The Malaysian government says MASwings (MY, Kota Kinabalu) will continue to receive a MYR209 million ringgit (USD45.8 million) annual subsidy to maintain rural air service (RAS) flights even if it changes hands from Malaysia Aviation Group to the state of Sarawak.

Malaysia's federal transport minister, Loke Siew Fook, signed a memorandum of understanding (MOU) with Sarawak state officials in Kuching on July 20, according to the Free Malaysia Today outlet. Subsidies are in place until 2025, but Fook told media on the day that the MoU included a provision for the subsidies to be re-negotiated and continue past then.

"The MoU signed this afternoon is about our commitment to provide the subsidy to the rural air services in the event that Sarawak takes over MASwings. This MOU is important to give our commitment to Sarawak," he said. "The most important thing is that rural air services won't be disrupted. It must go on so that passengers will not be affected."

The takeover of MASwings has the "in-principle" support of the federal government. The Sarawak state government wants a homegrown state-owned scheduled carrier that will put some downward pressure on air fares, rather than focus on profit. As recently reported in ch-aviation, media reports that the Sarawak government had signed an MoU with Malaysian Aviation Group were inaccurate. Takeover negotiations with that entity are ongoing, as are talks with Khazanah Nasional, Malaysia's sovereign wealth fund, which the Sarawak government seems to be relying on to fund the ownership transfer.

"We want to takeover MASwings with zero liability because we want to start with a clean slate," Sarawak Premier Abang Johari Openg told media at this week's MOU signing.

According to the Malaysian Aviation Commission (MAVCOM), MASwings is contracted to operate on 40 RAS routes in Sabah and Sarawak until the end of 2024. The Malaysian government bears the cost of running these flights via payment of subsidies and aircraft leases. Altogether, the RAS routes connect ten airports and 13 short take-off and landing airstrips around the states of Sarawak and Sabah - both located on Borneo.

MASwings' fleet of ten ATR72-500s and six DHC-6-400s exclusively fly within Borneo, plus the nearby island of Tarakan in Indonesia's North Kalimantan province. In addition to lower fares, one of the driving forces behind Sarawak's push to acquire MASwings is to facilitate more connections to the Malaysian mainland and nearby international airports. Kuching is Sarawak's primary airport. In addition to MASwings, ch-aviation PRO airports data shows nine other passenger airlines operate scheduled services into the airport, including Malaysia Airlines, Firefly (FY, Penang), MYAirline, Batik Air Malaysia, AirAsia, SKS Airways, Scoot, Indonesia AirAsia, and Royal Brunei Airlines. The combined airlines fly to 18 destinations in five countries.