MAHB looking at self-funding airport expansions under new operating agreement

MAHB looking at self-funding airport expansions under new operating agreement
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KUALA LUMPUR (Jan 20): Malaysia Airports Holdings Bhd (MAHB) is looking at several options in airport investments under the new operating agreement (OA) that it is currently negotiating with the government, including the option of self-funding, supported by profit guarantees from the government.

Speaking at a virtual media briefing today, the airport operator’s group chief executive officer Datuk Mohd Shukrie Mohd Salleh said MAHB is looking at a model where the government will not have to provide funds for the expansion and upgrading of profitable airports.

“The new agreement will incorporate elements for us to expand the airports ourselves. In a way, it is better than a straightforward Regulatory Asset Base (RAB) framework. Depending on the airport and the investment, RAB might have an issue because it is linked to the passenger service charges (PSC).

“The good thing about our new OA is that it involves multiple (airport funding) formulas including the RAB. It could be as simple as cost plus, or the government chips in through some profit guarantee,” says Mohd Shukrie.

He added that MAHB and the government have cleared most of the terms in the new OA and are now in the last mile with only a few more items to be finalised. The group is anticipating for the new OA to be signed by the middle of this year.

He noted that the new airport expansion funding mechanism could also have an impact on the PSC of the airport that is being upgraded or expanded. This is because the charges that MAHB is allowed to levy on airport users — whether aeronautical or non-aeronautical — would have to be able to cover the investment amount over the concession period.

On the concession period under the new OA, Mohd Shukrie revealed that MAHB is looking for a longer one in order to encourage private investments into the development, expansions and upgrading of airports.

He said the current OA, which stipulates a concession period until 2069, is relatively short for private investors to partner MAHB in developing its airports, especially for the real estate components. “Under the new agreement, we are looking at a 99-year lease."

However, when asked if MAHB is open for third-party investors to invest together with the group in an airport, Mohd Shukrie said the group holds the view that airport operations are core to MAHB and would like to keep the concession to itself.

This is because, he said, the airport environment in Malaysia is one that operates on the basis of cross-subsidy, whereby six profitable airports are currently cross-subsidising the rest of the airports that are unprofitable. If the profitability of the airport had to be shared with another investor, this would impact the amount of funds available to cross-subsidize the non-profitable airports.

“While we are open to strategic partners within the sphere of our other diversified business such as KLIA Aeropolis, the airport business is our core business, and we believe that we are the most competent to run airports in Malaysia considering the decades of experience we have in running airports in Malaysia and overseas.

“Furthermore, we are operating a network of 39 airports across Malaysia based on a cross-subsidisation model whereby only a handful of the airports are profitable. As the sole operator, we are able to leverage our financial resources to support all the airports,” said Mohd Shukrie.

Malaysia has 42 airports, of which 39 airports are operated by MAHB. There are a lot of short take-off and landing airports (STOLports) in the interior of Sabah and Sarawak, as well as regional airports across the country that are not profitable.

While MAHB did not provide the list of airports that are profitable, it can be assumed that these are international airports in Penang, Kota Kinabalu, Kuching, Langkawi, Subang and the Kuala Lumpur International Airport itself.

“MAHB does not really make money from domestic travellers because the mechanism now is we make money from international passengers who pay RM73 per passenger,” said Mohd Shukrie.

MAHB shares closed at RM5.50 today, valuing the group at RM9.13 billion. The counter is still some 21.3% lower than the RM6.99 per share it was trading at a year ago.

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Kang Siew Li