What MAS needs is a savvy new investor

THE future of Malaysia Airlines is very much up in the air again with this week's confirmation of the unravelling of the share swaps between it and AirAsia. It is, of course, not the first time the fate of the national carrier has exercised so many concerned Malaysians. Neither is it the first time the government's best-laid plans for it have seemingly come undone.

It goes without saying as well that the clock is ticking and in a few short years, Asean has committed to fully open up its skies. If MAS still cannot get its act together by then, it faces a bleak future and there will be little our government can do to shore it up further.

The challenges facing MAS are by no means unique. The advent of budget carriers such as AirAsia makes the operating environment more difficult for so-called legacy carriers such as MAS, but the same challenges also confront MAS' counterparts in neighbouring countries.

Budget carriers may be eating into some of the full-service airlines' business but the former create a lot more new leisure air-travel demand where none existed before. It is time we all accept the fact that both sorts of carriers existing side by side is here to stay.

So, if we accept that some competition between budget and full-service carriers is not just necessary but also very much a good thing, what exactly ails MAS that makes nursing it back into good health such an onerous task?

The government has, by and large, learned the lesson of not interfering in MAS' business decisions such as ordering it to take on politically or diplomatically desirable but commercially dubious routes. But political considerations are clearly still evident in the undoing of the inter-airline share-swap.

Be that as it may, let us try to make some lemonade out of what appears to be a lemon in the share-swap unravelling. More in-nation competition among airlines, which the share-swap was clearly aimed at curbing, may be a good thing after all.

Firefly, the MAS budget-carrier offshoot, was off to a pretty good start in directly taking on AirAsia -- especially in the vital connections between the peninsula and Sabah and Sarawak -- before it had the rug pulled from under it by the MAS-AirAsia share swap.

AirAsia's complaint then was that with the government back-up that MAS enjoys, Firefly was giving AirAsia unfair competition. The logical remedy should be to take the government out of the MAS equation altogether. That should not be the non-starter that it may appear at first glance, notwithstanding how the first MAS privatisation exercise ended rather ignominiously in the aftermath of the Asian financial crisis.

We may take a lesson from what now happens in the Philippines, with its own even more storied saga of Philippine Airlines (PAL), reputedly Asia's first airline and likely the first of the region's flag carriers as well to actually go bust, if only momentarily, before it was rescued by one of its best-known Chinese tycoons, Lucio Tan.

Faced with all the familiar problems that plague all legacy carriers, not least a rather militant airline union, PAL has especially struggled in recent years against the onslaught of a plethora of budget airlines taking to the Philippine skies.

The remarkable thing is that PAL's owners have now taken on board new part-owners, after what appeared to be a beauty contest between two corporate suitors. PAL's new white knight happens to be the country's best-known conglomerate, San Miguel Corporation, which has pumped in US$500 million (RM1.5 billion) for a 49 per cent stake in the airline and management control.

PAL's new chieftain, Ramon Ang, has announced a refleeting of the airline to the tune of 100 new aircraft and simply answered scepticism about PAL's business prospects by saying he thought it a great brand. This was from a corporate leader who turned around the Philippines' national oil corporation and sought recently to parlay that strength into regional expansion with a US$600 million takeover of Esso Malaysia.

The Philippines may have potentially almost 100 million air travellers to Malaysia's 26 million but our 26 million are on the whole much richer.

If PAL, operating in arguably a more challenging home environment than Malaysia's, can attract a savvy new investor, it stands to reason that MAS can just as easily attract a solid local private investor. The time may be opportune, therefore, for the government to think again about divesting MAS entirely to the private sector.