This article first appeared in The Edge Malaysia Weekly on April 15, 2019 - April 21, 2019

THE government has set in motion its plans to divide the country’s airports into several clusters by geographical area, paving the way for more private-sector participation in airport development.

On April 12, the Ministry of Transport (MoT) announced that the previous two operating agreements (OAs) signed on Feb 12, 2009, with Malaysia Airports Holdings Bhd (MAHB) have been replaced with four new OAs — one for the Kuala Lumpur International Airport (KLIA) (including klia2), another for designated airports in Peninsular Malaysia, and one each for airports in Sabah and Sarawak.

According to MAHB group CEO Raja Azmi Raja Nazuddin, a major difference between the previous OAs and the new ones is the clustering of airports according to regions.

However, both the ministry and MAHB did not reveal how the private sector could participate in the clusters.

Maybank Kim Eng Securities associate director Mohshin Aziz is positive about MoT’s announcement, saying it represents a formalisation of talks between the government and the airport operator that have been ongoing for the last three years.

“I think the clustering is in line with the government’s intention to segmentalise and relook into the way of handling all the airports around Malaysia.

“Right now, it’s a one-size-fits-all arrangement where every airport imposes the same passenger service charges (PSCs) and landing and parking charges,” he says, citing the facilities provided by KLIA and Melaka airport as an example.

“We understand that there is an intention to move away from this one-size-fits-all arrangement, and by segmentalising (the airports) into four OAs, it may open the door for each cluster to have different [terms] of agreement,” says Mohshin.

He adds that the extension of tenure for MAHB to run the 39 airports in the country for another 35 years until Feb 11, 2069, will create more new businesses and potential joint ventures.

“There are many investors who wish to set up facilities at KLIA. With the extension [granted to MAHB], it gives them comfort that their investments will be secure for the next 50 years (2019-2069),” he tells The Edge. Mohshin has a “buy” call on MAHB, with a target price of RM10.90 — representing a 60% upside from last Friday’s closing of RM6.82.

Afnan ‘Aqif Mohd Pidaus, a research associate at Emerging Markets Innovative Research (M) Sdn Bhd, is of the view that MAHB will benefit from the clustering move, which will encourage more private sector participation.

“Competition is invariably healthy for the industry as a whole, and private sector participation is likely to invigorate MAHB’s efforts to stay at the top of its game.

“Economies of agglomeration will also arise from the clustering of airports into regions and it will be very beneficial to MAHB. It will create lean management in each of the regions,” he says.

Modalis Infrastructure Partners associate director Khair Mirza says the extension of MAHB’s OAs by another 35 years will help it spread out the airports’ depreciation costs.

“This would provide a better reflection of the cash [position] of MAHB. As for the clustering, we won’t know whether it is beneficial to [MAHB] till we have more clarity.

“But the clustering of airports would allow for certain issues to be addressed. For example, there are now many community airports in the rural areas of Sabah and Sarawak that the government has not been spending on and an expansion is timely,” he explains.

HLIB Research aviation analyst Daniel Wong is keeping his “hold” rating on MAHB with a RM7.50 target price until there is more clarity on the details of the OAs, which will only be finalised once the Regulated Asset Base (RAB) framework, which will set the rates according to the facilities and expenditure required by an airport, is completed.

“All these terms will only be determined once the RAB is completed, reportedly in the third quarter of this year,” he adds.

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