Analysts positive on latest airport fair capex recovery mechanism

KUCHING: Analysts are positive on the new operating agreement (OA) which enables Malaysia Airports Holdings Bhd (MAHB) the flexibility to fund airport development via any investment recovery model or bankable financing model agreeable to both parties.

In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted that the recently signed new OA with the government is net positive with some enhancements compared to the previous OA.

The government has the right to restructure the airport industry through clustering, carving out, divestment of airports, closure of existing airports or terminals or the restructuring of the ownership of the facilities subject to the mutual agreement with MAHB.

It also noted, stipulated in the OA, MAHB can renegotiate for a lower user fee which currently is 13.11 per cent (escalate 25 basis points per annum) to fund smaller airports.

Moreover, unlike the previous OA, the government and AIRPORT now have the flexibility to fund airport development via any investment recovery model or bankable financing model with a weighted average cost of capital (WACC) agreeable to both parties.

“We are positive on the loss accumulation and recovery mechanisms with an indicative assumed WACC of 11.44 per cent,” it opined.

However, it also pointed out that the loss accumulation recovery mechanism will mean MAHB cash flow is back loaded.

Nevertheless, it said, “In anticipation that MAHB is expected to incur losses following the slow recovery for air travel post pandemic, the OA allows MAHB to recover its losses in RP1 via a loss capitalisation mechanism (LCM) starting from Regulatory Period 2 (RP2),

“The LCM will be applicable to allow MAHB and the operators to recover a proportion of regulatory losses in RP1 (June 2024 to December 31, 2026) over ten years, beginning 2027.”

It noted that the loss refers to the difference between an estimate of the revenue that MAHB would require over RP1 to cover its prudent and efficient costs (the allowed revenue), and the revenue that MAHB will actually earn over RP1 from the imposition of aviation service charges (the actual revenue).