Malaysia Considers AirAsia and Malaysia Airlines Merger

Malaysia Considers AirAsia and Malaysia Airlines Merger

As we’ve mentioned a few times this week, airlines are cash strapped and grasping for money — with government bailouts being a major avenue for U.S. airlines.  U.S. airlines are also considering ways they can use their loyalty programs as collateral to increase their loan funding services through the U.S. Treasury.  Malaysia is no different, as the government considers merging AirAsia and Malaysia Airlines.

There is talk by Malaysia government leaders to merge Malaysia airlines with budget airline AirAsia.  The idea was floated last year as well.  But as coronavirus impacts airlines even further, it’s being considered as a way to save both airlines, according to Malaysia’s second-most senior minister.

According to the South China Morning Post, Malaysia’s Minister of International Trade and Industry said,

That discussion took place even last year, even before this pandemic came. But we need to continue the discussion.  We need to see how best we can save those airlines, and it’s not going to be a very simple answer. Things are very bad, the aircraft are not flying. We need to sit down and discuss how to address these issues.

Malaysia is searching for a partner to help with the airline, which is suffering financially.  Last March, the prime minister of Malaysia mentioned the possibility of shutting down the airline.

Tragedy on Malaysia Airlines

The airline was hit with a very difficult year in 2014 with the disappearance of a plane and another shot down over Ukraine.  Both incidents impacted the image of the airline, despite the shoot down being an act of Russian-sympathizing proxy fighters.  In addition, it is still unknown what happened to Malaysia Airlines Flight 370 after it disappeared over the Indian Ocean.  Those incidents led to even more doubts for the airline, which struggled financially for the past decade.

In addition to those tragic incidents, there are a number of budget airlines in Asia that drive the competition in the region.  AirAsia happens to be one of those airlines, and the airline operates in a few countries in the region.

Airlines Express Interest

Both AirAsia Group and Japan Airlines expressed interest in owning a stake in Malaysia Airlines.  Japan Airlines is also a member of the Oneworld alliance that Malaysia Airlines belongs too.  AirAsia has its own program and does not belong to a major airline world alliance.

It is difficult to see how AirAsia is in a position to purchase a stake in Malaysia Airlines.  The airline is having a substantial impact to its operations from the coronavirus pandemic.  According to recent reports, AirAsia has no incoming cash flow and a reduction in service of 96%.

Bottom Line

Airlines are suffering during this time of coronavirus pandemic.  There’s little surprise there as global flight schedules and weekly available seat numbers are dwindle significantly.  It’s likely that airlines that already suffered prior to the pandemic will likely suffer the hardest during this time and after things begin to return to normal.

Malaysia Airlines dealt with major financial issues over the past decade, and then it had a bad year with two tragic incidents.  Such a storyline poses a challenge for any airline.  It will be interesting to see what the government of Malaysia decides to do to deal with the airlines’ issues.