Govt paid AirAsia paid RM249mln for rural air services!

HOW many of you remember the fiasco of Fly Asian Xpress or FAX in Sarawak?

Well Parliament was told on Thursday that FAX’s parent company AirAsia was paid RM249 million in subsidies for the airline to carry out rural flights in the State and, our Borneo neighbour, Sabah for just over a year between August 2006 and September 2007! Amazing!

I remember that when FAX was first launched, there were promotional offers of something like RM9.99 for flights.

The beginning of the State’s relationship with FAX was indeed sweet. It was exciting to think that rural flock could travel so cheaply! Fantastic stuff.

Now this is apparently what the FAX website used to say when the airline was first launched:

“A brand new home-grown airline, Fly Asian Xpress (FAX) has taken on the challenge to operate the Turbo Prop Services from 1 August 2006. By taking over the operations previously operated by Malaysia Airlines (MAS), FAX is officially the third largest airline in Malaysia!

“FAX provides flight connectivity for residents within East Malaysia with a fleet of seven (7) Fokker 50s (50 seats) and five (5) Twin Otters (19 seats). These aircrafts (sic) are ideal to service routes with lower traffic volume to link up rural areas with cities and townships, and most rural airports and landing strips in these areas are able to accommodate these lower capacity propeller aircrafts (sic).”

There was also this gem of a line: “So wait no more, come experience affordable accessibility with FAX today!”

Sadly it was not to be!!! Very quickly the complaints, from rural folk especially, came flooding in. They had problems transporting their cargo because of FAX’s airline management model. They had problems booking flights. They had problems getting on the flights because FAX was just not as forgiving as MAS with time management skills (or lack of).

Next was news that FAX was struggling to maintain reliable turboprop operations because of maintenance woes.

Then FAX grounded its Fokker 50 aircraft, which experienced a technical problem with one of its tyres after landing at Mulu Airport in April 2007. The technical problem, as reported by Bernama at the time, was that one of its tyres burst!

Some Fokker 50s were then grounded for unscheduled maintenance forcing the airline to serve routes between Kota Kinabalu, Bintulu and Sibu using Boeing 737-300s from AirAsia.

Now when Fokker Services Asia Pte Ltd conducted an audit, it reported that there may have been mismanagement of the Rural Air Services (RAS) aircraft fleet and cannibalisation of aircraft.

FAX chief executive officer Azran Osman-Rani explained this as “rotating” spare parts from other aircraft.

“What FAX did was to ‘rotate’ parts from airplanes coming in for maintenance, to service those coming out of maintenance – a common airline industry practice and one that allows us to significantly reduce aircraft ‘downtime’ and to save significant public funds from overspending on spares,” he said in a press release then.

FAX very quickly return the Rural Air Services (RAS) to MAS because it was actually busily concentrating on launching its medium- and long-haul international operations later that year … when, reborn as AirAsia X, it began operations in November 2007.

Now we learn that from Deputy Transport Minister Jelaing Mersat that when MAS took over the routes from FAX in October 2007, “they needed less than half the amount of subsidy”. Yes, half the RM249 million in public funds that AirAsia got for such a ‘fantastic’ or shall I say ‘fax-tastic’ job …

Now Pendang MP Datuk Mohd Hayati Othman had told Parliament that the government overpaid RM65 million in subsidies to FAX, which was later restructured as AirAsia X because it ended its RAS prematurely.

The PAS man also claimed that MAS had to spend RM35 million to modify seven aircraft to ply the rural routes in Sabah and Sarawak.

There. Lest we forget East Malaysia. Especially now that AirAsia and MAS are undergoing their (ir)rationalisation exercise.

The report from the Malaysian Insider:

By Shannon TeohAir Asia received RM249m subsidy for rural flights

KUALA LUMPUR, Nov 3 — AirAsia was paid RM249 million in public funds to subsidise the budget carrier’s rural flight services in Sabah and Sarawak between August 2006 and September 2007, the government said today.

Deputy Transport Minister Jelaing Mersat also told Parliament that when Malaysia Airlines (MAS) took over the routes from the low-cost airline’s subsidiary Fly Asian Xpress (FAX) in October 2007, “they needed less than half the amount of subsidy.”

“Between August 1, 2006 and September 30, 2007, the subsidy paid to FAX was RM249 million.

“MASwings only needed less than half the subsidy as it is more organised and uses newer aircraft which cost less to maintain,” the Saratok MP said.

The return of the rural air services (RAS) routes to MAS after just 14 months had raised concerns of whether it would affect the national carrier’s turnaround plan under then chief executive Datuk Seri Idris Jala.

But then Transport Minister Tan Sri Chan Kong Choy had said that it would continue subsidies of RM60 million per year to retain low fares.

Pendang MP Datuk Mohd Hayati Othman said in Parliament today that the government overpaid RM65 million in subsidies to FAX, which was later restructured to AirAsia X, a long-haul budget service, as it ended its RAS prematurely.

The PAS man also claimed that MAS had to spend RM35 million to modify seven aircraft to ply the rural routes in Sabah and Sarawak.

MAS’s poor financial performance of late had resulted in the share swap with AirAsia on August 9.

It saw state investment arm Khazanah Nasional taking a 10 per cent stake in Asia’s top budget carrier in exchange for a 20.5 per cent stake in MAS.

This allowed AirAsia boss Tan Sri Tony Fernandes to sit on the MAS board, ostensibly to help turn the ailing airline around.

MAS had announced in August a net loss of RM527 million for the second quarter of 2011 due to higher fuel costs despite recording a better yield and a nine per cent growth in passenger revenue from the same period last year.

This brings total losses in the first half of the year to RM769 million even as the airline said that profit outlook for the second half of the year appears bleak.