Ripple effect of FAA downgrade begins
Other agencies may conduct similar audits
THE first salvo from the impact of the downgrade on Malaysia by the US Federal Aviation Administration (FAA) has been fired by American Airlines (AA).
AA flyers travelling on a code-share ticket with Malaysia Airlines (MAS) have been told since Monday to change their itinerary.
Both airlines are members of the oneworld alliance. But AA will not recognise any code share after the FAA downgrade. The number of passengers affected is not clear at press time.
However, MAS says “our frequent flyer programme partnership with AA will not be impacted.’’
This signals the start of the ripple effect of the downgrade by FAA. This could trigger other agencies to conduct similar audits and impose bans. Other airlines can revoke codeshare agreements too.
This does not bode well for Malaysia’s aviation industry as the downgrade is of the country’s main civil aviation regulator, the Civil Aviation Authority of Malaysia (CAAM).
“It may not affect operations much but it is not good for perception of efficiency or safety oversight in the country. CAAM is the highest authority in the country for aviation safety and security and any lower categories reflects on the overall aviation industry in Malaysia. There is no good reason for this to happen as CAAM itself should have been aware of FAA requirements,’’ says an industry expert.
FAA did a surprise audit in April this year and the findings were revealed on Nov 11, with CAAM being downgraded to Category 2 (Cat 2) from Category 1 (Cat 1) over air safety concerns.
“This is a big blow to Malaysia’s reputation as the country had been renowned as tier-1 status for aviation standards,’’ Maybank IB Research senior analyst Mohshin Aziz says.
The downgrade also comes at a time when Malaysia is wooing tourists with Visit Malaysia 2020 around the corner. It is hoping to attract 30 million tourists next year but the downgrade, can it be achieved?
The air sector’s contribution towards the GDP was estimated by the International Air Transport Association (IATA) at Us$10.3bil last year. Tourist arrivals into Malaysia hit 25.83 million with tourism receipts tagged at Rm84.1bil last year.
The downgrade puts Malaysia alongside Ghana, Bangladesh, Costa Rica and Thailand and the contribution towards GDP may be affected if this is prolonged.
“The perception created from the downgrade is enough to alarm people. That will affect airline passenger loads in the longer term even though the airlines are not part of the downgrade,’’ says another industry expert.
Ironically, the downgrade happened after the National Transport Policy 2009-2030 was launched last month. In August, KLIA suffered a major technical glitch due to a major switch linking its communications network, which was not upgraded in time.
“Where are the checks and balances. Why were things allowed to deteriorate to such a level?’’ asked the expert.
Only Airasia X (AAX) flies to to United States via Honolulu.
However, Airasia Group boss Tan Sri Tony Fernandes told Bloomberg that “Airasia Hawaii won’t be affected by the downgrade. Airasia has many options to reach the United States other than via Malaysia.
Mohshin adds that although Airasia Group Bhd and Malaysia Airports Holdings Bhd (MAHB) are not directly implicated, some investors might be uncomfortable with the negative safety perception and decide to sell down the shares.
Airasia’s share price fell seven sen since Monday to close at RM1.86 yesterday. AAX’S share price remained unchanged at 16 sen, while MAHB’S share price fell 24 sen to RM8.24.
What led to the downgrade?
“The authority has been in a steady state of decline for several years. It was never cleaned up operationally and thus the situation was allowed to fester for many years. So now the rot has finally caused a gaping hole in the floor work. Younger, more capable people in the organisation should move up to lead the rehabilitation,’’ says an industry executive familiar with the workings of CAAM.
Malaysia first received a Cat 1 ranking in 1996.
After the Sept 11 attacks on the United States, the second audit was done. This began in October 2002. But when the findings were revealed in May 2003 and shortcomings were detected. To avert a downgrade, they were addressed and assistance was sought from MAS experts.
The then Department of Civil Aviation or DCA has since been corporatised to become CAAM.
The third surprise audit started April and the findings revealed on Nov 11 that resulted in a downgrade to Cat 2.
FAA, in its report, did say that CAAM was “deficient in one or more areas” of aviation safety standards which include “technical expertise, trained personnels, record-keeping, and/or inspection procedures.”
Why is Cat 1 rating important?
Every country is responsible for the oversight of its own carriers, safety and airworthiness is a big component.
The safety standards which countries have to follow are set by the International Civil Aviation Organisation (ICAO).
Malaysia was re-elected to the ICAO council recently, under category III, for the 20192022 term, its fifth consecutive term since 2007.
FAA, like the police in the skies, conducts the international aviation safety assessment programme. It establishes aviation regulations in the United States and can request to conduct an audit to ensure carriers flying to the country follow the safety standards set up ICAO.
In Malaysia’s case, Airasia flies to Honolulu. In 2003, MAS flew several points in the United States.
“FAA has the right to audit if there are flights operated to the United States. It does not affect flights to other countries and it has nothing to do with flight control or operations, more on standards and procedures,” says another expert.
Similarly, Europe has its own FAA known as European Union Aviation Safety Agency.
China, Australia and Japan also conduct audits on safety.
“Now the concern is who is going to audit CAAM and what will their findings be?” asked an industry source.
Indonesia took nine years to get back to Cat 1. Thailand has been stuck in Cat 2 since 2015. The journey to Cat 1 is tough.
Following Thailand’s downgrade, Japan and South Korea had blocked new flights from Thai airlines.
After AA’S move, other airlines may revoke code-share agreements and this will affect local carriers.
While the local players reel from the effect of the downgrade, the potential beneficiaries are foreign carriers that fly out of KLIA. Singapore will likely benefit from Malaysia’s downgrade.
The audit
It involves answering 300 protocol questions. In CAAM’S case, all 300 were answered but only 242 answers were accepted and seen as adequate. A total of 58 were identified as open issues and upon clarification, an additional 25 issues were closed.
There are 33 outstanding questions that need to be addressed.
“Of this, three are ambiguous because of different interpretation to the FAA. Eight are identified, but it is undetermined if FAA would accept as the case as closed,’’ said the source.
He adds that work is in progress to address the rest of the 22 issues.
Can CAAM get back to Cat 1?
CAAM’S problems are systemic in nature as structural problems exist.
It needs a complete overhaul and rehabilitation and that process can take time.
“They have to do some management changes, and promote able and aggressive mid-management executives,’’ says a source.
Although an executive committee comprising board members has been set up in the interim to manage CAAM, they will need to get a new CEO. The committee expects CAAM to get back to Cat 1 in 24 months.
Fernandes believes the FAA “downgrade is a great chance for Malaysia to reset.”
CAAM needs to redraw its core functions, realign the structure to suit the industry. The separation from the government will allow it to control its own budgets and make its people accountable.
“At the moment it can’t fine anyone because it is restricted by the law.
“The heart of the problem stems from our insistence to keep charges artificially low. This has led to gross underfunding and progress is at a standstill. Well, we have cheap charges, and along with it Cat 2. If we want Cat 1 again, we must invest,’’ says an industry expert.
To get another audit, CAAM needs to fulfill all the 33 topics that FAA has raised.
For that, it has to amend the DCA/CAAM Act and that may take more than six months.
It needs to amend parts of the Malaysian Civil Aviation Regulations so that it can fine licensees and stop self-regulation in the industry. This changes can take up to three months.
It needs to go on a recruitment drive and upgrade its remuneration packages to attract qualified technical personnel (QTP) and pilots as this is the core of its training initiative. This process can take up to three months.
“CAAM has 30 QTPS. It needs to bump that up 60 to meet ICAO standards,’’ he adds.
Digitising, completing gaps in training for QTPS, and completing other processes, documentation of its operations will take anything from six to nine months.
CAAM will also need to invest in new equipment at some point, the source adds.
It has 1,300 employees and of these, 900 are air traffic inspectors and 400 are involved in regulations.
It is funded by the government and the funding has been dropping from Rm300mil per year to about Rm250mil.
“What is needed is the will power to make the changes.
“Then a follow through process is necessary. If only superficial changes are made to meet the FAA audit, a similar problem will arise in a few years,’’ says the industry source.
Another expert adds that “CAAM will have to demonstrate that all the shortcomings have been dealt with to the satisfaction of FAA. Normally, FAA will not rush to upgrade and will take its time,’’ says the expert.
Brendan Sobie, an aviation analyst adds that “it is impossible to predict (how fast to return to Cat 1). It will often take several years. But there are examples, though unusual of only one year.’’
One or two regulators?
Globally, countries have one main aviation governing body. Malaysia has two, CAAM and Mavcom – an anomaly.
Both claim to have differing roles but some airliners says “we are irked with having to deal with two bodies with several overlapping functions. It is important to realign all the roles and functions together,’’ says an industry executive.
There has been calls to merge both the bodies to create a forceful industry regulator.
Mavcom, in reply to queries ,says its role differs from CAAM.
“CAAM is responsible for matters relating to technical and safety for Malaysia’s civil aviation industry, while Mavcom is an economic regulator and champion of consumer rights.
“Notwithstanding the distinct roles and functions, we will work with CAAM to get it reinstated including liaising with the aviation regulators and other bodies.’’
Whatever is the current situation, a change is needed if Malaysia wants to get back to Cat 1, and there can be no compromise.