KUALA LUMPUR (Nikkei Markets) -- Malaysia Airports Holdings said Tuesday it has secured approval from the finance ministry to proceed with the expansion of Penang International Airport, a project that could cost more than one billion ringgit ($241.7 million).
The airport on the northern island -- home to manufacturing facilities of high-tech firms including chipmaker Intel -- has been grappling with overcapacity for more than a year. The island is also a tourist destination, attracting millions of visitors annually to its beaches and shopping malls.
The state-run company is in talks for investment options and funding models for the proposed expansion, Malaysia Airports said in a statement. The company however has also sought regulators' approvals to fully-fund the project, it said.
"Malaysia Airports is indeed in a position to fully fund the project," the company said. Once the necessary plans are approved by local authorities, works to expand the Penang Airport is expected to start in the first quarter of 2020, the company added.
The Penang Airport handled nearly 8 million passengers last year, sharply higher than its designed capacity of managing 6.5 million passengers. If successful, the expansion would be able to handle passenger traffic growth for at least a decade, according to government projections.
Asia remains the fastest-growing air travel market as the industry braces for a surge in passenger traffic buoyed by swelling disposable income of a bulging middle-class population.
By 2035, an additional 1.8 billion passengers will be transported to, from and within Asia Pacific annually for an overall market size of 3.1 billion fliers thanks to a 4.7% growth per year, according to the International Air Transport Association.
Analysts said Malaysia Airports has sufficient cash with plenty of room to tap into bank borrowings to fund the expansion plan that would raise Penang Airport's capacity to handle 12 million passengers annually.
The expansion plan has been budgeted as part of Malaysia Airports' wider capital expenditure program and dividend pay-out is not expected to be affected for the next three years, said Hong Leong Investment Bank's Analyst Daniel Wong. "Their dividend pay-out is sustainable," he said.
The company has proposed a capital expenditure totaling 6.2 billion ringgit for 2019-to-2022 that includes capacity increase for areas within Kuala Lumpur International Airport and other smaller airports in the country.
Malaysia Airports Holdings runs the country's main gateway Kuala Lumpur International Airport. In addition, the company also operates the adjacent klia2, base of the budget airline AirAsia, and over three dozen smaller airports in the country.
The company said it has been working on the expansion of Penang Airport for the past two years, and had hired consultants to draw up detailed construction plans after the necessary engagement with authorities.
Once the necessary plans are approved, construction is expected to start in the first quarter of 2020, Malaysia Airports added.
Shares of Malaysia Airport rose 0.7% to 8.63 ringgit on Tuesday. The benchmark FTSE Bursa Malaysia KLCI meanwhile was 0.4% higher.
-- Jason Ng and Yimie Yong