Published January 23, 2009

Headwind for AirAsia plan for low-cost carrier terminal

Spat is likely to be resolved after the parties meet DPM Najib next week

By S JAYASANKARAN
IN KUALA LUMPUR

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THE mounting controversy over plans by budget carrier AirAsia to build a RM1.5 billion (S$622.23 million) low cost carrier terminal (LCCT) in Negri Sembilan state is likely to be resolved after the warring parties in the dispute meet up with Deputy Prime Minister Najib Razak and senior government officials on Friday next week.

Will it take off? AirAsia X's first leased Airbus A330 long-haul aircraft. Financial executives close to the government said that Labu was likely to be scrapped with MAHB getting the go-ahead for its own LCCT on condition that it meets AirAsia's needs

The dispute has pulled AirAsia into a public squabble with investment agency Khazanah Holdings and Malaysian Airports Holdings, the current owner-operator of the Kuala Lumpur International Airport, which would lose revenue if one of its biggest clients pulled out of using the airport. For its part, Khazanah has controlling stakes in both MAHB and Malaysia Airlines which is a rival of AirAsia in the region.

The dispute has taken a different dimension, with former premier Mahathir Mohamad coming out in opposition to AirAsia. Socio-political blogs supportive of Dr Mahathir have also taken up the cudgels against AirAsia, and its maverick owner Tony Fernandes, with some even deriding the businessman through snide personal attacks.

Despite his success and his firm's obvious contributions to the economy, Mr Fernandes draws an overachiever's share of animus. It isn't clear why but, in part, it could be due to his close friendships with people such as Khairy Jamaluddin and Kallimullah Hassan, who are close to Prime Minister Abdullah Ahmad Badawi and who have been singled out for special criticism by Dr Mahathir.

Missing in all the action is the government, the same entity that approved the Labu project in the first place. Indeed, not a single government minister has come out in defence of the project since the furore started. Multinational Sime Darby, AirAsia's partner in Labu, has also maintained a prudent silence, leaving Mr Fernandes as the sole voice to argue his case.

The government's reticence flags the political overtones of the controversy - Dr Mahathir still casts a long shadow over the country - and indicates that the government is likely to reverse its decision on Labu and force a settlement between the warring parties.

The controversy began two weeks ago after Kuala Lumpur gave plantation-based Sime Darby and AirAsia the nod to build a RM1.6 billion low-cost carrier facility in Labu, Negri Sembilan. The Cabinet approved the proposal on the basis that it would be a private finance initiative without any government funding. AirAsia has since maintained that it would fund the project completely if need be.

The budget carrier estimates that it would carry 15 million passengers by end-2009 and as many as 27 million by 2013 through the LCCT. So it wants to build its own no-frills airport at the lowest cost in Labu that can handle 50 million passengers. The current LCCT which is managed by MAHB will be able to handle 15 million by March but is overcrowded now and can only be described as deplorable.

For its part, MAHB says that a new airport would be a duplication of resources because it has its own plans to build an LCCT by 2013 at the KLIA but it could cost twice as much because the land there is peaty - that means it will be funded by taxpayers as MAHB is government owned. The higher cost alarms AirAsia which fears higher service costs by the airport operator. The spat between the two has since escalated to an online war with both companies rebutting one another's arguments on their websites.

Financial executives close to the government said that Labu was likely to be scrapped with MAHB getting the go-ahead for its own LCCT on condition that it meets AirAsia's needs.

Don't write off Mr Fernandes though. According to one of his allies, he has sought, and won, an audience with Dr Mahathir to explain his position. Things could still be fluid.