MAHB: Ending the Monopoly?

  • The country’s tourism industry has dropped 1.5 % since 2014
  • Governance structure, archaic rules and regressive procedures are some of the reasons why MAHB is not competitive

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Make changes now or you will be replaced.

This was the urgent call made by Tun Daim Zainuddin who is the Chairman of the Council of Eminent Persons to captains of government linked companies (GLCs) when he was interviewed by a local media.

What is the best way to measure the performance of a GLC? Can it be measured solely based on its financial statement? This method may be unfair for GLCs which are making profit because they are monopolies.

For instance, Malaysia Airport Holdings Berhad (MAHB) which holds a monopoly in the airport management business, plays the role of airport operator in 39 airports all over the country. It is no wonder that this company has always recorded impressive financial reports with profit reaching RM237.1 million (2017) and RM727.3 million (2018).

However, this does not mean that MAHB can get away from being scrutinised by the government. In fact, there are so many other aspects which are not limited to only profit that should be expected from MAHB considering the strategic role it holds.

Airports’ Strategic Role

This is in line with what was stated by Khazanah’s managing director Datuk Shahril Ridza in his speech at the Perdana Leadership Foundation CEO Forum last week.

He said, “Khazanah’s strategic role in the GLC industry which is in regulated industries such as Tenaga Nasional Bhd (TNB), Telekom Malaysia Bhd ™ and Malaysia Airports Holdings Bhd (MAHB) is to develop technologies and industries which are important to the country.”

For the record, Khazanah is the largest shareholder in MAHB with 33.2% shareholding. What is Khazanah’s real objective as the largest shareholder?

The real value is the multiplier effect on the economy through the number of tourists and the traveller dollar, explained Shahril when asked about MAS’ losses.

“The multiplier effect on the economy is between 8 to 10 times based on their (tourists) spending in the country.”

MAHB and The Tourism Industry

Due to this, among the strategic roles that MAHB can take is to turn Kuala Lumpur into an ASEAN air travel hub because it is closely related to the country’s tourism industry.

This agenda becomes even more important when the data on foreign visitors’ arrival to Malaysia’s for 2018 showed a 0.4% drop, whereas there was an increase for other ASEAN countries. For example, Vietnam (+29%), Indonesia (+22%), Thailand (+9%) and Singapore (+6%).

Tourism

Therefore, the Tourism Ministry, Khazanah and MAHB has to take this matter seriously since the tourism industry contributes RM20 billion or 14.9% to the country’s gross domestic product (GDP), provides 23% to Malaysia’s employment, and creates an investment amounting to RM21 billion.

Is MAHB in the best position to deal with this situation? Can the New Malaysia depend on this entity which is in Khazanah’s portfolio to fulfill the strategic role for them apart from only delivering a positive financial statement?

A more important question is how will MAHB compete without the government’s protection while also taking into account the Pakatan Harapan government’s agenda to minimise corporate monopoly in the market?

MAHB Needs To Be Revamped

Looking at the governance structure, as well as the rules and procedure in MAHB, there are a few things that need to be focused on.

Firstly, MAHB’s board of director structure needs to be reshuffled. The era when most of the directors in the MAHB board are also the chairman or a member of the board of directors in subsidiary companies has to stop.

What happened to the Federal Land Development Authority (FELDA) board of directors should not happen in MAHB.

Some enlightenment – before 2017, FELDA had a number of directors who were also part of the Felda Investment Corporation (FIC) and Felda Global Venture (FGV) board of directors. In fact the FELDA, FIC and FGV chairman are all the same person.

Due to this, some of the investment decisions were criticised heavily and a few cases of abuse of power were reported to the authorities.

Of course, there is no financial scandal or even abuse of power in MAHB. Nevertheless, prevention is better than cure.

At the moment, there are some MAHB directors who are also chairman of a few subsidiary companies.

They are, Datuk Zalekha Hassan (Chairman of Malaysia Airports Consultancy Services Sdn Bhd), Rosli Abdullah (Chairman of KLIA Aeropolis Sdn Bhd), Dato’ Ir Haji Mohamad Husin (Chairman of Teknologi Wawasan Sdn Bhd) dan Hajah Jamilah Dato’ Hashim (Chairman of MAB Agriculture – Horticulture Sdn Bhd).

Furthermore, the demarcation of position and roles within the members of MAHB’s board of directors and its subsidiary companies will ensure the integrity in decision making and based on this, the decisions can’t be questioned because they were made with MAHB’s best interest in mind.

Board of Directors or Management?

Secondly, archaic rules and procedures in MAHB which are regressive should be changed.

It is a known secret in MAHB that its chief executive officer (CEO) is only given power to sign off Letter of Award (LoA) that is worth RM5 million or lesser. It is very uncommon practice for a billion dollar company. Or is this because the board of directors do not trust their CEO?

Furthermore, archaic procurement process that is guided rigidly by the government’s procurement standards has resulted in tender processes going more than 9 months to be floated. This explains why until today there is still no work done to replace the ‘aerotrain’ and the luggage management system in KLIA even though many complaints have been received.

Also, how are these procedures helping KLIA and KLIA2 to stay ahead in terms of technological aspects compared to Changi Airport?

Taking into account that MAHB is one of the biggest counters in Bursa Malaysia, this issue shouldn’t take place because it is apparent that it will disturb the company’s operations and this also gives a clearer picture that the board of directors are actually the ones “managing” the company and not the management.

Why are these issues brought up? And what are the connection with tourism and monopoly?

KLIA Is Being Left Behind

The answer is simple.

MAHB is not ready to face competition in the open market. Without MAHB being competitive, it is hard for us to see the main airport like KLIA to become the ASEAN champion and air travel hub in this region.

But maybe to MAHB’s defence- why should they change and try to dethrone Changi, Jakarta and Suvarnabhumi if the current business model still promises profit? Maybe.

The fact of the matter is airports with a lesser connectivity, poor facilities and outdated technology will not be able to attract more tourists into the country.

Skytrax World Airport Awards 2019 report placed KLIA at the 54th spot, compared to the second place in 2001. (Changi was at the number one place for the sixth time)

Skytrax

Burden on Taxpayers

The last thing Malaysia Baharu needs is MAHB expecting various ‘protections’ from the government in order to continue recording excessive profit through an operating agreement.

This includes Marginal Cost Support Sum (MARCS) which allow MAHB to claim the difference in the charged Passenger Service Charge (PSCs) in comparison to any revision to the PSC rates This excludes the PSC rates that had been increased due to the construction cost of KLIA2 which was too high.

These are all examples of how a monopoly can burden the people thus requiring immediate changes. Therefore, it should be the additional benchmark to judge the performance of MAHB’s board of directors and its new head of management.

Mat Rodi

One thought on “MAHB: Ending the Monopoly?

  1. Jeru says:

    As part of its ambitious plans to increase revenue, MAHB has indicated that it is expecting RM1bil worth of future investments from third party investors in the next three to five years from its investment in infrastructure development between 2018 and 2020. It has also indicated that RM150mil will be spent during the three-year period for the development of infrastructure in its air cargo and aerospace segment, which would also generate about 3,200 jobs. This looks like a recipe for immediate and untold disaster.
    While I am well aware of aerotropolis projects such as that in Schiphol or Dubai, a key question related to implementation of its plans is what business MAHB has in getting involved in the development of an aerospace eco-system when its core business is to increase passenger and cargo traffic in all its airports (not just KLIA or KLIA 2). Further, with prudence and belt tightening measures initiated by the Government, what is MAHB’s ability to enable such development? Is there a critical blend of right structure, competencies and capabilities available? For example, how will aerospace talent development plans that have already begun as far as 2011 involving a number of aerospace companies and aviation related institutions of learning such as UniKL MIAT MARA be created, monitored with regards to the 3,200 job creation plan? How will MAHB enable transfer capability through industrial collaboration and partnerships through the current Subang Airport Regeneration plans or the KLIA Aeropolis project.
    Overlap of functions and dilution in optimal execution
    To put this in perspective, let us look at the current landscape. Even today, policy decisions, specific measures and initiatives on aerospace industry development were or are in place and driven by key Government agencies such as MITI, MIDA, MiGHT, TDA (through offsets) and to a certain extent MATRADE that fulfill their mandates. The respective agencies had promulgated blueprints, investment strategies and continuously promote Malaysia as an aerospace hub in a number of trade missions, exhibitions, MRO shows regionally and abroad. A number of consultants, external parties and industry level consultations were undertaken to enable a platform dedicated for the sole purpose of making Malaysia an aerospace hub. Each Government agency has had a specific role and today, continue to drive the aerospace eco-system.
    MAHB’s Subang regeneration initiative
    Subang is already a mature if not stable aerospace eco-system with a number of aerospace entities including rotary and fixed wing MROs that includes the likes of Airbus helicopters, AIROD, and FBOs such as Execujet. The business aviation landscape in Subang with companies such as Execujet that provide the experience and handling required for charter as well as VVIPs are key to increase business jet movements.
    However, successful business aviation hubs such as seen in Dubai, Hong Kong or France depends largely on the number of movements, modern infrastructure, the potential and existing catchment of ultra-high net worth individuals, establishment of major MNCs and fleet orders as a base for growth. What business model will be applied to increase movement numbers, fuel uptake and catering services in order to compete with the likes of HKBAC, Singapore Business Aviation Centre, TAG or Le Bourget? Is there commercial acumen and the technical know-how to maximize revenue from FBOs through concessions or lease rates, fuel uptake margins and catering? With slots for existing users tight and competing interests from existing users including commercial airlines high, how will movement numbers increase?

    MAHB’s Subang Aerotech facility
    Manufacturing of aerospace parts has been traditionally a huge revenue generator with the likes of CTRM and Spirit Aerosystems in Malaysia. The current program from MAHB indicates that a specific area has been set aside for further developments. Senior Aerospace has been brought in to kick-start this development. As per the website, the new facility will complement Senior Aerospace UPECA’s (“UPECA”) existing facility and developed by Axis Real Estate Investment Trust in partnership with MAHB on a build-to-lease basis. An interesting thing to note is, besides Spirit, Subang needs more aerospace manufacturing companies. Companies such as Aerospace Composites Malaysia (based out of Kedah) and the recent establishment of GKN Aerospace, which is investing US$30 million in a state-of-the-art aerospace component repair and research centre in Nusajaya Tech Park indicates that the target segment of manufacturers or service providers are not even location specific. As such, with supply chains ever squeezed and with even tighter margins, the simmering question is on what basis is this aerotech park to be developed? Another key doubt, which segments of manufacturing are targeted? Where are the sheet metal work companies, the electrical wiring companies, surface treatment companies that will drive the SME eco-system. A good example of such development is the Morroco Aerospace cluster.
    MAHB also states that third party investors are expected to build the facilities, as well as put in the suitable system and technology. This is purely speculative. For example, hangar build and construction is being undertaken only by companies with huge base-loads or large airline affiliated MROs in view of significant CAPEX outlay. In providing for speculative build such as that seen in the Seletar Aerospace Park or other aerospace parks, significant pre-lease commitments must be established on the premise that the base-loads are available. And the type of assets to be designed and built for lease typically are not your usual warehouse facilities as these assets are dedicated for aerospace workshop operations. As such, the question is where or how will MAHB design and provide speculative build? Do they have the internal expertise to understand say a MRO campus facility in the aerotech park?

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