Air France-KLM proposes buying 49 per cent of Malaysia Airlines, JAL seeks smaller stake

KUALA LUMPUR/SINGAPORE - Proposals to invest in ailing Malaysia Airlines include one from Air France-KLM, which wants as much as 49 per cent, while Japan Airlines is looking at a 25 per cent stake, sources with knowledge of the matter said.

Domestic carrier AirAsia and Malindo Air, the Malaysian arm of Indonesia's Lion Air, have also submitted proposals, the sources said.

"The bids from the foreign carriers are more comprehensive and strategic as both plan to capitalise on the strategic location of Malaysia for their operations," said one of the sources.

The Malaysian government has been seeking a strategic partner for its national airline, which has struggled to recover from two tragedies - the mysterious disappearance of flight MH370 and the shooting down of flight MH17 over eastern Ukraine.

In 2014, it was taken private by sovereign wealth fund Khazanah Nasional, which paid RM1.4 billion (S$465 million) for the 30 per cent of shares it did not already own.

The sources declined to be identified as the discussions are confidential. Representatives for Air France-KLM, Japan Airlines (JAL), AirAsia and Malindo did not immediately respond to requests for comment.

Malaysian Prime Minister Mahathir Mohamad said on Monday (Jan 20) five proposals had been received as part of a review that started last year but declined to name the suitors.

Malaysia Airlines last year signed a joint venture agreement with JAL covering flights between Malaysia and Japan, which the Japanese airline said could be expanded in the future to cover US flights.

Malaysia Airlines and JAL are both members of the Oneworld airline alliance, while Air France-KLM is part of the rival SkyTeam alliance.

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Khazanah, which appointed Morgan Stanley last year to advise on potential options for the airline, said it was working closely with the government.

"While there have been several proposals in this regard, a review of the options available to us is still ongoing," Khazanah said in a statement.

Sources said Air France-KLM had proposed setting up a hub for maintenance, repair and overhaul services in Malaysia, while Japan Airlines had offered to make the South-east Asian country its regional hub, including for low-cost flights.

Business news website Focus Malaysia said on Monday, citing an official document, that Khazanah had been pushing for AirAsia's long-haul unit AirAsia X to merge with Malaysia Airlines.

"An international solution is probably better in this situation as AirAsia would have competition concerns," one of the sources said.

"This is still a work in progress but the story is around the potential for a massive hub in South-east Asia and it's clear that international airlines see value in Malaysia Airlines because of this," the source said.