Philippines-based conglomerate San Miguel Corporation is planning to present an unsolicited proposal to the government for the construction of an alternative international airport in the capital city of Manila. We believe that San Miguel's proposal is not only driven by the strong fundamentals that support the project, but also the potential synergies between the airport and its existing businesses.
The proposal, scheduled to be presented to the government in April, was first reported by Japanese news agency Nikkei and subsequently confirmed by San Miguel's president Ramon S. Ang. The US$10bn project is expected to take five years to be completed and would augment operations at the Ninoy Aquino International Airport (NAIA), the country's principal international airport.
We believe that San Miguel's desire to build an alternative airport in Manila is due to two main factors.
Strong Fundamentals: The explosion of low-cost carriers in Asia and increasingly affluent populations in Asia-Pacific countries are boosting the volume of business travellers, tourists and freight cargo within the region. The Philippines has already benefited from this trend - tourist arrivals into the Philippines are already at an all-time high (4.7mn visitors in 2013) - but remains keen to exploit this growth potential. The country's President Benigno Aquino had previously stated that his administration is targeting tourism as a key growth engine for the Philippine economy, with the government successfully concluding an air services agreement with South Korea and allowing the expansion of new air services to target different market segments. The government has also set a target to attract 10mn tourists per annum by 2016.
However, to maximise this growth potential, the Philippines would require the construction or expansion of new and existing airports respectively. This is because there is already insufficient capacity within the country to comfortably manage the current volume of visitors. For example, the NAIA, which has four terminals and a single runway, handled 33mn passengers in 2013, 1mn more than its designed capacity. The new airport proposed by San Miguel would greatly aid the NAIA in managing passenger volumes. Under the proposal, San Miguel plans to build an international airport with four runways within the metropolitan area of Manila under a 25-year Build, Operate, and Transfer (BOT) concession. This would double the handling capacity of the NAIA and significantly increase the turnover of flights into and out of Manila.
|Driving Airport Demand|
|Philippines - Tourist Arrivals, '000|
Potential Synergies With Existing Businesses: The proposed airport presents potential synergies with San Miguel's existing businesses. The new airport could serve as a potential retail point, distributing and marketing San Miguel's range of products at lower overhead costs. It could also serve as the hub for the country's national flag carrier, Philippine Airlines. The airline is partially owned by San Miguel and the use of the new airport could not only negate the need to pay fees to parties outside of the San Miguel group, but also accelerate the growth of the airline by expanding the number of flights it could undertake. Lastly, the proposed airport could increase toll revenues for the NAIA Expressway. The BOT concession for the second phase of the NAIA Expressway is owned by a consortium that includes San Miguel and the airport could be located along the expressway ( see 'NAIA Expressway A Long-Term Benefit For San Miguel', April 17 2013).
Delays Not Discounted
We do however highlight that there is the potential for the project to face delays. As the project was unsolicited, it would first need to be approved by President Aquino and subsequently subjected to a Swiss challenge. Under a Swiss challenge, other bidders are asked to compete for the project, with the original proponent allowed to match the best proposal.
In addition, it remains to be seen if the Philippine government would be agreeable to San Miguel generating favourable synergises for its airline business. San Miguel had previously planned to present the airport project to the government in early-2013, but held back due to the lack of clarity on state policy on airline companies operating airports.