The government has confirmed it has vetoed an ambitious plan by budget carrier AirAsia to build a RM1.6 billion airport in Labu, Negri Sembilan.

labu low cost carrier terminal lcct 060109 Deputy Prime Minister Najib Razak said the proposal was scrapped because the carrier's partner in the project, conglomerate Sime Darby, refused to contribute RM800 million in construction costs.

"If they did not contribute, there is no basis for the project to be considered," he said, according to state news agency Bernama late Sunday.

Najib, who is expected to be appointed prime minister next month, said he had received confirmation of Sime Darby's position in "black and white".

Fernandes: Doesn't matter where the airport is

Hoping to improve standards and lower operational costs, AirAsia has said it wants to abandon the shabby and overcrowded low-cost terminal next to the main international airport.

It intended to build and operate the new airport in Labu - about 7km from Kuala Lumpur International Airport (KLIA) - together with Sime Darby.

najib announce new bn perak state govt 040209 04 Najib reportedly said Malaysia Airports Holdings, which runs KLIA, would instead build a new budget terminal to replace AirAsia's existing facility.

AirAsia founder Tony Fernandes said his company would abide by the government's decision but that the airports operator would have to provide efficient service at the new terminal.

"Obviously, we have to take guidance from the government. It is no problem where the airport is. The key for AirAsia is we need low cost," he told AFP .

"We are more than happy to stay in Kuala Lumpur International Airport but Malaysia Airports must provide efficient service at a low cost."