Work on new San Miguel airport to commence, but it might have more local competition than its developers anticipated

27 September, 2019

The Philippines' Department of Transportation (DOTr) and the San Miguel Corporation (SMC) have signed an agreement allowing SMC to commence work on the PHP735 billion (USD14 billion) New Manila International Airport project in Bulacan. SMC has committed to developing the airport at no cost to the government, and without any subsidies or guarantees.

SMC plans to break ground on the project in Dec-2019. Philippines' Transportation Secretary Arthur P Tugade welcomed the development as, "a game changer because we can come up with a facility that will compete with the world-class airports all over Asia and all over the world".

Such 'competition' can come in many forms. It can refer to the facilities provided and the cost of using them in comparison with peer airports. But here Mr Tugade is clearly referring at least equally as to how this airport will help his country compete on an equal footing in global terms with the likes of Singapore, Kuala Lumpur and Bangkok. Right now, it doesn't.

For starters, while Philippines has a national airline, its scope is considerably less than those of its competitors. Philippine Airlines has a decent network around southeast and north Asia, a reasonable one to North America and a few services to the Middle East. But there is only one European city in the direct network.

As the table below shows, in terms of seat capacity and ASKs, while Philippine Airlines trails its peers in all but one comparison, that difference is not great. But when one takes into account the difference in country populations it is. The Philippines has over one third more people than the second most populous, Thailand. That indicates that if airline and airport growth is to come it will more likely be from hub activities.

TABLE - Philippines Airlines trails its peers in all but one comparison, but that difference is not greatSource: CAPA - Centre for Aviation Airline Profiles/author research (data: w/c 23-Sep-2019)

One the other hand, it should be pointed out that Philippine Airlines only has 30% of the capacity at the existing Manila Ninoy Aquino International airport (NAIA), three percentage points less than the low-cost local airline Cebu Pacific. But that airline's network is mainly limited to Southeast Asia.

There may be opportunities for other, network and global airlines to increase what is presently a limited or even non-existent presence at the new airport, assuming there is the demand. Airlines such as Air France, British Airways, Iberia and Lufthansa are notable for their absence even though Philippine Airlines is barely flying into Europe.

CHART - Operations at Manila Ninoy Aquino International airport are dominated by Cebu Pacific Air and Philippines Airlines which together account for almost two-thirds of seat capacitySource: CAPA - Centre for Aviation and OAG (data: w/c 23-Sep-2019)

As revealed in a previous The Blue Swan Daily article, the 'winner' of the 'competition' to build and develop the airport was decided by way of a 'Swiss Challenge' which allowed other companies to contest SMC's initial unsolicited bid to develop the airport, and leaving SMC entitled to match any competing offers. In the end, none did.

The project will use a variation on the long-established build-operate-transfer mechanism with the unfortunate acronym of BOTOM (Build Operate - Transfer Operate - Maintain). Let's hope the bottom doesn't fall out of this project as it did with the aborted PIATCO/Fraport consortium's contract to build and operate a third terminal at NAIA after a new government terminated the contract immediately it took power, with the terminal almost ready to open.

https://corporatetravelcommunity.com/the-philippines-permits-a-swiss-challenge-bid-process-for-the-new-manila-airport-project/

As The Blue Swan Daily has previously reported this new airport is not the only activity around Manila just now. In Dec-2017, a consortium of seven conglomerates led by Aboitiz InfraCapital issued a USD6.75 billion, 35-year (again) unsolicited proposal to rehabilitate, expand, operate, and maintain NAIA. In May-2018 it was reduced to USD2 billion and 10-15 years. Again there was a Swiss Challenge procedure. Perhaps it should be renamed the Philippines Challenge.

Some work is already underway but not as part of this as-yet unsigned deal. That would leave Manila with two working airports once existing capacity blockages have been removed at NAIA. The Philippines' National Economic and Development Authority (NEDA) Investment Coordination Committee-Cabinet Committee is scheduled to consider this project this week amongst at least three major airport projects.

But there's more still. North of Manila at the Clark International airport, North Luzon Airport Consortium (NLAC) signed a 25-year concession agreement with Philippines' Bases Conversion and Development Authority (BCDA) to redevelop the airport. Under the agreement, the airport's new 100,000 square metre terminal is expected to be operational by 2021 and will double the airport's capacity to eight million passengers per annum.

Then there is a separate proposal by the Cavite provincial government and its joint venture partner Chinese Communications Construction Company for the upgrade and conversion of Manila-Sangley Point Danilo Atienza Air Base into a commercial airport. A consortium led by a businessman, Luis Virata, is also understood to have presented plans for Sangley Point's redevelopment. Cavite's government previously indicated in May-2018 that its bid to redevelop the airport would be assisted by Chinese companies via the Belt and Road Initiative. The redevelopment is expected to require investment of around USD10 billion. Sangley Point was the original location identified by SMC for the new green field airport.

Manila could quickly go from a city with inadequate airport capacity to one with four airports vying for the same business. Instead of competing with world-class airports all over Asia and all over the world they'd be spending their time competing with each other.