KLIA East called off

(The Malaysian Insider) – It is confirmed. The controversial KLIA East project is off, stillborn at the drawing board because it had become too costly politically for the administration.

But it was not all bad news for Air Asia, the region’s largest budget carrier and the promoter of the idea to build the RM1.6 billion airport in Labu. The carrier managed to extract some concessions from the government, namely that Malaysia Airport Holdings Berhad (MAHB) build a new terminal by 2011 and consult Air Asia on the design and other issues pertaining to the operations of the facility.

Several government officials told The Malaysian Insider that MAHB was told to lower charges for the budget carrier, complete the construction on time and make the new terminal an energy efficient complex.

Today’s meeting was chaired by Finance Minister Datuk Seri Najib Razak and attended by Air Asia’s Datuk Seri Tony Fernandes, officials from the Ministry of Finance, Economic Planning Unit and MAHB.

When contacted, Fernandes said: “It was a positive meeting and we got a good hearing from everyone.’’ He declined to go into the specifics of the meeting.

Najib called for today’s meeting as a result of the firestorm of criticisms which followed an announcement last month that the government had approved a plan by Air Asia to build a new LCCT in Labu. Critics assailed the government saying that this decision would hurt KLIA’s ambitions of becoming a regional hub. They also argued that if a new facility had to be built, it should be built within KLIA.

Air Asia countered by saying that MAHB was unable to build a new LCCT by 2011 to cater for its growth. It  pointed out that MAHB was only able to build a new LCCT by 2014.

The government fearing a political backlash and unwilling to test its popularity in this more challenging political climate began sending out feelers a couple of weeks ago that it was looking for a compromise solution.

It received a helping hand from Sime Darby Berhad, the government-linked company which informed the government that it was only willing to sell a tract of land in Labu to Air Asia and was not providing any financing for the project.

This move threw into doubt whether Air Asia could raise the financing for the RM1.6 billion terminal and the RM700 million connectivity infrastructure.

Government officials, who were briefed about today’s meeting, said that MAHB and Air Asia will have to come back in two weeks with firm plans for the new LCCT.

“The DPM played the role of an honest broker. He did not take sides but wanted to make sure that national interest was served. This could only happen if the new LCCT was built in KLIA but Air Asia’s legitimate interests and concerns were addressed,” a government official told The Malaysian Insider.

It may have been a happy ending for all parties but this episode certainly raised some serious questions over decision-making in the government.

And begs the question on why MAHB and Air Asia could not be forced to the negotiating table earlier.