where government pay them at cost,  meaning no risk to bear!.  And arising from this MAS has developed another pitfall, the history of asking big father, the government, for help whenever they are financially in trouble. So at the back of their minds it is " just lay back, do your normal routine work and we won't lose our jobs, come what may".  

MAS has 20,000 staff and AA has 5,000 and this huge difference in demography will make it difficult for the MAS owner to change especially in merging with a smaller albeit dynamic company.  It is akin to asking a 70 year old man to marry a 18 year old girl. The culture is just too big a different and incompatible. Good luck MAS. I hope you are not another KTM in the making.