MAS TO TIE UP WITH JAPAN AIRLINES FOR FLIGHTS BETWEEN MALAYSIA & JAPAN – WILL THE PACT LATER BE EXTENDED TO A TAKEOVER OF THE AILING M’SIAN CARRIER

THE proposed tie-up between Malaysia Airlines Bhd (MAB) and Japan Airlines Co Ltd (JAL) is currently undergoing public consultation, said the Malaysian Aviation Commission (Mavcom).

MAB recently confirmed that it had submitted an application to Mavcom, seeking an exemption under Section 51 of the Mavcom Act 2015 which stipulates that an enterprise may apply to the commission for an exemption with respect to a particular agreement from the prohibition under Section 49.

Section 49, meanwhile, prohibits agreement between enterprises which could have an effect on completion or which has an objective to prevent, restrict or distort competition in any aviation service market.

“Malaysia Airlines confirms that it has submitted to the Malaysian Aviation Commission an application for individual exemption under section 51 of the Malaysian Aviation Commission Act 2015 for a joint business with Japan Airlines for flights between Malaysia and Japan.

Mavcom said the arrangement, the first of its kind under Section 49 of the Mavcom Act undertaken by a local airline, is currently undergoing public consultation.

The regulator received the application from the flag carrier on April 12 and the consultation paper will be on the commission’s website until May 27.

A commission spokesman said the time frame for a decision on the application differs for each case.

“The time frame for assessing an individual exemption varies on a case-by-case basis, depending on factors, such as the complexity of the case and cooperation from the applicants,” the spokesman told The Malaysian Insight.

Troubled airlines

An analyst who spoke on condition of anonymity said such tie-ups are common in the aviation industry, especially given the two airlines’ common history with financial distress.

The partnership between the two One World Alliance members will entail coordination and cooperation on areas, such as schedule and capacity, sales and marketing, performance monitoring and revenue planning for the Malaysia-Japan route.

Like MAB, JAL had been experiencing financial turbulence.

JAL was nationalised in 1953 before it was taken private again in 1987. The airline fell into the red in 1992, about two years before Malaysia Airlines System (MAS) was privatised, and continued reporting losses for the next seven years.

The airline became overexposed when it invested heavily in real estate and hotels right before the Japanese economy ran into trouble in the “Lost Decade” or the bubble years in the 1990s.

External headwinds, such as the 9/11 terror attacks, the Iraq war and the outbreak of SARS, worsened things for the airline at the start of the millennium.

It finally filed for bankruptcy in 2010.

At the time of the filing, the biggest airline in Asia also became the biggest case of insolvency outside the financial sector in Japan. JAL was saddled with debts amounting ¥2.32 trillion (RM85 billion) when it filed for bankruptcy in 2010.

Similar to MAB, JAL also turned to the government for bailout through the Enterprise Turnaround Initiative Corporation (Etic).

It was asked to slash 15,700 jobs or one third of its workforce by March 2013 and cut unprofitable routes.

The airline returned to the black in 2011/2012 becoming the world’s most profitable airline after recording a profit of ¥186.6 billion.

In April 2017, JAL was freed from government-imposed restrictions on route expansions.

Malaysia Airlines was subjected to a 12-point turnaround plan by Khazanah Nasional Bhd in 2015.

The sovereign wealth fund also injected RM6 billion to bail out the bleeding airline.

Prior to the 2014 turnaround plan, the carrier received RM17.4 billion in several bailout attempts.

The turnaround plan entailed MAS being delisted from Bursa Malaysia and its operations, assets and liabilities transferred to a new company, now known as MAB.

As part of its restructuring exercise, manpower was reduced to 14,000, after 30% or 6,000 employees from the old company were let go.

MAB was supposed to return to the black by end of 2017. However, until today, it has yet to report a profit.

THE MALAYSIAN INSIGHT

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