MAHB ... Oct10

WCT and MAHB will jointly undertake the concession via a special purpose vehicle in which WCT will hold 70% and MAHB the remaining 30%.

 

The tie-up is also breakthrough of sorts for MAHB, which is looking to derive more income from its non aviation business. The tie-up with WCT will likely be the new business model for the airport operator when it comes to managing the retail complexes in all airports, going forward.

 

It is learnt that MAHB has a revenue sharing arrangement with the government whereby a percentage of its revenue – on an incremental basis with the max capped at 33% - will go the government. The arrangement only came into effect after MAHB’s restructuring in early 2009.

 

Under the revenue sharing mechanism, all revenue derived by MAHB and its subsidiaries from its airports, as well as from land provided by the government, has to be shared with the latter.

 

With this arrangement, assuming MAHB owns the integrated complex at the new LCCT which can generate RM100 million and has to pat the government 10%, its revenue would only be RM90 million. This does not take into account profit margins and cost.

 

But if MAHB only gets paid royalty – and given that this JV with WCT is not subsidiary – then it will be clean profit as MAHB does not have to bear any costs.

 

MAHB would not have to fork out money for operations of the integrated complex as WCT would be running it. Also, the bulk of the development will be from WCT’s pockets. This will take a huge load off MAHB, which is forking out RM2.5 billion for the other portions of the LCCT development.

 

This was partly why MAHB had considered selling Eraman, the duty free retail chain. That’s because in the long run, as the portion of revenue that goes to the government rises, MAHB’s profit margin will be brought down.

 

However, MAHB is still thinking about selling part of Eraman, holding a smaller stake, and earning royalty.