Kuwait International Airport is forging a Middle East privatisation path. Can it become the benchmark for the region?

There are few examples of airport privatisation in the Middle East though there are a handful of long-established ones such as the Queen Alia Airport at Amman, Jordan, and transactions have multiplied in recent years as Saudi Arabia has engaged in the privatisation process, which is part of a broader privatisation drive there. But, on the quiet, Kuwait International Airport has been pursuing a covert privatisation drive involving two separate terminals.


Summary:

  • While there are few privatised airports in the Middle East, Kuwait has been making progress with two separate privatisation projects at individual terminals;
  • One involves a major North Asian airport operator and a short-term concession; the other a private airline that will own and manage its own terminal;
  • The projects appear linked to a new outlook from the Government of Kuwait and a belief in empowering the private sector to have an active role in its Kuwait Vision 2035 national development plan;
  • These are bold initiatives from a country not previously noted for its boldness and could become a benchmark for the region.

There has actually been a great deal of infrastructure construction there. The CAPA Airport Construction Database identifies capital expenditure of up to USD4.3 billion through to 2023 on projects related to terminals, a new Airbus A380-compliant 4.5 km runway and a runway extension, a new ATC centre, and a cargo city, with an increase in passenger capacity to 130 million ppa. To all intent and purpose it is a new airport.

At the recent CAPA – Centre for Aviation Global Airport Leaders’ Forum in Dubai earlier this month, the CEO of the Bahrain Airport Company commented that the privatisation of airports in the Gulf region changes the relationship of the facility to airlines. He said: “Once they are privatised… it develops a different view on the airport-airline relationship considering the majority of airports are publicly owned.”

That is certainly the case at Kuwait, where two separate companies are involved, one of them an airline, and where the privatisation processes are quite different.

MAP – Kuwait is located at the northern edge of Eastern Arabia at the tip of the Persian Gulf and shares borders with Iraq and Saudi ArabiaSource: Google Maps

Firstly, there is the new Terminal 4, which will handle 4.5 million passengers annually.  A tender for its operation was issued in Feb-2018 and in May-2018 Incheon International Airport Corporation (IIAC) signed a contract for such operation under a five-year USD130 million concession contract, the largest one undertaken by IIAC outside South Korea. It is not known why the concession period is so short. It is understood that France’s Groupe ADP, Germany’s Fraport, TAV in Turkey and daa (Dublin Airport) also competed to secure the contract.

IIAC’s success in winning the contract to run T4 also raises the possibility of it landing additional orders in the future. Kuwait International Airport is currently carrying out the construction of T2 which will be able to handle 13 million passengers a year with the goal of completion in 2022. IIAC plans to secure advantages in the selection of the T2 operator.

The other privatisation process at the moment involves a dedicated 4750 sqm terminal at the airport to be operated by Jazeera Airways, the publicly-owned full service carrier which has grown to become the second national airline of Kuwait. The terminal should receive its first passengers by mid May-2018.

Jazeera Airways’ chairman Marwan Boodai commented that the terminal will be the “first owned by a non-government airline, and a testament to the Government of Kuwait’s belief in empowering the private sector to have an active role in the Kuwait Vision 2035.” Kuwait Vision 2035 is the National Development Plan. (Presumably he was referring to the Middle East; there are private airline-owned terminals and entire airports elsewhere in the world). The facility was constructed in 11 months and has capacity for 2.5 million passengers per annum.

One of the reasons that Kuwait Airport might be attractive to the private sector is its diversity, together with its ambition. In the last full year for which passenger traffic figures are available (2016) there were 11.8 million of them, well below those of the three main Gulf airports, Dubai (88.2 million/2017); Doha (35.2 million/2017); and Abu Dhabi (24.4 million/2017). A more comparable airport might be Bahrain Airport, with 8.5 million passengers in 2017.

Nevertheless, there is an admirable degree of construction work taking place as Kuwait tries to catch up with its Gulf rivals. The diversity is evident in the fact that no airline has as much as a third of seat capacity. Compare that statistic with Dubai International, where Emirates has 62.7% of capacity; Doha Hamad International, where Qatar Airways has almost 90% (though that is influenced by Qatar’s current political isolation); and Abu Dhabi, where Etihad has 83.7%.

CHART – The largest airline at Kuwait International is Kuwait Airways with a 30.9% capacity share, followed by Jazeera Airways with 14.4%. The third and fourth largest airlines, Emirates Airline and Qatar Airways, have 6.8% and 5.9% respectively

Source: CAPA – Centre for Aviation and OAG (data: w/c 14-May-2018)

While airports that are dominated by one carrier do not pose a problem to investors those investors know that they do not have a broad consensus to aim for in their decisions on capital expenditure in such cases and that their will can be thwarted by the dominant carrier. And in the instance of Kuwait, one of those carriers has turned out to be an investor itself.

If these processes turn out to be successful there is no reason why these diverse privatisation programmes at Kuwait should not become the new benchmark for the wider region. There is talk momentarily of an IPO on the Oman Airports Management Company, possibly accompanied by other privatisation measures, as it seeks to grow its airports to a similar degree to that of Kuwait.