Alternative Views: A re-concession of Subang Airport warrants a re-tender

This article first appeared in Forum, The Edge Malaysia Weekly, on May 24, 2021 - May 30, 2021.
Alternative Views: A re-concession of Subang Airport warrants a re-tender
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Airports are lucrative assets even if they are unprofitable. One just needs to look at the history of MMC Corp Bhd and a controversial related-party transaction it undertook with its major shareholder, Tan Sri Syed Mokhtar Albukhary, to get an idea of how valuable they can be.

In December 2008, despite opposition from minority shareholders, MMC paid RM580 million cash to Senai Airport Transport Services Sdn Bhd (SATS), a company related to Syed Mokhtar, for Senai Airport. The irony is that SATS purchased the airport from Malaysia Airports Holdings Bhd (MAHB) for only RM80 million in 2003.

And Senai Airport is not a major contributor to MMC’s bottom line, even after so many years.

Syed Mohtar’s reasoning was that he wanted to transform Senai Airport so it could compete with Changi Airport in Singapore and that it was a vital air transport link to his ports business in Johor.

At that time, the government was helmed by former prime minister Tun Dr Mahathir Mohamad, and Syed Mokhtar managed to get his support.

SATS packaged the airport together with 2,718 acres of land in its vicinity and sold it to MMC. In return, it walked away with total cash of RM1.7 billion, in a transaction that was frowned upon, even by minority shareholders’ groups.

If Senai Airport could command such a high value, one can imagine how valuable Subang Airport would be to MAHB.

The question of MAHB’s control over Subang Airport, which is officially known as Sultan Abdul Aziz Shah Airport, and the development in its vicinity has arisen as the airport is the possible subject of a re-concession agreement.

A re-concession essentially means tweaking the current concession agreement. In Subang Airport’s case, based on reports, the re-concession essentially carves out the airport from MAHB’s operating agreement (OA) with the government.

At the moment, Subang Airport and the land around it is part of the network of airports around the country governed by an OA between MAHB and the government. The concession ends in 2069.

At Subang Airport, MAHB owns and manages the aeronautical operations such as the landing and parking of planes. It also has the rights over the land surrounding the airport.

WCT Holdings Bhd’s subsidiary Subang SkyPark Sdn Bhd has a long-term sub-lease from MAHB to manage the commercial and retail areas in the airport. It also manages the car park outside the airport and provides hangarage and ground-handling services to private jet travellers.

When WCT took over the 60% stake in Subang SkyPark, it had plans to build a multi-storey commercial complex on the car park.

In response to reports that it was seeking to take over Subang Airport from MAHB, WCT announced that it had submitted a proposal for a re-concession, and not to acquire, Subang Airport. The proposal is for the government to continue with its ownership of the airport and land.

Towards this end, WCT had submitted a concept paper to the Ministry of Transport, Finance Ministry and Ministry of Energy and Natural Resources on March 1. The company described the submission of concept papers to related ministries as a common practice and that WCT is always proactively on the lookout for new business opportunities to benefit the country and community.

While the proposal, if it materialises, will benefit WCT and supposedly “the country and community”, it certainly is not going down well with MAHB, which operates 39 airports in the country.

There are several reasons why MAHB is not agreeable to any proposal to carve out Subang Airport from its OA concession.

Firstly, why must MAHB agree to a re-concession agreement that may result in it losing control of Subang Airport?

Subang Airport is a city airport that is in close proximity to its primary airports — Kuala Lumpur International Airport (KLIA) and klia2. By giving up control of Subang Airport, which is one of the few profitable domestic airports, MAHB is only opening itself to unfair competition and disruption to the current aviation eco-system in Selangor.

The unfair competition would arise because Subang Airport is closer to the population load centre of the city and would naturally be the airport of choice for travellers. So, it is only in MAHB’s interest to keep threats to its business within its control.

At the moment, Subang Airport only caters to turboprop planes while all aircraft powered by jet engines operate out of KLIA and klia2. That way, MAHB has managed to reduce the cannibalisation of aviation passenger traffic between the airports in both locations.

Secondly, MAHB has plans to turn Subang Airport and the areas surrounding it into an aerospace hub to manufacture aircraft components and for companies to set up their maintenance, repair and overhaul (MRO) centres, catering especially to private aircraft and helicopters.

Towards this end, in 2019, MAHB unveiled the Subang Airport Regeneration initiative, which is one of its pillars of growth for the short and medium term. The other is the development of the KLIA Aeropolis Digital Free Trade Zone into a cargo terminal with sorting centres, warehouses and operations offices catering to domestic and international logistics companies.

MAHB had already started the Subang Airport regeneration programme and entered into agreements with third parties to create an aviation hub. So, a re-concession of the existing agreement will impact its own growth.

Thirdly, why is WCT, a company in which Tan Sri Desmond Lim is a major shareholder, seeking a re-concession of Subang Airport?

Owing to the pandemic, airport operators around the world are suffering. If that is the case, the natural solution for WCT is to seek relief from MAHB. The pandemic is not here for the long term and air travel will come back at some point in time. Until then, MAHB has every reason to consider some kind of relief for the sub-lease holder of Subang Airport.

Nevertheless, any relief should not in any way reduce the value of Subang Airport for MAHB.

It works in a similar way with highway concessions. When the government does not increase toll rates, concessionaires are compensated so that they do not lose value on the concessions. The same treatment should apply to MAHB.

Lastly, if a re-concession of Subang Airport is what the government is looking at, why restrict it to WCT’s Subang SkyPark?

A re-concession is tantamount to tweaking the concession agreement, terms, payments and even tenure. If that is the case, why not just allow MAHB to re-tender the lease of Subang Airport for all and sundry to participate?


M Shanmugam is contributing editor at The Edge

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