5 February 2019

After years of being at loggerheads, Malaysia’s dominant airport operator and Asia’s biggest budget airline group are taking their airport tax dispute to court for the first time.

The airport tax, or passenger service charge (PSC), has been a point of contention between Malaysia Airports Holdings Bhd (MAHB) and AirAsia group for many years, defined by the occasional war of words in the press and on social media.

AirAsia's flights at the klia2 pier - Photo by Suhaimi Yusuf / The Edge
AirAsia’s flights at the klia2 pier – Photo by Suhaimi Yusuf / The Edge

Both sides have publicly and privately accused the other of half-truths and manipulating the facts to further their respective arguments.

Should both sides proceed to a trial instead of seeking an out-of-court settlement, more sparks may fly as the unblemished facts would come out in the courtroom for the presiding judge — and the public — to decide who is right and put an end to the long-running saga.

The legal tussle could mark a turning point in the saga as AirAsia’s principled refusal to comply with MAHB’s PSC for international departures will be tested in court for the first time, barring an out-of-court settlement.

Last Wednesday, AirAsia filed its counterclaim, seeking RM400 million in damages in response to a lawsuit brought against it by MAHB on Dec 11.

MAHB is suing the low-cost carrier group for a combined RM36.11 million in outstanding PSC collection via two parallel civil suits in the Kuala Lumpur High Court.

Of the sum, RM9.4 million is claimed against AirAsia Bhd while the remaining RM26.72 million is claimed against long-haul carrier AirAsia X Bhd.

The outstanding PSC collection is due to AirAsia’s refusal to collect the full PSC of RM73 imposed by MAHB on international departures from klia2 from July 1, 2018.

Instead, AirAsia has only been charging RM50 per passenger on its flights on principle as it feels klia2 passengers should not be paying the same PSC as those departing from KLIA, which it deems to have superior facilities and service quality.

In its defence, AirAsia has applied for MAHB’s lawsuit to be struck out, arguing that it is frivolous and an abuse of process, given that the airport operator could have followed proper dispute resolution avenues via the Malaysian Aviation Commission Act 2015.

Court test

In its statement of claim, MAHB pointedly seeks a court declaration that AirAsia must comply with the latest PSC for international departures that came into effect on Jan 1 last year.

The rate was stipulated by the Malaysian Aviation Commission (Aviation Services Charges) (Amendment) Regulations 2017 (the present ASC regulation that took effect on Jan 1 last year).

The gazetted rate is RM73 per passenger, up from RM50 previously.

Note that MAHB deferred the implementation of the new rate for the first six months of 2018, according to letters produced with AirAsia’s affidavit.

A month after the 14th general elections, MAHB informed AirAsia on June 8 last year that the deferment would be lifted from July 1 and that the airport operator would bill airlines according to the new rate from that date.

In response, AirAsia argued that the PSC was not finalised as the new transport minister had instructed Mavcom to study a new PSC framework.

AirAsia also proposed that the PSC for klia2 be set at RM37 in the interim on the basis that the gazetted rate was “only a ceiling price”.

MAHB replied by saying it was bound by the gazetted rate as aeronautical charges are regulated by the government. “Thus, we are unable to implement charges other than what has been established.”

Given that MAHB performed all its obligations in providing the requisite airport services and facilities, AirAsia is compelled to pay the due airport charges, including the full PSC amount, the airport operator argues.

MAHB takes the position that by refusing to pay the full PSC sum billed, AirAsia is in breach of both aviation regulations and the airport’s conditions of use (COU) contract that governs the use of airport facilities and services.

As a result, MAHB argues that it is entitled to late-payment charges at 12% per annum on the outstanding amount, in addition to full settlement and other damages deemed appropriate by the court.

However, AirAsia counter-argues in its statement of defence that the standard of aviation services and facilities provided by MAHB is subpar. It also says it has suffered more than RM400 million in losses and damages due to MAHB’s failure to provide proper service quality.

The failures include multiple unplanned closures of the third runway at klia2 as well as a ruptured fuel line that disrupted operations for over a month.

For that reason, AirAsia argues that MAHB has not held up its end of the COU contract, which the airline claims it never agreed to anyway (see accompanying story).


It is worth noting that in its statement of defence, AirAsia asserts that MAHB had promised to maintain at klia2 the same PSC that was in place at the old Sepang low-cost carrier terminal (LCCT).

That promise was made after the government, in 2009, cancelled its approval for a proposed LCCT in Labu, Negeri Sembilan, that AirAsia had supported.

AirAsia claims that the cancellation was due to MAHB’s representation that it could build a low-cost terminal closer to KLIA — which would be klia2 — with the same facilities and charges that the Sepang LCCT offered.

That representation induced AirAsia to abide by the government’s decision to scrap the 2008 Labu LCCT proposal in favour of klia2, the airline states.

However, disputes later arose between the two parties as AirAsia felt MAHB’s choice of site and design changes had led to cost escalation and completion delays, which, the airline says, saw it incur losses.

AirAsia also cites a 2011 press statement by MAHB that promises the klia2 PSC will remain the same as that at the Sepang LCCT. For comparison, the PSC for international departures out of the Sepang LCCT was RM32 compared with KLIA’s RM65 at the time.

Therefore, AirAsia contends, MAHB knew the promises were made in bad faith as evidenced by the airport operator’s attempt to impose the latest PSC.

To support its argument, AirAsia notes that the previous versions of the ASC had differentiated the applicable PSC for LCCT and KLIA on account of the different levels of services and facilities available to passengers.

“The reason for the non-differentiation of PSC in the present ASC regulation arose from the fact that the present PSC was meant to be a ceiling rate, not a fixed rate,” Air­Asia argues.

Coupled with the lower quality of facilities and services at klia2 and its earlier PSC promises, MAHB is thus “not entitled” to impose the new PSC uniformly across all Malaysian airports, AirAsia adds.

Did MAHB mislead AirAsia? Was it right for AirAsia to go against the law by not collecting the gazetted PSC? A trial will finally tell the public which is which.

AirAsia says it ‘never agreed’ to terms of airport use

A point of contention in the legal battle between Malaysia Airports Holdings Bhd (MAHB) and AirAsia group is whether the airline is bound by a contract that governs its use of airport facilities.

The agreement, called the conditions of use (COU) contract, was entered into by both parties in 2010, according to MAHB in its statement of claim.

The contract was amended in 2017 and AirAsia did not object to its conditions, MAHB adds.

In a nutshell, the COU contract compels AirAsia to pay MAHB all charges due for the use of airport services and facilities, including the PSC, within 30 days of the date of invoice.

It is worth mentioning that the 2017 COU stipulates that airlines that use the airport services and facilities on or after Feb 1 that year will be bound by the contract despite not having signed it, according to MAHB.

Furthermore, MAHB reserves the right to amend the COU from time to time and airlines will be deemed to have accepted the amendments if they continue using the airport services and facilities after being notified of any COU change.

“The onus is on you (the airline operators) to check our website at regular intervals to see if these conditions of use have been amended,” according to the COU in MAHB’s statement of claim.

However, in its statement of defence, AirAsia says it “never agreed” to MAHB’s COU and that it had conveyed this stance to MAHB back in December 2010.

“However, MAHB has maintained that the COU is non-negotiable and refused to entertain any amendments to the same,” AirAsia states, adding that it also never agreed to the 2017 COU.

“The terms of the 2017 COU are unfair against the defendant (AirAsia) and are caused by the monopolistic behaviour of (MAHB).”

As an aside, AirAsia notes that the 2017 COU indicates that the PSC should be determined via a consultation process and claims that MAHB had not engaged in any such process.

The airline indicates that despite the “unilaterally imposed” terms of airport use, it was stuck and had no option but to continue operating its services from klia2.

Essentially, MAHB has “sought to impose its own dominant power without regard to (AirAsia) or the interests of passengers” and “has abused its dominant position”, AirAsia argues.

Source: www.theedgemarkets.com

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