In an early round of bidding against other international airlines, Air France-KLM proposed to buy a 49% stake in Malaysia Airlines. Its pitch outlined plans for a maintenance hub in the Southeast Asian nation.
The circumstances of the bid are not particularly positive. Malaysia Airlines has struggled to revive booking rates since two disasters in 2014 tanked its public trust. Flight MH370 mysteriously disappeared over the Indian Ocean, and flight MH17 was shot down over Ukraine. The Malaysian government has since sought a strategic partner to restore the airline’s image.
Why It’s Important
With a stake in Malaysian Airlines, Air France-KLM could improve the entity’s public trust issues — or it could be hampered by them. Either way, an affiliation may create risk for Delta.
Delta’s safety reputation has become closely tied to that of its SkyTeam partner. A drag on public confidence in Air France-KLM could carry through to confidence in Delta.
The market’s take on the investment risk is not wholly understood, given that Tuesday’s Delta decline is largely attributed to other macro events, like the coronavirus outbreak. A more precise reaction to the bid may be distilled from future developments occurring in isolation from confounding factors.
Air France-KLM is competing with bidders like Japan Airlines as well as Malaysia’s own AirAsia Group and Malindo Air. The sovereign wealth fund controlling Malaysia Airlines prefers the AirAsia deal, although the national government advocates for a foreign buyer.
“Air France-KLM had previously been in contact with Malaysia Airlines’ shareholders, but at this stage Air France-KLM is not a current party to the sales process of Malaysia Airlines,” the airline group said in a statement.
The deal has no official timeline, but the government is expected to finalize an investment this quarter.