If latest reports prove correct, the Malaysian government is poised to buy Naluri's 29% stake in Malaysian Airline Systems (MAS) at Naluri's 1994 cost price of M$1.67 billion ($440 million) - or M$8 a share - and then sell a 20% interest to Qantas. If such a deal materializes, Naluri's six years of mismanagement of the Malaysian flag-carrier will go largely unpunished.
"The exit strategy of the day seems to resemble a bit of a bailout, matched as it is to Naluri's in price," says Tim Ross, analyst at UBS Warburg. "The Malaysian government rewards Tajudin Ramli [controlling shareholder of Naluri and chairman of MAS] for national service, removing the possibility of a haircut and leaving him having only to bear the opportunity cost of his investment."
From a valuation perspective, M$8 a share isn't too steep when one considers the assets and landing rights MAS has. The fact MAS' shares are still trading below M$4 after a recent surge reflects the market's view of the way the airline has been run. For the year ended 31 March, MAS reported a net loss of M$259 million on revenues of M$8.2 billion, compared with a net loss of M$700 million on sales of M$7.5 billion a year earlier.
Although the taxpayer-funded bailout of Naluri looks likely; the Qantas buy-in is more suspect. Qantas, which has around A$1 billion ($581 million) of cash to play with, appears to be looking at MAS owing to a lack of alternatives. The Australian carrier, which is 25% owned by British Airways, would ideally like a minimum 25% stake and board representation in an Asian airline. MAS is the only sizeable airline with a decent sized chunk for sale that is not already spoken for. There are, however, a number of hurdles to overcome.
MAS would be a partner of last resort for Qantas. The two airlines aren't very close operationally as things stand and both carriers will have to make substantial changes if benefits are to be realized. Qantas would presumably intend to take charge and reshape MAS, though any perception of a master-slave relationship won't go down very well. This is especially so since Malaysian Prime Minister Mahathir Mohamad in May ths year accused Australian premier John Howard of behaving like a bully in respect of Australia's foreign policy towards Indonesia, in particular with respect to East Timor.
While MAS will likely resist change, it's hard to see Qantas shifting its Asian hub to Kuala Lumpur from Singapore. At present, Qantas puts over 100 flights a week through Singapore's Changi Airport, making it second only to Singapore Airlines in terms of throughput at the airport. Recently, Qantas signed a volume-based deal with Singapore Airport Terminal Services (SATS) and the airline has significant investments in facilities at Changi. For now, Qantas is committed to Changi, even though it must accept less favourable treatment than that afforded to its main rivals - a Singapore Airlines-led group, including Air New Zealand and Ansett Australia.
Also, if Qantas becomes a strategic investor in MAS, the latter would no doubt be roped in to the OneWorld alliance of airlines, within which it would likely wind up playing second fiddle to Cathay Pacific Airways as the group's Asian airline of choice. In terms of partnerships, MAS would probably be better off as the preferred Asian carrier in another alliance. Swissair, which heads the Qualiflyer group of airlines, is reportedly interested in acquiring a stake in MAS.