Aviation Sector
Maintain positive: Parliament passed a new bill, the Malaysian Aviation Commission Bill 2015, which paves the way for the setting up of the Malaysian Aviation Commission (MAC).

While the Ministry of Transportation (Mot) and the Department of Civil Aviation (DCA) are already overseeing the aviation industry we believe the addition of the MAC would provide a more structured path to boost the growth of the sector.

The MAC focuses on the economic aspects of the aviation industry, which is different from the DCA’s role which covers air traffic management, airworthiness, flight operations, aviation security, etc. The MoT focuses on ensuring all rules in air transport or aviation are in accordance with the International Civil Aviation Organisation and implementing infrastructural projects to meet demands of air transport.The MAC will take over from the MoT (via the DCA) for the issuance and renewal of air service licences (scheduled services) and permits (non-scheduled services).

In addition, the MAC will also be responsible for administering, allocating and managing air traffic rights and slot allocations. We believe the MAC would better position Malaysia to take advantage of the implementation of the Association of Southeast Asian Nations Open Sky policy.

Furthermore, on the back of a tragic year for the Malaysian aviation industry, we believe the commission could also improve consumer confidence in the aviation sector.

The new bill entails several clauses aimed at promoting healthy competition among airlines such as preventing agreements between enterprises which restrict or distort competition (collusion); abuse of a dominant position by an enterprise (anti-monopoly); mergers that diminish competition (antitrust); and reviewing the aviation service market for actions which prevent, restrict or distort competition.

The MAC could regulate air fares or excessive capacity expansion to prevent instances of fare dumping, price wars and overcapacity issues as seen in recent years.  This would bode well for airline players in the form of higher yields and better load factors. We are positive that the protection of consumer rights is highlighted.

Within our coverage, we have “buy” calls on AirAsia Bhd (target price or TP: RM3.70) and AirAsia X Bhd (ex-rights TP: 49 sen) while we are “neutral” on Malaysia Airports Holdings Bhd (MAHB) (TP: RM7.53). — MIDF Amanah Investment Bank Bhd, April 10

This article first appeared in The Edge Financial Daily, on April 13, 2015.