Indonesian traffic growth prompts study for new Jakarta airport. GVK to invest up to USD5 billion

Indonesia's Angkasa Pura II, one half of the state enterprise of the Department of Transport that has responsibility for the management of airports and air traffic services, and which has specific responsibility for the capital city's airport, reported that 34.16 million domestic passengers and 9.53 million international passengers, representing a total of 43.7 million passengers, passed through Jakarta's Soekarno-Hatta International Airport (SHIA) in 2010. This amounted to a 17.66% increase over 2009. While global "busiest airport" data for 2010 is yet to be released, SHIA was the 22nd busiest airport in 2009 with 37.14 million passengers, (just behind Singapore Changi) an increase of 15.2% over 2008 and the largest degree of growth of the top 30 airports other than Beijing.

See related report: Indonesian Aviation Outlook: A massive aviation opportunity, but some risks to growth

Angkasa Pura II's 2010 net profit exceeds expectations

One set of data that is available concerns Angkasa Pura II's financials for 2010 and they are just as impressive. The organisation reported a 9.7% year-on-year increase in net profit to USD104.8 million* in 2010, exceeding its initial target of USD87.0 million, attributable to increased passenger traffic across the 12 airports under its management. It reported a net profit of USD95.5 million in 2009. (*Based on the conversion rate at USD1 = IDR9050).

Soekarno Hatta Airport's development of passenger terminals will conclude in 2016 when its anticipated annual passenger capacity will reach 65 million. Expansion of Terminal 3 will commence in 2011, bringing the terminal's capacity to 20 million passengers p/a and a Terminal 4, with capacity of 20 million passengers p/a, will commence construction in 2012.

Now comes the question as to whether it should be expanded further still, or whether a new airport is needed. The Indonesian Government is considering both options with a new airport considered to be the favourite as the current facility is considered too small to handle growing passenger numbers, even with the extensions, as growth is occurring so rapidly. And it isn't just a matter of capacity, Soekarno Hatta has recently seen several blackouts and telecommunication disruptions, causing delays and spurring public anger.

JCIA to conduct feasibility study

The Japan International Cooperation Agency (JICA) has been appointed to conduct a feasibility study exploring airport expansion and a new airport. The study is expected to be completed in 2012. Indonesia and Japan signed a deal in Dec-2010 in which Japan will fund transport infrastructure projects worth USD24 billion around Jakarta, while other Asian nations and private equity firms are eyeing infrastructure.

JICA's involvement has not gone down well in some quarters, with irate correspondents writing to local media to ask why Angkasa Pura II, which operates several international airports, cannot undertake the feasibility study itself.

IPO would make sense, but not known to be on the agenda

The answer is probably related to the likelihood that the government will seek export credit from the Japanese government, which like China, Brazil and other governments is active in funding foreign transport infrastructure but with the key difference that they have been doing it longer. Other correspondents have asked why not an IPO for Angkasa Pura II (and on Angkasa Pura I for that matter) with the average Jakarta Stock Exchange price-equity ratio currently standing at 30x. The argument is that share prices are already high and that investors are hungry for new investment opportunities. But the government took the two airport entities off its privatisation list three years ago and has shown no inclination to reinstate them.

Among those foreign airport sector companies already active in Indonesia are Turkey's TAV, which entered into a JV in Jun-2010 with Sigma Sembada group for the construction of an airport at Singaraja, Bali, and a USD500 million investment. (See Airport Investor Monthly #71, Sep-2010). Soekarno-Hatta is operated as a joint venture between Angkasa Pura II (49%) and Aeroports de Paris/GTM (49%). BAA and Schiphol Group, neither of which now demonstrates any real interest in the area, had also been bidders.

Multiple airports in Jakarta area

PT Angkasa Pura II's CEO, Tri Sunoko, recently stated the government must soon decide on a secondary airport in the greater Jakarta basin in order to avoid transport stagnation. He was supported by the Director General for Air Transport at the Transport Ministry, Herry Bakti, who stated, "We plan for multiple airports in the Jakarta metropolitan area."

One would assume the private sector would be invited again to contribute to any new Jakarta airport. In Aug-2010 the Indonesian Minister of Transportation practically begged the private sector to help build 14 new airports and renovate 118 others, mainly in the eastern parts of Indonesia.

The upshot was a tender for phase one of the Ngurah Rai International Airport modernisation project, envisaged to cost around USD210 million, in preparation for the APEC Summit in 2013. The new international terminal is to cover 120,000 sq m, with a 39,000 sq m, three-storey parking structure. The terminal is planned to handle up to 20 million passengers per annum.

India's GMR and GVK groups were reported to be planning to bid and undertaking feasibility studies. Then on 25-Jan-2011GVK Group, which is modernising Mumbai and Bangalore airports, signed MoUs to build two green field airports in North Bali and Yogyakarta (Java). The group is estimating an investment of USD1.5-2 billion over the next five to 10 years on these projects, the first PPP airports in Indonesia.

GVK Group chairman G V K Reddy said: "Our capabilities, expertise and strong track record in the airports sector is well established in India. We are very excited by the opportunity to create new landmarks in Bali and Java."

GVK's overseas foray follows rival GMR Group's contribution to the consortium that extended Sabiha Gocken airport in Turkey. GVK has hitherto been less inclined to bid for foreign projects than has GMR but was shortlisted, with Flughafen Zurich for the privatisation and modernisation of Male Airport in the Maldives, which would have been its first foreign project. In Jun-2010 it was awarded to GMR.
Mr Reddy added that the group is looking at Indonesia as a big investment destination after India. "We will look beyond airports to other infrastructure projects." The state-run Airports Authority of India is yet to take its first step out of the country.

At the same time the Indonesian government has always assumed a degree of responsibility for its airports and will invest USD450 million in 2010-11 to renovate them. The President has promised to spend USD140 billion on infrastructure projects generally during his second and final term of office to drive economic growth that has been averaging over 6% per annum. So it seems that Indonesia, like Brazil, is taking a belt and braces approach to airport infrastructure, the Transport Minister appealing to private companies to 'just go ahead and join us' but at the same time making adequate provision in case they choose not to.

A deterrent and an opportunity

There are few reasons why private companies would choose to shy away from Indonesia's airports. The traffic growth is there, it is from both a strong LCC segment and the legacy segment, where Garuda's IPO is anticipated this year, and alternative methods of enabling easy travel between the country's 3000 islands haven't yet been invented. Inadequate infrastructure in the country is seen as both a deterrent to foreign direct investors and an investment opportunity and with Japan already funding transport projects the emphasis is swinging towards the latter.

It is not clear where the new airport will be situated but Halim Perdana Kusumah and Pondok Cabe airports have been eliminated owing to poor access. The government is also thought to be considering military or police airports, or creating a new one in industrial areas further outside the capital, at Cilegon in Banten to the west on Java or Karawang in West Java.

Both schemes come with their own drawbacks. The expansion plan threatens to displace residents living near Soekarno-Hatta in Tangerang. But a relocated facility would be much further from the city centre than the current airport, further inconveniencing passengers.

Cilegon, an industrial area on the west coast, is located about 80km from Jakarta while Karawang, known as the "nation's rice bowl", is about 70km east of the city. Both regions do have toll road access to Jakarta.

While the debate continues, the investment needed to construct a railway line connecting the Mangarai station in South Jakarta to Soekarno-Hatta International airport will be offered to investors by Jun-2011 according to a government spokesperson.