Malaysia is not unique in such restrictions on ownership in the airline industry.
However, it does not allow a majority share or control by foreign companies, which will naturally be foreign carriers.
It permits the maximum percentage — 45% — of foreign ownership which will naturally be foreign carriers.
These controls were originally introduced as safeguards of national interests.
The purpose could also be a form of protectionist whereby it ensures that the benefits in the market fall to the nationals of Malaysia and not to those of foreign investors or other countries.
In 2015, Malaysia together with other ASEAN countries adopted the Roadmap for Integration of Air Travel Sector (RIATS) which sets out the goals and timelines for ASEAN to put in place necessary frameworks for the realisation of the ASEAN Open Skies policy and a single aviation market (SAM).
The same applies to the control of airports.
In defending Khazanah and EPF’s decision inviting Global Infrastructure Partners (GIP) and Abu Dhabi Investment Authority to take up 30% of the privatised entity, MAHB, you said it is important to work with foreign firms for Malaysia’s development, including in the management of the country’s airports on a large scale.
Citing that with the privatisation and with GIP and Abu Dhabi Investment Authority investing in MAHB will improve its financial capacity and provide other efficiency benefits to the airport operator, similarly allowing foreign investors to invest into Malaysia Airlines will help in reducing the airlines cost of capital and achieve efficiencies of size and scope, which could expand consumer choice and enhance knowledge transfer, thus raising productivity.
Foreign investors can be defined as only those from countries who are members of Asean – thus expediting the realisation of a single aviation market - with the country still maintaining regulatory control of the airline potentially turning Malaysia Airlines as the first Asean community carrier owned by Asean citizens.
What this means is that Malaysia Airlines no longer needs to be majority-owned by the government as long as the airline’s principal place of business remains in Malaysia, incorporated in and run out of Malaysia.
The only effective control that the country needs to exercise over the airline is a regulatory one such as on matters of safety and security.
Issues on ownership will be established by removing the restriction and allowing foreign investors – could be individuals or institutions from countries who are member states of ASEAN to co-own or restricted to a maximum of 30% as with the new ownership structure with MAHB.
The government, however, will need to find ways to renegotiate the restrictions from the nationality clauses present in the bilateral air services agreements between different countries where the traffic rights granted under these bilaterals require that airlines benefiting from these rights are substantially owned and effectively controlled by nationals of the country in question.
Ownership is relatively easy to establish as described above, but effective control is more blurred.
It is not always possible to express numerically the level of influence that an investor has in the management of an airline in which they have invested.
Clauses such as the foreign investors can nominate a representative of their own as directors are normal but in practice, it is not always clear cut.
Look at the examples of Etihad's minority equity stakes in a number of airlines which include its 49% stake in Air Serbia, its 33.3% stake in the Swiss carrier Darwin Airline, its 29% stake in airberlin and its 49% stake in Alitalia.
Although demonstrably minority voting stakes, these Etihad investments go further than the typical equity participation, with their talk of cost synergies, close commercial cooperation and the appointment of senior executives by Etihad.
Etihad also contributed to, and approved, new business plans.
In the case of airberlin and Alitalia, cash from Etihad effectively rescued both from collapse.
Clearly, liberalising the rules restricting foreign ownership and control of Malaysia Airlines will produce benefits such as the available pool of investment capital and management talent for Malaysia Airline will be widen.
Has anyone ever examined whether the reasons for the historic inability of Malaysia Airlines to earn its cost of capital was the market structure forced upon it by the ownership and control rules?
Even the World Economic Forum has proposed a change to ownership and control rules that would replace a citizenship definition of nationality with a concept of regulatory nationality.
And the timing couldn’t be any better for you to proposed and push for this when Malaysia assumed the role of Chairman of ASEAN on 1 Jan 2025.
What are you waiting for?
For Malaysia Airlines to continue to bleed and be funded by tax payers monies?
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