Air France-KLM Wants To Buy Malaysia Airlines Stake

Filed Under: Air France/KLM, Japan Airlines

It looks like we could soon see major changes at Malaysia Airlines, with (at least) two very different visions for the future of the airline…

Malaysia Airlines’ never-ending struggles

Malaysia Airlines has been in financial trouble for quite a while. If we’re being honest, their challenges date back to before the disappearance of MH370, but everything that has happened since has only made matters worse.

Malaysia Airlines isn’t alone in having their future in limbo, as there are so many airlines in similar situations, including Alitalia, Kenya Airways, South African Airways, etc.

They all face similar challenges — the airlines either need to be shut down, or need significant funding. Instead these airlines are being kept on life support and nothing more, so it’s no surprise that things aren’t changing.

Currently Malaysia Airlines is wholly owned by sovereign wealth fund Khazanah Nasional Bhd.

Over the past few years we’ve repeatedly heard about possible Malaysia Airlines takeover bids, though nothing has materialized.

Well, on Monday it was confirmed that the government has received five takeover proposals as part of a review that started last year. Only time will tell if any of these materialize, though we now know of at least two interesting and very different visions for the future of the company.

Air France-KLM & Japan Airlines could take over Malaysia Airlines

Reuters is reporting on a new takeover proposal for Malaysia Airlines. With this, Air France-KLM would take over up to a 49% stake in the airline, while Japan Airlines would take over up to a 25% stake in the airline.

Update to story: Air France-KLM is denying this, so it’s not yet known if they haven’t made the bid, or if they’re simply denying this until something further happens, as airlines often do.

Japan Airlines already has a joint venture with Malaysia Airlines, so this would translate into even closer cooperation between the two airlines.

Meanwhile this could be a strategic move for Air France-KLM. While Air France doesn’t fly to Kuala Lumpur, KLM flies from Kuala Lumpur to both Amsterdam and Jakarta. KLM has historically had quite a presence in Asia, so this could present a cool opportunity for the airline group.

As a source explains, this proposal is the most comprehensive and strategic, as it would capitalize on Malaysia’s location for their operations.

AirAsia’s vision for Malaysia Airlines

Sources suggest that AirAsia and Lion Air have also submitted proposals to take over Malaysia Airlines.

AirAsia’s takeover proposal would also mean a radical transformation for the airline, as Malaysia Airlines would cease to exist in its current form. With this deal:

  • Malaysia Airlines would be folded into the AirAsia group, so the brand would cease to exist
  • The Malaysian government would have to take over all the debt of the company, which totals nearly two billion USD
  • The airline would have to cancel their 737 MAX orders
  • The airline would have to get rid of their A380s and leased A330s
  • Malaysia’s government wouldn’t get a golden share, so that AirAsia would have full control of the company without interference

Clearly AirAsia isn’t playing around. They’re prepared to take over the airline, but only if things change radically, which is smart.

Which plan is more likely to succeed?

As it stands, apparently Malaysia’s government favors the proposals from foreign airlines, while the sovereign wealth fund that owns Malaysia Airlines favors a “local” deal with AirAsia, which shouldn’t come as much of a surprise.

I think the AirAsia deal more or less speaks for itself. Taking over Malaysia Airlines would mean that they’d eliminate one of their biggest competitors, and it would lead to a radical transformation for the airline that could actually succeed. As we can see above, this would involve a ton of changes, and the government would be taking over a lot of debt.

The Air France-KLM and Japan Airlines takeover bid is intriguing, and is more of a wild card. I’m sure they have a comprehensive plan that we simply don’t know the details of yet, but it would be really interesting to see how it plays out, as we’d possibly see both Air France-KLM and Japan Airlines rework their Southeast Asia route networks.

Fundamentally the biggest question is how they’d change Malaysia Airlines to make it profitable. Perhaps we’d see Malaysia Airlines totally cut flights to Europe, and instead focus on flights within Asia and to the South Pacific, which would tie in well with the Air France-KLM and Japan Airlines networks.

Bottom line

We’ve seen a countless number of stories of potential takeovers of Malaysia Airlines, so it’s anyone’s guess if this situation will be any different.

If AirAsia is successful, Malaysia Airlines would cease to exist in its current form, and would essentially just assist AirAsia in growth and eliminating a competitor.

The much more interesting situation would be to see what an Air France-KLM and Japan Airlines takeover of Malaysia Airlines would look like.

What do you make of these proposals, and which do you think is likely to be accepted?

Comments
  1. No chance AF acquires MH – AF is in the middle of a big restructuring of its own right now and management lacks the bandwidth or cash generation necessary to babysit another restructuring effort that is in far worse a state (ME3 exposure, AirAsia taking their lunch, relative lack of strategic hub location, all the “restructuring CEOs” have failed to do this already). AF backed out of investing in Virgin Atlantic back in december – why would you take on a restructuring 10x as hard in a market you’re not familiar with?

  2. It would be strange if both Air France-KLM and Japan Airlines join to takeover Malaysia Airlines. If Air France-KLM takes 49%, don’t expect Malaysia Airlines to stay with oneworld. Certainly, one might say even if Malaysia Airlines leaves oneworld, it can still do JV with Japan Airlines. Why would Japan Airlines needs to invest 25% just to have a JV?

  3. KLM have a codeshare on all of MH flights to Australia. An optimised MH network & timetable and more codeshares that KLM actively market across Europe would certainly boost bookings and grow revenue for KLM.

  4. Shouldn’t the article be tagged Malaysia Airlines? It is a much more important tag than the JAL tag, as the article is completely about MH.

  5. Hopefully this will not materialize for KL/AF. Having worked extensively with Malaysians I know one should keep his fingers off everything government related there. There is no way this is going to succeed.

    For that reason the Air Asia proposal makes sense, because upfront they get rid of anything related to the government. And the debt.

  6. Didn’t KLM used to have an intra-Asia operation?

    This could be interesting because Sky Team lacks a presence in Southeast Asia outside Garuda Indonesia, despite China Eastern in Shanghai.

    Presumably, if this happens it is a sign that Philippine Airlines isn’t, as rumored, joining Sky Team.

    Of course, it would be more logical for Air France, KLM and even Delta to strengthen their relationships with Garuda Indonesia. But then again, Garuda Indonesia has a lot of problems as well. I’m not sure if Malaysia Airlines is in a better or worse position than Garuda Indonesia.

  7. The Air Asia bid is great for them, but doesn’t make much sense. If they’re buying the business operations, the debt comes with it. It was capital investment to support that business. Otherwise they’re just cherry picking the profitable parts for themselves and giving the bad parts to someone else – in this case it’s substantial and doesn’t make any sense for the government to accept that. They’re not there to give money away for private benefit.

  8. Ben, no mention of Malaysia Airlines being OneWorld? This would be a significant shift especially with SkyTeam’s Delta recent JV with LATAM.

  9. Why would AF-KLM take on a struggling carrier like MAS for when AF itself is undergoing a restructuring program? I reckon Qatar Airways will eventually take MAS on because they’ll most likely offer the larger stake than JAL or AF-KLM ever could.

  10. I don’t think giving AirAsia a monopoly is a good idea. But then airlines with bad financials like MH should be left to die.

    @Mh

    In that part of the world, government functions differently. It’s not about a good deal for the government or not, it is about a good deal for the people in charge or not, aka a big payday.

  11. If the Air France-KLM takeover goes ahead I’d assume that European flights would remain, Paris and Amsterdam could be on the cards in order to allow close cooperation between the airlines. London would also be kept in order to help AF-KLM ally Virgin Atlantic and provide some competition for BA. If AirAsia gets Malaysia Airlines I think they’d keep the London route because they already have the slots at Heathrow and they haven’t said anything about ditching Malaysia’s A350’s meaning they have planes with the legs to make the route work.

  12. MH leaving oneworld and joining skyteam would be most interesting…but I don’t see JL in that scenario. Why would they invest in a carrier that ends up in a different alliance?
    Unless JL is thinking about joining skyteam themselves…which might not be bad for them as it wouldn’t put them into a much different position, essentially exchanging BA for AFKL in the Euro carrier dept., AA for DL in the US carrier dept and CX for KE as intra-asia premium alliance competitor.

  13. @Nightliner

    Back to the days when JAL reported bankruptcy, DL made a bid to takeover JAL but essentially was beaten by BA/AA. Despite AF being a partner of JL, BA/IB/AY/JL has jv agreements making them more closely tied. Similar to AA/JL jv, so the JL switching to ST is ~0% chance.

  14. MH already had 2 planes that went down… now the flag too??? LOL

    In all seriousness, joining AK (and all subsidiaries) vs joining AF/KL should be akin to selling your soul to the devil vs dying a saintly death. Do they want volumes of compartmentalized charges, or would it be all-inclusive/premium services? I’d rather let MH fly into the sunset than to be absorbed by a low-cost carrier.

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