MAS’ share price has seen significant interest of late amid speculation of a potential partnership with state-owned and Abu Dhabi-based Etihad. The news follows Khazanah’s announcement of a new restructuring plan within the next 12 months and its intention to keep MAS listed. MAS’ shares seem to be riding on the momentum of these developments after a 38% decline to a low of 15.5sen/share following the MH370 incident in March.
According to news reports, the partnership is said to start with a comprehensive codesharing arrangement, building on the existing and light codeshare between the two (to destinations such as Bali, Hong Kong, Singapore and domestically, Penang, Kuching, Johor Bahru, and East Malaysia).
Etihad has a track record of establishing partnerships with troubled airlines. It is currently not part of any airline alliance. Via this unique strategy (which started in 2011), Etihad expands route network through equity alliances, in which it invests in carriers that help it to expand its global reach in strategically important regions. Indirectly, this also allows Etihad to secure infra, airport slots and route rights better compared to organic expansion.
More importantly, Etihad’s partnerships in the past have been known to involve equity stake acquisitions. Last year, Etihad grew its equity alliance to seven, comprising Air Seychelles, Air Berlin, Virgin Australia, Air Serbia, Ireland’s Aer Lingus, India’s Jet Airways and Etihad Regional (formerly known as Darwin Airline).
The latest addition to this growing family of equity alliances could be Alitalia, the lossmaking Italian flagship carrier. Etihad said last month that it was conducting due diligence on a possible investment rumoured to be EUR300mil for a 40% stake.
Notably, Etihad currently has no equity alliance with a Southeast Asian airline. However, it is difficult to ascertain the rumours on the MAS-Etihad partnership and the depth of such a partnership at this juncture. Nonetheless, talk of MAS’ partnership with foreign carriers is not new, involving names such as Australia’s Qantas in the past. However, the willingness for Malaysia to relinquish some of its stake in the national airline could also be an issue, judging by past negotiations.
Maintain SELL at unchanged fair value of RM0.27/share.
source: AmResearch June 19, 2014