Asia Airports Think Big, Act Quick - DBS Bank
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69
SECTOR BRIEFING
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DBS Asian Insights
DBS Group Research • December 2018
Asia Airports
Think Big, Act Quick
DBS Asian Insights SECTOR BRIEFING 69 02 Asia Airports Think Big, Act Quick Paul Yong, CFA Equity Analyst DBS (Singapore) paulyong@dbs.com Marvin Khor Equity Analyst DBS Alliance marvinkhor@alliancedbs.com Namida Artispong Equity Analyst DBS (Thailand) namidaa@th.dbs.com Produced by: Asian Insights Office • DBS Group Research go.dbs.com/research @dbsinsights asianinsights@dbs.com Goh Chien Yen Editor-in-Chief Rachel Hui Ting Tan Editor Martin Tacchi Art Editor
DBS Asian Insights
SECTOR BRIEFING 69
03
04 Executive Summary
06 Asia Pacific, the fastest growing
air-travel region
13 Bursting at the seams
19 Large investments needed over
two decades
28 The increasing role of private
capital in Asia’s airport
development
35 Fund-raising lessons
39 Asia’s most valuable airports
Changi Airport Group
Hong Kong International Airport
Angkasa Pura I & II
Seoul Incheon International Airport
59 Key Risks and Challenges
61 Investment cycle and share prices
67 Appendix
DBS Asian Insights
SECTOR BRIEFING 69
04
Executive Summary
A
Rising air travel leads to growing middle class, rising propensity to travel and broadly improving global
urgent need for more connectivity are setting the stage for air passenger volume in Asia to rise
airport infrastructure significantly over the coming decades. Besides the impending expansion of
airline fleet (evidenced by burgeoning Boeing & Airbus order books), the other
critical component necessary to facilitate this growth is the expansion of key Asian airports.
Urgency is a mounting factor as the majority of Asia’s busiest airports are already operating
at above built-for capacity. Where possible, airport operators are aiming to enhance and
enlarge their available infrastructure, in addition to furnishing them with cutting-edge
technology and systems. Space constraints are also a common feature, leading to both
public and private efforts to find and develop new hub locations.
Urgent need for more The International Air Transportation Association (IATA) is forecasting passenger traffic in the
airport capacity Asia Pacific to grow at a 20-yr compound annual growth rate (CAGR) of 5.1% from 2016,
higher than the global rate of 3.8%, and to reach around 3,500m passengers (pax) in 2036.
By 2036, the Asia Pacific market will potentially add 2.2bn more passengers, accounting for
45% of global traffic. On average, that works out to be more than 100m more passengers
per year for the next two decades – requiring an increase in passenger throughput capacity
of 200m pax per annum.
While most of the region’s airports have expansions or a new airport planned, many of
these airports will still be operating above or at near capacity by the time the expansions are
complete, highlighting the need for continuous expansion and investment.
Bigger, better and more Capital expenditure for airport construction has been rising, in particular for those aspiring
airports to become hub airports, as best-in-class facilities will help draw airline and air passenger
customers to use them as connecting points. The potential to build ‘aerotropolises’
(airport cities), especially around newer and larger airport expansions, implies large
potential investment inflows for the respective geographical areas and leverage to procure
government support. Taking the weighted average cost per pax for proposed airports in
Asia of US$129.1 per pax multiplied by the c.4bn passenger handling capacity needed in
Asia in the next 2 decades, we derive an estimated total Asia’s airports. Given rising land
acquisition and construction costs over time, there is likely to be upside risk to this estimated
figure of US$516bn.
A growing role for While investment in airports in Asia were traditionally thought to be the domain of the
private capital public sector, the large investment required, as well as the allure of steady returns and
commercial revenue opportunities are attracting an increasing number of private capital
into the sector. The staggering investment needed to build airport infrastructure is strong
motivation for governments to turn to private capital as a supplementary, or even primary,
DBS Asian Insights
SECTOR BRIEFING 69
05
means of funding such projects. Generally, there are three airport privatisation models,
1) full private ownership, 2) partial privatisation, and 3) long-term concessions. There are
more privatisation opportunities in markets like Japan, China, India, Indonesia, and the
Philippines.
Fund raising lessons Two of ASEAN’s largest airport groups – Malaysia Airports Holdings Berhad and Airports of
from Asia’s listed Thailand - were among the earliest in Asia to tap the equity markets to fund their expansion
airports plans and both are now in a strong financial position to finance their own growth.
Meanwhile, much smaller airports like Samui Airport also managed to raise money from the
equity markets with a well-structured sale of concession to a listed fund, showing the way
for other small airports to do the same.
The home of billion- The Asia Pacific region is home to some of the most valuable airports in the world. In fact,
dollar airports the largest pure play airport company in the world is Airports of Thailand, with a market
capitalisation of nearly US$28bn. Names such as Hong Kong International Airport, Seoul
Incheon International Airport and Changi Airport Group, which are among three of the
most profitable airports in Asia, are likely worth tens of billions of dollars as listed companies,
though Indonesia’s Angkasa Pura I & II groups would also be worth billions when we apply
the average PE of listed peer companies to their respective earnings.
The examples from airports under our coverage give clear evidence that capex-driven
declines in operator valuations are temporary in nature and present an opportunity for
investors to accumulate on the cheap for airports with growth potential, as throughput
growth is a far more critical share price driver in the long term.DBS Asian Insights
SECTOR BRIEFING 69
06
Fastest growing air travel
region
A
The Asia Pacific ccording to the International Civil Aviation Organization (ICAO), air passenger
is the largest air traffic in the Asia Pacific region reached 1,485m pax in 2017, accounting for
transportation market c.36.5% of overall passengers globally and growing by 10.8% y-o-y compared
in the world to 5.3% growth for the rest of the world in 2017. Asia Pacific’s share of air
passengers has risen from 27.7% in 2010 to 36.5% in 2017 and more than half the growth
of passenger traffic in 2017 was from Asia Pacific.
Global air passenger traffic (2010 to 2017)
Europe
4,500 Africa Middle East
4,000 N. America Latin America and Caribbean
3,500
3,000
2,500
2,000
1,500
1,000
1,206 1,340 1,485
500 817 922 1,008 1,107
711
0
2010 2011 2012 2013 2014 2015 2016 2017
Source: ICAO, DBS Bank
In terms of absolute numbers, an average of nearly 100m passengers was added each year
between 2011 and 2015, while nearly 140m passengers on average were added each year
in 2016 and 2017.DBS Asian Insights
SECTOR BRIEFING 69
07
Growth of air passenger traffic in Asia Pacific (m)
144.6
134.7
105.9 105.1
98.8 98.5
86.4
2011 2012 2013 2014 2015 2016 2017
Source: ICAO, DBS Bank
The Asia Pacific will IATA is forecasting passenger traffic in Asia Pacific to grow at a 20-yr CAGR of 5.1% from
see 2.2bn more air 2016, which is higher than the global rate of 3.8%, to reach around 3,500m pax in 2036.
passengers by 2026 By 2036, the Asia Pacific market will add 2.2bn more passengers, accounting for 45% of
global traffic.
Growth of air passenger traffic by 2036
Series1 Series2 Series3 Series4 Series5 Series6 Series7
9000.0
8000.0
7000.0
6000.0
5000.0
4000.0
3000.0
2000.0
28%
1000.0
35%
0.0
2016 2036E
Source: IATA, DBS BankDBS Asian Insights
SECTOR BRIEFING 69
08
On average, that works out to be more than 100m more passengers per year for the next
two decades – requiring an increase in passenger throughput capacity of 200m pax per
annum. This forecast may be pessimistic given that the year-to-date Revenue Passenger
Kilometres (RPK) growth (August 2018) in the Asia Pacific was 9.5%, while passenger
growth in 2017 was 10.8%.
Growth of air passenger traffic in Asia Pacific (m)
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
2016 pax 2017-2036 pax
North America
Europe
Latin America
Middle East
Africa
Source: IATA, DBS Bank
What are the drivers for air travel growth in Asia?
Massive population Asia has a total of 4.46bn people (60% of the global population) but only accounts for
portends huge growth 36% of the total air passenger traffic numbers, suggesting there is still plenty of room for
potential for the civil aviation to grow in the region.
aviation market
Asia is the world’s most populous region
Asia Rest of world Growth
9,000 MIllion ppl 8,513 8%
8,152
8,000 7,767
7,357 7%
6,933
7,000 6,520 6%
6,122
6,000 5,714
5%
5,000
4%
4,000
3%
3,000
60% 59% 59% 58% 2%
2,000 61% 61% 61%
61%
1,000 1%
- 0%
1995 2000 2005 2010 2015 2020F 2025F 2030F
Source: populationpyramid.net, DBS Bank estimatesDBS Asian Insights
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China (1.38bn), India (1.32bn) and ASEAN (634m) alone have a combined population of
3.33bn, or 45% of the global total. While population growth in China has slowed down,
there are signs that the government is trying to reverse this. Meanwhile, ASEAN and India’s
birth rates remain above the global average and will drive Asia’s population growth in the
next decade.
ASEAN & India’s birth rates are above global average
World
China
12%
ASEAN (Indonesia, Singapore, Vietnam, Philippines)
10% India
8%
6%
4%
2%
0%
2000 2005 2010 2015 2020F 2025F 2030F
Source: populationpyramid.net, DBS Bank estimates
Rising income levels Gross National Income (GNI) per capita in East Asia Pacific (excluding high income countries)
and a growing middle grew to US$6,667 at a CAGR of 11% in 1995-2016, achieving above middle-class range
class defined by the World Bank since 2010. This has driven rapid consumption growth, including
demand for air travel in the region.
Rising incomes in East Asia Pacific (excl. high income)
8,000 US$
7,000 Middle class
6,000
5,000
4,000
3,000
2,000
1,000
-
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: World Bank, DBS Bank estimatesDBS Asian Insights
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China’s growing middle class
100% 3%
7% 15%
90%
80%
20%
70% Low (RMB 200,000)
20% 37%
10%
11%
0% Source: The Economist Intelligence Unit
2015 2030
With the growth of low cost carriers (LCCs) like Air Asia, Lion Air, Tigerair (now part of
Scoot), Jetstar and recently Vietjet, air travel in ASEAN has grown rapidly in the last decade.
LCC seat capacity quadrupled from 50.3m in 2007 to c.222.9m in 2016. In the same period,
ASEAN also saw a c.76% jump in international arrivals from 62m to 109m.
The fact that key aviation hubs in ASEAN are within five hours of flight from the major
markets of China, India and ASEAN itself has also helped the sector grow rapidly.
LCC seat capacity in ASEAN (2007 – 2016)
250 Million s
200
150
100
50
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: CAPA, DBS BankDBS Asian Insights
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The great tourism drive As a result of its latent potential in terms of population base and the rapid rise in incomes,
in Asia the Asia Pacific region has been adding the most to global tourists in the last decade. This
trend is expected to continue.
Outbound tourists globally (1990 2016)
Europe Asia Americas Africa Middle East
1,200
Million Visitors
1,000
800 308
276
250 263
600 205
154
110
400
82
56
200
0
1990 1995 2000 2005 2010 2013 2014 2015 2016
Source: UNWTO, DBS Bank
In terms of absolute numbers, Northeast and Southeast Asia have been driving the growth
of outbound (international) tourists in the region while South Asia has also been growing
rapidly from a low base – at a CAGR of over 15% from 2011-2016.
Tourism growth in Asia Pacific
North-East Asia ASEAN Oceania South Asia
350
Million Visitors
300 15.3% CAGR
5.9% CAGR
250
200 8% CAGR
150
100
5.9% CAGR
50
0
2011 2012 2013 2014 2015 2016
Source: UNWTO, DBS BankDBS Asian Insights
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Four of the five fastest growing markets, in terms of additional passengers per year, over the
forecast period will be from Asia. According to forecasts by IATA, China will replace the US
as the world’s largest aviation market by 2024. India will displace the UK for third place in
2025, while Indonesia and Japan will be ranked 5th and 7th respectively.
Fastest growing markets (2016 – 2036F)
Region Countries New Passengers Total Passengers
Asia China 921 million 1.5 billion
India 337 million 478 million
Indonesia 235 million 355 million
Turkey 119 million 196 million
North America United States 401 million 1.1 billion
Source: IATADBS Asian Insights
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Bursting at the seams
T
3 of the top 5 busiest he busiest airport in Asia in 2017 was the Beijing Capital International Airport,
airports globally are in also the second busiest in the world, handling nearly 96m passenger movements.
Asia Meanwhile, Dubai International Airport (third busiest globally) and Tokyo Haneda
Airport (fourth busiest globally) handled 88m and 85m passenger movements
respectively in 2017.
Airports in Asia make Among the 50 busiest airports globally, there were 10 from China, Hong Kong and Taiwan,
up 21 of the 50 busiest five from the ASEAN region, and two each from Japan and India. Korea and the United
airports globally Arab Emirates (UAE) were also represented in the list. Notably, the combined passenger
throughput of these 21 airports grew by 6.9% y-o-y in 2017, exhibiting firm growth despite
the large base.
10 of the busiest cargo Three of the five busiest cargo airports in the world reside in Asia, with Hong Kong in the
airports are in Asia number one spot and growing by 9.4% y-o-y in terms of tonnage handled to 5m tonnes
in 2017. This is followed by Shanghai Pudong Airport with 3.8m tonnes handled (+11.2%
y-o-y) and Seoul Incheon International Airport with 2.9m tonnes handled (+7.6% y-o-y).
E-commerce has been a key driver of growth and this is expected to continue.
Top 5 cargo airports in Asia in 2017
6.0 12.0%
Freight Handled - tonnes (m)
5.0
5.0 10.0%
3.8
Y-o-Y growth
4.0 8.0%
2.9
3.0 2.7 6.0%
2.3
2.0 4.0%
1.0 2.0%
0.0 0.0%
Hong Kong Shanghai Seoul Dubai Tokyo Narita
International Pudong Incheon International Airport
Airport International International Airport
Airport Airport
Source: ACIDBS Asian Insights
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Busiest passenger airports in Asia and in the world – 2017
Asia World Airport Country Pax Handled Growth
y-o-y
1 2 Beijing Capital International Airport China 95,786,442 1.5%
2 3 Dubai International Airport United Arab Emirates 88,242,099 5.5%
3 4 Tokyo Haneda Airport Japan 85,408,975 6.5%
4 8 Hong Kong International Airport Hong Kong SAR, China 72,665,078 3.4%
5 9 Shanghai Pudong International Airport China 70,001,237 6.1%
6 13 Guangzhou Baiyun International Airport China 65,887,473 10.3%
7 16 Indira Gandhi International Airport India 63,451,503 14.1%
8 17 Soekarno-Hatta International Airport Indonesia 63,015,620 8.3%
9 18 Singapore Changi Airport Singapore 62,219,573 6.0%
10 19 Seoul Incheon International Airport Republic of Korea 62,157,834 7.5%
11 21 Suvarnabhumi Airport Thailand 60,860,557 8.9%
12 23 Kuala Lumpur International Airport Malaysia 58,558,440 11.2%
13 26 Chengdu Shuangliu International Airport China 49,801,693 8.2%
14 29 Chhatrapati Shivaji International Airport India 47,204,259 5.7%
15 34 Shenzhen Bao'an International Airport China 45,558,409 8.5%
16 35 Taiwan Taoyuan International Airport Taiwan 44,878,703 6.1%
17 37 Kunming Changshui International Airport China 44,729,736 6.6%
18 44 Ninoy Aquino International Airport Philippines 42,022,484 6.2%
19 45 Shanghai Hongqiao International Airport China 41,884,059 3.5%
20 46 Xi'an Xianyang International Airport China 41,857,406 13.2%
21 49 Narita International Airport Japan 40,631,193 4.2%
Source: Airports Council International
China’s major airports In 2017, seven of China’s top ten airports were handling passenger movements above their
are highly congested design capacity, while the rest were operating at or near capacity. Inevitably, this has led to
congestion issues at China’s major airports, affecting an estimated 50% of air passengers
domestically.DBS Asian Insights
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Major airports in China – capacity vs demand (2017)
33
Hangzhou 36 Design Capacity
Chongqing 45 2017 Pax
39
Xi'an 50
42
SH Hongqiao 20
42
Shenzhen 45
46
Kunming 38
45
Chengdu 50
50
Guangzhou 36
66
SH Pudong 50
70
Beijing 82
96
02 04 06 08 0 100 120
Source: CAAC, CADAS
ASEAN airports are also The main airports in Bangkok and Manila are already handling passenger movements above
overcrowded their designed capacity while Jakarta is already nearing full capacity despite having just
opened a new terminal.
Major airports in ASEAN – capacity vs demand (2017)
90 2017 Arrivals 2017 Capacity
82
80 75
70
62 61 63 60 59
60
50 45
42
40
30
30
20
10
0
SingaporeJ akarta Bangkok Kuala Lumpur Manila
Source: Respective airports, DBS Bank estimatesDBS Asian Insights
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India’s airports will Given the rapid growth of civil aviation in India, key airports in Mumbai and Chennai
soon face the strain too are already at or near saturation. The Indian government also estimated that traffic in six
major hubs will reach capacity limit by 2019 covering nearly two-thirds of passengers in
India. An article by the Centre For Aviation CAPA) reports that based on projected growth
rates, most of the 40 largest airports in the country will exceed their design capacities
within the next decade.
India’s top 10 airports’ pax movements FY17/18*
FY17/18 Pax (m) Growth
70.0 65.7 30%
60.0 25%
48.5
50.0
20%
40.0
15%
30.0 26.9
20.4 19.9 18.2 10%
20.0
10.2 9.2 8.2 7.6 5%
10.0
0.0 0%
Chennai
Hyderabad
Ahmedabad
Pune
Delhi
Mumbai
Bengaluru
Kolkata
Kochi
Goa
Source: Airports Authority of India, *April 2017 to March 2018
Terminal congestion impacts passenger satisfaction levels, while more severe congestion
would impact demand. While we mainly focus on passenger handling capacity for airports,
there are in fact many different aspects of airport capacity constraints to consider. These
include, but are not limited to, a) runway congestion, which leads to more delays and limits
the number of flights, b) security, customs and immigration clearance (e.g. some airports
take a much longer time to process travellers than others), c) airspace congestion, d) peak
or ‘popular’ landing/take-off times, e) other operations such as ground handling, fuelling,
check-in desks, boarding gates, baggage carousels etc. f) airport slot constraints and, g) a
shortage or lack of skilled personnel, which would impact safety or efficiency.
12 of the top 20 airports Many of Asia’s major airports were already handling passenger movements above their
were operating at or design capacities in 2017. Guangzhou and Beijing airports for example, recorded passenger
above capacity in 2017 throughputs that were 31m and 16m above their capacities respectively in 2017. The airportDBS Asian Insights
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in Guangzhou opened its Terminal 2 in April 2018, raising its capacity to 80m a year while
a new airport in Beijing is slated for opening at the end of 2019. Most of these congested
airports do have plans for further expansion over the next decade.
It should be noted that based on projected growth rates, many of these airports will still be
operating above or near capacity by the time the expansions are complete, highlighting the
need for continuous expansion and investment.
Amongst Asia’s busiest airports, only the main airports in Singapore, Kuala Lumpur, Xi’an
and Seoul have some room for growth as they operated at 76%, 79%, 84% and 86% of
their design capacities respectively in 2017.
A further 4 airports In 2017, four of the top 20 airports handled passenger movements equal to 90% or more
were operating at 90% of their designed capacity, namely Dubai, Tokyo Haneda, Indira Gandhi and Soekarno-
or more Hatta, with capacity expansion plans in place for Indira Gandhi (15m more passengers by
2021) and Soekarno-Hatta (37m more passengers by 2025). Dubai has long-term plans
to expand its second airport, Dubai World Central, to handle 160m passengers versus its
current capacity of 26m (by 2018).
Targeted expansion for While the Kuala Lumpur International Airport (KLIA) as a whole is operating below full
KLIA capacity, there is disparity between terminals as the headroom is only at the klia2 which
began operating in 2014. The KLIA main terminal is handling near its designed capacity of
30m pax in 2018, with notable points of congestion, such as at its arrival hall and contact
piers, and these congested points have received negative public feedback. Malaysia Airports
Holdings has set out plans for procedural optimisation and some infrastructure upgrades
to improve processing times, though the group expressed that more substantial expansion
plans may be implemented over the next five years.DBS Asian Insights
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Top 20 busiest airports in Asia (2017) – capacity, passenger movements and expansion plans
Rank Region Busiest airports in Asia Pax (m) Capacity Deficit (m) Additional Completion
(m) capacity date
1 China Beijing Capital 96 80 -16 NA NA
2 UAE Dubai International 88 90 NA NA
3 Japan Tokyo Haneda 85 90 8 2020
4 China Hong Kong 73 72 -1 30 2027
5 China Shanghai Pudong 70 60 -10 20 2020
6 China Guangzhou Baiyun 66 35 -31 45 2018
7 India Indira Gandhi 63 70 15 2021
8 Indonesia Soekamo-Hatta 61 63 37 2025
9 Singapore Singapore Changi 62 82 50 2030
10 Korea Seoul Incheon 62 72 28 2030
11 Thailand Suvamabhumi 60 45 -15 45 2020
12 Malaysia Kuala Lumpur 59 75 10 NA
13 China Chengdu Shuangliu 50 50 NA NA
14 India Mumbai Chhatrapti Shivaji 47 45 -2 5 2020
15 China Shenzhen Bao'an 46 45 -1 NA NA
16 Taiwan Taiwan Taoyuan 45 35 -10 10 2020
17 China Kunming Changsui 45 38 -7 22 NA
18 Philippines Manila Ninoy Aquino 42 30 -12 45 2020
19 China Shanghai Hongqiao 42 40 -2 NA NA
20 China Xi'an Xianyang 42 50 30 2022
Source: Airports Authority of India, *April 2017 to March 2018DBS Asian Insights
SECTOR BRIEFING 69
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Large investments needed over
two decades
I
ATA projects that air passenger traffic in the Asia Pacific region will increase by 2.2bn
pax over the next two decades. Assuming that 80% of that travel is within Asia Pacific
with the remaining being inbound or outbound flights from the region, this implies that
additional airport capacity totalling nearly 4bn passenger movements will be needed to
meet this demand.
Mega airports will We estimate that in 2017, the top 20 airports in Asia Pacific handled over 40% of total
continue to drive air passenger traffic in the region, while the top 50 airports handled over 70% of traffic.
growth in the region… Each of these top 50 airports handled between 20m to over 95m passengers in 2017 (see
appendix for details) with an aggregate of 2bn passenger movements, which grew by 7.9%
y-o-y from 2016.
There were another 30 or more airports in Asia that handled over 10m passengers in
2017, which meant that the top 80 airports in the region handled about 85% of the total
passenger traffic, in our estimates.
We believe that mega airports, which we define as airports that handle over 10m passengers
a year, will continue to be the preferred and primary infrastructure to accommodate and
support Asia’s rapid air-travel growth.
…supplemented by At the same time, the proliferation of low-cost carriers has also seen an increasing clamour
secondary airports for low-cost terminals, which cost a fraction of mega airports (in terms of both absolute
price and cost per passenger handling capacity) to construct. Low-cost terminals are also
more suitable as secondary airports or for emerging cities keen to develop or boost their
local economy.
The low-cost dilemma Smaller airports are cheaper to build on an absolute dollar basis and on a per pax handling
capacity basis, but at the same time, they struggle to be profitable. In contrast, larger
airports are expensive but often provide superior returns. (This is discussed in further detail
later in the report.) Besides the fact that major airports are often home to a large catchment
area and attract airlines as hubs, the reality that smaller airports often have low or negative
returns means that investment in airports is largely concentrated on larger projects and
should continue to be so.DBS Asian Insights
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We examine a number of proposed airport projects in Asia to extrapolate the amount of
investment needed in airport projects to meet the projected demand for air travel in the
region. These are airport projects that have been proposed or announced with details on
the expected project cost and passenger handling capacity.
These include, a) 16 new airport projects that have a proposed capital expenditure of over
US$2bn, with an aggregate project cost of US$117.3bn and total passenger handling capacity
of 887m, b) 19 airport expansion projects with an aggregate project cost of US$71.1bn and
total passenger handling capacity of 513.5m and, c) 21 new airport projects that have a
proposed capital expenditure of below US$2bn, with an aggregate project cost of US$10.6bn
and total passenger handling capacity of 140.6m. These are provided in detail subsequently.
Proposed airport projects in Asia
Project Type Number Capex (US$bn) Capacity (m)
New Airports >US$2bn 16 117.3 887.0
Airport Expansions 19 71.1 513.5
New Airports US$2bn Airport Expansions New AirportsDBS Asian Insights
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229 new airports under Based on data from CAPA, there were 229 new airport projects being planned in Asia as of
construction in Asia March 2018. This is more than the combined total of the rest of the world, underlining the
growth trajectory and potential of the sector.
Number of airports under construction (Mar 2018)
250 229
200
150
100
58 57
46
50 29
10
0
Asia Europe Africa Latin Middle North
America East America
Source: CAPA, DBS Bank
Based on the same data from CAPA, these new airport projects were worth a total of
US$145bn, which was more than double that of Europe’s.
Investments in airports under construction – US$m
US$mn
160,000
145,191
140,000
120,000
100,000
80,000 67,499
60,000
40,000
23,242 20,608
20,000 7,731 3,662
-
Asia Europe Latin Africa Middle North
America East America
Source: CAPA, DBS BankDBS Asian Insights
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The table below lists 16 major new airport projects that are under construction or that have been
proposed. Of these, nine have an eventual passenger capacity of over 50m passengers while
others leave room for further growth. For a list of smaller new airports, please see the appendix.
New airports (proposed and under construction) in Asia with project value over U$2bn
Country City Airport Investment Initial Estimated Final Estimated
(US$bn) Capacity Completion Capacity Completion
(m) (m)
China Beijing Beijing Daxing International Airport 13.8 45 2019 75 2025
Chengdu Chengdu Tianfu International Airport 12.0 40 2019 90 2040
Qingdao Qingdao Jiaodong International Airport 5.2 35 2025 55 2045
Foshan New Foshan Airport 5.1 - - 30 2022
Dalian Dalian Jinzhouwan International Airport 4.3 20 2018 20 NA
Hohhot New Hohhot Airport 3.8 - - 30 2018
Sanya New Sanya Airport 14.5 38 2025 70 2045
Xiamen Xiamen Xiangan Airport 2.1 45 2020 75 2040
India Mumbai Navi Mumbai international Airport 2.4 10 2021 10 2032
Delhi Second Delhi Airport 2.3 5 2022 30 2032
Indonesia Tangerang Soekarno-Hatta Airport II 6.8 - - 70 2024
Bali Bali Buleleng Airport 3.7 - - 32 2019
Philippines Manila New Manila Airport 13.7 - - 100 2025
Manila Sangley Point International Airport 9.3 25 2021 75 2035
South Korea Jeju New Jeju Airport 3.6 - - 25 2025
Vietnam Ho Chi Minh City Long Thanh International Airport 14.8 25 2025 100 2050
Source: Various new sources and Airport Authorities, DBS Bank estimatesDBS Asian Insights
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23
Meanwhile, based on data from CAPA, there were 339 airport expansion projects being
planned in Asia as of March 2018. This compares with 208 projects in North America and
266 in Europe.
Number of airports under expansion (Mar 2018)
400
339
350
300 266
250
208
200
150
104
100 66
43
50
0
Asia North Europe Latin Africa Middle
America America East
Source: CAPA, DBS Bank
Based on the same data from CAPA, these expansion projects were worth a total of
US$171bn, higher than North America’s US$120bn and Europe’s US$105bn.
Investments in airport expansions – US$m
180,000 170,821
160,000
140,000
120,428
120,000 105,359
100,000 86,564
80,000
60,000
40,000 23,244
18,915
20,000
-
Asia North Europe Latin Africa Middle
America America East
Source: CAPA, DBS BankDBS Asian Insights
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Asia’s mega airports The table below lists 19 major airport expansions that are ongoing or being planned. Of
are undergoing these, six already have a passenger handling capacity of over 50m while four airports will
expansions eventually reach a capacity of 100m or more passengers per annum.
Major airport expansion projects (proposed and under construction) in Asia
Airport Investment Current New capacity Addition Estimated
(US$n) capacity completion
Hong Kong International Airport 18.3 72 102 30 2024
Chongqing Jiangbei International Airport 4.7 70 84 14 2025
Shanghai Pudong International Airport 3.0 60 80 20 2019
Guiyang Longdongbao International Airport 3.2 16 32 16.5 2019
Fuzhou Changle International Airport 2.6 13 29 16
Lanzhou Zhongchuan Airport 2.6 10 30 20 2020
Guangzhou Baiyun International Airport 2.1 35 80 45 2018
Haikou Hainan Meilan International Airport 0.1 23 35 12 2020
New Delhi Indira Gandhi International Airport 2.0 70 85 15 2021
Mumbai Chhatrapati Shivaji Maharaj International Airport 2.0 47 52 5
Jakarta Soekarno-Hatta International Airport 4.0 43 100 57 2025
Clark International Airport 0.2 4 12 8 2020
Manila Ninoy Aquino International Airport 3.0 31 72 41 2020
Singapore Changi Airport 10.0 82 132 50 2030
Busan Gimhae Airport 5.3 17 38 21 2026
Seoul Incheon International Airport 3.5 72 100 28 2020
Bangkok Suvarnabhumi International Airport 2.6 45 90 45 2020
Hanoi Noi Bai Airport 0.5 15 60 45 2030
Tan Son Nhat International Airport 1.3 25 50 25 2025
Source: Various new sources and Airport Authorities, DBS Bank estimatesDBS Asian Insights
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Airport expansion plans by region
North Asia
China In the 13th Five-Year-Plan (FYP) proposed by the People’s Republic of China (PRC)
(ex-HK, MO, TW) government, China is targeting to have 260 civil airports by 2020. By the end of 2017,
there were 229 airports with licences in China but massive airport construction plans
are still on the way. In 2016, China invested a total amount of RMB66bn (c.US$9.5bn)
in airport development. To finance the construction and upgrade of civil airports, the
Chinese government introduced the Civil Aviation Development Fund collected from
passengers/cargo/airlines. The fund’s budget reached RMB13.3bn in 2017, as 20% of
total investment. Local governments also issued bonds to support airport projects. Huge
bank loans made up for the rest.
No. of civil airports in China (2006-2020)
300
250
200
150
100
50
0
2017E
2018E
2019E
2020E
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Wind, 13th FYP, DBS Bank’s estimates
Hong Kong As part of the Hong Kong 2030+ Plan, the Hong Kong International Airport initiated the
construction of a triple-runway system in 2016, which is expected to be completed in 2023.
The project is a complex mixture of land reclamation, a new terminal and third runway.
It is estimated to cost around HK$141.5bn (c.US$18bn), funded by bonds (49%), airport
development fees charged to departing passengers (18%) and the airport itself (33%).
South Korea South Korea’s primary Incheon International Airport has undertaken progressive
expansion plans led by the government-held Incheon International Airport Corporation
(IIAC), with the latest Phase 4 set to be completed by 2023. Plans to partially privatise
(divesting stakes) IIAC were proposed as early as 2008 but met negative public response.
To accommodate rising levels of tourist arrivals, a second new Jeju airport has also been
proposed by the Ministry of Land, Infrastructure and Transport, with targeted investment
costs of US$3.6bn and completion by 2025.DBS Asian Insights
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Japan Airport infrastructure is relatively mature in Japan with progressive expansions primarily
being undertaken at key connecting airports. Narita International Airport Corporation is
currently planning to add a third runway with a targeted completion by 2028 and expand
its LCC terminal’s (completed in 2015) handling capacity to 15m pax by 2021 from 7.5m
p.a., via increased lobby area and improved equipment. However, no investment costs
have been announced. The Fukuoka Airport HD Corporation also intends to explore a
LCC terminal after it commences operating the Fukuoka Airport in April 2019 as part of
its privatisation plans.
South Asia
India The Indian government had announced plans to double the number of airports (from 100
to 200) with a total investment amount of US$60bn to meet the surging demand. The
Aviation Authority of India (AAI), the state-owned enterprise also planned to commence
the ‘mega projects of new terminals and buildings’ this year, as reported by The Economic
Times. The private sector will form the bulk of the investment.
West Asia
Turkey Turkey is on track for first-phase completion and opening of the Istanbul Grand Airport,
slated to replace its current primary airport the Ataturk International Airport. Built by a
consortium of local developer and operators, the Istanbul Grand Airport will open with
an initial capacity of 90m pax p.a., though more funding will be required for further
expansion. Turkey is planning for it to be the largest airport in the world by 2028, capable
of serving 200m pax p.a. with a projected total investment cost of USD36.4bn.
Southeast Asia
Indonesia Airport development is part of the Indonesian government’s key strategies. According to
the Indonesia Investment Coordinating Board, the new government has nine priorities
in its agenda. One of the key programmes is to develop 15 new airports by 2019. The
crowded Soekarno- Hatta Airport serving the key Jakarta area has expansion plans of up
to US$6bn for capacity enlargement and air traffic management improvement to global
standards. There is potentially a new Soekarnao-Hatta Airport II in the coming years
as well. According to Bloomberg, only a small portion of funding will come from the
government, with the bulk committed by private investors, including those from China.
Malaysia Malaysia Airports Holdings’ (MAHB) near-term focus is on improving the quality of airport
services and facilities, particularly to comply with the newly established Quality of Service
(QoS) benchmarks. While passenger volumes are still below capacity at the primary KLIA/
klia2 airports, there are acknowledged choke-points which will require expansion or
enhancements to improve passenger flow and comfort. The group is expected to require
an additional RM200-300m (USD50-70m) over 2-3 years in capex for the purpose of
quality improvement. However, capacity increases at other smaller international airports
will be required (Penang, Kota Kinabalu, Langkawi, Subang), which is estimated to need
up to RM400m (USD100m) in capex. MAHB largely intends to self-fund capex if feasibleDBS Asian Insights
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as its Operating Agreement (OA) requires a larger revenue share rate if capex is borne by
the government but amendments to the OA are expected to be finalised in the coming
year after a review with the new federal government.
Philippines In 2017 the ‘Build Build Build’ programme was released by the Philippines government.
A Php8 trn (c.US$158bn) investment will be rolled out for the infrastructure program
over the next five years including six airports as flagship projects. The Clark International
Airport expansion is the first project of ‘Build Build Build’ programme, which will be
funded mainly by the government and Official Development Assistance (ODA), likely from
China and Japan, according to Forbes.
Singapore Singapore Changi Airport is already working on its third runway and a fifth terminal
is expected to be completed by 2030 as part of the ‘Changi East’ project. To fund the
expansions, the Changi Airport Development Fund was set up in 2015, which collects
from passengers, airlines and the Changi Airport Group. The Singapore government has
also committed S$9bn to the project via the fund.
Thailand Airport of Thailand (AOT) is undertaking the Phase 2 expansion of its key Bangkok
Suvarnabhumi airport to double capacity to 90m pax p.a. by 2021, involving investment
of up to Bt125bn (US$3.8bn). Initial plans for secondary airports at Chiangmai and Phuket
have also been proposed with tentative capex of Bt120bn for both.
Vietnam The Vietnamese government, via its Master Plan to 2020, is planning to upgrade and
expand most of the 23 existing airports in the country as well as potential new airports,
with a projected budget of up to US$13.4bn. These projects will be funded by a mix of
government budget, domestic and foreign investment as well as overseas development
aid, according to the Civil Aviation Administration of Vietnam.DBS Asian Insights
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The increasing role of private
capital in Asia’s airport
development
W
hile investment in airports in Asia has traditionally been thought of as
the domain of the public sector, the large investment required, as well
as the allure of steady returns and commercial revenue opportunities, is
attracting more private capital into the sector.
The staggering investment needed to build airport infrastructure is a strong motivation
for governments to turn to private capital as a supplementary, or even primary, means of
funding such projects.
In addition to leveraging on private capital to reduce the funding burden on governments,
airport privatisation can also help to increase efficiency, both operationally and financially,
and improve customer satisfaction. It can also help promote local trade and tourism while
supporting local economic growth. Other benefits would also include the creation of
a more dynamic labour force as well as airport operations that are more responsive to
market changes.
Generally, there are three airport privatisation models, 1) full private ownership, 2) partial
privatisation and, 3) long term concessions:
Full private ownership This includes airports that the government has fully sold or transferred ownership of to
the private sector. A good example of this is in Australia, where airport leases for 50 years
with an option for an additional 49 years were sold to the private sector. In 1997, Phase
1 of Australia’s Airport Privatisation Program, which included Brisbane, Melbourne and
Perth was completed, which raised proceeds of A$3.3bn with direct cost of sales of less
than 5%. This helped to substantially lower the government’s financial burden.
A much rarer example of a fully private owned airport in Asia, not involving the government
at any stage, would be the Samui Airport which was conceptualised, developed and
funded solely by Bangkok Airways.DBS Asian Insights
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Partial privatisation The best known and a common example of this in Asia would include airports (or airport
groups) that are publicly listed, where the government retains a majority or substantial
stake with public and institutional shareholders as minority owners. This would include
Airports of Thailand, Malaysia Airport Holdings Berhad, Beijing Capital International
Airport, and the airports in Shanghai, Guangzhou and Shenzhen. Undoubtedly, the
access to private capital and corporate debt has helped these airports fund their rapid
development over the years.
With many governments concerned about giving up control over key public facilities,
public-private partnerships (PPP) are also popular in Asia as a means of funding airport
investments. Partial stakes maintained by the government ensure that they have a certain
degree of control and influence, while managing public perception. For example, India’s
government has developed new airports or modernised existing airports on a PPP basis in
Delhi, Mumbai and Hyderabad.
Long term concessions In a bid to raise money, improve efficiencies, promote the growth of the airport sector,
or all of the above, some governments in Asia are now exploring the sale of long-term
concessions to the private sector. In 2011, Japan’s Ministry of Land, Infrastructure,
Transport and Tourism announced that it would privatise all 19 national airports by 2020.
Transactions have picked up noticeably in recent years as 2020 approaches. For example,
on 1 April 2016, VINCI Airports (40%) and ORIX Corporation (40%) along with other
investors (20%) won a 44-year concession to operate Kansai International and Osaka
Itami airports for c.€2.1bn, of which an estimated 70% is debt-funded.
In some cases, the government remains the owner and is responsible for funding capital
expenditures but signs a management contract with a private operator for a limited
period (e.g. 10 to 20 years).
Smaller airports One key issue that stands out for the airport industry is that profitability and returns are
struggle to be highly skewed towards large or major airports, with many of the small airports being
profitable unprofitable. According to the Airports Council International (ACI), the global return on
invested capital in airports in 2016 was 7.3%, which was an improvement from 6.3%
achieved in 2015. However, in ACI’s 2015 Economics Report, it was reported that 69% of
airports globally were loss-making.
Generally speaking, smaller airports handling less than 1m passenger movements a year (which
makes up 80% of all airports globally) struggle to be profitable, given the intensive capital
requirements even for basic airports. A case study on Japanese airports (courtesy of Japan’s
Ministry of Land, Infrastructure, Transport and Tourism or MLIT) illustrates this point quite well:
Using 2016 financial data provided by the MLIT, we plot the revenue and EBITDA of
various airports under the MLIT in 2016. We excluded the four largest airports, i.e. Tokyo,DBS Asian Insights
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Shin- Chitose (Sapporo), Fukuoka and Naha, which all have revenues above 16bn yen and
positive EBITDA. A clear trend emerges – airports with higher revenue (driven by higher
passenger throughput) are more likely to be profitable than the smaller airports.
Revenue vs EBITDA for selected airports in Japan (2016)
1,500
Hiroshima
1,000 Kumamoto
Nagasaki
Matsuyama
Miyazaki
500 Kagoshima
Tokushima Komatsu
EBITDA Yen (m)
Miho Kochi Takamatsu Hakodate
Iwakuni
0
01 ,000 2,000 3,000 4,000 5,000 6,000 7,000
Misawa Hyakuri Kitakyushu Oita
Okadama Niigata
-500 Kushiro
-1,000 Wakkanai
-1,500
Revenue Yen (m)
Source: Ministry of Land, Infrastructure, Transport & Tourism (Japan)
Therefore, there is considerable difficulty in attracting private investments to smaller,
secondary airports.
Portfolio bundling One approach that governments are utilising to privatise smaller airports is to bundle
smaller airports into a portfolio of assets that also include larger, more attractive airports
to entice investors. A good example of this is happening in Japan, where five small airports
with less than 2m passenger movements (based on 2015 figures) are being bundled
with the Shin-Chitose (Sapporo) airport, which handles over 20m passengers a year, as a
‘One Hokkaido’ package. Indeed, this has attracted a large number of interested bidders
internationally and domestically and could pave the way for Japan’s airport privatisation
program to blossom.DBS Asian Insights
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Passengers handled by ‘One Hokkaido’ airports in 2015
One Hokkaido 2015 pax
Shin-Chitose (Sapporo) 20,461,531
Hakodate 1,772,052
Asahikawa 1,148,825
Memanbetsu 1,088,195
Kushiro 877,242
Obihiro 605,703
Wakkanai Hokkaido 197,500
Source: Ministry of Land, Infrastructure, Transport & Tourism (Japan)
The logic behind the bundling of smaller airports with larger ones, especially those within
the same region, is that the smaller airports could benefit from the economies of scale
(purchasing, administration and management expenses etc.), co-operation opportunities
and the reinvestment of returns from the larger airports into the portfolio. In addition,
the private sector would likely be more innovative, and financially motivated, to improve
the operations of the small airports. The private sector may also be receptive to investing
in smaller airports that could improve the value of their vested assets, such as nearby real
estate or tourism related ventures.
Privatisation opportunities in Asia
China The funding structure of airports in China is mainly composed of government and self-raised
capital. Part of the government capital is contributed by the Aviation Development Fund（
民航发展建设基金）which is charged to passengers to support airport development
country-wide. Meanwhile, the central and local governments will also allocate budget
for funding of airports. Self-raised capital includes airport group funds and funding from
other financing channels, such as debt and equity.
Capital structure for China’s civil airports
Project capital Financing capital
Government capital Non-govt capital Bank loan
Corporate bond
Aviation Development Fund Corporate self-owned fund
Equity funding
Government financial
appropriation
Self-raised capital
Source: CAACDBS Asian Insights
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In 2012-2017, total airport fixed asset investments in China grew at a CAGR of 8.3%
and reached US$11.4bn. Nearly half of the investments came from the government
with the Aviation Development Fund contributing c.30%. The proportion of funds from
government capital declined from 67% in 2015 to 43% in 2017, while self-raised capital
share rose from 33% to 57%, or roughly US$6.5bn.
Airport fixed asset investments in China (US$bn)
12 Self-raised capital
10 Aviation development fund
33% 57%
8
40% 50%
41%
6 57%
30%
4 28% 17% 15%
28%
14%
2 37%
31% 33% 33% 28%
29%
-
2012 2013 2014 2015 2016 2017
Source: Wind, CAAC
In 2016 the Civil Aviation Administration of China (CAAC) published an opinion paper
encouraging a further opening-up of airports to private capital. In September 2018,
CAAC announced the first batch of 28 airport projects to welcome private investment.
Among the 28 projects, 11 of them have already secured investors with eight airport
construction projects. Another 17 projects are still being promoted to private capital.
The total investment of these projects is US$16.8bn and includes both existing and new
projects. More projects are expected to be open to the private sector over time.
Status of China’s airport privatisation program
Type Progress Projects US$bn
Airport Construction Indentified Private Investors 8 7.5
In promotion 2 3.7
Airport Support Indentified Private Investors 3 1.6
In promotion 15 4
Total 28 16.8
Source: CAACDBS Asian Insights
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In the long term, we can expect government participation in airport funding to be reduced
as multi-source financing gains more ground. Equity funding, especially the PPP model is a
preferred channel as it can help ease financial burden on local governments.
Japan In June 2018, Japan broadened the scope of its privatisation plans to cover all 97 airports
across the country, which include 5 Class 1 airports (mainly for international air travel), 24
Class 2 airports (mainly for domestic air transport), and 53 Class 3 local airports, as well
as others used for defence and local governments.
Of these, eight handled over 10m passengers in 2015, nine handled between 2m to 10m
passengers, and a further 11 handled between 1m to 2m passengers, with 14 handling
between 500,000 to 1m passengers. While it would be difficult to privatise all of the
smaller airports, the bundling of small airports with a larger, more profitable airport like
the ‘One Hokkaido’ package could pave the way for a significant number of Japan’s
airports to be privatised.
Having already completed several transactions and armed with a determination to push
the privatisation plan through with a clear transaction framework and process, it is likely
that a lot more transactions in Japan will be sealed in the next few years.
India Privatisation in the country has seen little progress since the Delhi and Mumbai airports
transactions, with frequent
changes in the legal framework, terms and conditions and even a change in the
government, thereby delaying the country’s airport privatisation program. Recently, India’s
government was reported to be looking at the privatisation of eight airports - Lucknow,
Ahmedabad, Chennai, Jaipur, Kolkata, Guwahati and Pune. It was reported that the civil
aviation ministry is currently having discussions on setting the framework for the potential
bids of these airports. The government is keen to keep costs and passengers, as well as
aircraft fees low but it would have to balance this with providing bidders from the sector
an attractive enough return for them to be interested.
It was reported by CAPA in August 2018 that the Ministry of Civil Aviation had proposed
a new financial model for new airport development projects under the NextGen Airports
For Bharat (NABH) Nirman scheme with the aim of attracting foreign investment to new
airport projects such as the Jewar Noida International Airport, Bhogapuram Airport and
New Pune International Airport. Some key highlights of the new financial model include
a) extension of airport concession contracts from 30 to 40 years, b) airport tariffs to be
determined by Maximum Blended Aeronautical Yield in terms of Indian Rupees (INR) per
passenger, rather than capital expenditure.
Philippines There have been several unsolicited proposals for airports in the country in 2018, and
two have recently won Original Proponent Status (OPS). Firstly, a consortium of seven ofDBS Asian Insights
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the Philippines’ top conglomerates, with Changi Airport acting as a technical consultant
(NAIA Consortium), confirmed in September 2018 that the Department of Transportation
had awarded it the OPS to rehabilitate, develop, operate and maintain the Ninoy Aquino
International Airport (NAIA). The project is said to be worth P102bn for a period of 15
years. In the same month, Aboitiz InfraCapital Inc (AIC) was granted OPS on its proposal
to operate the New Bohol International Airport, located in Panglao Island. New Bohol
Airport is projected to handle two million passengers per year and is intended to replace
the existing Tagbilaran Airport.
Once approved by the National Economic and Development Authority Board, the
unsolicited proposal will undergo a Swiss Challenge, where other private groups are
invited to make a competing offer, with the holder of the OPS having a right to match
the offer. Besides the two offers above, offers have been made by Mega7 Construction
Corp for Kalibo Airport for P12 bn, and by Chelsea Logistics Corp for Davao Airport for
P49bn. Meanwhile, the government is also accepting proposals for Iloilo, Laguindingan
and Bacolod airports.
Indonesia According to a presentation by PricewaterhouseCoopers PWC at the Global Airport
Development (GAD) Conference in Singapore in 2018, there are at least 200 airports
in Indonesia that need to be expanded to support economic growth and tourism
development and more investment is needed to support this. Currently, almost all of the
airports are owned and operated by the government, while 26 of the 27 busiest airports
are operated by Angkasa Pura I & II, which are Indonesian state-owned entities (SOEs).
The Ministry of Transport plans to build 10 new airports under PPP schemes, and some
airports that are already under consideration include Komodo, Kediri, Batam and Jayapura.
At the same time, a new mechanism called ‘Limited Concession Scheme’ has also been
developed, which is aimed towards improving the performance of existing infrastructure
by offering concessions to the private sector. This will also help funds for the government
or SOEs. Currently, Medan and Lombok airports are under consideration as part of this
plan. For privatisation to successfully take off in Indonesia, the rules of engagement need
to be clearly defined and streamlined, which will help attract the necessary private sector
funding to help Indonesia meet its airport infrastructure needs.DBS Asian Insights
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Fund raising lessons
Airports of Thailand’s early access to equity
funding helped raise its game
Airports of Thailand (AOT) became a public company in 2002 under the Corporatisation
Act B.E. 2542 with the Ministry of Finance (MOF) as the sole shareholder. Its paid-up
share capital was increased from Bt5.7bn to Bt10bn in 2003. A year later, it was listed on
the Stock Exchange of Thailand (SET) with a total registered capital of Bt14.3bn and the
MOF’s stake was reduced to 70%, but AOT remains a SOE because government agencies
have over 50% stake. Under SOE status, AOT must operate within government rules and
regulations. The decision-making process tends to be lengthy and AOT is less flexible than
private companies. However, being an SOE also has its advantages such as lower funding
costs and better access to funding with the government effectively acting as a guarantor.
IPO was mainly to fund The main objective of AOT’s initial public offering (IPO) was to find another source to fund
the new Suvarnabhumi the hefty Suvarnabhumi airport project Phase I (budget of Bt125bn) project, which was
airport project funded by equity capital (44%) and foreign loans borrowed in Japanese yen from overseas
financial institutions (56%). The new airport was targeted as Thailand’s new international
and domestic aviation hub catering for another 45m passengers p.a. Suvarnabhumi
Airport was officially opened on 15 Sep 2006.
Under government rules and regulations, AOT’s cash flows from operations cannot be
used for other purposes except for airport expansion. As AOT has no significant investment
in any airport expansion due to several delays since the Suvarnabhumi airport Phase I,
AOT was sitting on a pile of cash of Bt65.7bn as at end 3QFY18F. Therefore, the funding
source for its upcoming major capex cycle- the Suvarnabhumi airport expansion Phase II
(costing about Bt62.5bn) should be easily funded by its cash pile and perhaps some debt.
Increasing aeronautical One way to defray expenses related to the upcoming airport expansion is to obtain
service fees is another additional revenue (further boosting internal operating cashflows) from hiking aeronautical
potential source of service fees such as parking, landing and passenger service charges. However, this
funding requires quite a tedious process as fee hikes must be approved by both the Civil Aviation
Authority of Thailand and the Ministry of Transport. Such a hike was approved only once
in 2007 for AOT where international passenger service charge was raised by 40% to
Bt700/passenger and doubled to Bt100/passenger for domestic passengers. AOT expects
to seek an approval for another fee hike after the completion of the Suvarnabhumi airport
expansion Phase II expected in FY20F-FY21F.DBS Asian Insights
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AOT’s operating cashflow, net capex, and D/E ratio
Bt m
Debt-to-capital
40,000 100%
80%
30,000
60%
20,000
40%
10,000
20%
0 0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Company, DBS Bank
Samui Airport Property Fund – a lesson for
secondary airports
Samui Airport was built in 1982 by Bangkok Airways, a private enterprise, and was the
7th busiest airport in Thailand in 2017, handling over 2.6m passengers. In November
2006, Bangkok Airways sold a 30-year concession of the key assets of Samui Airport,
including the land, runways, parking aprons, passenger terminal and other constructions
to Samui Airport Property Fund (SPF) which was listed on the Thai Stock Exchange and
raised over Bt5.5bn for Bangkok Airways. (Bangkok Airways held a 37.15% stake in the
fund upon IPO.)
SPF holds the leasehold rights to operate Samui Airport for 30 years (2006-2036) and has
sub-leased the airport back to the operator (Bangkok Airways) which gives SPF potential
upside with downside protection. That is, SPF’s revenue will be in line with the number
of passengers and aircrafts to and fro Samui Airport. Moreover, SPF has a minimum
guaranteed revenue of 6% of the fund size from the sponsor. All operating expenses and
capex are borne by the operator and the fund itself incurs annual-only fund expenses and
any increases in revenue would flow directly to the bottom line.
Samui Airport handled just over 1.4m passengers in 2006, the year SPF completed its IPO.
While it was certainly not very profitable at that time given its size, its owner still managed
to structure a transaction using its key airport assets that was well received by investors,
had a limited concession of 30 years and most importantly raised a significant amount of
money for the airport owner. This certainly could pave the way for many of the region’s
smaller or secondary airports on fund raising.You can also read
