Regulators’ audits of airlines face scrutiny amid MYAirline’s collapse

This article first appeared in The Edge Malaysia Weekly on November 13, 2023 – November 19, 2023

MYAirline Sdn Bhd failed to sustain its flight operations three days after the Civil Aviation Authority of Malaysia (CAAM) gave the thumbs up to the low-cost carrier’s air safety, security and operational proficiency for another two years.

Some 125,000 passengers of MYAirline, who had purchased RM22 million worth of tickets, were left in the lurch following the suspension of its operations on Oct 12.

On Oct 16, CAAM suspended MYAirline’s air operator’s certificate (AOC) for a period of 90 days pending further investigations by the authority, a move subsequently followed by its economic counterpart of the aviation industry, the Malaysian Aviation Commission (Mavcom). On Nov 1, Mavcom announced its decision to suspend the air service licence (ASL) of MYAirline, noting that the representations made by the airline to a show cause letter the commission had issued on Oct 13 were not satisfactory. Airlines need both an ASL and AOC to operate scheduled air services.

However, critics questioned why CAAM, which oversees the technical aspects of air operators in the country, along with Mavcom, gave permission to MYAirline to operate in 2022, even though its co-founder and major shareholder Datuk Allan Goh Hwan Hua was linked to companies that were mired in controversies, including allegations of illegal deposit-taking and money laundering.

CAAM CEO Datuk Captain Norazman Mahmud sheds some light on its safety audit process and says MYAirline’s licences have only been suspended and not revoked.

“Under the Civil Aviation Directives (CAD), the AOC can be revoked by CAAM if there is no activity within the airline after 90 days [of suspension]. But if MYAirline can prove to us that it is still working on [a plan to revitalise the airline] and is engaging in discussions with potential investors or financiers, we can extend the suspension beyond 90 days. That’s why communication [between the airline and CAAM] is very important,” he tells The Edge in an interview at the authority’s head office in Putrajaya.

Norazman took the helm at CAAM in January this year, succeeding Datuk Captain Chester Voo Chee Soon who was the CEO from June 2020 to December 2022. Prior to his role as CEO, Norazman was the deputy CEO (regulator) of CAAM.

Norazman carries with him more than 30 years of experience in the aviation industry, including as the director of flight operations at Malaysia Airlines before joining the authority in 2020.

The following are excerpts from the interview:

The Edge: With regard to granting an AOC to MYAirline in October last year, did CAAM undertake checks on the airline’s co-founder and major shareholder Datuk Allan Goh Hwan Hua and other shareholders?

Datuk Captain Norazman Mahmud: CAAM looks into the technical aspect of operations. We must make sure that the airline has fulfilled the requirements as per our regulations and directives with a sufficient number of pilots and cabin crew to fly the aircraft. We have to certify the training of the pilots and cabin crew and the people who maintain the aircraft. In order to do all these, you must have sufficient funds. So who manages the finances? Accountable managers. They need to ensure they have sufficient funds to train pilots and cabin crew and maintain their aircraft and fulfil the requirement in terms of technical and safety.

In addition, as part of our approval process, our AOC holders must present their yearly financial statements. This process is based on the International Civil Aviation Organization (ICAO) guidelines. Examples of questions [are those that touch] on payment of salary, training and aircraft maintenance. So let’s say there is a tell-tale sign like late payments of salary by the airline, then we will find out the reason behind it. But to know where exactly the money comes from, we have to speak to our counterpart, Mavcom. It is our obligation to tell Mavcom, ‘look we carried out the audit and the financial checklist revealed tell-tale signs that the airline has financial issues’. The economic regulator will then step in. That’s how the synergy works. We have to keep talking to each other.

Likewise, let’s say when Mavcom does a review, if it finds something not right in terms of an airline’s training or aircraft maintenance, it will ask us to check as the technical experts. We know when the aircraft or pilot training is due. Pilots must go for checks twice a year. The minute they don’t do that, they will be questioned as it is against the regulation. In 2022, when MYAirline submitted its application, it was all in order in terms of technical aspects.

What is the status of MYAirline’s leased aircraft?

According to MYAirline, out of the 10 aircraft previously under its management, it has been confirmed that six aircraft have been deregistered by its lessors. Presently, four aircraft remain registered. (Note: It is understood that an AOC holder must have or lease at least two aircraft.)

What do the further investigations by CAAM on MYAirline entail?

On Oct 16, we carried out a re-audit on MYAirline to ensure the air operator has the financial resources to conduct its operations. There are communications between MYAirline’s post holders, including its interim accountable manager Datuk Seri Azharuddin Abdul Rahman, and our inspectors to close the findings. It is in progress and they have 90 days to complete this.

Meanwhile, Mavcom plays a role in reviewing the economic sustainability of the airline — how long it can last with the current funds. It depends on what the capacity of its operations will be — bigger operations require more funds and likewise the other way round.

For example, if a training is due in September and was not carried out and if a new source of capital will only come in December or January, then this training is considered lapsed. When it is lapsed, what do they need to do to cover the gap? Do they need extra training? This is where the technical and safety aspects will come in. If within 90 days there is still no new capital, then their licence will be revoked. Under the CAD, the AOC can be revoked by CAAM if there is no activity within the airline after 90 days. But if MYAirline can prove to us that it is still working on [a plan to revitalise the airline] and is engaging in discussions with potential investors or financiers, we can extend the suspension beyond 90 days. That’s why communication [between the airline and CAAM] is very important.

What’s the difference between suspended and revoked licences?

A suspension means you are suspended for a period of time pending investigation. This gives you the time to resolve what is needed before you restart operations. If the issue remains unsolved, then your licence will be revoked.

I wouldn’t say we are lenient, but we have a policy and process [to follow]. It is not an immediate revocation. In accordance with our regulations, the first step is to issue a show cause letter to MYAirline. During the suspension, we try to work out what is the best solution for them to continue operations. This is where we can help in terms of operations and safety.

All our post holders are briefed on their accountability and responsibility to us. Moving forward, we will increase our engagement and strengthen communications with our nominated post holders. At CAAM, each AOC holder has a designated officer that takes care of them, and we maintain a strong relationship with our nominated post holders through open communication.

We follow the policy, process and procedure and must not act on emotion. Our regulations are clear. We must understand the airline’s challenges because every airline is unique. The inner workings are different for each company. That is why the standard practice of civil aviation is that they must have post holders as our eyes and ears. Each post holder is briefed on their different scope of work. If you are a post holder for training, you must ensure that training is carried out accordingly and if you are the post holder for engineering, you must ensure that the maintenance is done. If something cannot be carried out, post holders must communicate with us. A lot of things can be managed properly if you have open communication.

What is the punishment for an accountable manager or post holder if he is not doing his job properly? (Note: On Oct 8, MYAirline announced that its CEO Rayner Teo Kheng Hock was stepping down from the role for health reasons, to be replaced by its chief operating officer Stuart Cross, as the interim CEO. Cross subsequently resigned within days of the airline’s suspension.)

Our next course of action is to improve the nominated post holders’ position in terms of training, having proper communication and making them understand what the risks are of not communicating properly. Because sometimes they don’t see that by not doing so, there could be repercussions. We are looking at the risks that way. We must get people to understand the importance of complying with safety regulations.

Why a two-year extension to MYAirline’s AOC?

Safety audits are carried out annually despite the number of years an AOC extension is given. We follow a metric where in the initial stage, we give airlines a one-year AOC, but when they perform well in the second audit, they are entitled to a two-year extension. But when we give two years, it doesn’t mean we only go and see them in two years’ time. We still go and do the audit every year. If you look at our programme for audit, you will see that next year, we will still carry out an audit on MYAirline. We also regularly fly with airlines up to three to four times a year to evaluate their operations. That is part of the audit. Even for Malaysia Airlines, we fly with them seven or eight flights per year to evaluate their level of compliance.

Does CAAM grant all airlines a two-year extension for every renewal?

Not necessarily. Some have three years, some two and some one. It depends on their performance in terms of the safety audit. If they satisfy the audit to a higher level, they are entitled to get longer. Mostly the findings are administrative. The airline is a journey. You don’t expect an airline to operate in the first year and be perfect.

Is CAAM currently reviewing any new AOCs?

No.

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