NAIA rehabilitation by Megawide-GMR

NAIA… Clark… Bulacan… Sangley… Twenty months into the Duterte administration and government has yet to decide where the country’s principal gateway will be. The clock is ticking with NAIA — Ninoy Aquino International Airport — imploding under its own weight. Last year, NAIA processed 42 million passengers, 11 million more than its true capacity.

The need to increase air traffic capacity is now more urgent than ever. With the economy growing at more than 6% a year, analysts expect air traffic to leapfrog to 47 million passengers in 2018 and onwards to 74 million by 2022. With no capacity-building programs put in place, NAIA will have no choice but to turn away flights, a situation that could be disastrous for the economies of the national capital region and the entire island of Luzon. Let us not forget, Luzon accounts for 73% of nation’s gross national product.

Recognizing the urgency of the situation, the Department of Transportation (DoTr) and the Bases Conversion and Development Authority (BCDA) have expedited the bidding and construction of a new passenger terminal at Clark. Built for 8 million passengers, the new terminal is meant to decongest NAIA by absorbing air traffic from passengers based in northern Luzon. Barring delays, it should be operational by the year 2020. It is a case of too little capacity, too late.

The good news is that two groups from the private sector have stepped up to the plate with proposals to modernize and expand NAIA’s capacity. This should provide instant relief.

The first tender is from a consortium composed of seven of the country’s largest conglomerates. Collectively known as the NAIA Consortium, they propose to invest $7 billion to expand NAIA’s passenger capacity to 65 million a year. This is in exchange for a concession period of 35 years. The second proposal was submitted by the Megawide-GMR Group who intends to invest $3 billion to increase NAIA’s capacity to 72 million. The Megawide-GMR proposal calls for a much shorter concession period of only 18 years.

I had the opportunity to study the Megawide-GMR proposal and have come to appreciate its merits. This is what I came away with.

CONCESSION TERM
On an investment perspective, both proposals can be deemed within range of each other given that the NAIA Consortium proposes to invest $2 billion to expand capacity to 65 million passengers over four years while Megawide-GMR intends to spend $2.9 billion to scale-up capacity to 72 million within the same amount of time.

The principal difference between the two is the concession term. The fact that Megawide-GMR proposes a concession period of only 18 years, half of what is asked for by NAIA Consortium, works to its advantage. A shorter concession period gives government the flexibility to pursue other capacity-building endeavors in less than two decades instead of being locked-in for three and a half. As we all know, flexibility is key given the rapid pace in which trends in air transport evolves. A shorter term will give government the latitude to shift strategies sooner to better serve the riding public.

STRATEGIC PARTNER
The NAIA Consortium has tapped Changi Aiports of Singapore as its strategic partner while Megawide is aligned with the GMR Group of India.

To many, Changi may be the more impressive partner given its renowned facility in the Lion City. What many may not realize is that Changi Airport operates much like the Singapore government in that the airport authority has sway over all facets of operations including baggage handling, immigration, customs, and air traffic control. In short, it operates with quasai-autocratic control. It has no experience operating in an environment where the Bureau of Immigration works with absolute autonomy, as does customs, quarantine, security, and other airport services.

This lack of multi-agency management experience is Changi’s Achilles heel. In fact, this was the reason why the government of Saudi Arabia terminated its contract to manage the new King Abdulaziz International Airport (KAIA) in Jeddah.

Changi operates a single airport facility with a passenger traffic of 62.7 million while GMR manages three airport facilities — in New Delhi, Hyderabad and Mactan — with a collective passenger flow of 94 million. What is notable about GMR is that it orchestrated one of the most dramatic airport transformations in history.

I still recall how the New Delhi Airport was a madhouse when I visited the Indian capital back in 2004. It was one of the worst airports I had been to. Fast forward to 2014 and it was voted the best high-volume airport in the world according to the Airport Service Quality (ASQ) rankings, considered the “Oscar Awards” among airports. The New Delhi airport was ranked number one in 2015 again, and number two in 2016, tied with Changi.

Our very own Mactan Airport, under the management of Megawide-GMR, staged a drastic transformation of its own. It is now a model of efficiency despite the terminal being more than 40 years old. While it is already considered the 13^th best airport in Asia, we expect it to be in the upper tier when the new terminal is inaugurated this June.

As far as working relationships go, the Megawide and GMR groups have proven to work well together well with a track record of success to show. The NAIA consortium makes me uncomfortable given the fact that each conglomerate is a dominant player in their own field with the corresponding ego to match.

More than track record and management skills, however, my main discomfort with Changi is that it is a close geographic neighbor who is determined to maintain its position as the region’s aerospace hub. We should not write-off Manila’s potential to be the region’s principal gateway, as it was in the 1930s to the ’70s. After all, no other city can compete with Manila’s geographic advantage. It is not far fetched for us to aspire to regain that position as both the NAIA Consortium and Megawide do.

Having Changi operate our principal gateway posts a conflict of interest. We cannot expect it to employ strategies that undermines or compromises Singapore’s pole position.

EXPANSION PLANS
At the heart of the NAIA Consortium proposal is the construction of third runway on reclaimed land on Manila Bay. Apart from environmental concerns, this will post several logistical problems.

See, the position of a third runway at the edge of Manila Bay will be several kilometers away from the nearest terminal, in this case, Terminal 1. This will make taxiing to and from the runaway a process that could take at least 20 minutes. The time and distance will be inconvenient for all.

Moreover, since NAIA has a cross-runway configuration, the approach, departure, and missed approach procedures for a third runway will conflict with the protocols of the existing two runways, regardless of how the third runway is oriented. The net benefit of a third runway would be marginal at best, but one that will carry significant safety risks.

With a third runway in place, the NAIA Consortium foresees aircraft movements to increase from 40 to 52 per hour.

The Megawide-GMR proposal proposes to operate with the two existing runways. It will maximize capacities by constructing full-length taxi lanes parallel to both runways, augmented by several rapid exit taxiways. The idea is to have aircrafts exit the main runways at the soonest possible time, allowing it be used by the next departing or arriving aircraft. The second runway will be extended as well.

All things considered, the net result is that movements will increase from 40 to 60 per hour.

Apart from the airfield expansion, Megawide-GMR plans to expand Terminal 3 to occupy the entire stretch of Andrews Ave. It will also expand Terminal 2 to occupy the properties where the decrepit Philippine Village Hotel and the Nayong Pilipino are presently located. Terminal 1 will expand to have aprons and parking gates on either side of the building, the east side of which will connect all the way to Terminal 2. The fuel farm that presently sits between them will be relocated. With the expansion of these terminals, passenger capacities will top 72 million.

To prepare for future expansion, the area presently occupied by Lufthansa Technik will be made into a new terminal.

As I mentioned earlier, these are what I have found to be the merits of the Megawide-GMR proposal. No doubt, the NAIA Consortium’s proposal has its strong points too. I hope to be able to share them in this corner in the next few weeks.

The ball is now in the hands of the DoTr. They said that it will decide which proposal it will accept by April. Lets hope the announcement comes without delay. The clock is ticking.

 

Andrew J. Masigan is an economist.