The deal of the century

That is how San Miguel Corporation’s takeover of the operations and management of the Ninoy Aquino International Airport (NAIA) in the next 25 years turns out to be.

For the exclusive right to run NAIA until September 2048, SMC has committed to pay the government a total of P1,034.6 billion (P1.034 trillion) over the next 25 years.

The P1,034.6 billion consists of P80 billion in upfront and fixed annuities of P80 billion (P30 billion now, plus P2 billion per year for 25 years); P831.1 billion representing 82.16 percent of airport revenues over the next 25 years and the P123.5-billion capex to be invested by SMC in equipment, machinery, software, roads and buildings over the next 15 years.

Immediately, the San Miguel Group is required to improve NAIA airport services – reduce passenger waiting time for clearing through security and immigration and checking in, reduce the waiting time for baggage security checking and unloading and retrieval, and reduce the waiting times of planes to take off (now averaging 30 minutes, very wasteful with fuel) or to land (now averaging 30 minutes, very wasteful with fuel). Aircraft movements, landing and taking off, should be maximized, possibly to at least 48 per hour, if not one takeoff and landing per minute.

The P1.034-trillion SMC bid makes the NAIA rehabilitation the largest and most expensive project ever undertaken by a private company – all for the benefit of the government and the Filipino people. The project is also largest and fastest privatization ever done by the government.

The P1.034 trillion even exceeds the P740-billion cost of building, from scratch, the first-class new international airport of SMC on 2,500 hectares prime land in Bulakan town, Bulacan province, just 30 minutes north of Rizal Park.

Yearly at NAIA, over the next 25 years, SMC will deliver to the government whopping amounts, between P18 billion and P47 billion for the state’s annual revenue share.

The two losing bidders, Yuchengco-GMR and MIAC (the six conglomerates, Aboitiz, Ayala, Gokongwei, LT Group, Megaworld and Gotianun) promised only a third to a half of what SMC offered. GMR would have delivered P7 billion to P19 billion a year (at 33.3 percent government share of total airport revenues); while MIAC P6 billion to P15 billion a year (at 25.91 percent government share of revenues).

The present NAIA operator, Manila International Airport Authority, makes only P14 billion in annual revenues (2023, its best year), with P4-billion net income. P4 over P14 is a profit margin of 28.57 percent – near the 25.19 percent government revenue share quoted by the six conglomerates (MIAC).

SMC’s annual yield to the government is a minimum of P18 billion – 4.5 times the P4 billion MIAA netted in 2023, to a maximum of P47 billion (11.75x MIAA’s current net profits).

So did SMC president and CEO Ramon S. Ang get himself a good deal despite promising an astronomical amount of P1 trillion to the government?

My answer: Yes. You don’t count marbles when dealing with a public good. To RSA, SMC’s business is development, the good of the people.

Still, the net profit margins of ASEAN’s airport corporations are marvelous – Airports Corporation of Vietnam makes 45 percent net on its revenues; Airports of Thailand 40 percent; Changi Airport Group 19 percent; PT Angkasa Pura I, 17 percent and Malaysia Airports Holdings, 10 percent. The lowest net profit margin is that of PT Angkasa Pura II, 9 percent.

Aeronautical revenues are 80 percent of total revenues for Airports Corporation of Vietnam; 58 percent for Indonesia’s PT Angkasa I; 56 percent for Airports of Thailand; 53 percent for Malaysia Airports Holdings and 40 percent for Changi Airport Group.

At NAIA, revenues from passenger terminal fees are 46 percent of total airport revenues; the bulk, or 54 percent, comes from so-called aeronautical revenues.

North of Manila, SMC is financing the P740-billion cost of the San Miguel Aerocity by itself, making it the single largest investment by any entity in the Philippines. With six runways and passenger capacity of 100 million to 200 million, this airport city should be good for 75 years.

SMC is also the developer and operator of the recently jet-ready Caticlan (Boracay) airport, the country’s fourth busiest airport and the largest airport in Western Visayas.

San Miguel thus will operate three of the four biggest airports in the Philippines.

A company operating multiple airports is the norm in Southeast Asia per findings of a post-COVID study by Manila-based Asian Development Bank on ASEAN aviation.

Airports of Thailand (AOT) operates six airports; PT Angkasa Pura Indonesia, 15; Airports Corp. of Vietnam, 22 and Malaysia Airport Holdings Corp., 39. So having SMC operating three airports seems like small change.

According to an ADB study, Singapore Changi Airport is fully government owned. It is the leading airport in Southeast Asia based on revenues ($2.2 billion in fiscal year ending March 2020).

While the revenue contribution of most airport groups in the region comes from aeronautical activities, Changi Airport’s revenues are mostly driven by non-aeronautical and other operating activities. In FY ending March 2020, more than 60 percent of revenue was from duty free, retail, food and beverage and other non-aeronautical services.

Airports of Thailand (AOT) is publicly traded, generated $2.1 billion in revenues in 2019, of which 56 percent was from aeronautical activities. Bangkok Suvarnabhumi is AOT’s largest airport, generating $1.2 billion in revenues in 2019.

Malaysia Airports Holdings Berhad (MAHB) is a publicly traded company that generated $1.3 billion in revenues in 2019; aeronautical activities accounted for 53 percent.

Airports Corporation of Vietnam (ACV) is a publicly traded company but 95.4 percent state-owned. It generated total revenues of $800 million in 2019. Before the pandemic, ACV’s revenues were mostly driven by aeronautical activities, which contributed 80 percent.

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