People and companies in Malaysia teetering on the edge — Shelina Razaly Wahi

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APRIL 1 — The movement control order (MCO) imposed by the government, which requires us all to “stay at home” between March 18, 2020 and April 14, 2020, is unprecedented. Meanwhile, the impact on businesses, trade and the wider economy, has been severe.

The prime minister’s announcements on the economic stimulus package on March 27 are widely seen as populist, giving “free cash” to the B40 and the M40 categories of the Malaysian public. However, various segments of the economy, including Small and Medium Enterprises (SMEs), corporations and industry associations, compared this “caring package” or “Prihatin” as billed by the prine minister, to that of Singapore, the US and the UK, and say it is insufficient and does not address the larger economy.

One industry that has been conspicuously silent, though, is the airline/aviation industry. Airlines — like hotels and other segments of the hospitality sector — were ironically one of the first victims of the Covid-19 pandemic.

When countries started closing their borders to Chinese arrivals, as early as February 2020, and China itself closed its borders resulting in Chinese residents being unable to leave, all Malaysian carriers were affected as each of Malaysia Airlines, AirAsia, AirAsia X and Malindo relied on traffic to and from China as a substantial part of their respective route networks.

As of today, AirAsia has suspended all flights (domestic and international) until April 21, AirAsia X has suspended most flights until May 31, Malindo has suspended all international flights until March (no further updates as yet since the MCO was 31 extended to April 14), and Malaysia Airlines has suspended most flights, although MAS is still operating flights to bring Malaysians home and to help foreign nationals return to their countries.

According to the most recent data available, the Malaysian aviation industry had contributed US$2.0 billion (RM8.67 billion) in direct benefits, US$2.6 billion in indirect benefits, US$369 million in induced benefits and USD6.3 billion in tourism benefits totalling US$11.2 billion to the national GDP.

The sector had thus generated about 3.3 per cent of the country’s GDP and supports over 450,000 jobs (airlines, airports, airport on-site enterprises; local procurement; airline industry employees spending on consumer goods and services; and even supporting foreign tourism).

Iata estimates that the air transport industry and its supply chain alone accounted for US$5.2 billion of Malaysia’s gross domestic product last year.  

In addition, the aviation sector as a whole is a substantial taxpayer in Malaysia — paying more than RM560 mil in taxes (2009 numbers) including income tax receipts from employees, Socso contributions and corporation tax levied on profits.

An estimated RM603 million is raised via the Aviation sector’s supply chain and another RM367 million through taxation of the activities supported by the spending of employees of both the aviation sector and its supply chain.

 But even more important, a strong aviation industry is needed for a strong economy, more so for a trading nation like Malaysia. Connectivity between cities and markets boosts productivity and provides a key infrastructure on which modern globalised businesses depend.

Air connectivity provides an important linkage between the civil aviation industry and tourism and trade. For tourism, the International Air Travel Association (Iata) (2017) estimated that 54 per cent of international tourists fly globally.

In terms of trade, 35 per cent of world trade (in terms of value) is shipped by air. Higher air connectivity reduces the costs of air transport and therefore enables a location to be more strongly connected to the global value chains.

In recognition of the importance of aviation to the economy, the United States has recently announced US$58 billion in aid to the American aviation industry, including grants to cover part of wage costs for airlines’ employees; Singapore Airlines’ majority shareholder, Temasek Holdings (a Singaporean state fund) which owns 77.7 per cent of SIA — will underwrite the sale of shares and convertible bonds for up to S$5 billion (RM15.2 billion). Singapore’s biggest bank DBS Group Holdings is providing a S$4 billion loan.

Consecutive Ministers of Transport have emphasised Malaysia’s ambition to be an aviation hub for Asean and for the Asia-Pacific region. Our geographical location is ideal; four out of five of the fastest growing markets in terms of additional passengers per year will be from Asia i.e. China, India, Indonesia and Vietnam.

Admittedly, Malaysia is halfway there — despite Malaysia’s smaller size when compared to our neighbours such as Thailand and Indonesia, Malaysia has two large Malaysian carrier groups, with one of those Malaysian carriers serving as a hub for Asean and also South Asia.

In order for the Malaysian aviation industry to survive this tumultuous period, and for Malaysian companies and individuals to be able to rely on strong connectivity in the future, Malaysian carriers WILL need the help of the government.

Perhaps more than any other industry, once Malaysia is ready for business and trade again, Malaysia will need to have an active linkages network.

Malaysia and Malaysian carriers have taken a long time to get to our current position. Any substantial shrinkage or worse still, cessation of business in this industry, will of course result in nemployment, and negative impact on not just the carriers themselves but on the entire aviation ecosystem — be it the supply chain or other stakeholders such as tourism.

This is not an industry that can be switched “off” or “on” overnight. Any resultant loss of talent will only benefit our competitors — as close as Singapore and as far as the Middle East and Europe.

Admittedly, the Government has already announced a few initiatives — the deferment or restructuring of employers’ EPF contributions; wage subsidy of RM600 per month for 3 months; an exemption on the HRDF levy, deferment of monthly tax instalments, a fifteen per cent (15 per cent) discount on electricity bills, as well as rebates on premises rental, and landing and parking charges provided by Malaysia Airports Holdings Bhd. But these are by no means sufficient.

There are various aviation-specific measures that could help the industry: (i) a moratorium on consumer claims pursuant to the Malaysian Aviation Consumer Protection Code; (ii) loosening slot-usage / slot-retention requirements; (iii) loans / loan guarantees to be utilised for specific purposes — eg. employee wages, lease payments; (iv) relooking at currency requirements for pilots and flight attendants; (iv) waiver of all EPF contributions (giving employees more cash in the pocket and conserving cashflow for employers); (v) deferment or waiver of airport taxes and/or fees to be paid to CAAM and Mavcom; (vi) recognition and support for the aviation supply chain — MCO operators, caterers and the like — to ensure that when there is a need for airlines to start flying again, their supply chain has remained similarly intact.

Latest estimates put the Year-on-Year decline in capacity for Q2 2020 at 70 per cent; a 50 per cent reduction for Q3 2020 and 30 per cent reduction for Q4 2020. Also, the industry is not expecting a “normal year” until 2023. There is a long road ahead to recovery for airlines everywhere.

Many companies in the global aviation industry face troubling questions about their survival and existence in the near future. Malaysian carriers are no exception.

Perhaps this is the time to step back and take a different view of the Malaysian aviation landscape — these troubling times may be an opportunity for us to explore new synergies and commonalities across different carriers — and to focus not on any particular airline’s prospects of survival, but rather on how we can emerge with a Malaysian aviation industry that is more sustainable moving forward.

Besides the obvious solution of extending their hand to help to the tune of billions of ringgit, the government will need to reimagine the future of Malaysian carriers to see how they are structured to compete in a very different world.  

* Shelina Razaly Wahi is an aviation and aerospace lawyer

* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.

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