The government’s financial assistance to airlines amid the Covid-19 pandemic must be carefully structured, and it should be the last resort, says local aviation regulatory body, the Malaysian Aviation Commission (Mavcom).
In a statement today, Mavcom said considering the pressures on the government’s fiscal resources, industry operators must exhaust other options first, including assistance from their respective shareholders, before approaching the government.
It said the government should only act as a lender of last resort for the industry.
“The government should also bear in mind that its main policy objectives should be to maintain essential air connectivity (most notably public service obligation routes) and protect vulnerable parties such as the 50,000 employees in the aviation sector and Malaysian consumers, rather than propping up the commercial performance of airlines,” it said.
Mavcom said instead of outright bailouts, there are more targeted options that reduce the risk of moral hazards and channels money towards their intended use.
This includes funding measures undertaken by airlines to combat the spread of Covid-19, such as flight disinfection, as well as subsidies and incentives for airlines to retain employees on their payroll.
The government could also temporarily waive government-imposed charges such as air traffic control charges, airport departure levies and industry development levies.
On non-fiscal policy and regulatory responses, Mavcom said clarifying and relaxing certain aviation-related policy requirements, such as the policy on ownership, could also provide some relief to airlines without fiscal costs as it would allow industry players to access a wide range of funding sources from the local and international capital markets.
Nevertheless, it emphasises the importance for such ownership liberalisation to be accompanied by effective regulatory supervision to ensure players are not abusing their liberalisation rights.
Meanwhile, Mavcom said it is aware that shareholders, in assessing their options, might consider industry consolidation via mergers, especially during crises such as the ongoing pandemic.
It noted that Malaysia Airlines and AirAsia have been reported to be in discussions over a potential merger even before the pandemic, adding that the pandemic might provide further impetus for such a merger to proceed.
However, it reminded industry players that merger transactions are subject to the merger control law under Act 771 and that they must submit their proposed mergers to Mavcom for approval.
“A merger between two domestic airlines will foreseeably result in a high concentration of the Malaysian domestic aviation market. The merged entity will likely hold a monopoly status in many domestic routes.
“Mavcom is concerned that such a merger could have the unintended consequence of distorting the market in the long term and this could have negative effects on Malaysian consumers as they may experience higher airfares, reduced frequencies and choices, and deteriorating service quality due to the lower degree of competition,” it added.