Quora Answer: What Do Singaporeans Think of the Suggestion to Merge MAS with SIA?

The following is my answer to a Quora question: “Malaysia has suggested that MAS be merged with SIA for the supposed betterment of ties between the two countries; what do Singaporeans think of this suggestion?”

Malaysia suggested no such thing.  It was Maybank Kim Eng’s regional aviation analyst, Mohshin Aziz, who did so.  It was laughably ridiculous, and Maybank Kim Eng issued a statement distancing themselves from it.  It is also important to note that Mohshin Aziz is also an associate director with Maybank Kim Eng.

In a question and answer portion of the segment, Mohshin claimed that due to the “challenging business environment, and the downcycle in the aviation sector”, the solution is, “Very simple — merge.  Forget the national identity crisis, and they can be merged.  It will be able to remove a lot of costs, and make themselves more efficient.”  He also said, “If they were to merge, there will be a lot of improvements in terms of scheduling.  Besides, relocation of assets can also be optimised.”

Here is the serious flaw with his reasoning: SIA is profitable, whereas MAS is not.  This would make sense if both were struggling, but that is not the case.  What has SIA to gain from merging with MAS and taking on their debt?  This would, essentially, be SIA bailing out MAS.

Secondly, SIA has more routes than MAS, and has a strategy of cutting routes that are unprofitable, whereas MAS maintains legacy routes.  Which profitable route does MAS have that SIA does not have?

Finally, SIA is asset rich, with a strategy of buying new aircraft in bulk, and controlling fuel costs by massive forward contracts.  They are already optimised.  MAS does not have a fleet that SIA needs.  Their older aircraft are less cost efficient.  This means SIA would be saddled with depreciating assets.

When we further factor in Changi Airport as the premier hub airport of the region, in competition with KLIA, it makes even less sense for SIA to merge.  This is not even factoring the obvious political interference from the Malaysian government through Khazanah Holdings, as the main shareholder of MAS.

In summary, Mohshin did not bring this up due to business reasons, but due to sentiment.  An analyst that would give advice that is obviously contrary to the interests of the client cannot be very credible.