aviation sector


AirAsia’s fundamentals intact, investors to be assured

KUCHING: AirAsia Group Bhd’s (AirAsia) business model remains intact in spite of negative news flow and rising jet fuel prices and analysts advocate investors to look past these short-term pressures. In an aviation sector update, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) found AirAsia’s share price compelling at this juncture after it […]

Citaglobal Airports’ proposal for new LCCT was supported by AirAsia

PETALING JAYA: A proposal for a new low-cost carrier terminal (LCCT) to be developed at Kuala Lumpur International Airport (KLIA) was made last year by a company called Citaglobal Airports Sdn Bhd, a move which looks to have had the backing of the AirAsia group, the largest user of klia2, the current LCCT.

Documents sighted by SunBiz revealed that the company's director, Datuk Seri Mohamad Norza Zakaria, had proposed to then prime minister Datuk Seri Najib Abdul Razak, via a letter dated Nov 24, 2017, the building of a new LCCT that will be able to accommodate higher passenger numbers, especially with the establishment of the Digital Free Trade Zone.

Citaglobal Airports said it will be able to generate the required funds for the project from the private sector which will benefit the government in terms of savings on infrastructure and operation costs.

In addition to that, it said UK-based airport operator Manchester Airports Group Plc indicated interest to manage and operate the new LCCT.

The project was said to require 450 acres, for which Citaglobal Airports suggested the government transfer land rights from the Director General of Land and Mines to the Transport Ministry, which will then be leased out for the project for a period of 99 years.

“The necessity for a new LCCT in KLIA will make Malaysia a leading hub in Asia with a 'dual hub', whereby the main KLIA terminal will house the OneWorld Alliance, klia2 will house other premium airlines and the new LCCT will accommodate the low-cost carriers,” the proposal read.

Companies Commission of Malaysia records show that Citaglobal Airports was incorporated on Nov 2, 2017 and is involved in wholesale of goods without particular specialisation and management and business consultancy activities.

AirAsia Bhd issued a letter of support for the plan via a letter dated Nov 2, 2017 which coincides with Citaglobal Airport's incorporation date. The letter carried AirAsia's letterhead and bore the signature of its executive chairman Datuk Kamarudin Meranun and copies were sent to AirAsia group CEO Tan Sri Tony Fernandes and AirAsia Bhd CEO Aireen Omar.

The low-cost airline expressed its interest in shifting its operations to the new LCCT.

“We understand that Citaglobal Airports Sdn Bhd plans to develop a LCCT at KLIA. We are in full support of this proposal as the aviation sector is a major contributor to the country's economic growth and accords significant contributions to other sectors of the economy,” it said, citing a study by Bain & Co.

Kamarudin said it would support Citaglobal by making the new LCCT the base for AirAsia Bhd and AirAsia X Bhd operations, have all flights operated by AirAsia group operate at the new LCCT and participate with Citaglobal to generate non-aeronautical revenue.

Citing the recent increase in Passenger Service Charge (PSC) introduced by the Malaysian Aviation Commission (Mavcom) and the proposed equalisation of PSC at both airports, on top of other cost increases proposed by the commission and the Department of Civil Aviation, the airline said an LCCT with a much reduced PSC and cost for travellers is required to accommodate the low-fare travel segment while KLIA and klia2 could be used to accommodate premium airlines.

AirAsia declined to comment in response to SunBiz's queries on the matter.

According to Malaysia Airports Holdings Bhd, AirAsia accounts for 95% of traffic at klia2 and they are the largest occupant.

“Any new airport terminal construction will be under the purview of the Ministry of Transport and will need to get the government's approval. We are currently guided by the existing National Airport Master Plan,” its spokesperson said, who added that it has not received anything official on the matter.

The Transport Ministry was yet to respond to request for comments as at press time.

AirAsia strongly refutes India CBI allegations

PETALING JAYA: AirAsia Group Bhd (AAGB) lambasted the Indian Central Bureau of Investigation’s (CBI) first information report (FIR) lodged against the low-cost airline, based on information from an unnamed “reliable source.”

“We question the motives of the unnamed person, persons or organisation that lodged this FIR but we will cooperate fully with the Indian authorities in accordance with due process provided in law,” it said in a filing with the stock exchange.

AAGB refuted strongly all the allegations made in the FIR as baseless, unsupported and unjustified and will vigorously challenge these allegations.

The FIR claimed that unknown public servants have engaged in a criminal conspiracy involving AAGB, AirAsia India, group CEO Tan Sri Tony Fernandes, deputy CEO Bo Lingam, four other named parties and unknown public servants and unknown private persons, to expedite the approval process and change in aviation policies to suit AirAsia India, by lobbying with stakeholders in the Indian government through non-transparent means.

AAGB explained that its move, together with other aviation players, to lobby the Indian government to remove the 5/20 rule was done in compliance with the law and without any unlawful payments. The 5/20 rule inhibits competition and the development of a healthy aviation sector that endures for the benefit of the Indian consumer.

“Further, AAGB has had an internal review and concluded that there has been no wrongdoing by either Fernandes or Lingam.”

AAGB said the joint venture with Tata Sons Ltd to set up its low cost carrier in India carrying the AirAsia brand, was primarily due to the sterling reputation and integrity of Tata Sons in India.

“All required approvals were obtained through normal channels and it took more than a year to get these approvals. Given Tata’s more than 100 years track record and that of AirAsia’s reputation, we refute any inference of impropriety in obtaining these approvals.”

AirAsia Investments Ltd holds 49% equity in AirAsia India, while the remaining 51% is owned by Tata Sons (49%) and two individuals on the board (2%) who are Indian nationals.

AAGB reiterated that all the allegations in the FIR are unfounded and are without any rational basis and are wholly inconceivable in the context of corporate governance norms in Malaysia.

“Accordingly AAGB denies all allegations of wrongdoing and will pursue all legal remedies available to address these allegations.”

Meanwhile, AAGB said AirAsia India lodged an FIR against former CEO Mittu Chandilya last year over the contract with HNR Trading Pte Ltd which was unauthorised by the company.

It also submitted a forensic audit report by an accounting firm in India to show that funds were illegally siphoned out of the company through that unauthorised contract.

“We believe that the Bangalore police are still investigating although much time has lapsed.”

Airlines may lose pricing power if oversupply occurs

KUCHING: Airlines will quickly lose their pricing power should supply growth continue to exceed demand growth in the coming months, analysts observed in an aviation sector report. Maybank Investment Bank Bhd (Maybank IB Research) highlighted that in April 2018, supply growth of 6.3 per cent year on year (y-o-y) has exceeded the demand growth of […]

‘Mavcom needed to protect consumers’ rights’

PETALING JAYA: Amid a slew of government agency closures to slash costs and excesses linked to the previous government, a former member of the steering committee to set up an aviation commission, Tan Sri Abdul Gani Patail, and a 40-year industry veteran, Datuk Rashid Khan, are throwing their weight behind the Malaysian Aviation Commission (Mavcom).

“I cannot emphasise enough the need for Mavcom. Consumers today are faced with a multitude of situations where their rights are violated. We need an independent entity to look out for us, ” he said in a statement issued on Saturday, after the commission came under fire from Malaysian Public Transport Users Association (4PAM) president Ajit Johl, who questioned the role of Mavcom and the RM1 levy it imposes on travellers.

Calling the travelling public as the largest beneficiary of the independent commission, Abdul Gani said one of the main reasons Mavcom came into being was because of an urgent need to ensure that consumer protection and the rights of passengers were made priority and not fall through the cracks.

Abdul Gani, who is a former attorney-general, opined that the RM1 levy imposed on passengers by Mavcom when departing from a Malaysian airport is a sound investment for peace of mind. Passengers using the Rural Air Services in Sabah and Sarawak are exempted from this charge.

He explained that Mavcom offers a service which neither the Ministry of Transport nor the Malaysia Competition Commission offers, according travellers an avenue to address complaints in a timely manner.

“There is no longer a need to rely on the mercy of commercial entities or being unsure of exactly when conflicts can be resolved,” he added.

Complaints have to be responded to within a set time frame of seven days and resolved within 30 days.

Rashid, who spent the bulk of his career with Malaysia Airline System Bhd, slammed 4PAM's comments against Mavcom, calling them unwarranted accusations, which showed lack of research.

“4PAM claimed that Mavcom has something to hide regarding their accounts. I googled and found Mavcom's financial statement for FY2016 in their website. Clearly, it is out there for public consumption and a simple check of Mavcom's website is all that is needed. This shows sheer negligence by this 'users association' in terms of verification of information,” he said.

“Without Mavcom, we had the likes of Rayani Air and Suasa Airlines getting licences. Clearly, Mavcom is needed in order to ensure a well-regulated aviation sector that is free from political interference. As we kick off a new Malaysia, I hope the Pakatan Harapan government will see the value of an independent regulator for this industry,” Rashid added.

Airbus, Boeing fly into lucrative services market

SINGAPORE: Airbus and Boeing may have built their global success on the back of the transcontinental airliners but they are now eyeing a lucrative if rather less glamorous side of the aviation sector in their battle to dominate the skies – parts and repairs. While booming demand for air travel across has seen the world’s […]

Airbus, Boeing muscling into lucrative services market

SINGAPORE: Airbus and Boeing may have built their global success on the back of the transcontinental airliners but they are now eyeing a lucrative if rather less glamorous side of the aviation sector in their battle to dominate the skies – parts and repairs.

While booming demand for air travel across has seen the world’s top plane makers ramp up production, it is the multi-billion-dollar after-sales service market that is taking an increasing amount of their attention.

The aircraft titans are aggressively expanding their presence in the sector, which is dominated by maintenance, repair and overhaul of aircraft but also covers other services, from training to parts supply.

The European and American firms have long done some business in after-sales support, but they are now moving to win greater market share and take on other players like Germany’s Lufthansa Technik and US-based AAR.

“The services market is more lucrative than actual aircraft sales because it has more potential and it covers many different spectrums,” said Shukor Yusof, an analyst with aviation research firm Endau Analytics in Malaysia.

“Boeing and Airbus – they have to be part of it. When you sell an aircraft, it’s in your interest to have a full package of after-market services.”

Boeing predicts that the value of the approximately 41,000 planes that will be delivered worldwide over the next 20 years will be around US$6 trillion (RM24 trillion) while the demand for services to support this fleet will be worth around US$8.5 trillion (RM34 trillion).

In Singapore, Airbus’ wholly owned subsidiary Satair Group has an 11,000 square metre (118,000 square foot) warehouse to house spare parts.

They are arranged on towering shelves in brown, yellow and orange boxes, and range from a main landing gear for an A380, the world’s biggest passenger plane, worth hundreds of thousands of dollars, to a washer worth one cent.

They can be dispatched from the warehouse – Airbus’ biggest such facility in Asia, and second-biggest in the world – within four hours of receiving an order, with plans to further slash the waiting time.

Airbus, whose revenues from services hit US$3.2 billion in 2017, 18% higher than in the previous year, plans to expand the facility by 8,000 square metres next year.

Both Airbus and Boeing also have major pilot training centres in Singapore.

The fierce rivals play up their intimate knowledge of the aircraft they produce as an advantage in providing after-sales support over others who could provide the services, including the airlines themselves.

“We know best our aircraft because we designed it,” Airbus head of services Laurent Martinez told AFP.

“We have all the capabilities to support the airlines’ operations and to have the competitive edge in terms of spare parts.”

Randy Tinseth, vice-president of marketing at Boeing Commercial Airplanes, said the US firm currently only has a 7% market share in the sector, and there was plenty of room for growth.

“The products we have today can only address about 30% of this market,” he said at the recent Singapore Airshow.

“So if this market grows about 5% per year as we focus more on developing new products, we expect to see dramatic growth in our business.”

The Singapore Airshow highlighted the growing importance of the sector.

The largest deals at the show, the biggest in Asia, were not plane orders but contracts worth nearly US$1 billion signed by Boeing’s dedicated global services unit, which was launched last year as its vehicle to expand into the after-sales market.

Both companies are focusing on Asia-Pacific due to explosive growth of the aviation sector in an increasingly affluent region where many people are flying for the first time.

Airbus’ Martinez said Asia-Pacific is expected to account for 40% of the services market over the next two decades, with the region’s aircraft fleet set to almost triple by 2036.

The fight for after-sales services market share between Boeing and Airbus will likely be every bit as fierce as their battle for aircraft orders.

Competition “is going to be very, very tough – very intense”, said analyst Shukor. – AFP

Festivities, seasonal holidays boon to aviation sector’s passenger traffic growth

KUCHING: The upcoming festivities as well as the worldwide summer holiday season are expected to drive the aviation sector’s passenger traffic growth in the second quarter of 2018 (2Q18), analysts observed. In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the worldwide summer holiday season usually starts […]

SIA and SATS set to rule to skies amid new e-commerce partnership

SIA cabin crew_20180309152905_theedgesingapore

SINGAPORE (Mar 9): UOB Kay Hian is upbeat on the Singapore aviation sector, following the teaming up of Singapore Airlines (SIA), SATS, and duty-free provider DFASS to offer inflight duty-free and duty-paid goods. The brokerage is keeping its “market weight” rating on the sector. SIA on Thursday agreed to subscribe to a 70% stake in inflight sales concessionaire DFASS SATS – a 50:50 joint venture company between DFASS and SATS’ wholly-owned subsidiary SATS Asia-Pacific Star (APS). The deal will see SIA provide travel-related retail operations in Singapore under the KrisShopRead More

Prospects for aviation looks bright coming into 2018

KUCHING: The prospect for aviation sector looks bright coming into 2018, despite the challenges such as rising fuel prices, analysts observed. In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said the prospect for aviation sector looks bright coming into 2018. “Despite the challenges such as rising fuel prices, we believe airlines like AirAsia Bhd (AirAsia) and AirAsia X Bhd (AAX) to remain buoyant, underpinned by its continuous improvement in operational cost coupled with aggressive capacity expansion,” it said in a report yesterday. It pointedRead More