RM4b revenue at risk if other regulators follow FAA downgrade

The impact of the FAA downgrade can be more serious if other regulators start to look into CAAM


LOCAL airlines could lose up to RM4 billion in revenue if regulators in China, Japan and South Korea imposed similar restrictions as the US Federal Aviation Administration (FAA) resulted from air safety downgrade, the Malaysian Aviation Commission (Mavcom) estimates.

Based on Mavcom’s estimation, revenue at risk for Malaysian carriers is RM4 billion or 24% of revenue, while the corresponding value for aerodrome operators, which are airport operators is RM400 million or 24.9% of revenue if aviation regulators in the three countries take the same action against the Civil Aviation Authority of Malaysia (CAAM).

Mavcom COO Azmir Zain (picture; left) said the commission is concerned with the risks of other civil aviation regulators following the FAA’s action and thus, hindering local airlines from expanding or undertaking new routes in those countries.

“We are concerned about our local carriers as they might suffer the same fate as Thailand when it was downgraded by the FAA in 2015. The total seat capacity of Malaysian carriers to China, Japan and South Korea accounts for 8.6%,” Azmir said after presenting Mavcom’s recommendations for the civil aviation industry in Kuala Lumpur yesterday.

He said other civil aviation authorities such as those from China, Japan and South Korea had restricted Thai carriers from flying into their airspace after the International Civil Aviation Organisation raised a significant safety concern on the Civil Aviation Authority of Thailand (CAAT) in 2015. Such a move was later followed by an FAA downgrade on the CAAT.

In comparison, he said American routes are expected to contribute only 1.2% of the total seat capacity to and from Malaysia.

As it is, the commission estimated revenue at risk for the local aviation sector due to the FAA downgrade is RM371.6 million — RM360.8 million for Malaysian airlines and RM10.8 million for airports.

“The impact of the FAA downgrade is expected to be minimal in 2020, but the implication can be more serious if other regulators start to look into CAAM,” Azmir said.

The FAA downgrade of CAAM safety standards from Category 1 to Category 2, which took effect on Nov 11, 2019, has caused Malaysian carriers to be banned from expanding existing routes to the US or opening new ones.

Azmir said other implications include increased cost of doing business, discouraged inward investment and damaged Malaysia’s reputation and credibility in civil aviation.

He also noted that Thailand has yet to regain Category 1 status since 2015, while the Philippines took six years to return to Category 1.

CAAM board member Afzal Abdul Rahim had previously said the regulator was confident of regaining its Category 1 for air safety within 12 to 24 months.

Meanwhile, Mavcom has revised downward Malaysia’s passenger traffic growth forecast from between 5% and 6% to between 4.6% and 5.7% this year due to the 2019 novel coronavirus impact.

Air passenger traffic volume has largely been affected due to various travel restrictions imposed on mainland China travellers and the lockdown of cities in the country.