Malaysia Airlines and AirAsia making the right moves

The supplemental collaboration agreements (SA)signed between Malaysia Airlines and AirAsia will pave way for the country towards becoming a regional airlines maintenance hub, say analysts here. Vice-President, Head of Retail Research, Affin Investment Bank, Dr Nazri Khan said under the SA, both airlines have agreed for a joint venture in procurement and maintenance activities, which are seen as good moves and a huge business opportunity. ?"That means they want to buy airplanes together. Component parts will be bought together (through a joint venture company) so it will make Malaysia a regional maintenance hub, if they work together," he told Bernama in an interview here today. It was reported that the procurement initiative between the airlines is expected to lead to efficiencies by exploring the potential of outsourcing their procurement activities to a mutually owned joint venture (JV) company. Among the key areas to be explored could include high spend items such as fuel, insurance, information technology and communications. As for the aircraft component maintenance, support and repair services, he said the airlines would jointly explore the setting up of a JV, including identifying its viability and structure. Nazri said at the moment, the national carrier''s balance sheet was not strong with only RM1 billion cash in hand and RM3 billion in bonds. He said the airline would need to have another RM2 billion to fulfill the capital expenditure of RM6 billion this year. When asked whether Malaysia Airlines will go through another round of cost-cutting, he said the airline had done a lot of cost-cutting with two transformation plans over the past decade. "I think it is rather restricted. Malaysia Airlines and AirAsia have different models so the airline should learn from Singapore Airlines (SIA) rather than AirAsia. "The SIA during a volatile period, spent more on service to win customers loyalty so I think cost-cutting is not feasible. Air Asia is different as it plays on cost effectiveness," he said.