All-star Philippine conglomerates contest to upgrade 'worst' airport
Flooded with proposals, President Duterte yet to pick favorite for Manila gateway
CLIFF VENZON, Nikkei staff writer
MANILA -- The Philippines is surrounded by cities with international airports that regularly top lists of the world's best: Singapore, Hong Kong, Tokyo, Bangkok.
Then there is Manila's Ninoy Aquino International Airport, or NAIA. It has the unpleasant distinction of being named among the world's least desirable airports for its old facilities, over capacity and traffic congestion. In a ranking of the world's worst airports compiled by the website Sleeping in Airports, it topped the list in 2011 and 2013.
Now, a bid to bury that notoriety is shaping up as a heated competition.
Four groups composed of the Philippines' largest companies and their foreign partners are locked in a contest over which can best transform NAIA -- the country's largest and main gateway -- into a regional hub.
A U.S. air base until 1948, the Manila airport is located along the border between Pasay City and Paranaque City, roughly 7km south of Makati, the city's business hub.
It was renamed the Ninoy Aquino International Airport in 1987, four years after the assassination of opposition leader Benigno "Ninoy" Aquino Jr.
As one of the top 20 airports by passenger traffic of roughly 40 million in 2016, it ranks ahead of Japan's Narita International Airport, according to Airports Council International, an industry organization. It is one of the busiest airports in Asia, having accommodated 39 million passengers in 2016. It ranks 17th in Asia, after Shanghai Hongqiao, and 47th in the world, according to the ACI.
Consortiums are touting location, design, capacity and cost to gain an edge in securing "original proponent status" before being subject to a "Swiss challenge" and ultimately seal a contract.
A "super consortium" is one of the four groups hoping to upgrade the airport. In a rare team-up, seven of the country's largest and most powerful conglomerates -- Ayala Corp., JG Summit Holdings, Aboitiz Equity Ventures, Alliance Global Group, Metro Pacific Investments, LT Group and Filinvest Development -- have banded together with Singapore's Changi Airport Group as their technical partner and potential investor.
On Feb. 12, the consortium submitted a 350 billion peso ($6.75 billion) proposal to bring the airport's capacity to 100 million passengers annually from 31 million now, by expanding existing terminals and possibly adding a third runway. The group said it would undertake the project at no cost to the government in exchange for a 35-year concession to operate NAIA, after which the airport would revert to government ownership.
It did not take long for a challenger to emerge. Three weeks later, a smaller company, Megawide Construction, and its Indian partner, GMR Infrastructure, offered a counter-proposal.
The Megawide-GMR duo on March 1 said it pitched a $3 billion plan to expand the airport's capacity to 72 million annually by improving existing airside infrastructure, such as runways and taxiways. It asked for an 18-year contract, saying a shorter franchise period offers flexibility for the government.
Meanwhile, two other groups want a new airport built outside Manila. San Miguel, the beer-to-infrastructure conglomerate, in 2016 proposed to build a massive airport in Bulacan Province, around 20km west of Manila. Its Bulacan proposal last year received an "original proponent" status -- a necessary step to secure a contract -- and it is now in the advanced stages of a government review.
At a cost of 700 billion pesos, San Miguel has said it aims to build one of the largest airports in the world, with a capacity of up to 200 million passengers annually under a 50-year concession.
SM Investments, controlled by the Philippines' richest clan, the Sy family, and local partner Solar Group, meanwhile, on March 4 said it submitted a proposal to build a $12 billion airport in Sangley Point, a naval base in Cavite Province just south of Metro Manila. China Communications Construction will also be part of the consortium, Solar has previously said.
Their proposal would accommodate 120 million passengers under a 50-year concession. Sangley has been endorsed as the alternative site for a new gateway by the Japan International Cooperation Agency, which is helping the Philippine government improve its transportation network.
"The new airport hub is also envisioned to compete with other premier [regional] airports like the ones in Bangkok, Seoul, Hong Kong and Singapore," the SM-Solar consortium said in a statement on March 4.
The NAIA upgrade project is the latest example of how the Philippines' major family-owned conglomerates, who have dominated banking, real estate, retail and food industries for decades, are now eyeing a stake in the massive infrastructure goals of President Rodrigo Duterte.
The firebrand leader, known for his brutal war on drugs and criminality, has vowed to spend an unprecedented $160 billion to $170 billion on infrastructure during his six-year term.
The deluge of proposals has also coincided with Duterte's policy of encouraging unsolicited proposals to speed up his infrastructure drive. The previous administration of Benigno Aquino III was averse to unsolicited pitches, arguing that the government and the country's people get a better deal when projects are auctioned off.
Under Aquino's infrastructure program, the government was able to procure projects at no cost to the state and even raised additional revenue. In 2013, San Miguel won a 15.9-billion-peso contract for a 10km toll road by offering to construct it at its own expense and paying an additional 11 billion pesos premium in exchange for a 30-year concession.
As Duterte's government prepares to review the proposals, proponents have started touting their capabilities to upgrade the country's main aviation gateway.
Members of the super consortium are boasting their financial muscle, with combined market capitalization of 2.2 trillion pesos and around 15% of the market value of all listed companies in the Philippines.
Consortium members also control vital infrastructure in Manila, while others have businesses in aviation. Metro Pacific, part of the super consortium, runs major tollways and powers the entire capital, while Ayala has established businesses in banking, real estate and telecommunications. LT Group's principal shareholders own flag carrier Philippine Airlines, while JG Summit owns Cebu Air, the country's largest low-cost carrier.
"Through this proposal, we envision a new NAIA: a fully integrated, premier gateway that we Filipinos can truly be proud of, backed by the know-how of an experienced technical partner and the strong synergy of seven homegrown teams," consortium spokesperson Jose Emmanuel Reverente said a day after the proposal was submitted. "The message is clear: We need this, and we can get this done."
The Megawide-GMR duo, meanwhile, is touting its experience in airports. "As an experienced private operator, we have a deep understanding of the problem experienced by NAIA and we would like to offer our take on the solution," Megawide board member and Chief Marketing Officer Louie Ferrer has said.
Megawide, which started as a contractor to competing conglomerates' real estate units, has been aggressive in securing government infrastructure deals. In 2013, it made the bold move to compete against -- and ultimately beat -- its powerful clients in an auction to upgrade and operate the Mactan-Cebu International Airport in the central Philippines.
Last year, together with GMR, it won a 9.36-billion-peso contract to expand the Clark International Airport, a hub located about 100km north of Manila, which is being expanded to help ease congestion at NAIA. Megawide said it would bid for a contract to operate that airport.
Taking a shot at the super consortium's proposal, GMR Airports President Puvan Sripathy told reporters last week: "A third runway -- let us be honest -- is not possible."
A representative of the consortium did not immediately respond to a request for comment.
The 400-hectare NAIA is surrounded by residential and commercial buildings, which means a new runway would likely require relocation or reclamation.
The airport, which operates two perpendicular runways, is owned by the Philippine government and managed by the state agency Manila International Airport Authority.
It has seen a steady rise in passenger traffic in recent years, which has led to congestion and frequent flight delays. Last year, the airport saw 42 million passengers, far beyond its 31 million design capacity. San Miguel projects traffic to swell to 146 million by 2050.
The airport was removed from the "worst" ranking by Sleeping in Airports, a website where travelers offer reviews of their travel experiences, in 2017.
A year before that, travelers complained that the airport's four terminals are not connected. They also expressed dismay over a scandal in which airport personnel allegedly planted bullets inside luggage to extort money from passengers. The scam apparently ended when Duterte, who took office in June 2016, threatened to make perpetrators eat the bullets if caught. Some travelers also complained about a lack of resting spaces and retail and food shops, where they can wait for flights.
In Skytrax's Top 100 airport ranking for 2017, the Philippines was the only major Southeast Asian economy that did not appear in the list.
"The airport is congested and is providing a service to passengers which is generally below the standards of other hubs in the region," said Brendan Sobie, an analyst at the Centre for Aviation, a think tank in Sydney. "There are opportunities to significantly improve the service, particularly for transit passengers."
The congestion has also hampered growth of domestic airlines, which want to expand flights out of the capital but are unable to do so because of limited capacity.
Philippine Airlines, which recently received a service-rating upgrade from Skytrax, a travel-review website, said a modern airport is crucial in achieving its goal of becoming a five-star airline by 2020, company President Jaime Bautista told reporters last month.
However, Duterte's government has yet to firm up a clear airport policy, and the latest proposals could revive debates over what to do with the Manila airport: expand it, build a new one, develop Clark or undertake all those options.
Amid private companies' proposals to take over the airport, the government last year shelved a $1.5 billion program to modernize NAIA, but it pursued a plan to expand Clark, which was also considered as a replacement for NAIA. Last year, Transportation Secretary Arthur Tugade, who previously headed the Clark Development Corp., moved his office to the former military base, boosting hopes for the promotion of Clark as an alternative gateway.
Tugade said he would evaluate all proposals. "The more the merrier," he told reporters recently. "Because at the end of the day, I want the option, the freedom of choice on where to rise, what airline to ride, and what fare to pay for the riding public."
The International Air Transport Association has repeatedly said the Philippines needs to improve its main airport. However, IATA Director General Alexandre de Juniac has warned that Clark is too far from the capital to become the country's main hub. De Juniac, who said that even a high-speed railway would not make Clark viable, urged the Philippine government to build a supplementary airport that is within 50km of Manila.
"When you look at the [Manila] airport, you don't have to be a genius to [see] that it's impossible to go very above the current [capacity]," he said during a visit to Manila in October.
Duterte has yet to speak publicly about how to deal with NAIA congestion, but at least one group has attempted to make the president aware of its profile. During a trip to New Delhi in January, Duterte was briefed about the Indira Gandhi International Airport as being developed and run by GMR, Megawide's partner.
LT Group founder Lucio Tan and JG Summit President Lance Gokongwei were recently at the Malacanang presidential palace, where Duterte thanked them for ferrying overseas Filipino workers from Kuwait for free. It was not known if the president was briefed on their proposals.
The companies are hoping the government will decide fast on its plans for NAIA, because the Philippines is not the only country in the region planning a major airport upgrade. Across Southeast Asia, airport expansion plans are underway.
Singapore's Changi is planning to add a fifth terminal to its airport, which routinely is named the world's best, while Cambodia is also planning to build one of the largest in the world.
"The [Philippine] government should proceed as quickly as possible with upgrading the existing airport and deciding on a new airport," said Sobie, the analyst. "So many years have been wasted, making the issue more pressing."