Malaysian Airlines Opts for (Complete) State Ownership
Beleaguered Malaysian Airlines is opting for a government buyout in the wake of recent disasters. The company is already 69% state-owned, but a new deal will allow the Malaysian government to acquire the remaining shares, completing the nationalization. The airline has been in a downward financial spiral for years, plagued with union difficulties and loss-making state-management decisions, and the blows suffered in the last five months have only compounded its troubles. Malaysia’s state investment company claims the goal of the buyout is to “revive our national airline to be profitable as a commercial entity and to serve its function as a critical national development entity.” The reality is that Malaysian Airlines is unable to compete in the airline industry—which is already a poster child for corporate welfare across the world—and is surrendering any of its remaining burden of market entrepreneurship. Bluntly, the buyout looks like textbook rent-seeking and political entrepreneurship. At about eight cents per share, the buying price for the minority stake in the company is 29% higher that its average share price over the last three months, and higher than the share price prior to the disappearance of Flight 370 in March. The inflated value will act as a subsidy to the shareholders, who will make out far better than they would in a market that genuinely reflected the airlines’ inability to allocate resources effectively. Of course, the transfer of the remaining ownership to government will not save the struggling firm, and if anything we should expect its fortunes to decline even further. More state ownership will only complete Malaysian Airlines’ insulation from anything resembling genuine markets, and eliminate any entrepreneurial drive toward satisfying consumers.