How US downgrade will hit Malaysian aviation industry

Public perception of carriers may turn negative, among other effects

KUALA LUMPUR • The downgrading of Malaysia's aviation safety makes Asia the region with the most markets where airlines are restricted from US airspace.

The US Federal Aviation Administration (FAA) cut Malaysia to a Category 2 nation on Monday, banning the country's carriers from setting up new flights to anywhere between New York and San Francisco. It cited deficiencies by the nation's civil aviation authority in areas ranging from technical expertise to record keeping.

Malaysia is the third Asian country now branded with such a stigma - the others being Bangladesh and Thailand - underscoring the challenges regulators face in keeping up with fast-growing demand for flying.

Costa Rica, Curacao and Ghana are the only other markets worldwide designated as Category 2.

Mr Mohshin Aziz, an analyst at Maybank Investment Bank, said: "The moment they hear Malaysia is Category 2 questionable safety, you have a lot of people start to wonder, 'oh, I don't want to fly with Malaysian carriers'."

The FAA assessment is based on the International Civil Aviation Organisation safety standards and focuses on the Civil Aviation Authority of Malaysia, not individual airlines. This has been used to ban flights from India, Vietnam and Indonesia - though those markets have been upgraded to Category 1 in recent years.

Malaysia now cannot open new routes to the US or code-share with American carriers. It also means Malaysian aircraft will be more closely monitored at US airports, though only AirAsia X flies there - to Honolulu via Osaka.

Malaysia Airlines yesterday said its codeshare agreements to fly routes to the United States will stay at existing levels, subject to its partner airlines' own assessments. Malaysia Airlines passengers fly to the US through its partners in the oneworld airline alliance, it said.

Malaysia now cannot open new routes to the US or code-share with American carriers. It also means Malaysian aircraft will be more closely monitored at US airports, though only AirAsia X flies there - to Honolulu via Osaka.

The FAA's designation could have far-reaching implications for a country that suffered through the 2014 disappearance of Malaysia Airlines Flight 370 and the downing of another flight over Ukraine.

Mr Mohshin said the downgrade could turn public perception of Malaysian carriers negative, hurt the maintenance business, undermine the ability of local pilots and engineers from getting hired overseas, and drive up insurance premiums and leasing rates.

 
 
 
 

That point was echoed by Mr Gerry Soejatman, a Jakarta-based analyst, who said the FAA's decision could hit business travel as firms may restrict their staff from flying Category 2 carriers.

In response to the downgrade, the Civil Aviation Authority of Malaysia said it "takes the FAA's assessment constructively and has moved to make serious changes in its structure and operations".

At an event in Jakarta yesterday, Malaysia's Deputy Finance Minister Amiruddin Hamzah said the downgrade would be looked into, but it was unlikely to affect tourism, including visitors coming to Malaysia for medical treatment.

Mr Mohshin warned that the impact of a downgrade could be harder on Thailand, where the balance of traffic is about 50-50 between local and foreign carriers.

It could also be a while before Malaysia regains its Category 1 rating, if other examples in Asia are to go by, according to Sobie Aviation analyst Brendan Sobie. In the case of Thailand, it was downgraded to Category 2 in August 2015, before the red flag was lifted in late 2017. However, this February, the FAA downgraded Thailand again.

Indonesia was also similarly downgraded to a Category 2 nation in 2007. It took the country until August 2016 to be upgraded to Category 1 status.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on November 13, 2019, with the headline 'How US downgrade will hit Malaysian aviation industry'. Print Edition | Subscribe