MAHB & Govt In Win-Win Public-Private Partnership

Restructuring approval sets the stage for MAHB's new direction and business philosophy

Kuala Lumpur, 12 February - Malaysia Airport Holdings Berhad (MAHB), the national airport operator, has described the unique public-private partnership between itself and the Government as a win-win situation.

At the end of last year, the Cabinet approved MAHB's restructuring plan. The approval was conveyed to MAHB by the Ministry of Transport on 23 December 2008. Today, the Government and MAHB signed agreements to conclude the approved restructuring plan.

Under the approved plan, MAHB will pay the government a sum of RM1.01 billion, consisting of RM508 million in cash while the remaining amount will be set-off against the purchase of NECC Sdn Bhd by the Government, and capital expenditure projects which include upgrading works at the LCCT and aero-train in KLIA.

When presenting the details of the restructuring plan at a press conference, Dato' Seri Bashir Ahmad, Managing Director of MAHB, described the financial restructuring plan as a win-win situation for the government and MAHB, implemented through a public-private partnership (PPP) arrangement.

"The restructuring involves an innovative and unique PPP arrangement which clearly delineates the development responsibilities of the Government with respect to the aviation industry ( more specifically airport development in Malaysia), and the responsibility of MAHB to operate such development infrastructure at an optimum cost and operational efficiency.

"The restructuring also utilises innovative financial structures to provide suitable incentives and rewards for each party to fulfil their roles and responsibilities accordingly in this revamped PPP airport model", he added.

Details of the Restructuring
The details of the restructuring can be summarised as follows:

  • A unique public-private partnership (PPP) arrangement:

    • The Government and MAHB will enter into a mutually beneficial partnership, with clearly defined roles and a confluence of interests, to develop and operate the airport system in Malaysia.
    • This PPP arrangement utilises innovative and extensively defined structures to achieve a balance between MAHB's commercial objectives and the Government's socio-economic goals.

  • 'HUBS' Restructuring

    • 'HUBS' stands for Holistic Unbundling and Benefit Sharing.
    • 'Holistic Unbundling' refers to:

      • Unbundling of airport development and airport operations/management
      • Unbundling of socia-economic activities from commercial responsibilities
      • Unbundling of non-core businesses from MAHB - MAHB to focus on airport operations

    • 'Benefit Sharing' refers to:
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      • Alignment of MAHB and Government's interests through revenue sharing
      • Government to assist MAHB in bearing its socio-economic responsibilities via MARCS - supporting the marginal cost of these 'social' responsibilities through a financial mechanism called 'Marginal Cost Support' or MARCS

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    • The acronym 'HUBS' also reflects our strategy for KLIA to be a successful International Origin & Destination and LCC hub

  • Clarification of airport operator and airport development roles:

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    • The restructuring clearly defines the respective roles of MAHB, as airport manager and operator, and the Government as asset owner and the party responsible for the national airport development policy.
    • Development capital expenditure (developing new airports/upgrading existing airports) will be borne by the Government while MAHB will bear operational (maintenance) capital expenditure for all Malaysian airports (except Senai Airport). However, can allow MAHB to undertake airport developments if commercially viable

  • Marginal cost support:

    • Government will bear the marginal cost of Government policy initiatives implemented for socio-economic reasons and which result in higher marginal expenses or a loss in marginal revenue incurred by MAHB in the process. For example, if Government decides to waive aeronautical charges or intervene in retail rental rates, it would have to provide restitution to MAHB for the resulting of short-fall in revenue.

  • Unbundling of non-core activities:

    • Sepang International Circuit (SICSB) will be sold to Government for RM1. Within the next 10 years, Government will also buy the Sepang F1 circuit itself at its net book value at the execution date of the agreement.
    • Government will acquire the National Exhibition & Convention Centre (NECC) project at an agreed valuation of RM159.6 million

  • Framework for passenger service charge (PSC) and aeronautical tariffs:

    • The setting of the PSC remains the discretion of Government. However, under the HUBS restructuring the Government commits to MAHB for a minimum benchmark PSC which can be compared with the actual PSC. If the Government decides to set the PSC to be lower than the minimum benchmark for socio-economic reasons, then the difference may be payable to MAHB provided certain pre-determined operational (service levels) and financial KPIs are achieved by MAHB. The benchmark PSC will be increased every five years (at a compounded rate which is always less than the inflation rate).
    • MAHB will be given the flexibility to set its other aeronautical charges (landing, parking, etc.) according to market forces, but the said charges would still be subject to Government's discretion. Any intervention in rates, which results in charges being lower than a pre-determined benchmark, will entitle MAHB to a restitution payment from the Government.

  • Settlement of outstanding amounts due to Government:

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    • MAHB to make immediate cash payment of approximately RM508 million to the Government upon completion of the restructuring.
    • The remaining and future concession/lease payment obligations to be replaced by a revenue sharing mechanism which sees Government and MAHB sharing all revenue derived from airport-related activities in Malaysia.

Moving Forward

"The government's approval of the restructuring plan will set the stage for MAHB's new direction and business philosophy going forward, which we hope to unveil before the end of the first quarter of this year. Taking into consideration our renewed commercial airport operator status, we are in the final stages of completing our five-year business plan to grow our airport management and operations business domestically and internationally.

"With the implementation of the restructuring, we can now focus on our core business - airport operations - for which we have been recognised, as can be seen by our success in managing and operating airports in Malaysia and beyond. It immediately places us on a stronger financial footing from where we can concentrate on building the company from a clean slate.

"Our future strategy and direction for KLIA will be to make it a successful and leading regional hub for both full service and low-cost carriers. We are already a world class airport with one of the lowest charges worldwide and we intend to develop MAHB into a leading global airport operator", Dato' Seri Bashir concluded.

MAHB's subsidiary, Malaysia Airports (Sepang) Sdn Bhd, has been managing and operating the world-class KLIA under a 50-year concession and lease agreement with the Ministry of Transport since 5 May 1998 when KLIA was completed.