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This article first appeared in The Edge Malaysia Weekly on December 30, 2019 - January 5, 2020

THE 2010s have been anything but dull and predictable for Malaysia’s aviation sector. It has had four different transport ministers in that time, including Datuk Seri Kong Cho Ha, Datuk Seri Hishammuddin Hussein in 2013 and Datuk Seri Liow Tiong Lai in 2014. Last year, Liow was replaced by Anthony Loke Siew Fook after the Pakatan Rakyat coalition won the general election.

The decade began with the government picking up where it left off in the construction of klia2, a new terminal at Kuala Lumpur International Airport (KLIA) that was initially designed to serve low-cost carriers but later changed to accommodate airlines of all kinds.

After a series of delays and cost revisions, the RM4 billion klia2 opened its doors to the public in May 2014. Its harshest critic, AirAsia Group Bhd, became its biggest tenant.

Its opening also saw a changing of the guard at the country’s main airport operator, Malaysia Airports Holdings Bhd (MAHB), with Datuk Mohd Badlisham Ghazali succeeding managing director Tan Sri Bashir Ahmad Abdul Majid, who had held the position since 2003.

Bashir and AirAsia group CEO Tan Sri Tony Fernandes had clashed publicly on many issues in the past. Thus, Badlisham’s appointment came at a significant juncture to help smooth relations between the two companies.

However, the animosity between MAHB and AirAsia has remained, if not heightened at times, especially when it came to issues such as raising the passenger service charges (PSC) and whether or not to provide interlining services between KLIA and klia2.

After four years at the helm, Badlisham stepped down in June 2018, a casualty of a leadership shake-up in government-linked companies following the change in government a month earlier. He was replaced by Raja Azmi Raja Nazuddin, who had joined the company in 2016 and was its chief financial officer before becoming CEO.

But if there were hopes that AirAsia and MAHB could settle their differences, they quickly diminished. Since 2018, several lawsuits have been filed by the two against each other.

The first one was launched in December last year, when MAHB took AirAsia and its long-haul sister airline AirAsia X Bhd (AAX) to court for failing to pay RM36.4 million in airport charges.

AirAsia hit back with a counterclaim of its own, seeking RM400 million from the airport operator in compensation for loss and damage resulting from operational disruptions at klia2.

In August this year, MAHB and its subsidiary Malaysia Airports (Sepang) Sdn Bhd (MASSB) filed yet another lawsuit against AirAsia, AAX and their respective CEOs Riad Asmat and Benyamin Ismail, this time for defamation over three online articles linked to the contentious PSC issue.

The lawsuits did not end there. Two months later, AirAsia filed a RM479.78 million claim against MASSB for loss and damage suffered by AirAsia and AAX owing to disruptions and the poor condition at klia2.

If that was not enough, both MAHB and AirAsia got into trouble with aviation regulator Malaysian Aviation Commission (Mavcom), which slapped AirAsia and AAX with a fine of RM200,000 each for charging credit and debit card as well as online banking processing fees separate from their base fares between June 1 and Aug 9.

MASSB was slapped with a higher fine of RM1.18 million for not complying with the Airports Quality of Service Framework at KLIA and klia2.

Putting MAHB and AirAsia’s squabbles aside, the decade saw the entry of a new Malaysia-based airline in the form of Malindo Airways Sdn Bhd (Malindo Air), a full-service carrier owned by Indonesian Lion Air Group that took to the skies in March 2013.

Initially helmed by Chandra Rama Muthy, Captain Mushafiz Mustafa Bakri took over as CEO in September this year. Since its inception, the airline has yet to post its first annual profit. For the financial year ended Dec 31, 2018, Malindo Air’s net loss rose 16.7% year on year to RM582.78 million, while revenue increased 9.5% y-o-y to RM2.29 billion.

Malaysian Airline System Bhd (MAS) continued to take centre stage in Malaysia’s aviation industry in the 2010s. The national carrier started the decade on a profitable footing, with Tengku Datuk Seri Azmil Zahruddin Abdul Aziz in the pilot’s seat. It posted a net profit of RM237.35 million on revenue of RM13.59 billion for the financial year ended Dec 31, 2010 (FY2010).

However, it dipped into the red in FY2011 with a net loss of RM2.52 billion owing to higher fuel prices and the impact of a weak global economy, particularly in Europe, which had resulted in fewer people travelling by air. MAS, nevertheless, did see revenue rise by a marginal 2% to RM13.9 billion in FY2011. Unfortunately, MAS never recovered from incurring losses.

Tengku Azmil resigned in August 2011 and was replaced by Ahmad Jauhari Yahya the same year.

In 2011, MAS and rival AirAsia announced a share swap that would give AirAsia’s parent a 20% stake in the national airline, and sovereign wealth fund Khazanah Nasional Bhd, which owned close to 70% of MAS at the time, a 10% stake in AirAsia. However, the deal failed to take off owing to political and union resistance.

Nevertheless, it did see AirAsia’s co-founders, Fernandes and Datuk Kamarudin Meranun, joining MAS’ board briefly from August 2011 to May 2012.

 

Malaysian aviation at its bleakest in the 2010s

The twin tragedies of MAS flights MH370 and MH17 would plunge the industry into its bleakest period in the country’s aviation history. The tragedies would also leave the national carrier reeling from the aftermath and Chinese tourists shunning the country for the next few years.

Flight MH370 bound for Beijing and all 239 people on board disappeared without a trace on March 8, 2014. The Boeing 777 aircraft took off from KLIA before losing contact with air traffic controllers.

The country had barely recovered from the news of MH370 when, four months later, MH17 — en route from Amsterdam to Kuala Lumpur — disappeared off the radar screen while flying over conflict-hit Ukraine. A total of 283 passengers, including 80 children, and 15 crew members were on board.

The plane crashed after being hit by a Russian-made Buk missile over eastern Ukraine, a 15-month investigation by the Dutch Safety Board found in October 2015.

Then, in December 2014, AirAsia’s flight QZ8501 crashed into the Java Sea off Borneo shortly after take-off with no survivors. The Airbus A320-200 aircraft, carrying 162 people from Surabaya in Indonesia to Singapore, was just over 40 minutes into its flight when contact was lost.

According to reports, investigators, who initially indicated that prevailing bad weather might have caused the crash, have since found that a faulty component and crew actions were contributing causes.

The MH370 and MH17 tragedies pushed the loss-making MAS further to the brink of financial collapse. In August 2014, its single largest shareholder, Khazanah, unveiled a turnaround plan for MAS that saw the rebooting of the airline into a leaner Malaysia Airlines Bhd, with high hopes that it would achieve success similar to that of its peer Japan Airlines Co Ltd.

The decade also saw the first foreigner at Malaysia Airlines’ helm. German Christoph Mueller, who helped turn around Ireland’s Aer Lingus, was hired to carry out the restructuring of the airline and implement its new business plan. However, he left in mid-2016 after just a year on the job.

He was succeeded by Peter Bellew, an Irish native, who stepped down as CEO after just over a year to rejoin Ryanair.

Following the departure of Mueller and Bellew, Khazanah looked internally for a new CEO, and the job was given to former pilot Captain Izham Ismail.

 

Back to square one

But profits remained elusive for Malaysia Airlines. It suffered RM3.17 billion in accumulated losses from 2015 to 2018.

Most recently, on Dec 20, Economic Affairs Minister Datuk Seri Mohamed Azmin Ali was reported as saying that Khazanah was unable to identify a strategic partner for Malaysia Airlines this year to help turn it around as the proposals received by the sovereign wealth fund were not attractive.

But pressure is mounting on the government to fix Malaysia Airlines’ finances, with some calling for it to be shut down once and for all, as it was revealed that the airline requires RM1 billion of capital per year to keep it afloat.

It is back to square one for Malaysia’s aviation regulator too, after the Ministry of Transport announced recently that Mavcom will be dissolved and absorbed into the Civil Aviation Authority of Malaysia (CAAM). The functions of both Mavcom and CAAM were previously housed under the Department of Civil Aviation before it was split into two bodies in 2016.

The move has brought about uncertainty over the implementation of the regulatory asset base framework — slated for next month — that will set the PSC rates according to the facilities and expenditure required of an airport.

The recent downgrading of the country’s aviation safety rating by the US Federal Aviation Administration (FAA) owing to the shortcomings of CAAM as an aviation regulator also put a big damper on the industry.

As the country enters a new decade, the fate of Malaysia Airlines and Mavcom still hang in the balance — and how fast CAAM can regain its Category 1 FAA rating is anyone’s guess. And, do not bet on AirAsia becoming good friends with MAHB just yet.

 

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