This article first appeared in The Edge Malaysia Weekly on February 13, 2023 - February 19, 2023

AFTER nearly two years of deadlock, Malaysia Airports Holdings Bhd (MAHB) has reached a major breakthrough with the government over the redevelopment of the Sultan Abdul Aziz Shah Airport in Subang, Selangor (Subang Airport), with the airport operator getting into the pilot’s seat.

In April 2021, MAHB unveiled its Subang Airport Regeneration concept master plan — a RM1.3 billion plan that includes transforming the old airport into a city airport that can serve about five million passengers a year — after three years in the works.

Plans to redevelop the airport had stalled after a competing proposal was submitted to the government just a month earlier by construction and property firm WCT Holdings Bhd. The proposed redevelopment faced a further delay due to the change in government last December that saw former transport minister Datuk Seri Dr Wee Ka Siong being replaced by Anthony Loke Siew Fook.

After months of speculation, the government has made its preference clear. On Feb 6, Loke announced that the cabinet had given the nod to the Subang Airport Regeneration plan and MAHB had been selected to take charge of the airport’s redevelopment.

The airport operator has until the end of next month to engage with tenants, operators and immediate stakeholders of Subang airport to fine-tune its concept master plan, as well as come up with a business plan detailing the cost of the entire project. “The actual business plan will be finalised by MAHB and they will have to submit it to the transport ministry, and I will then retable it to the cabinet for approval before any announcement is made,” said Loke.

At another event last Thursday, the transport minister confirmed that WCT’s proposal was no longer under consideration. “The Subang Airport Regeneration plan was drawn up by MAHB, so MAHB will lead in terms of the entire master plan. And whichever party MAHB wants to work with, that is entirely up to them.”

While most of the recommendations proposed in the original Subang Airport Regeneration concept master plan remain intact, it now includes the return of scheduled commercial passenger jets to Subang airport, which was one of the proposals made by WCT through its 60%-owned unit Subang Skypark Sdn Bhd (SSSB) in its concept paper prepared by PricewaterhouseCoopers Advisory Services Sdn Bhd in March 2021.

Since 1998, Subang airport has been limited to handling only propeller-driven aircraft such as turboprops, business jets, helicopters, and light and military aircraft to avoid cannibalising the traffic of Kuala Lumpur International Airport (KLIA) and to make KLIA a strong aviation hub in the region.

The revised master plan also calls for the reconstruction of a bigger passenger terminal that can handle up to eight million passengers a year, from the five million proposed previously. The SkyPark Terminal (formerly Terminal 3) can only handle 1.5 million passengers a year now.

A coincidence or not, it “does make sense to have regional jet operations that fly point-to-point destinations in Subang airport, as that would help maximise the value of the airport”, says MAHB managing director Datuk Iskandar Mizal Mahmood.

“Whether we have taken their [WCT’s] plan and how we will do it … Honestly, as far as I am concerned, I have not even seen their plan. Whatever plan they have come out with before, I personally have not seen it. So, in terms of jet operations, if you want to draw parallels between ours and WCT’s, it may be just [us having] the same thinking of trying to ensure that the value being put into Subang airport is maximised further,” he tells The Edge in an interview.

Iskandar Mizal, 55, took over the managing director role in October 2021 from Datuk Mohd Shukrie Mohd Salleh, who had helmed the group since January 2020, just before the Covid-19 crisis hit and under whose watch the tussle between MAHB and WCT broke out. Prior to that, Iskandar Mizal was group managing director of Media Prima Bhd for two years.

Iskandar Mizal was no stranger to MAHB when he took the helm, having served as general manager from 1999 to 2003, when he led the initial public offering and listing of the airport operator on Bursa Malaysia.

“When I rejoined MAHB in October 2021, the state of Subang airport was the same as when I left [in 2003]. The airport is an asset of ours. And given its location, it is a very valuable one. Currently, what we are basically doing there is ATR operations and aircraft maintenance, repair and overhaul (MRO) activities, [with tenants such as] Collins Aerospace and ExecuJet,” he says.

Under its proposal, WCT sought to redevelop Subang airport into a city airport, like MAHB, serving 7.5 million passengers a year that would cost RM3.7 billion over 10 years. On top of that, it sought the right to directly operate Subang airport and the surrounding federal land for 50 years under a new concession agreement with the government. WCT, via SSSB, currently operates the SkyPark Terminal under a 30-year sublease concession agreement with MAHB that ends in December 2037, with an option to extend for 29 years.

Not surprisingly, MAHB’s board of directors and management, including Mohd Shukrie and its former chairman Datuk Seri Dr Zambry Abd Kadir, as well as its unions, had objected to the carving out of Subang airport from MAHB’s network of 39 airports in the country. A 2021 document by Malaysia Aviation Group Bhd (MAG) and MAHB that outlined their position on the redevelopment of Subang airport, seen by The Edge, showed that MAHB could lose RM11.9 billion in future revenue if Subang airport were to be carved out.

MAHB is racing against time to finalise its Subang Airport Regeneration plan.

“It [Subang airport] is an asset that we have on our books, but we are not generating enough revenue out of this valuable asset. Thus, it is in our best interests to get it [business plan] done as quickly as possible,” says Iskandar Mizal.

“The [transport] minister and the cabinet have given us the challenge to do this by the first quarter. The rationale behind it is that they know we run the airport on a day-to-day basis and also from the perspective that we have not done anything with Subang airport for the longest time.

“So, what we are doing now is a plan that we put up to the cabinet to say that we want to be part of the ecosystem in terms of playing our role more as an economic developer rather than just operating airports per say. We are pivoting our role to become an economic developer.”

The regeneration plan will involve seven components, namely the aerospace industry centre, MRO centre, research and development centre, general aviation operations, business aviation operations, urban air mobility and regional commercial flight operations.

“This may just be a small iteration from what we have done before but with one deviation, which is a welcome one, that is the [commencement of] limited jet operations. Why am I excited about the jet operations? The jet operations will be able to further expedite the development of our other ancillary services and businesses like MRO. It will also expedite the redevelopment of Subang airport a whole lot more,” he says.

Iskandar Mizal notes that a conscious decision was made by MAHB’s board of directors to allow limited jet operations of narrow-body aircraft up to the size of an Airbus A320 or Boeing 737. Khazanah Nasional Bhd holds a 33.2% stake in MAHB, while the Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan) have 15.6% and 6.3% equity interest respectively.

“Why not larger [aircraft]? Global studies on carbon emissions have found that the new generation of planes, especially regional jets that are entering into service, are more fuel efficient and quieter, making them perfect for city airports,” he says.

“In terms of how many jets [will be allowed], I will not be able to answer you just yet. [In the next two months,] we will be looking into things like how many jets [can operate in Subang airport], the planning of the airport and what it is going to be like, what sort of air traffic movement we will allow and what is the safe separation between aircraft. We also have to take into consideration the fact that propeller aircraft are still going to be operating out of Subang airport.

“And because we have only one runway, we need to operationalise it properly. The reason why we wanted to cap it at narrow-body aircraft is because we do not want the jet operations to affect the propeller planes. We need to do a very precise separation between aircraft. All these will be looked at very carefully.”

He cites the example of London City Airport in the UK, whose operating hours are limited because of noise concerns.

With the incorporation of jet operations into the Subang Airport Regeneration plan, the redevelopment is now expected to cost more than RM1.3 billion. “We first need to figure out how many jets will operate out of Subang airport and from there only can we determine how many bases we will need to put up at the airport. Also, how we phase the construction of the new terminal [to cater for more passengers]. This is something that we are working out as we speak.”

Critics of WCT’s proposal had raised concerns that allowing commercial passenger jets to return to Subang airport could potentially cannibalise KLIA’s traffic.

Iskandar Mizal dismisses this notion. “Subang airport at about 1,000 acres is just 7% of the land size of KLIA, which has about 14,000 acres. In terms of aircraft movements, Subang airport currently records 100 aircraft movements per day. The number was about 130 to 140 at its peak in 2019. By comparison, KLIA’s aircraft movements are 800 per day. At its peak, it was 1,400 a day. Also, you cannot exceed more than a certain number of aircraft movements a day in Subang airport. There is no way cannibalisation can happen,” he points out.

“If you look at London City Airport, airlines such as British Airways, Lufthansa/Swiss Group and KLM operate there. Does it cannibalise London Heathrow Airport’s traffic? No, it does not unless you have two similar big airports nearby. Another example is Istanbul Airport in Turkey, which is owned by the General Directorate of State Airports. It has an annual capacity of 120 million passengers. We operate the Istanbul Sabiha Gökçen International Airport, which has a capacity of 35 million passengers a year, and we don’t cannibalise the main Istanbul airport’s traffic.”

He also points to the fact that both Subang airport and KLIA are owned and operated by MAHB. “There is no way we want Subang airport to cannibalise our other airports. It is not in our best interests. We can always operationalise it in such a way that it will complement each other, instead of cannibalising each other’s traffic. We provide timing of the slots to airlines. There are many ways we can limit and mitigate the risks of cannibalisation.

“We are a publicly listed company. We have a responsibility to our shareholders. By moving some of the narrow-body jet operations from KLIA to Subang airport, it will help free up some of the space at KLIA, giving us some breathing room before we put in more money and capital expenditure to expand it. Being a responsible management, I need to see how I can sweat our assets more. That is exactly what we are doing. Currently, 70% of the operations in KLIA, including klia2, are narrow-body aircraft [flights].”

Iskandar Mizal stresses that whether an airline chooses to operate jet operations in Subang airport or not, it is their call. “They can’t blame us if they choose to split their operations because we are also in the midst of bringing in more airlines. Perhaps the regional airlines that fly point-to-point destinations, which are not yet with us, will gravitate to Subang airport.”

Already, Capital A Bhd’s aviation arm, AirAsia Aviation Group Ltd, has expressed interest in restarting jet operations out of Subang airport, targeting the premium market and travellers who have not flown with AirAsia.

It was reported that the low-cost carrier has applied for a licence to operate up to 10 aircraft out of the airport. In 2002, AirAsia, together with other jet airlines, was ordered to move their operations from Subang airport to the then new KLIA to increase the connectivity and growth of the international airport.

“But regardless, one thing is certain — under the Subang Airport Regeneration plan, we will be creating more jobs and bringing in more tourists,” says Iskandar Mizal. According to MAHB’s initial estimates, more than 10,000 jobs could be created upon conclusion of the regeneration exercise, resulting in about 74,000 jobs in the overall economy.

On concerns that the jet operations could potentially squeeze out private business jets from operating out of Subang, Iskandar Mizal says the airport operator will make sure the business jet industry will still strive and thrive by planning their slots carefully.

“To say that private jets cannot come, in the first place, we also do not want the commercial planes to land every minute because we don’t have the capacity at the terminal. We may not want to build a terminal to handle more than eight million passengers because of the limited land area in Subang airport,” he adds.

The airport operator will be undertaking a series of engagement sessions with stakeholders and operators, including the Civil Aviation Authority of Malaysia (CAAM), Dassault Aviation, Sapura Aero, Malaysia Airlines, WCT, Khazanah Nasional, Airbus and BAE Systems in the coming days to explain its plans.

Turboprop and propeller aircraft operators may find it harder to compete with their jet counterparts, which can carry more passengers and offer lower fares, according to analysts.

Maybank Investment Bank aviation analyst Samuel Yin Shao Yang believes that allowing regional jet operations out of Subang airport will likely see Firefly, the low-cost arm of MAG, and Lion Air Group’s Batik Air Malaysia emerge as the biggest losers as convenience and proximity to the Kuala Lumpur city centre have been their main selling points.

“There will be more competition. But it is a positive for AirAsia. I don’t think the cost [to have separate operations at Subang airport and klia2] will be too much for the carrier,” he tells The Edge.

Still, Yin expects MAHB to face challenges in bringing jets back on its runway.

“I don’t think it will be that easy, as over the last decade, there have been so many developments around the area, like residential areas in Ara Damansara and Sungai Buloh. I am not too sure how the citizens will react to that. These places were built on the premise that Subang airport will not be welcoming jets back. You can expect a bit of a public backlash to the proposed move,” he says.

Economist Dr Nungsari Ahmad Radhi, who was executive chairman of the Malaysian Aviation Commission (Mavcom) between July 2018 and April 2020, concurs.

“Redeveloping Subang as an international airport after more than 20 years of the vicinity area being developed without being in proximity of a major airport, I wonder what the environmental impact assessment will be like. What would the people who started living there in the last 20 years think about it? Ara Damansara, Subang and even Sungai Buloh were all developed within the last two decades,” he says.

He also questions the rationale of allowing scheduled belly cargo flights back to Subang airport while requiring existing freight operators DHL and Raya Airways to relocate their operations to Sepang.

“Another thing is, what impact will this have on KLIA, which is still [operating] well below capacity? It is bad enough that KLIA has two terminals that are not connected. Now, it will have a competing airport nearby. It is not like Heathrow that can have satellite airports such as Gatewick, Luton or Stansted,” he adds.

“There should have been an overall integrated transport master plan that links airports, trains, MRT and highways, given that we spend so much on all these. We have to stop doing things in a non-systemic manner. And somehow CAAM is muted on the technical aspects of this decision. Mavcom also should have weighed in heavily on this, but apparently not.”

A market observer sees the return of jet operations to Subang airport creating a problem for Malaysia Airlines Bhd as the national carrier will now have to split its main base into two (KLIA and Subang airport). “The hub and spoke system involves traffic flowing into one hub and the traffic going out to the other destinations from there. Thus, it will be harder to build an international network when your passenger traffic is halved by having two separate bases,” he says.

MAG group CEO Captain Izham Ismail declined to comment for this story.

Given that ties between MAHB and WCT were strained after the latter made the bid to take over the operations of Subang airport, Iskandar Mizal says they still maintain a working relationship. “We have to talk to WCT on a daily basis in terms of their operations at the airport. They run both the Skypark Terminal and Gateway@klia2.

“People also ask me how I am with AirAsia. This is a business. In business, first and foremost, is our profitability/bottom line [that matters]. AirAsia is our biggest customer. So, why would I want to fight them?

“Likewise, we have to have a working relationship with WCT because they operate Skypark Terminal and Gateway@klia2. Of course, I have to be professional about things. I have to be on talking terms with these people. I don’t let my emotions get in the way. If I have to be nice to somebody who is contributing revenue to me, I don’t see any reason why that is wrong. Whatever differences we may have, we have to overcome that as we have done with AirAsia. MAHB and WCT are in the same ecosystem.

“So, whether we bring in WCT or whoever else [as an investor in the redevelopment of Subang airport], that is something we can look into.”

MAHB has had a long tumultuous relationship with its largest tenant at klia2, AirAsia, over their differences on passenger service charges and issues related to the airport. Last August, MAHB, AirAsia Bhd and AirAsia X Bhd announced that they had mutually agreed to discontinue legal proceedings against each other.

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