Turkey is planning to polish its credentials as an international transportation hub by building one of the world’s largest airports in Istanbul, a facility that is intended to serve the growing travel market and also cater to transit traffic, though it will face stiff competition from established airports in the Middle East and Europe.
On May 20 a ceremony was held in Ankara to mark the signing of contracts for what has been touted as the biggest transport infrastructure project in Turkey’s history, a build-operate-transfer development of Istanbul’s third international airport. The tender for the project was won in early May by a consortium of Turkish firms – Limak, Cengiz, Kolin, Ma-Pa and Kalyon – that combined to bid $28.6bn for the right to construct and operate the airport for a 25-year term.
The as-yet-unnamed airport will be located close to the Black Sea coast on the European side of Istanbul, with construction set to begin in mid-2014. When complete in the middle of the next decade, the airport will have four separate terminals and six runways, with a passenger handling capacity of 150m a year. When the first stages open in 2017, the airport will have a 90m-passenger capacity, 30m more than Istanbul’s two existing airports handled last year.
The new hub will be the home port for Turkish Airlines (THY), which is in the process of expanding both its fleet and its network of routes. The national carrier, which is 49% state-owned, had almost 40m domestic and international passengers in 2012, a figure it aims to push to 46m this year and to 90m by 2020.
Though the contracts have been signed, there have been some questions over the project, including its financing. Both state officials and consortium members have played down concerns over attracting funding for the project, though a number of other major transport infrastructure developments have been delayed due to bidders struggling to get financial backing.
The high cost of the airport has also raised questions over whether the operators will be able to make a healthy return on their investment. According to a report from the finance house Erste, the consortium will be paying $1.2bn annually over 25 years under its lease agreement. This annual rate is three times the rate that TAV Airports Holding, the terminal operator for Istanbul Ataturk Airport, the city’s main airport, pays as its yearly fee.
For the consortium to maximise returns on its $12.9bn or more investment, the new airport will need to live up to its billing as a premier aviation hub, attracting carriers to use it as a transiting point and as a regional base. These hopes may struggle to get off the ground due to existing competition; Dubai, which has expanded its international airport to the level where it is now one of the largest in terms of passenger movements in the world, serving almost 60m passengers in 2012, has developed as the preferred staging point for airlines on the Asia- or Oceania-to-Europe routes. The emirate is continuing to extend its aviation hub, which will have a passenger capacity of 120m by the end of the decade. By contrast, Istanbul’s main airport, Ataturk International, handled only 45m domestic and overseas travellers in 2012, though some of the run-off was taken by the city’s second airport, Sabiha Gokcen located on the Asian side of the city, which catered to 14.9m passengers in 2012, both local and foreign.
There could be some one-off gains that will boost throughput at the facility, with Turkey a strong candidate to host the 2020 Olympic Games, an event that would bring millions of overseas visitors to the city. According to Hasan Arat, the chairman of the Istanbul 2020 bid, finalising the airport tender was a significant milestone in Istanbul’s history, one that would help solidify the city’s Olympic Games chances.
The business opportunities presented by the new project were quickly recognised by the US Commerce Department, which issued an advisory on May 13 saying the new airport development represented more than $1bn in equipment and service exports for US firms. Key areas identified by the department were full-field architecture, design, engineering, procurement and construction; terminal and ground control radar; fire safety and security systems; energy efficient technologies; and ICT equipment. Undoubtedly, European and Asian suppliers and aviation contractors will be keen to get into the act, while Turkey’s own construction industry is likely to be the main beneficiary of the building component of the project.
With THY as its anchor client, the new airport will be busy, though it may need a strong tail wind if it is to reach the heights its proponents have claimed for it. There will be opportunities aplenty during the construction and development stage of the project, but perhaps the hardest job will be to woo carriers away from existing hubs and to make Istanbul one of their main ports of call.