Airport REIT, Departure Levy Pose Potential Constraints, Says Mavcom
Be the first to review
The proposed Airport Real Estate Investment Trust (Airport REIT) and departure levy could materially constrain the development of the Aeronautical Charges Framework/Regulated Asset Base framework (RAB Framework) and renegotiation of the Operating Agreement.
The two proposals, if not carefully designed, could affect the RAB Framework and Operating Agreement which seek to resolve issues surrounding airport development funding, industry investment, airport planning, capital expenditure (capex) discipline and quality of service.
In its 2019 Budget Commentary, the Malaysian Aviation Commission (Mavcom) commended the government's commitment to only embark on the proposed REIT after the RAB Framework and Operating Agreement between government and Malaysia Airports Holdings Bhd (MAHB) are concluded.
However, one of the key issues that remain before the airports are injected into the REIT is the complexity of the ownership of the land on which these airports are located, as some airports sit on land with multiple ownership structures.
“This is potentially an operational issue requiring resolution prior to inclusion of any airport asset into the proposed REIT,” it said.
It noted that the REIT's yields and attractiveness to potential investors would be linked to the level of airport charges of those airports under the REIT, thus airport users including passengers and airlines, will need to be cautious of the possible risk of airport charges being subjected to artificial upward pressure by the REIT's yield requirements.
While the government's proceeds arising from the REIT could be used to fund or subsidise MAHB's capex requirements for future airport developments, it could also undermine the long-term capital planning process improvements being pursued by the RAB Framework and the new Operating Agreement.
In addition, there is lack of clarity on the utilisation of the initial RM4 billion proceeds of the REIT and the REIT could be a costlier source of funding for the government compared with other modes of financing.
Meanwhile, the government risks contravening the International Civil Aviation Organisation (ICAO) guidelines and international good practices with the proposed departure levy, if the proceeds are not ploughed back into the industry, and a similar tax is not imposed on other modes of transport.
The ICAO guidelines state that any cost imposed on the air traveler should be used for the benefit of the aviation industry and any collection without the intention to recover the costs of providing facilities and services for the civil aviation sector, is considered as a form of tax.
The government will also need to institute discipline to retain the levy at its proposed introductory rates, to avoid consumers from being charged higher amounts in the future and render Malaysia as a costlier place to fly from.