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In order to facilitate capital investment in Kuala Lumpur International Airport (KLIA), the government will need to change its operating agreement with Malaysia Airports Holdings Bhd (MAHB), the operator of KLIA. Sources said the current operating agreement did not state MAHB should undertake maintenance works for airports and allocate capital expenditure for the construction/expansion of new buildings, the baggage handling system (BHS) and the planned aero train upgrade. MAHB was to undertake critical ageing asset replacements at the main terminal of KLIA this year. This includes a 1.5-kilometer (1-mile) rail track and aerotrain as well as the 42-kilometer (22-mile) baggage conveyor for the baggage handling system. An industry source said MAHB could exhaust its cash reserve if the upgrade was undertaken by itself without the government's financial support. The source said MAHB should be re-compensated to recoup its investment in the structural assets, namely the BHS and aerotrain upgrade. "The government could extend the OA of the concession, giving longer 'runway' in favor of MAHB in terms of future repayment or adjust the annual user fee payment to the government, allowing it to recoup its investment," the source said. Another source claimed that structural upgrade should be undertaken and had to be done during the pandemic as traffic was currently low, making it more convenient to undertake the project from an operational point of view. "But MAHB's cashflow will be severely affected without the recurring income from both aeronautical and nonaeronautical revenue with less passenger traffic across the group's network of airports," the source added. Major structural upgrades had previously been delayed due to the impending new operating agreements with the government. These agreements will provide clarity in terms of capex once the traffic returns, thus facilitating MAHB with the perspective needed to invest for future growth and airport expansion. The new OA could also determine new funding mechanism for airport with options and flexibility for sustainable growth. The government, via the Transport Ministry, had in April 2019 extended the current OA for MAHB to operate, manage and maintain airports throughout the country until February 11, 2069. This allows MAHB to implement a commercial development plan sustainably while improving revenue-sharing with the government. MAHB reportedly in June said it had slashed its planned MYR 1.8 billion (USD 427-million) capex for 2020 by 82 per cent as it embarked on an aggressive cost-optimization plan amid the Covid-19 pandemic. In an interview with MAHB late last year, chairman Datuk Seri Dr Zambry Abdul Kadir said the prioritized focus included its ageing aerotrain and BHS, runway upgrades, commercial reset for retailers, toilet refurbishment and Airports 4.0 digital initiative at selected local airports. The 24-year-old aerotrain were unable to accommodate KLIA's 32 million passenger traffic annually as the trains were designed for a maximum capacity of 25 million passengers. MAHB's replacement exercise for the entire BHS at the main KLIA's terminal had been mooted in early 2019, with an initial up to MYR 300 million (USD 71 million) capex allocation via an open tender. #1149.11