Malaysia Airports’ new operating agreements will ensure sustainability and growth

Malaysia Airports Holdings Berhad (MAHB) has obtained in-principle approval from the Government of Malaysia (GoM) through a cabinet decision on 2 February 2023 on the material terms of the Operating Agreements (OA 2023) to operate, manage, maintain and develop 39 airports and STOLports until 2069.

Malaysia Airports Managing Director, Dato’ Iskandar Mizal Mahmood said that the new OA 2023 is a reflection of the Government’s confidence in Malaysia Airports’ capabilities and deep experience in managing and operating airports locally and internationally. It is also an affirmation of the airport network framework and cross-subsidisation model, “It will ensure commercial sustainability and facilitate growth for the nation’s airports, which in turn will serve as an important economic development lever for Malaysia. We will be able to continue operating underserved essential community airports and STOLports, and at the same time enhance airport capacity where needed and provide better airport service levels as a whole. We will be able to do this because OA 2023 gives us the flexibility to invest and reinvest in the modernisation and development of viable airports under fair and conducive commercial terms with a clear investment return mechanism.”

The material terms of the OAs include:

(i) The Government and MAHB have the flexibility in the method of funding airport development costs either using Government allocations through Development Expenditure (DE) or MAHB through any suitable investment recovery model mechanism, subject to the mutual agreement of both parties with the weighted average cost of capital (WACC) to be determined only when a project will be implemented and subject to Government approval
(ii) the establishment of the Airport Development Fund (ADF), a development trust account under Section 9 of the Financial Procedures Act 1957 [Act 61], to receive contributions from airport users, the public and also airlines and does not involve contributions from Government funds;
(iii) 50% of the Passenger Service Charge (PSC) component that is taken into account in the calculation of the User Fee will be channelled to the ADF trust account. The percentage of PSC or percentage of other components in the User Fee to be contributed to the ADF account will be reviewed every three years; and
(iv) The Government has the right to restructure the airport industry through clustering, carving out, divestment of airports, closure of existing airports or terminals or the restructuring of the ownership of any of the facilities subject to the mutual agreement with MAHB.

Dato’ Iskandar added that the GoM has also approved MAHB’s strategic proposal to rebrand KLIA and klia2 to Terminal 1 and Terminal 2 respectively – “This will allow us to market the airport’s services more effectively thus strengthening KL International Airport’s (IATA Code: KUL) position as a regional hub.”