Covid-19: MAVCOM issues commentary on potential government assistance to the aviation industry

07 April 2020

1. The Malaysian Aviation Commission (“MAVCOM”) issued four documents on 27 March 2020, including the following:

• Waypoint Report: Malaysian Aviation Industry Outlook (March 2020)
• Commentary on Government Assistance to the Aviation Industry Amidst the Covid-19 Pandemic

2. The Commentary on Government Assistance to the Aviation Industry Amidst the Covid-19 Pandemic (“Commentary”) sets out MAVCOM’s views and position on the Malaysian Government’s announced and possible future assistance to the aviation industry during the Covid-19 pandemic and resulting imposition of the nationwide Movement Control Order.

3. The background to the Commentary was the announcement on 27 February 2020 of the Malaysian Government’s RM20.0 billion economic stimulus package which included initiatives to assist the aviation industry. The measures announced then included a 15% discount on monthly electricity bills to airlines, rebates on rental for airport premises and rebates on landing and parking charges. However, no specific financial assistance was announced.

4. On the issue of financial assistance, MAVCOM’s position as set out in the Commentary is as follows:

1. The Malaysian Government should be a lender of last resort. The airline operators should explore and exhaust other options available to them first, which includes assistance from their shareholders. Instead of outright bailouts, MAVCOM recommends a carefully structured financial assistance which provides for:

• funding measures undertaken by airlines to combat the spread of Covid-19, including flight disinfection, and medical and hygiene equipment
• subsidies and incentives for airlines to retain employees on their payroll
• temporarily waiving government-imposed charges such as air traffic control charges, airport departure levies, and industry development levies
• facilitating public or private loans with subsidised interest rates
• targeted tax exemptions and subsidies for services transporting essential goods and people

2. The Malaysian Government should adhere to the principles of good governance. It should thus ensure that measures undertaken are not aimed solely at improving performance of airline operators during the Covid-19 pandemic. Instead, any government measures or assistance should focus on its policy objectives which include amongst others:

• Safeguarding employees and consumers in the airline industry; and
• Maintaining essential air connectivity, including travel services.                 

3. To prevent misuse of public funds in the spirit of good governance, the Malaysian Government’s financial assistance should be based on the following principles, amongst others:

• non-discriminatory
• based on a clear purpose, scope, considerations, and limits
• proportionate with a sunset clause to ensure that the financial assistance is not beyond what is required
• subject to accountability, a clear governance structure and independent auditing
• transparent with the details made public
• potential negative effects should be minimized

4. The Malaysian Government should also consider non-fiscal solutions such as liberalising policies on ownership currently in place within the aviation sector and on slot usage to reduce compliance burdens faced by airlines. Such ownership liberalisation must be accompanied by effective regulatory oversight to ensure no abuse of such relief measures take place.

5. Mergers, which are likely to be considered by the airlines to mitigate the effects of the Covid-19 pandemic, will continue to be subject to the MAVCOM Act 2015 to safeguard industry and consumer interests. Amongst others, Part VII of the MAVCOM Act 2015 requires parties to an anticipated merger or parties involved in a merger to notify MAVCOM of the same. MAVCOM will decide if the merger infringes the merger control provisions in place to prevent distortion of the aviation market.¹

5. The severe impact of the Covid-19 pandemic can be seen in MAVCOM's Industry Report, Waypoint Report: Malaysian Aviation Industry Outlook (6th Edition, March 2020) in which MAVCOM’s initial forecast for Malaysia’s passenger traffic from a growth of between 4.6% and 5.7% was revised to a contraction of between 36.2% and 38.1%.² Notwithstanding the unprecedented challenges faced by domestic airline operators amidst this time of crisis, MAVCOM cautions the Malaysian Government to consider the long-term effects on the health of the aviation services market resulting from any proposed government financial assistance.

6. In response to the high volume of queries faced by airlines as a result of flight disruptions, MAVCOM has, on 28 March 2020, published a brief FAQ for consumers regarding flight-related queries such as cancellations, entitlement to refunds and other common queries.³