aviation sector


MAHB rejects AirAsia’s mediation offer

PETALING JAYA: Malaysia Airports Holdings Bhd (MAHB) has rejected AirAsia’s offer of mediation following a war of words between the two parties over the passenger service charge (PSC) dispute.

The rejection was made via a letter sent by the airport operator’s lawyers, according to AirAsia.

AirAsia had proposed mediation to MAHB in an attempt to amicably resolve the parties’ ongoing dispute over passenger service charges at klia2. This is given that the Mavcom Act requires AirAsia and MAHB to first seek mediation before resorting to other legal proceedings, in order to potentially save time and costs for all parties involved, including the judicial system.

“AirAsia therefore acted in good faith to comply with the Act and prevent further public discourse which it believes is damaging to the aviation sector. AirAsia further believed that regardless of the outcome, mediation would allow both parties to move forward in a more informed manner,” AirAsia said in a statement today.

However, AirAsia Malaysia CEO Riad Asmat said the group is regret that MAHB has refused AirAsia’s olive branch to resolve outstanding issues through mediation, particularly in light of MAHB’s recent statement that it is ‘optimistic that these matters can and will be resolved’.

“We will seek guidance from Mavcom on the next steps to address this situation. However, we reserve our rights to take all necessary actions to protect the interests of our guests and shareholders” he added.

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‘Departure levy negative for aviation sector’

PETALING JAYA: The proposed airport departure levy announced in Budget 2019 will have a negative impact on the local aviation industry, said RHB Research analyst Stephanie Cheah.

“What is unclear now is who will bear the brunt of the negative impact, be it Malaysia Airports Holdings Bhd (MAHB) or the airlines. On one end of the spectrum, if airlines decide to absorb the cost and lower airfares, this will translate negatively to airlines’ yields and profitability,” she said in her report last Friday.

Cheah said if airlines decide to maintain fares, they may still be hit in terms of load factor while MAHB will see its passenger volume growth decline.

According to her, the airlines are likely to absorb a portion of the departure levy, balancing between the impact on yields and load factors while the airport operator will be negatively affected by lower passenger volumes but to a less extent.

The departure levy, which comes into effect on June 1, is set at RM20 per passenger for Asean destinations and RM40 for others.

Meanwhile, Cheah said the establishment of an airport real estate investment trust (REIT) will reduce the capital expenditure burden on MAHB. “But at the same time it could also compete with MAHB in terms of financing choices for its projects, which could limit MAHB’s growth potential under the Regulated Asset Base (RAB) framework.”

Cheah said the higher cost of funding from the REIT giving rise to higher user fee is not a major red flag for MAHB as the cost will be accounted for in determining the necessary aeronautical tariffs to recoup its fair return under the RAB framework.

“However, the same cannot be said for the airlines, which will be impacted by resulting higher aeronautical tariffs.”

Last Thursday, the Malaysian Aviation Commission said in a commentary that the two proposals, if not designed carefully, could materially constrain the development of the RAB framework and the renegotiation of the operating agreement between the government and MAHB.

The key issues highlighted in relation to the proposed REIT include the complexity of land ownership of the land on which the airports are located and the possible risk of airport charges being subjected to artificial upward pressure by the REIT’s yield requirements. It also said the government risks contravening the International Civil Aviation Organisation guidelines and international good practices with the proposed departure levy, if the proceeds are not ploughed back into the industry and a similar tax is not imposed on other modes of transport.

Airport REIT, departure levy pose potential constraints, says Mavcom

PETALING JAYA: The proposed Airport Real Estate Investment Trust (Airport REIT) and departure levy could materially constrain the development of the Aeronautical Charges Framework/Regulated Asset Base framework (RAB Framework) and renegotiation of the Operating Agreement.

The two proposals, if not carefully designed, could affect the RAB Framework and Operating Agreement which seek to resolve issues surrounding airport development funding, industry investment, airport planning, capital expenditure (capex) discipline and quality of service.

In its 2019 Budget Commentary, the Malaysian Aviation Commission (Mavcom) commended the government’s commitment to only embark on the proposed REIT after the RAB Framework and Operating Agreement between government and Malaysia Airports Holdings Bhd (MAHB) are concluded.

However, one of the key issues that remain before the airports are injected into the REIT is the complexity of the ownership of the land on which these airports are located, as some airports sit on land with multiple ownership structures.

“This is potentially an operational issue requiring resolution prior to inclusion of any airport asset into the proposed REIT,” it said.

It noted that the REIT’s yields and attractiveness to potential investors would be linked to the level of airport charges of those airports under the REIT, thus airport users including passengers and airlines, will need to be cautious of the possible risk of airport charges being subjected to artificial upward pressure by the REIT’s yield requirements.

While the government’s proceeds arising from the REIT could be used to fund or subsidise MAHB’s capex requirements for future airport developments, it could also undermine the long-term capital planning process improvements being pursued by the RAB Framework and the new Operating Agreement.

In addition, there is lack of clarity on the utilisation of the initial RM4 billion proceeds of the REIT and the REIT could be a costlier source of funding for the government compared with other modes of financing.

Meanwhile, the government risks contravening the International Civil Aviation Organisation (ICAO) guidelines and international good practices with the proposed departure levy, if the proceeds are not ploughed back into the industry, and a similar tax is not imposed on other modes of transport.

The ICAO guidelines state that any cost imposed on the air traveler should be used for the benefit of the aviation industry and any collection without the intention to recover the costs of providing facilities and services for the civil aviation sector, is considered as a form of tax.

The government will also need to institute discipline to retain the levy at its proposed introductory rates, to avoid consumers from being charged higher amounts in the future and render Malaysia as a costlier place to fly from.

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