This article first appeared in The Edge Malaysia Weekly on March 4, 2024 - March 10, 2024

IN its bid to improve connectivity in the state, Sarawak will see two major developments in infrastructure over the next two months: the awarding of the Autonomous Rail Transit (ART) Green Line (Package 3) works and the acquisition of a 100% stake in MASwings Sdn Bhd. Due diligence on MASwings, the rural air services (RAS) operator in Borneo, was recently concluded.

Sarawak Economic Development Corporation (SEDC) chairman Tan Sri Abdul Aziz Husain tells The Edge that the last package of the first phase of ART, for which tender submissions recently closed, includes the development of a 30km stretch from Pending to Damai in Santubong worth some RM1 billion.

“By April or May, we should be able to award the contract. The contract is a lump sum [and includes] the development of the road to Damai,” he says in a recent interview.

ART is operated by Sarawak Metro Sdn Bhd, a wholly-owned subsidiary of SEDC tasked with developing the Kuching Urban Transportation System (KUTS). KUTS aims to modernise and decarbonise Sarawak’s public transport system and ART, the backbone of the project, will be supported by a hydrogen-powered feeder bus network dubbed ART vehicles, which are manufactured in Zhuzhou, China.

The first phase of KUTS covers 70km and has three lines and 31 stations, with dedicated lanes. It is estimated to cost RM6 billion and is fully financed by the Sarawak government.

The RM569 million Blue Line (Package 1, Phase 1) was awarded last November to a joint venture (JV) comprising Ibraco Construction Sdn Bhd (Ibraco Bhd's construction arm), China Railway Engineering Corp (M) Sdn Bhd and Nanyang Tunnel Engineering Sdn Bhd. The RM943.3 million Red Line (Package 2, Phase 1) was secured by a JV of Sri Datai Construction (Sarawak) Sdn Bhd, JV Builders Sdn Bhd and CHEC Construction (M) Sdn Bhd.

Two system packages for the Kuching ART, worth RM1.9 billion in total, were awarded in July and November 2022, respectively.

Meanwhile, the job for advanced works for the Rembus Depot was clinched by Hock Seng Lee Bhd in October 2022 at RM64.33 million, while the full works contract (valued at RM260 million) was awarded in December 2023 to a JV of IJM Construction Sdn Bhd (a subsidiary of IJM Corp Bhd), Azam Sehasrat Sdn Bhd and Unique Deco Sdn Bhd. The depot, scheduled for completion by December 2025, is being built on an 80-acre site. It will house facilities such as a hydrogen production plant, stabling yard and an operations control centre.

Aziz, who is also chairman of Sarawak state-backed boutique airline Hornbill Skyways Sdn Bhd, says the state is looking to buy 100% of MASwings from Malaysia Airlines Bhd’s (MAB) parent, Malaysia Aviation Group Bhd (MAG).

He adds that the subsidy provided for MASwings by the federal government will continue after the takeover. The federal government currently covers all operational costs for RAS that are incurred by MASwings, through subsidies and aircraft lease payments, reportedly amounting to RM209 million annually.

“The federal government has agreed to continue even though the state owns 100% [of MASwings]. It is a separate matter, as [the] subsidy is from the federal [government], not MAG," Aziz says.

While price negotiations for MASwings are still ongoing, he says the state is open to MAG still having a “small stake”.

“The consultants are reviewing the figures. We should be able to come to an agreement after Hari Raya.”

Sarawak's only state-owned airline currently is Hornbill Skyways, which operates charter flights under a specific air services permit. Hornbill is 67.19% owned by Sarawak Timber Industry Development Corporation and 32.81% held by Yayasan Sarawak.

Based on data from the Companies Commission of Malaysia, MASwings is wholly owned by MAG’s Firefly Sdn Bhd. As at Dec 31, 2022, its assets stood at RM111.17 million and its liabilities were at RM254.75 million, while retained earnings were close to RM100 million. It made a net profit of RM12.83 million on the back of RM146.51 million in revenue in the year ended Dec 31, 2022.

According to Aziz, the state intends to lease or buy jet planes to expand the MASwings fleet, which mostly consists of Twin Otter turbo-prop aircraft now.

“Premier [of Sarawak Tan Sri Abang Johari Tun Openg] wants to use jets mostly, except for the short flights for rural areas [which] will remain with ATR [turbo-prop aircraft].”

MASwings’ present fleet for RAS includes eight ATR 72-500 and six DHC-6-400 Twin Otter aircraft, which operate out of Miri. Providing a vital lifeline to some of the most remote rural communities in Sarawak, they fly regularly scheduled services to 11 rural STOLports (short take-off and landing airports). Many of these areas are inaccessible by road. MASwings currently serves a total of 22 destinations, including Brunei, on codeshare with main bases in Kota Kinabalu and Miri.

MASwings operates the RAS routes under a six-year public service obligation agreement that was inked in 2019 with the federal government and expires at end-2024.

Abang Johari confirmed last June that the state government had agreed in principle to acquire turbo-prop operator MASwings, pending the completion of due diligence. This decision supports the Sarawak government's aim to launch a boutique airline, an initiative approved by Prime Minister Datuk Seri Anwar Ibrahim in April. The creation of the airline could result in lower fares, particularly for flights connecting Peninsular Malaysia with Sabah and Sarawak.

In 2016, the federal government decided to remove six routes from the RAS programme owing to lack of commercial viability. They included urban routes such as Kuching-Sibu, Kuching-Bintulu and Kuching-Miri. Subsequently, in November 2018, Capital A Bhd received approval to operate the Kota Kinabalu-Sibu and Kota Kinabalu-Bintulu routes from January 2019, resulting in a total of 41 RAS routes currently. 

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