Privatizing airports

Now that DOTr Secretary Jimmy Bautista appears to have received an important new vote of confidence from Junior, he can proceed with his plan to modernize airport operations. Malacañang reportedly rescinded the appointment of the son of former DOTr Secretary Art Tugade as NAIA GM.

Jose Arturo Tugade’s appointment was previously announced without the knowledge of Sec. Jimmy. Credit Junior for supporting Jimmy on this one.

Just as well. The appointment of Tugade’s son would look bad. The Tugades have a cargo handling business that could be seen to benefit.

Cesar Chiong, the man Jimmy placed as NAIA GM, was just starting to understand how to improve airport services when the rug was pulled from under his feet. I understand the guy is really trusted by Jimmy and was his CFO at Philippine Airlines when Jimmy was president.

Chiong moved to San Miguel when Lucio Tan bought back his shares in PAL from SMC. He has no political connections other than Jimmy who convinced him to join government service.

Art Tugade knows how it feels to be undercut by politicians. He suffered that in his first few months as DOTr Secretary at the hands of politicians.

The enthusiastic Art we met at the start of his term took a while to get back his bearings and confidence. He could have accomplished more if politics didn’t delay him at the start.

Anyway, Sec. Jimmy can now proceed with his pet projects. It helps that Jimmy and Junior are in agreement about modernizing our airports under the PPP model.

Jimmy is also said to be looking at bidding out the rehabilitation of NAIA itself, a project stopped by politicians with vested interests in the airport auxiliary businesses.

Today it is back to the bad old days. Flights are forced to wait quite a while before being able to take off or land, a problem before the pandemic that’s now back. A friend on a domestic flight said they had to wait 35 minutes before getting cleared to take off.

NAIA’s failure to handle normalization of air traffic means other domestic airports get affected by delays too, as flights are held until the Manila tower clears them.

Having been president of PAL, Jimmy knows the problems there. Indeed, there was a time when he led PAL in presenting an offer to develop Terminal 2 because it was getting too small for PAL operations.

I remember having lunch with Jimmy and then Mabuhay magazine publisher Jun Ventura, and among the topics we talked about was the offer of PAL to build a P20-billion NAIA Terminal 2 “annex building.”

PAL was having space problems, including where to park its expanding fleet of big jets. This proposal would have addressed capacity constraints in NAIA, which was handling about 40 percent more passengers than it was designed for.

PAL’s NAIA project, which included a train system to connect the three terminals, aimed to alleviate the worsening air traffic congestion and resolve capacity constraints by reconfiguring and renovating facilities and enhancing operation and maintenance.

That proposal went nowhere, just like many other proposals before and after it. There are just too many vested interests who would be hurt by making the airport civilized.

The Megawide-GMR consortium, which did a fantastic job when they built the Mactan Terminal 2, also wanted to fix NAIA. That proposal only ended up with Megawide executives being sued for alleged violation of the anti-dummy law, a charge that was subsequently dismissed for lack of basis.

My guess is NAIA will remain as it is until the Bulacan airport of San Miguel opens in three to five years years. Then NAIA will be redeveloped as a property play.

I am with Junior and Jimmy in their desire to use PPP to fix the other airports nationwide. Among the airports being considered for development, operations, and maintenance by the private sector are: Bohol Panglao, Davao, Iloilo, and Kalibo.

There was an original proposal to develop a bundle of regional airports already approved by the NEDA board back in 2016, but  which Tugade held back due to political pressure no doubt.

Jimmy should move fast in developing these airports. The Panglao airport is relatively new, but is already starting to look old from inadequate maintenance. The Aboitiz Group had long wanted to manage that airport, but somehow nothing happened.

The Megawide consortium showed what the private sector can do in building and managing airports. Not only did they build an award-winning world-class Terminal 2, they worked with Cebu’s tourism industry to increase the flow of tourists pre-pandemic.

A government agency managing an airport has no interest in improving the number of people using the airport. For Megawide, the more airplanes land and take-off, and the more passengers use the terminals, the more money they make.

Megawide, which also built the new Clark terminal, is bowing out of the airport business for now. The Aboitiz group is taking over Mactan.

Right now, Jimmy has little choice but to court private investors for airport development. He was only given P2.49 billion for aviation infrastructure development next year.

DOTr asked for at least P28.3 billion to finance the construction and modernization of around 50 smaller airports nationwide. Jimmy is looking at some P1 trillion in airport developments in the regions by next year with private sector participation.

Privatizing airports have delivered good reports worldwide in recent years. One study I saw using a dataset covering 2,444 airports in 217 countries, showed that private infrastructure funds improve the efficiency of the airports they acquire.

Under private equity ownership, the number of passengers per flight increases and the flight cancellation rate declines significantly. Also, the chance of winning awards for customer experience is higher.

I believe Jimmy sincerely wants to move fast. But the government moves in slow motion. Between the bureaucratic red tape and the political interference, a well-meaning Cabinet member will consider himself lucky to deliver one big project a year.

I am banking on Ramon S. Ang to deliver the first two runways of the Bulacan airport in three years or before the midterm elections. That is less time than bureaucrats normally need to get signatures on a proposal.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco