Asia leads the field in airport construction but privatisation opportunities are few

Airline Leader

The Asia Pacific region is the world's largest, accounting for the greatest amount of airport construction activity and a diverse range of projects. As of Sep-2014 there are more than USD172 billion of airport-related construction projects at existing airports throughout Asia Pacific (out of a global value total of USD518 billion, or 33.2%).

  • The Asia Pacific region has the largest number of airport construction projects, accounting for over 40% of new airports under construction globally.
  • China has the highest concentration of capital expenditure and construction, with over USD55 billion invested in 51 projects and 69 small regional airports.
  • Other significant projects in the region include the New Dalian Jinzhou Bay Airport in China, the expansion of Incheon Airport in South Korea, and the development of Taoyuan Airport in Taiwan.
  • Indonesia dominates the construction landscape in Southeast Asia, with over USD12.2 billion allocated to various development projects, including greenfield airports and aerotropolis developments.
  • Major airport construction projects in Australia include runway and terminal construction projects at Brisbane Airport, surpassing the allocated budget for the new Sydney Airport.
  • Privatization transactions in the region are relatively few, with investment activity focusing on emerging countries such as Indonesia, the Philippines, and Vietnam.

Moreover, out of 312 new airports under construction globally, 125 (40%) of them are in Asia Pacific.

In terms of projects, rather than investment, however, the Asia Pacific tally is 505 out of a global total of 2221 (22.7%). Europe leads the way in the number of projects but they are typically much smaller than in Asia Pacific.

As might be expected, the greatest concentration of capital expenditure and construction is in China, where known investment in current construction enterprises totals almost USD55 billion, spread across 51 individual projects and 69 small new regional airports that were announced in Sep-2013 for completion by 2015.

Twelve of the projects involve new runways; two runway extensions; 18 with new terminals and five with an expansion of the existing terminal. Alternative projects are most often apron and taxiway extensions.

Global total of airport construction and development by region, measured by investment: OCT-2014

Global total of airport construction and development by region, measured by projects: OCT-2014

The largest projects in China are at Beijing (the second airport), Chengdu and Wuhan. The new Beijing Airport (USD11 billion), located in Daxing and set for completion late in 2018, will have eight runways and capacity for 40 million passengers initially, increasing to 70 million by 2025.

The second Chengdu Airport (USD9.4 billion) is expected to commence operations before Jun-2017. Once completed, the airport will have capacity for 80 million passengers, six million tons of cargo and 850,000 aircraft movements per annum, becoming the largest airport in China's west region and the nation's fourth largest international hub.

The Wuhan project, which is an airport relocation exercise, commenced in 2014 and is in addition to separate terminal enhancement projects. The new airport will be constructed according to a 4C category airport, including a 2600m runway, an 8000sqm terminal building and a five-aircraft parking bay apron, with capacity to handle 750,000 passengers and 6000 tonnes of cargo by 2025. Total costs at Wuhan are expected to be USD6.4 billion.

Another large project recently announced, and which has attracted widespread attention, is the New Dalian Jinzhou Bay Airport, an airport construction project being built to serve the cities of Dalian, Jinzhou and the surrounding areas of western Liaoning province in northeast China. Dalian International Airport Co Ltd is building the airport on a 20.87sq km artificial island off the coast of Dalian, with a total cost of CNY26.3 billion (USD4.3 billion), to be completed by end-2018.

The airport is slated to become one of the world's biggest airports created using land reclamation. Dalian's existing Zhoushuizi Airport will reach full capacity within the next five years.

Hong Kong's USD1.9 billion investment, due to reach fruition in 2018, is in a midfield concourse and apron expansion, but mainly in a new (third) runway whose progress is still held up by environmental and budgetary considerations.

Elsewhere in northern Asia, the primary project in Japan is the USD1.8 billion terminal expansion and potential new runway project that is to be completed by 2019 at Fukuoka Airport. By comparison, projects at Tokyo's two main airports are modest.

Seoul's Incheon Airport in Korea is now well into its third of four construction phases; one that is scheduled to be completed by 4Q2017 to meet the expected surge in arrivals for the 2018 Winter Olympic Games to be held in Pyeongchang. The new USD5 billion terminal, which is expected to be 40% more energy-efficient than Terminal 1, will increase Incheon's passenger handling capacity by 18 million to 62 million per annum and cargo capacity from 4.5 million tonnes to 5.8 million tonnes.

Meanwhile in Taiwan, the principal activity is a series of projects at Taoyuan Airport including a new terminal and runway, extensive refurbishment to existing facilities, and what is variously described as an airport city or aerotropolis. The projects collectively amount to USD2.3 billion.

In Southeast Asia, Indonesia dominates the Cap Ex landscape with an astonishing USD12.2 billion allocated to miscellaneous development projects around the country, including greenfield airports and again including multiple aerotropolis developments, this time around regional airports. This despite the fact that the aerotropolis concept is really only applicable to airports of a minimum size and scope.

Many of the projects are part funded by bank loans while the government seeks PPP arrangements where possible. Jakarta's Soekharno Hatta will benefit from a USD1.7 billion expansion project that aims to increase airport capacity from 22 million to 62 million passengers per annum.

In Thailand, USD2.5 billion has been budgeted for the second phase of Bangkok Suvarnabhumi Airport's THB62.5 billion (USD2.1 billion) expansion project. However, it was suspended in Sep-2014 owing to liquidity issues, including a USD745 million second terminal that will boost capacity to 60 million passengers per annum. Ironically this comes at a time when traffic at Suvarnabhumi is falling (-11% in Aug-2014) at the same time it is growing rapidly (+29% in the same month) at a reinvigorated Don Mueang Airport, where a reconstruction project that includes its own Terminal 2 is set to end in 2016 and is valued at USD760 million. At this rate of progress it will not be long before Don Mueang, which has around 50% of the traffic at Suvarnabhumi presently, catches up with the newer airport.

While the Philippines may acquire a new airport for Manila eventually, the largest project right now is at Mactan-Cebu Airport, where the GMR-Megawide consortium is seeking to raise PHP15 billion (USD342 million) through debt and equity facilities for work totalling USD425 million that includes construction of a terminal and aircraft apron, and renovation of the existing terminal. It is negotiating with various banks to secure a financial arrangement.

Malaysia's Kuala Lumpur International Airport, the centre of operations for both AirAsia and the pioneering hubbing activities of long-haul LCC AirAsia X, is part way through a series of projects that includes the now opened but well over the initial budget (USD1.3 billion) KLIA2 'low-cost' terminal, and a third runway, also operational.

Future developments include further enhancement of capacity (cost allocated USD217 million) and an airport city style development encompassing a theme park, concert hall, golf course and factory outlet shopping centre that is so far uncosted.

Meanwhile, the rival Singapore Changi Airport has budgeted USD2.2 billion for its Terminal 4 and associated works, which will have a capacity for 16 million passengers per annum (to 82 million overall), and which is scheduled for completion in 2017. T4 will be used as a test-bed for concepts for the future Terminal 5, including terminal design and the use of technology to increase productivity and economise space.

Major airport construction projects in Southeast Asia

The most significant airport development in Australia currently is at Brisbane Airport, with more than USD3.6 billion of runway and terminal construction projects. That amount surpasses the USD2.3 billion to USD2.7 billion allocated to the new Sydney Airport, for which a precise business model is yet to be determined.

The focus in India is on the construction of greenfield, basic service low-cost airports. The Airports Authority of India has identified 50 locations for such airports to be developed by 2020.

India's largest gateway, Delhi Airport, is in the process of developing a new master plan, which could result in an expansion of Terminal 1D to increase its capacity from 10 million to 18 million passengers per annum. T1D is used by LCCs for domestic operations and is completely saturated.

Mumbai Airport's new Terminal 2 started handling all international services in Feb-2014. The domestic pier is scheduled to open by the end of 2014, creating an integrated terminal that should enhance the airport's transfer traffic potential. Focus will then shift to commercial real estate development activities.

The much delayed USD2.4 billion project for the city's second airport at Navi (New) Mumbai has an official completion date of late 2018, however 2019 or even 2020 appears more realistic as the project remains at the Request for Qualification (RfQ) stage. The latest of several deadlines for submissions is 31-Oct-2014. Site preparation is expected to commence in Jan-2015.

The state government of Goa also issued RfQ documents in Oct-2014 for a greenfield airport at Mopa to be developed on a PPP basis.

Pakistan's USD1 billion airport improvement programme includes upgrades to radar, communication and radio navigation equipment, runways and passenger terminals at Quetta, Karachi, Lahore, Peshawar, Nawabshah and Faisalabad. The biggest individual project is the new USD737 million Islamabad Airport, originally scheduled to open in 2011, now (hopefully) by the end of 2014.

Despite the large amount of airport related construction activity, privatisation transactions are relatively few, and investment activity in Asia Pacific has recently centred on emerging countries such as Indonesia, the Philippines and Vietnam.

We have noted the large volume of construction projects in Indonesia, and the government's desire to attract the private sector to PPP transactions. The Indonesian government released, in Nov-2013, a revised draft negative investment list (which debars or restricts foreign investors), which reached the conclusion that it requires the support of foreign investors to create a competitive environment and improve services offered by the nation's transport infrastructure - particularly airports - through public-private partnerships.

But as we have suggested before, the reality is that for many western operators/investors, Indonesia is still firmly outside their comfort zone; investment is far more likely to come from countries such as India or South Korea, or from home-grown firms such as the Rajawali Corporation, which has declared its interest in investment and operation of airports in the country if they were opened to the private sector. The latest foreign company to be attracted is Japan's New Kansai International Airport, which anticipates a "huge demand" for foreign airport management expertise in the country.

Vietnam has followed Indonesia's example, with the Director General (DG) of the CAA proposing the opening up of the country's airports to international investment. Under the proposal, airports categorised as having significant international traffic or an important role in national security, including Hanoi Noi Bai, Da Nang, Ho Chi Minh City Tan Son Nhat, Long Thanh and Nha Trang Cam Ranh, would continue primarily to be funded and managed by the government, while other airports would be opened to foreign investment and management.

The DG seeks "international investors with modern technology, experienced administrative management, and strong financial muscles."

In Vietnam's case there has been western interest already, with France's Aeroports de Paris (AdP) submitting an expression of interest in Sep-2014 to become strategic investor of the Airport Corporation of Vietnam (ACV). ACV's planned forthcoming IPO launch in 1Q2015 will attract foreign investment interests and provide further funding for Vietnamese airport projects. AdP ultimately seeks to become a strategic shareholder of ACV, and to contribute financially to the Long Thanh Airport project under a PPP.

In the Philippines there has been a cohesive project to attract both domestic and foreign investors, namely the USD400 million PPP deal to expand and operate Mactan-Cebu International Airport. Seven prequalified groups submitted final bids at the end of Nov-2013, including established players such as Incheon Airport, Malaysia Airports, Zurich Airport and GMR Infrastructure, as well as a raft of newcomers. The winner was a consortium of GMR and a Philippines construction company that more typically builds social housing projects, Megawide. Other airports will now be operated under similar schemes, in 'bundles' if necessary.

Latterly, four expressions of interests from four private companies regarding the operation and maintenance of Manila's Ninoy Aquino International Airport (NAIA), were received. The Department of Transport & Communications is currently evaluating the proposals and the bidding process will start in Jun/Jul-2015.

A brief overview of other privatisation prospects is summarised below:

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