KUALA LUMPUR: Government financial assistance to local aviation sector should be the last resort, given the pressures on the current fiscal resources, Malaysian Aviation Commission (Mavcom) said.
The commission recommended that industry operators exhaust other options first, including assistance from their respective shareholders, before approaching the government.
Mavcom said the governemnt’s main policy objectives should be to maintain essential air connectivity (most notably Public Service Obligation routes).
It is also to protect vulnerable parties such as the 50,000 employees in the aviation sector and Malaysian consumers more broadly, rather than propping up the commercial performance of airlines.
“Given the risks involved, good governance matters. Although assisting industry players may help provide relief to distressed parties, the measures may also risk moral hazard and the wastage of public funds,” Mavcom said in a report today.
Mavcom urged the government to consider its options to minimise or avoid undesirable side-effects on the long-term health of the aviation services market.
The commission said any assistance must be carefully structured to ensure their intended use and be focused on policy objectives of protecting employees and consumers, as well as, maintaining essential air transport services.
“The governemnt should consider non-fiscal policy responses, most notably by clarifying and relaxing ownership rules to allow industry players to access a wider range of funding sources from domestic and international capital markets, while accompanied by effective regulatory oversight to prevent the abuse of these rights.”
It said clarifying and relaxing certain policy requirements may also provide some relief to airlines without fiscal costs.
“Most relevant would be the relaxation of the policy on ownership (ownership liberalisation) for the aviation sector.
“Other policy requirements, such as those on slot usage, may also be temporarily loosened to reduce the burden of compliance on the airlines.”
Mavcom said industry consolidation via mergers must safeguard consumer interests.
Any step towards industry consolidation, in the name of keeping firms afloat, must adhere to the merger control provisions in Act 771 to safeguard industry and consumer interests.
“The immediate relief such consolidation may provide must be balanced against any risks to the long-term health and competitiveness of the aviation services market,” it said.