Proton, Mitsubishi ink non-equity deal; MAS in talks with Qantas on alliance
By PAULINE NG
IN KUALA LUMPUR
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WITH nationalism standing in the way of corporate mergers, Malaysia's state- owned firms are looking to strategic alliances as the next best option to riding out the economic downturn ahead.
National car company Proton last week announced plans to collaborate with Japan's Mitsubishi Motors on a new compact hatchback, as well as a rebadging exercise between both auto players.
The non-equity partnership comes four years after both firms parted company, Mitsubishi being an original shareholder of Proton and providing it with the expertise to develop its first few models before exiting Proton in 2004.
The alliance also comes in the wake of last year's aborted equity deal by Germany's Volkswagen AG after the Malaysians refused to cede control of Proton to the Germans despite the Malaysian carmaker's acknowledged need for a strong global partner to better ensure its survival. The Malaysians had refused to compromise ostensibly because of the need to ensure Proton's social obligations to its mainly Malay workforce and chain of suppliers would be kept intact.
In the case of Malaysia Airlines, it has revealed that it is in discussions with a number of airlines with a view to collaborating and creating synergies for growth, with talks ranging from code shares to inter-lining partnerships.
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But it is MAS' reported strategic alliance with Australia's Qantas that has come under the spotlight. MAS already works with Qantas in the maintenance, repair and overhaul business, servicing some of the latter's aircraft. Analysts see a further alliance as a natural progression.
Even if it falls short of an equity partnership or merger, the proposed tie-up is expected to be superior in that it goes beyond the usual alliances or code-shares.
While it once bled, MAS is now cash rich to the tune of nearly RM5 billion (S$2 billion). But with an increasing number of airlines and carmakers either going bust or trying to avoid bankruptcy in the current global financial crisis, the move to consolidate while exploiting mutual synergies is understandable.
Analysts believe MAS to be near 'saturation point' going solo and a collaboration involving pricing, scheduling, network arrangement and even procurement which would increase seat inventory for both airlines, could move it up another notch.
Details are vague but both airlines are expected to keep their identities and branding separate. Likewise for their boards and shareholders, although some directors could sit on both boards to ensure a 'common direction'.
Given that Qantas is also in merger talks with British Airways, many are doubtful of a MAS-Qantas tie-up. 'It's difficult enough negotiating with one party, but to attempt it with two parties at the same time would be devilishly hard,' said a sceptic. To compound matters, all three are national carriers and would be chary of national interests being impinged upon.
Regulatory approval is seen as the other stumbling block, especially if it leads to a dilution of national identity. 'MAS won't want to compromise for the mileage, but I'm not so sure about Proton, which has no other way out,' said Ang Kok Heng, chief investment officer of Philip Capital.
Desperate times may call for desperate measures, but given prevailing sensitivities, alliances are still proving to be a more practical option than mergers for national firms.
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