Urgent need for sustainable funding model for airports, says MAHB

The Covid-19 outbreak and resultant travel restrictions and bans have had a negative impact on the travel industry.

PETALING JAYA: Malaysia’s main airport operator says the Covid-19 pandemic, which is crippling the aviation industry, has underlined the importance of sustainable funding models for airports.

Malaysia Airports Holdings Bhd group CEO Mohd Shukrie Mohd Salleh told FMT the unprecedented travel restrictions and bans had also affected them.

This, he said, was why MAHB had implemented a group-wide optimisation plan to meet its financial and operational obligations so as to be able to exit the Covid-19 period on a stronger footing.

Mohd Shukrie said although things remained uncertain, with the optimisation plan MAHB would be able to continue with critical investments already in the pipelines such as the replacement of the baggage handling system at KLIA and the Aerotrain track transit system.

“We had hoped to proceed with the Penang International Airport expansion, but this may have to be deferred or scaled back.”

Mohd Shukrie said sustainable funding models (SFM) were important for infrastructure providers like MAHB as it allowed them financial flexibility and independence.

“Airports are critical national infrastructures, and developing and running them requires huge capital investments and planning ahead for decades.

“At the same time, we are expected to be resilient enough to withstand the financial pressures of shorter term or sudden external shocks such as Covid-19.”

This time around, he said MAHB’s optimisation plans had ensured its ability to continue operating. However, he added, clarity was needed on the SFM in moving forward.

“The SFM will enable a clear and strategic national aviation policy for Malaysia to be introduced where airport developments can be systematically planned over a longer period.

“We want to be able to make strategic decisions today to prepare and respond to whatever comes tomorrow.”

Under a current operating agreement, the government funds the development of an airport and MAHB operates it, paying a percentage of revenue to the government.

Under a regulated asset base framework (RAB), which has been talked about for some time, an airport operator will be able to source for funding to invest in infrastructure development.

The RAB model has been used successfully in other countries for airport development and is also used in Malaysia by utility companies.

“With a SFM in place, regardless of whether it is a RAB, an airport development fund or a tweaked operating agreement, we can transform from just being an airport operator to an airport operator-developer with stronger financial capacity and flexibility.”

Capital markets, Mohd Shukrie said, relied on SFMs to gauge the economic value of long-term infrastructure such as airports and utilities, which in turn allowed national asset companies to use bond financing.

“A SFM like the RAB will lift the burden of funding the development of airports from the government which runs into billions and allow airport operators to get those funds from capital markets.

“This is why we need a SFM in place as soon as possible. Without one, it would be very difficult to plan for large projects which need a reliable flow of funding over a number of years.”