PAL’s solution to NAIA’s congestion

Last May, Philippine Airlines formally presented an unsolicited proposal to the Department of Transportation (DoTr) to expand Terminal 2 of the Ninoy International Airport (NAIA). As everybody knows, PAL has exclusive use of the terminal for its domestic and international operations. Thus far, PAL’s proposal is the most practical, cost efficient, and expeditious solution to relieve NAIA’s congestion woes — one that should be favorably considered by government.

Before getting into the details of PAL’s proposal, however, let me provide some context.

NAIA, with its four terminals and two runways, was built accommodate 32 million passengers annually. By the end of this year, passenger traffic is seen to exceed 42 million, 31% more than real capacity. This explains why flight delays are a common occurrence and why unbearable queues persist at practically all stations of the airport.

Growth in the aviation sector continues to expand at a heady pace, having posted 10% annual increases in 2015 and 2016. It will further accelerate in the coming years given the strong economy. While NAIA’s operations are much improved under the management of general manager Ed Monreal, there is simply no way NAIA can accommodate the inevitable growth in aviation traffic, at least not in its current state.

In fact, analysts warn that with increased volume, NAIA’s basic facilities like its baggage handling systems, cargo processing, and mechanical systems (eg. air-conditioning, etc.) could implode on its own stress. And, as a result, frequent break-downs and service disruptions will be inevitable.

The inability of NAIA to absorb future growth will have dire consequences on both the riding public and the economy.

For travelers, it will mean having to contend with even more crowds, queues and delays. It will also result in more chaotic vehicular traffic in the drop off and pick up points and an acute lack of parking spaces. All this will make travelling through the nation’s principal gateway a horrid experience.

For the economy, a choked-up airport will cause an equivalent shortage in air cargo capacity. This will prove catastrophic for the electronics, pharmaceutical and chemical industries, among others. The impact, however, will be most severe for the tourism industry and the thousands of businesses that depend on it.

With no capacity to spare, NAIA will have no choice but to put a cap on flights to and from Manila. Companies like Philippine Airlines, Cebu Pacific and Air Asia Philippines will have to stunt their own growth and struggle to survive amid overcapacities. Between PAL and Cebu Pacific alone, some 30 brand new aircraft are scheduled to be added to their fleets by 2021.

All factors considered, the social and economic costs of NAIA’s congestion will be enormous. It is substantial enough to put a drag on the entire economy.

RUNNING OUT OF OPTIONS
Much has been said about San Miguel’s $10-billion airport proposal in Bulacan and Solar-Belle Resources’ $16-billion airport at Sangley. Both whetted our appetites and filled us with hope. Unfortunately, neither have secured NEDA approval even up to this day. In other words, neither project figures in government’s official master plan.

Too, the privatization (and subsequent expansion) of NAIA has been ruled out. In my last conversation with DoTr Sec. Art Tugade, he mentioned that he prefers to keep NAIA under government control, only allowing airports outside the capital to be privately operated and maintained.

This leaves us with Clark Airport as the only source of relief. Earlier this year, the DoTr green lit the construction of a new airport terminal roughly based on the 2013 plan of Aeroports de Paris. The terminal will have an annual capacity of eight million passengers and will cost $2.4 billion. More than 40 contractors are poised to submit their bids for the construction of the new terminal later this month. Roll-out is foreseen in 2021.

Clark’s new terminal is not meant to replace NAIA — it is simply intended to decongest it. By no means will it be sufficient to support the future growth of the aviation industry.

PAL’S PROPOSAL
This leads me back to the PAL’s proposal.

PAL’s proposal consists of two phases. Phase 1 involves the modernization of Terminal 2 to increase its efficiency and passenger comfort. The package of improvements includes the use of electronic swing gates using boarding pass scanners (instead of manual document checkers). It also includes the expansion of the departure and arrival halls as well as a thorough upgrade of PAL’s Mabuhay Lounge to one befitting a five-star airline.

Phase 2 involves the construction of an entirely new terminal that will serve as an annex to the existing building. PAL proposes to use the 16.3 hectare property that straddles the decrepit Philippine Village Hotel and unused Nayong Pilipino. The annex building will have a floor area of 89,000 square meters, roughly double the size of Rockwell Mall. It will have 17 gates, each with their own aerobridge. The new terminal will be rigged with the latest technologies and effectively increase NAIA’s capacity by 12.5 million passengers a year.

Moreover, PAL plans to construct a 1,000 car parking lot, an expanded cargo handling facility and a new fuel depot to support increased aviation traffic.

The proposal comes with the price tag of $400 million. Like any private public partnership deal, PAL intends to foot the bill in exchange for the operation and maintenance of the facility over a number of years. Assuming PAL gets the green light this year, it can start construction as early as 2018 and have the new terminal operational by July, 2021.

IMPEDIMENTS
Despite the fact that PAL’s proposal provides a win-win solution for government, the riding public and the economy, there are few impediments standing in its way.

For one, PAGCOR, the owner of the land in which PAL intends to build on, must agree to lease the property to the flag carrier. If ever, it will be the second chunk of land it leases to PAL, following the 10 hectares presently used as PAL’s remote aircraft parking site. Secondly, PAL must secure DoTr support for the project.

PAGCOR and DoTr will only go the way Malacañang goes…. and here lies the problem.

See, PAL has earned President Duterte’s ire for not having settled its debts in arrears to both the Manila International Airport Authority (MIAA) and the Civil Aviation Authority of the Philippines (CAAP). Its alleged liabilities consist of P6.97 billion in unpaid navigational charges to CAAP and P322.11 million in unpaid rental fees to MIAA.

Sec. Tugade sent a statement of account to PAL last August with a demand to settle the liability in full.

PAL has since paid P370 million to CAAP and requested the DoTr for more time to reconcile its remaining accounts. Both PAL and CAAP have been working on a mutually agreeable settlement.

PAL’s request for more time was denied. In fact, in a public speech, President Duterte threatened to shut down Terminal 2, invariably paralyzing PAL, if payment is not received within 10 days. As I write this, the 10 days have already lapsed.

THREE CONTENTIOUS ISSUES
I have three points to make about PAL’s payables issue and its unsolicited proposal.

Point one: While I agree that Malacañang has all the right to issue an ultimatum, I also think that such should not be as simplistic as “pay or face closure in 10 days”. Every company has the right to reconcile its accounts — perhaps 60 days is a more reasonable timeline. After all, the consequence of closing Terminal 2 or precluding PAL from using the facility, may cause more losses to the economy than just P7 billion. Consider the losses to arise from the paralysis of Manila’s logistics chain alone.

Point Two: Government must enable private Filipino enterprises to succeed, not stand in their way. Should government decide to reject PAL’s proposal for whatever reason while failing to provide a viable alternative, it effectively curtails the growth of PAL, the aviation and logistics industry and the thousands of businesses that rely on it.

Point three: At this juncture, government cannot afford to ignore PAL’s proposal simply because there are no other options on the table. Fact is, Clark’s capacity will prove insufficient and too difficult for the majority of travellers given its distance from Manila and absence of a rail connection. Moreover, “Dream Projects” like Bulacan and Sangley are at least a decade away. PAL’s proposal remains to be the most doable and fastest option to defuse the ticking time bomb that is NAIA

Lets hope the DoTr doesn’t fall into the trap of “paralysis by analysis” as the DoTC did, nor the trap of putting politics before public good. NAIA needs a solution and it needs it now.

 

AndreW J. Masigan is an economist.