Subang Airport Regeneration Plan may face delays despite government approval

22 August 2023

The plan to turn the Subang Airport into a city and regional airport — which will see the return of scheduled jet passenger and cargo flights — could be held back, sources say, even though it has received the government approval.

In June, the cabinet gave the green light to Malaysia Airports Holdings Bhd’s (MAHB) business plan to redevelop the airport under the Subang Airport Regeneration Plan (SARP). Online news portal Free Malaysia Today reported on Aug 1 that MAHB and Subang Skypark Sdn Bhd (SSSB) — a 60%-owned subsidiary of WCT Holdings Bhd, owned by property tycoon Tan Sri Desmond Lim — will jointly develop the project.

SSSB now operates Subang Airport’s SkyPark Terminal.

According to sources, a point of contention is the joint venture’s (JV) request for some RM290 million in public funding for infrastructure upgrades.

“The public funds are to cover the cost of public infrastructure such as the main road leading into and out of Subang Airport, which forms part of a longer road network connecting Federal Highway with Kwasa Damansara in Sungai Buloh, Selangor.

“Today, it is already congested. Even without the airport expansion, the road needs to be upgraded. However, the government is pushing back against the JV’s request,” one source tells The Edge. The request is currently pending approval from the Ministry of Transport.

The source adds that if the JV were to absorb the cost of public infrastructure, further delays are expected, as the viability of the project will have to be reviewed.

Khair Mirza, partner and director at Singapore-based fund management company Integral Capital Pte Ltd, believes the JV’s need to seek public funding for the public infrastructure and facilities is not unexpected. “The same was required when Kuala Lumpur International Airport (KLIA) Terminal 2 was developed a decade ago. At airports like KLIA or London’s Heathrow, when specific and dedicated public infrastructure is built for the ease of public users, the developer even charges passengers for use of such toll roads or rail infrastructure.”

Aviation consultancy Endau Analytics founder and analyst Shukor Yusof begs to differ. “Spending RM290 million in taxpayers’ money to redevelop Subang Airport is a complete no-no. In the first place, who really wants this to happen? So, whichever groups that will benefit the most from it will have to be responsible for funding the public infrastructure. It has to be privately funded. The government is already saying that Malaysia’s national debt has reached RM1.5 trillion,” he says.

Another major headwind holding back the SARP is the lack of a mechanism for MAHB to recoup the expenditure incurred in developing airports, sources say. The long-awaited new operating agreements with the government for the airport operator to operate 39 airports in Malaysia are still being finalised, but analysts expect the OAs to be executed in the second half of 2023.

RHB Research says in a July 24 report that it expects the Malaysian Aviation Commission’s third consultation paper, which will determine the framework for setting aviation charges — which include aircraft landing and parking fees, security charges and passenger service charges (PSCs) — and the new OAs to come through in 2H2023.

“These provide better clarity for MAHB in developing airport networks and implementing service improvements,” the local research firm says.

Sources say the MAHB-SSSB JV is also proposing to impose a new airport development levy (ADL) on passengers departing from Subang Airport. The proposed fee is reportedly RM6 per passenger for Malaysians and RM30 for foreigners. Travellers on flights departing from Singapore’s Changi Airport currently pay ADL.

“This ADL is subject to approval by the government,” says a source.

Endau Analytics’ Shukor believes ADL will be an additional financial burden on passengers. “It will destroy the value of the airport. As it is, the cost of flying is rising. If you slap on a new levy, it will no longer be attractive to fly out of Subang Airport.

“Changi Airport is able to impose ADL because Singapore is a preferred destination (in Asia-Pacific). There is a premium to coming to Singapore, but Kuala Lumpur is not there yet. Would travellers want to pay extra for the luxury to fly into Subang Airport? I doubt it.”

Subang Airport needs urgent upgrade

Both Khair and Shukor concede that Subang Airport badly needs an upgrade to further optimise its use. The airport currently serves propeller-driven aircraft such as turboprops, as well as business jets, helicopters and light and military aircraft.

“The airport is currently underutilised. Owing to its proximity to KL, there are a lot of possibilities [for extracting more efficient use] of the airport, and it will reduce the journey to the city compared with KLIA. So, in terms of location and proximity to the city centre, Subang would be a more efficient airport if it were to incorporate jet operations,” Shukor says.

“However, issues like aircraft noise pollution may arise for those who live around Subang Airport. Also, the flight path to the airport passes over densely populated residential areas.” He adds that MAHB needs to be more transparent about the details of the project.

According to Khair, because of swiftly changing trends, it is perhaps inevitable that regenerating Subang Airport is the best option to improve KL’s overall attractiveness as both a destination and a travel hub.

“On the one hand, KLIA needs time to be right-sized before it can return to its heyday both operationally and qualitatively.

“On the other hand, ignoring the risks of only one large airport serving a capital city like KL borders on recklessness. All the other Asean countries with a population larger than Malaysia’s have either started or are in the final throes of developing a second capital city airport,” he says, citing Jakarta, Bangkok and Manila.

He notes that Vietnam is about to break ground on its second airport for Ho Chi Minh City, as it is busier than the capital city of Hanoi.

Khair points out that disallowing Subang Airport from operating jets 25 years ago made sense, as total passenger traffic was less than 30 million per year.

However, not allowing Subang Airport to serve time-sensitive domestic routes and high-value international passengers from other Asean countries, for instance, most probably hurts the country’s economy and business competitiveness more than any standalone loss of traffic at KLIA, he adds.

He also dismisses concerns that allowing commercial passenger jets to return to Subang Airport could cannibalise KLIA’s traffic.

“KLIA [was] serving about 50 million passengers per year, pre-Covid-19. Much of the pent-up demand for Subang Airport-based domestic traffic and international business travel is not currently travelling via KLIA in the same numbers.

“[In fact], the net effect would be a major plus to the combined KLIA and Subang market — and, therefore, the country,” he says.

“The more relevant question could be whether MAHB remains as operator of both Subang and KLIA airports to mitigate any financial opportunity costs faced by KLIA, since major investments were sunk into KLIA 10 years ago based primarily on the insistence of airlines that have not delivered on the promised flights or passenger growth,” says Khair.

Sources say the transfer of traffic from KLIA to Subang Airport will be mitigated based on the fact that it would serve point-to-point passengers.

Under the SARP, Subang Airport would see capacity increase from 1.5 million passengers per year to eight million. The redevelopment is now expected to cost more than the RM1.3 billion initially proposed, with the terminal expansion and modernisation to support narrow-bodied jets up to the size of an Airbus A320, Boeing 737 or equivalent aircraft. The total project timeline is up to 2031, or seven years, and divided into two main development stages.

In May, SKS Airways announced it was leasing 10 Embraer E195-E2 jets, with delivery scheduled to start in January 2024. It aims to be the first regional airline to operate out of Subang Airport. Other airlines that have expressed interest in operating jets out of Subang Airport include AirAsia Group, MYAirline and Indonesian airline TransNusa.

Source: theedgemalaysia.com

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