U-turn on airport plan

By Leslie Lopez, South-east Asia Correspondent (Straits Times)

KUALA LUMPUR – THE Malaysian government yesterday rescinded its earlier decision to allow AirAsia to build its own airport in Negeri Sembilan.

It has instead directed the budget airline operator to expand its operations at the Kuala Lumpur International Airport (KLIA), the country's main international gateway.

But AirAsia and its founding shareholder Tony Fernandes did not walk away empty-handed, say government officials and financial executives familiar with the situation.

Under a compromise hammered out by Deputy Prime Minister Najib Razak, state-controlled Malaysia Airports Bhd (MAB), the operator of KLIA, will build a new terminal according to specifications set by AirAsia under a strict budget.

Both parties will also determine landing and passenger charges before construction begins, people familiar with the outcome of a meeting yesterday between Datuk Seri Najib and MrFernandes told The Straits Times. Mr Najib is also the Finance Minister.

'Both sides have been directed to hammer out what they need to do and get back to the government in two weeks,' said a government official who asked not to be named.

Mr Fernandes declined to comment. But a senior banker close to the businessman said: 'Tony feels this is a very positive outcome.'

Early this month, the Malaysian government had approved AirAsia's plan to build its own airport some 22km away from KLIA in a joint venture with plantation conglomerate Sime Darby.

AirAsia, South-east Asia's biggest budget airline, had then successfully argued that the current facilities and the expansion plans proposed by MAB would not meet its furious growth in passenger traffic.

It estimates that passenger traffic will exceed 27 million people by 2013, up from its forecast of 15 million people at end-2009.

But the plan to build the RM1.6 billion (S$662 million) airport caused a ruckus, with pressure groups and government agencies arguing that there was ample scope for expansion at KLIA and a new airport would be a waste of resources.

The public furore forced the government to rethink its earlier decision, raising other criticisms such as policy flip-flops and the choking off of private capital in the Malaysian economy that is dominated by state-controlled entities.

The local and foreign business communities were closely scrutinising the controversy, looking for clues to how Mr Najib, the Prime Minister-in-waiting, would handle a major economic policy challenge.

Mr Najib is set to take over from Prime Minister Abdullah Badawi in late March.

Several analysts said that the compromise delivered by Mr Najib yesterday in his meeting with Mr Fernandes reflected his political panache in finding an acceptable solution to a sticky situation.

'The government clearly made a mistake giving the approval in the first place. This is a good way out for all parties,' said a chief executive of a state-controlled commercial bank who has been monitoring the AirAsia-MAB spat.