AirAsia denies gain from subsidies for rural service

By Yow Hong Chieh, The Malaysian Insider

KUALA LUMPUR, Nov 6 — Aviation tycoon Tan Sri Tony Fernandes has denied his AirAsia benefited from the RM249 million in federal subsidies paid to its Fly Asian Xpress (FAX) for rural flights four years ago.

Putrajaya said it paid the amount when FAX operated the Rural Air Services (RAS) — flights to rural communities in East Malaysia — between August 2006 and September 2007, after which the service was handed back to flag carrier Malaysia Airlines (MAS)

“Fly Asian Xpress was the sole operator of the Rural Air Services and not AirAsia Berhad. AirAsia Berhad did not receive any financial benefit arising from the RAS operations,” the AirAsia boss said in a blog post yesterday.

“Although the shareholders of FAX were similar to AirAsia Berhad, they ended up losing almost RM5 million of shareholder capital, because the wind-up costs of FAX, including retrenchment payments, were not covered by the government subsidy.”

Fernandes said when RAS was operated by MAS and subsequently MASwings, both carriers similarly incurred significant operating costs, which were also subsidies by the government.

Deputy Transport Minister Jelaing Mersat told Parliament on Thursday that Putrajaya paid RM249 million to AirAsia to subsidise its rural flights to Sabah and Sarawak.

He also said that MASwings needed less than half the amount of subsidy when it took over the routes from the no-frills carrier’s unit subsidiary FAX in October 2007.

“MASwings only needed less than half the subsidy as it is more organised and uses newer aircraft which cost less to maintain,” Jelaing had said.

But Fernandes explained the higher subsidy bill was due to an “abnormally high” number of overhauls and repairs needed for aircraft it inherited from MAS in 2006.

He pointed out that FAX had paid RM48 million in maintenance costs at market rates to MAS Engineering, rather than at cost as had been offered to the national carrier previously.

“With MAS as the only licensed engineering provider, no supplier competition was available to extract better rates,” he said.

FAX also paid RM72 million to a third-party for additional maintenance not provided by MAS as the national carrier had been slow to respond to requests and had wanted to charge higher rates.

On top of that, FAX paid RM25 million for ground handling and other services by MAS; RM16 million on loan spares from MAS; RM9 million for pilot secondments from MAS between August 2006 and March 2007; and footed a write-down on spares worth RM9 million.

“Finally, another contributing factor in the difference in subsidy claims is the higher global fuel price versus prior years under MAS: RM10 million,” Fernandes said.

“MASWings benefited from the amount spent by FAX because 80 per cent of the amount spent would not have to be incurred in the 12 months after MASWings took over,” he added.

The return of RAS routes to MAS after just 14 months had raised concerns of whether it would affect the national carrier’s turnaround plans under then-chief executive Datuk Seri Idris Jala.