Tuesday 19 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on April 27, 2020 - May 3, 2020

DATUK Mohd Shukrie Mohd Salleh has wasted little time after being handed the reins of Malaysia Airports Holdings Bhd (MAHB) in March, laying down strategies and cost-cutting measures in the wake of the Covid-19 pandemic.

Putting aside any differences MAHB has had with its largest tenant, AirAsia Group Bhd, under his predecessors, the 46-year-old group CEO has made it the airport operator’s top priority to help tide its airline customers over the crisis.

“The focus now is on working together with our airline partners to ensure the aviation industry can move forward through this crisis and bounce back when the time of recovery comes,” says Mohd Shukrie in his first interview with The Edge since taking MAHB’s top job.

“The greatest chance we have for recovery is for all parties to work together. By being sensitive and understanding to the needs of airlines or any of our partners in the airport community in these straitened times, we believe that this will not only build goodwill but also lasting relationships in the long run.”

Airlines around the world, including Malaysia-based carriers, are requesting government support as they cut capacity and ground large parts of their fleets amid lockdowns and travel bans. Last week, Virgin Australia joined British airline Flybe as the industry’s early corporate casualties of the pandemic.

MAHB is engaging with the Malaysian government on financial relief measures for its airline customers and retail tenants, Mohd Shukrie says, adding that it will make the necessary announcements in due course.

For starters, the airport operator is giving airlines a three-month moratorium on all gazetted aeronautical charges such as aircraft landing and parking fees. “This can be extended to six months, if necessary, to help their cash position during this difficult time,” he says.

The former CEO of Pos Malaysia Bhd officially took charge as group CEO of MAHB on March 2, after two months in an acting capacity. He replaces Raja Azmi Raja Nazuddin, whose resignation came as a surprise after just one year on the job. Prior to that, Mohd Shukrie was serving as MAHB’s chief operating officer, having joined the group last May from AirAsia.

He takes over during a tumultuous period for the airport operator, which has lost RM3.5 billion in market value over the past year. Year to date, the counter has fallen 30% to close at RM5.29 last Wednesday, giving the company a market capitalisation of RM8.78 billion. And the headwinds are unlikely to go away anytime soon.

“Anyone who is leading a team at a time like this at any point in their career is facing unchartered territory and with it, comes many challenges. Decisions have to be made under tremendous pressure. Plans have to be adapted to the environment we find ourselves operating in,” says Mohd Shukrie.

“As a leader, I have to remain calm and keep the team together. Most of our workforce is working from home. Critical members of the team, myself included, and key on-ground staff still show up for work daily without fail. It did take me awhile to get used to a quiet office and a deserted airport.

“But we have to accept the reality that this is the new normal for us now — working remotely and responding with even greater agility to changing business requirements.”

 

Coping with Covid-19

MAHB reported a 64% year-on-year drop in passenger numbers across the 39 airports it manages in the country last month while its airport in Istanbul, Turkey — Sabiha Gokcen International Airport — saw a 46% y-o-y decline. Analysts are predicting that April numbers will be worse as MAHB’s airports are barely operating this month.

Mohd Shukrie expects the group’s overall revenue for the financial year ending Dec 31, 2020 (FY2020), to fall short due to severely reduced flight operations and retail commercial activities, coupled with substantial fixed costs incurred. MAHB’s net profit fell 26% y-o-y to RM537.04 million in FY2019 while revenue rose 7% y-o-y to RM5.21 billion.

“We foresee domestic and international flights reducing by 30% to 40% this year,” he says. “We are observing how quickly countries such as China and South Korea, which have eased travel restrictions, can return to normal. This will give us more context in the next few months. Currently, China’s domestic travel industry looks fundamentally unaffected and is poised to gradually resume normal activity in the second half of 2020.”

Mohd Shukrie also points out that although the number of new Covid-19 cases in Malaysia has begun to drop, the further extension of the Movement Control Order to May 12 shows that the country needs more time to contain the virus spread and prevent a re-emergence.

“In some countries, when travel restrictions and movement controls were lifted too early, Covid-19 cases increased again. Hence, travel demand and economic recovery will be uneven and gradual, taking anywhere from several months to a year.

“Without a vaccine, there is the possibility that outbreaks will continue to occur sporadically over the next 12 months, making the recovery in aviation slower than many are hoping for,” he says.

MAHB has put in place an 18-month optimisation plan that prioritises its workforce, maintenance works and critical infrastructure and projects in that order.

“Financially, we have begun paring non-essential operating costs and we aim to reduce it by 20%. All underused terminal areas and gates at our international airports are now closed and we’ve cut down Kuala Lumpur International Airport’s (KLIA) aerotrain frequency to conserve energy,” says Mohd Shukrie.

“Our on-ground staff are on rotational shifts. We have also deferred all promotional events and frozen this year’s recruitment. We are appealing to our suppliers to extend payment terms.”

While some airports around the world have put their staff on furlough to conserve cash, Mohd Shukrie says, MAHB is not planning any furloughs for its 11,000 employees.

“Furloughs are out of the question as MAHB’s [airport] network remains open as an essential service. Rather, we have implemented a number of measures to reduce overall staff costs such as reorganising our manpower resources, reviewing work schedules and rotational shifts, and eliminating overtime and other incidental costs.

“Our employees play a vital role in helping the group weather this challenging time by being cost-conscious and taking care of everyone’s safety. The management is committed to ensuring the survival of MAHB during this crisis,” he adds.

Its planned RM1 billion capital expenditure for FY2020, including Penang International Airport’s expansion slated to begin this year, has been put on the back burner for the time being due to the pandemic, but MAHB will proceed with mission-critical investments such as the replacement of ageing assets in KLIA. These include the baggage handling system, which entails 42km of conveyor line, and the aerotrain track transit system.

“We are taking advantage of the lower activity during this time to increase our preparedness to better support airlines and passengers with more efficient services and freed-up capacity when the passenger volumes gradually recover. Alongside this, we are also transforming our airport network into smart airports equipped with tech-enabled airport systems and data-driven business intelligence,” says Mohd Shukrie.

 

MAHB moves to ease cash crunch

The group has sought approval from the Malaysian and Turkish governments to defer payments of revenue share and concession fees and reduce its existing credit lines along with other financial leniency to help its operating cash flow. Mohd Shukrie believes both governments will be supportive of MAHB’s operations in the two countries.

MAHB is also exploring the option to draw down on its existing credit lines, which include a RM1.5 billion sukuk and RM1 billion of short-term financing facilities with local banks.

“Should the Covid-19 disruption be prolonged beyond the year, our overall revenue and operating cash flow will continue to be impacted. These credit lines can help beef up our working capital to pull us through if Covid-19 is not contained by year end,” he says.

“We will need to seek the necessary approvals from the government and our lenders to tap into our sukuk programme and available short-term financing in Malaysia or, if need be, secure new lines of credit, should we need to raise urgent funds for operational expenses.”

On the proposed Regulated Asset Base (RAB) framework that has since been put on hold, Mohd Shukrie says MAHB continues to engage with the government and regulatory authorities while a decision remains pending.

“We would like to see a sustainable funding model put in place as soon as possible, as part of a clear and strategic national aviation policy for airport developments to be systematically planned. We are ready to work with any form of sustainable funding model, be it via an RAB, an airport development fund, the [existing] operating agreements (OAs) with some tweaks, or any globally recognised funding model,” he says.

“With a sustainable funding model, MAHB can fully embrace our transformation from an airport operator into an airport developer, with greater flexibility and financial capacity to manage future fundraising programmes for capital investments, and will be able to respond better and faster to changes in critical needs.

“With self-funding abilities, we can take over responsibility for airport infrastructure and aviation-related developments, matching long-term borrowings with the returns from investments in our network of 39 airports.”

In the meantime, MAHB will continue operating under the existing OAs that have been extended until Feb 11, 2069, while awaiting the finalisation of the four new cluster OAs by the government. “Under the 2019 OA extension, and until the RAB or a new sustainable funding model is approved, we remain dependent on the government for capital expenditure,” says Mohd Shukrie.

Last year, MAHB faced a backlash after a technical glitch in its total airport management system left thousands of passengers stranded at KLIA and klia2. It has sought to ensure that the incident is a thing of the past by embarking on network upgrade works since January.

“We have already completed the overall network migration to a new core network architecture. Apart from enabling KLIA and klia2 to be compatible with state-of-the-art technologies like 5G, Wi-Fi 6 and Internet of Things, this revamped network will have at least 10 times the capacity compared with the previous network, if not more. Port speed will now range from 10Gbps to 100Gbps at the core, with scalability capability to 400Gbps as and when required for future expansion,” says Mohd Shukrie.

“Once the economy and Covid-19 situation recover, we plan to go full steam ahead with the infrastructure enhancement and capacity development that is needed to realise our Airports 4.0 initiative.”

 

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