KUALA LUMPUR (July 3): The Malaysian Aviation Commission (Mavcom) has cautioned against direct financial assistance from the government without a clear framework to airlines that are either already in bad shape, or would have inevitably faced declines in the business.

Bailing them out in this fashion could result in anti-competitive effects or create moral hazard, it said in a commentary titled “Forms of government assistance to the aviation industry”.

“In addition, public funds would be put at risk, unnecessarily burdening taxpayers and potentially directing funds away from critical areas such as healthcare and education,” it said.

The commission pointed out that if the number of airlines is reduced, the industry could become increasingly re-regulated in the long-run.

“Countries may see a return to nationalised market access, reduced competition and higher ticket prices — further underlining the importance and role of independent oversight and regulation,” it said.

Given the risks associated with financial aid, governments should ensure that any financial assistance is provided out of a clear framework that consists of identified principles, such as non-discrimination, and specific objectives, such as minimising job losses and ensuring connectivity.

“They should be given together with predetermined conditions such as requiring proof that all commercial avenues have been exhausted (i.e. government lending as a last resort), building in a sunset clause and ensuring no unjust enrichment (by limiting executive compensation, share buybacks and dividend payments),” said Mavcom.

Therefore a clear and transparent framework should be created for the Malaysian aviation industry, like those established in the European Union (EU), US, Australia and Japan.

“The Covid-19 crisis, whilst devastating, can be a golden opportunity to introduce long-term good governance practices which will benefit all stakeholders — including aviation players — in the long run,” said Mavcom.

Mavcom pointed out that many governments have stepped in to provide relief to the aviation industry, recognising it as a key strategic sector that provides connectivity and enables essential economic activities.