Government aid should be last resort for aviation industry players

THE global aviation industry has suffered immensely from the Covid-19 pandemic. As a result, airlines worldwide, including those in Malaysia, are reported to have sought financial support from their respective governments.

The Malaysian Aviation Commission (Mavcom) recommends that as the Government of Malaysia (GOM) considers these requests, it should bear in mind that its main policy objectives should be to maintain essential air connectivity (most notably Public Service Obligation routes) and 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.

Mavcom submits the following salient points as its views and position:

GOM assistance should be the last resort

Given the pressures on the GOM’s fiscal resources, Mavcom recommends that industry operators must exhaust other options first, including assistance from their respective shareholders, before approaching the GOM, which should act only as a lender of last resort for the industry.

Given the risks involved, good governance matters

While assisting industry players may help provide relief to distressed parties, the measures may also risk moral hazard and the wastage of public funds. Any assistance measures 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.

Mavcom advocates for principles of good governance to be strictly adhered to by the GOM, and indeed imposed on any recipient of government assistance, to prevent the misuse of public funds.

Non-fiscal policy and regulatory responses are available

The GOM 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.

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.

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