The Philippines’ network of airports is facing mounting congestion in the wake of strong passenger growth, pushing new airport developments to the forefront of the government’s infrastructure agenda. Manila’s Ninoy Aquino International Airport (NAIA) in particular is facing serious constraints after passenger volumes hit record highs in 2015, with the airport operating close to capacity just months after an expansion project was completed. Promisingly for private investors, a new NAIA expansion is being launched under the country’s public-private partnership (PPP) programme, which has been successfully deployed for an upgrade project at Mactan-Cebu International Airport (MCIA).
Sector Overview
The Philippines is home to 71 airports, three of which are international. NAIA is the largest airport in the country and its primary international air hub. It is overseen by the Manila International Airport Authority (MIAA). The country’s national carrier, Philippine Airlines (PAL), was established in 1941 and its flight network has risen from 25 routes in 2013 to more than 50 in 2016. It held a 28.7% share of the domestic passenger market in 2015, according to the Sydney-based Centre for Aviation, behind local carrier Cebu Pacific, with 59.5%, but ahead of low-cost carrier AirAsia at 11.4%. According to the most recent figures from the Civil Aviation Authority of the Philippines (CAAP), total passenger volumes declined from 58.58m in 2012 to 53.31m in 2014.
The CAAP is responsible for regulating aircraft ownership and operation, establishing and enforcing aviation law, and operating the country’s national aviation facilities in compliance with International Civil Aviation Organisation (ICAO) regulations. The Civil Aeronautics Board is responsible for regulating all economic aspects of air transport in the Philippines, and operates under the Department of Transportation (DoT). It is responsible for supervising aviation actors, including airlines, sales agents and air freight forwarders, as well as property, equipment, facilities and related franchises.
Recent Growth
Contrary to broader national trends, passenger volumes at NAIA’s four terminals have swelled in recent years, and the facility is estimated to have handled 39.5m passengers in 2016. The MIAA reported in January 2016 that over 36.7m people transited through the airport in 2015, beating the previous record of 34.1m for 2014. Domestic passenger volumes reached 19.5m in 2015, compared to 17.2m international travellers. Growth in 2015 was supported by the completion of a three-year, P1.42bn ($30m) upgrade project awarded to local firm DM Consunji. The project included work on runway 31 for departures, allowing flight movements to take place concurrently on both of the airport’s runways. The extension of Taxiway N further decongested the airport.
New Routes
New routes and airline partnerships supported passenger growth in 2015. Turkish Airlines and Ethiopian Airlines both launched new routes to Manila from Istanbul and Addis Ababa, respectively. The year also saw local carriers begin deploying new services to Legazpi, in Albay province; Port Moresby, Papua New Guinea; Auckland; Doha; and Fukuoka, Japan. A total of 90 airlines now operate out of the airport, serving over 90 international destinations.
Despite the upgrades, new routes and airlines have strained NAIA facilities. In October 2015, for example, Joseph Emilio Abaya, former secretary of transport, told media that NAIA was operating at capacity and announced plans to offer 15- to 20-year concessions to companies willing to undertake another upgrade, which would allow the airport to handle an anticipated 51.4m passengers by 2037. Election season put these plans on hold, and in July 2016 the MIAA diverted 10 flights from NAIA to Clark International Airport (CIA) due to congestion during emergency repairs.
PPP
Promising developments came in September 2016, however, when the National Economic and Development Authority approved a P74.6bn ($1.6bn) upgrade of all NAIA terminals under a PPP model, the first such project to be announced by the new administration of President Rodrigo Duterte. Under the current parameters, a private partner will improve, upgrade and enhance land and airside operations to meet ICAO standards, under a build-operate-transfer (BOT) framework with a 15- to 20-year concession, which includes the design and construction phase. Air traffic services will be excluded from the project.
Meanwhile, Caticlan Airport, Boracy, recently completed works to extend its 400-metre runway by an additional 400 metres to accommodate larger aircraft. Prior to the upgrade only small-scale 60-passenger aircraft could land on the runway. Now, however, there is capacity for much larger Airbuses. The upgrade is expected to result in a surge in passenger throughput of 2800 people per day as opposed to 1200, currently.
Another development that is expected to boost tourism numbers is the launch by Cebu Pacific of four new domestic routes to its itinerary in 2017. The routes will provide links to three major islands – Cebu, Busuanga and Caticlan and will be open by the end of May.
Cavite Airport
In addition to upgrades at NAIA, the government is pursuing construction of a new airport in the Manila area, expected be built in Cavite, on the southern shore of Manila Bay in the Calabarzon region. In February 2016 the DoT announced it had abandoned plans to develop a new international airport in central Manila Bay, telling local media that it would select a greenfield site at either Sangley Point or Laguna Lake, under recommendations from the Japan International Cooperation Agency. However, Duterte’s administration appears to be adopting a different approach. President Duterte told The Philippine Star in August 2016 that rather than building a new airport at Sangley Point, the government is more inclined to convert a former US military facility at Cavite into a domestic airport, while also constructing a third runway at NAIA.
Bidding Process
According to President Duterte, the DoT is conducting feasibility studies for the third runway at NAIA. Although the DoT had been studying the possibility of using CIA as a new domestic facility, with both PAL and Cebu Air reportedly considering moving some of their domestic flights to CIA in late 2016, Duterte said that a former military airbase in Cavite is a more viable option. According to the president, CIA would only be considered as an international hub if a high-speed railway or dedicated highway was constructed to facilitate traffic between Pampanga, where it is located, and Manila. In a departure from some of his predecessors, Duterte also noted that the government would be looking for quality bids, rather than the lowest price point, when selecting a private partner for any future aviation PPPs.
Restoring Investor Confidence
Recent government moves to settle previous contractual disputes should help bolster investor confidence in aviation contracts. In October 2016 the government announced it had compensated the Philippine International Air Terminals Company (PIATCO), a consortium led by Germany’s Fraport, which had signed a 25-year BOT contract for NAIA’s third terminal in 1994. The deal was terminated in December 2004, following presidential elections, and the terminal expropriated from PIATCO. Although the government had previously paid the consortium $59m in 2006 as an advance payment for an anticipated settlement, the October 2016 payment of $510m was in keeping with a Supreme Court of the Philippines decision issued in September 2015 and reaffirmed in April 2016. Now that PIATCO has received full compensation, Fraport officials have announced that the company will sell its shares in Filipino firms and no longer pursue claims in connection to the deal.
Mactan-Cebu Upgrades
Other airport PPPs have been more successful, with MCIA standing as one of the most visible success stories. The government launched a competitive bidding process for the development and management of MCIA under a BOT PPP model in 2012. In December 2013 a joint venture between local firms GMR Infrastructure and Megawide Construction Corporation of the Philippines, GMR-Megawide Consortium (GMCAC), was awarded a P14.4bn ($304.6m) contract for the project. Under the agreement, GMCAC took full operational control of the airport in late 2014 for a period of 25 years. The project also includes construction of a second terminal that will boost capacity to 12.5m passengers annually, up from 4.5m, currently.
In January 2016 construction on MCIA’s second terminal began, with the P17.52bn ($370.6m) project expected to be completed in the first half of 2018. Spanning 45,000 sq metres, the terminal will serve all MCIA’s international flights, with eight aerobridge-equipped aircraft parking stands connected by a link bridge to Terminal 1, which will be refurbished for exclusive domestic use. The new Terminal 2 will also include 48 check-in counters, which can be expanded into 72, as well as a car park with space for 550 vehicles. Some 3000 jobs will be created during the construction process, after which the airport will create 550 new jobs.
Terminal 2 is expected help transform Cebu into a major regional hub, with GMCAC announcing it had partnered with the DoT to aggressively market the region to international visitors. In a PPP Centre January 2016 brief, Andrew Acquaah Harrison, CEO of GMCAC, said the airport had added four new international services in March 2016, including a direct flight to Los Angeles and services to Dubai, Taipei and Xiamen, China.
Regional Prospects
The future development of regional airports ranks high on the government’s agenda, as evidenced by the October 2016 announcement that the DoT intends to resume bidding for a number of regional airports under the government’s PPP programme. At a press conference, Roberto Lim, undersecretary of transport for the air sector, said the government intends to pick up airport projects launched by the previous administration, but never awarded, including the airports of Iloilo and Bacolod-Silay, which will comprise a single project, and a second package that includes Davao International Airport, New Bohol (Panglao) Airport and Laguindingan Airport. Under the proposed terms for these news PPPs, winning private companies will handle operations and maintenance, as well as facilities expansion.
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