Clarifications on matters contained in the Edge on 23 December 2019

The Edge Weekly on 23 December 2019 published a story which touched on the Government's decision to 'merge' the Malaysian Aviation Commission (MAVCOM or Commission) with the Civil Aviation Authority of Malaysia (CAAM). The Edge story contained the following phrases:

• "Nobody recognises MAVCOM as the authority for civil aviation"
• "MAVCOM refused to execute a Cabinet decision on the Passenger Service Charge (PSC);"
• "MAVCOM is free to implement the RAB";

The Commission wishes to highlight the following:

"Nobody recognises MAVCOM as the authority for civil aviation"

MAVCOM was enacted by an Act of Parliament (the Malaysian Commission Act 2015 [Act 771]), to be an independent economic regulator for the civil aviation industry in Malaysia, being responsible for functions which include commercial licensing of aviation service providers, air traffic rights allocation, competition matters, consumer protection, setting airport charges and administration of public service obligations. MAVCOM duly commenced operations on 1 March 2016. The issue of recognition under the laws of this country does not arise.

Since that date, the Commission has been interacting with airlines, airport operators, ground handlers, investors, analysts, banks, consumers, consumer bodies, travel associations, and government agencies - all from and also outside of Malaysia - on subject matters which MAVCOM is legally responsible for. As one of many examples, MAVCOM interacts via AeroFile* with over 163 airlines for all landing permit applications in Malaysia.

The Commission has also been interacting closely with foreign civil aviation and competition authorities, and major international aviation bodies such as the International Civil Aviation Organisation (ICAO), International Air Transport Association (IATA), Airports Council International (ACI), Association of Air Pacific Airlines (AAPA) and Organisation for Economic Cooperation and Development (OECD), on matters related to economic regulation and consumer protection for the civil aviation industry in Malaysia and abroad. MAVCOM's advice on various subjects - including airport economics, air transport liberalisation, air connectivity, consumer protection and airline competition - has also been sought by our local and international stakeholders.

MAVCOM has also been invited as a presenter at various international events pertaining to air passenger rights and airport regulations. The Commission represented Malaysia at the Passenger Protection Workshops in Laos in March 2019 and Yangon in October 2019, which was organised by the European Union Aviation Safety Agency. MAVCOM was also the only organisation invited from the Asia Pacific for an international workshop on Air Passenger Rights hosted by the Directorate General for Mobility and Transport of the European Commission, which gathered international experts worldwide to exchange experiences and approaches towards air passenger rights.

Additionally, the Commission was also invited to speak at a workshop on aeronautical charges jointly organised by ICAO and IATA, where we shared our views and work we have conducted on the Airports Quality of Service Framework. Similarly, the Commission was invited to present on its consumer protection regulations and competition work at the ASEAN Consumer Protection Policy and Law Interface Workshop in Myanmar, organised by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) from Germany.

Aside from international bodies, the Commissioners within MAVCOM are also made up of professionals of various backgrounds, whom are highly recognised and are experts within their respective fields. Act 771 also dictates that MAVCOM's Commissioners must be made up of the Secretary General of the Ministry of Transport, as well as a Director General of the Economic Planning Unit of the Prime Minister's Department.

MAVCOM "refused to execute a Cabinet decision" on PSC

The law, the Malaysian Aviation Commission Act [Act 771], Section 46, states that aeronautical charges are to be set and gazetted by MAVCOM. Section 46 of the Act further defines the way such charges are to be set - that is the methodology chosen should be made known to all stakeholders and the charges be determined in consultation with them.

The rule of law dictates that these provisions in the Act be adhered to and the Commission has acted in accordance to the law.

The issue of the Commission not gazetting the Cabinet decision on this matter does not arise. We had subsequently briefed the Prime Minister and selected Cabinet members on this matter.

"MAVCOM free to implement RAB"

The RAB framework involves not only the calculation and setting of airport charges, but also other follow up works subsequent to the setting of those charges. These follow up works include monitoring of Malaysia Airport Holdings Berhad's (MAHB) implementation of their capital and business plans and evaluating their operational performance. This is consistent with the long-term nature of airports as an infrastructure business and the RAB as a long-term multi-period airport funding model. Failure to perform these follow up works results in airport operators operating in ambiguity, investor confidence undermined and the RAB framework rendered meaningless.

In light of MAVCOM's disbandment announced by the Ministry of Transport in December 2019, these critical follow up works will therefore have to be performed by CAAM over the longer term should the RAB airport funding model proceed. Therefore, MAVCOM is presently evaluating the next steps for the RAB airport funding model given this new reality. The Commission's evaluation will need to take into consideration CAAM's readiness to perform these follow up works and their priorities, especially in light of its recent downgrade by the US Federal Aviation Administration (FAA).

The Commission believes the RAB airport funding model should be undertaken meaningfully and professionally if they are to proceed. The RAB framework, if implemented properly, is expected to yield the following benefits for the aviation industry and travelling public:

• Ensure adequate funding for Malaysia's airport maintenance and development needs;
• Result in a more disciplined capital expenditure in Malaysia's airports sector;
• Eliminate any need for government subsidy or expenditure in the airports' development and management;
• Create differentiated PSC rates for groups of airports, depending on their service levels and infrastructure;
• Reduce the PSC for almost all commercial airports in Malaysia and ensure airport charges in Malaysia remain among the lowest in the region;
• Enable a level playing field and an environment for healthy competition for the airlines sector; and
• Ensure greater transparency and provide more regulatory certainty for investors.

In addition to the RAB framework, this applies to MAVCOM's other present initiatives including the Airports Quality of Service (QoS) framework and the Malaysian Aviation Consumer Protection Code 2016. It is in this light that the Commission is assessing the next steps for the RAB airport funding model.

On the merger of MAVCOM with CAAM

We interpret the decision of the government as a repeal of the Malaysian Aviation Commission Act 2015, hence the disbandment of MAVCOM as an entity.

We are unsure of how and which of the existing functions of MAVCOM to be vested over to CAAM as we have not been consulted on this decision. The crucial issue facing Malaysia's aviation industry today is CAAM's downgrade by the FAA from Category 1 to Category 2. We do not see this decision as addressing that pressing issue. The publicly made claim that the 'merger' will assist in the financial standing of CAAM and address FAA's downgrade of CAAM in particular seem to be baseless.

The Commission reiterates that it was not consulted prior to the 'merger' decision being taken. Had that been done, the Cabinet would have had the benefit of a fuller range of views in arriving at its decision.

The Commission nevertheless will work towards transitioning MAVCOM's legal functions into CAAM in the coming months and hope that the Ministry of Transport will provide its utmost cooperation to ensure that the process will be carried out in an equitable manner. The Commission further hopes, for the sake of the aviation industry in Malaysia, that the resulting single civil aviation regulator is one that is properly independent, uncorrupted by regulatory capture or political interference, and sets standards of integrity and professionalism.

*AeroFile is an automated filing system created by MAVCOM in 2018 that decreased processing of landing permit applications from 30 days (when this function was carried out by the Ministry of Transport) to the current seven working days for scheduled flights and from 14 to three working days for non-scheduled flights.