Istanbul’s Global Air Hub Dream: Can It Succeed?

Istanbul is a city with increasingly big ambitions. Not only is it bidding for the 2020 Olympic Games, but it is actively seeking to become a major east-west air hub, as evidenced by its plans to build a third international airport.

The proposed facility is designed to eventually handle 150mn passengers per year, and its first phase is due for completion in 2016. The contract to build and operate the EUR22bn (US$29.5bn) project was awarded to a five-company consortium led by Limak Holdings earlier this month. BMI‘s Infrastructure team has been following the Turkish airport sector for a while, and notes that there is a slew of airport projects underway. For example, the second runway at Istanbul’s Sabiha Gokcen Airport – which Limak is also involved in – underpins our bullish long-term average real growth forecast for Turkey’s airport infrastructure industry value of 8.3% up to 2022. Meanwhile, Turkish Airlines, which will be the main operator of Istanbul’s new airport, is seeking to position itself as a global carrier on a par with Emirates.

Despite the prestige that this project holds for Istanbul and the will of the Turkish government to see its completion, there are a number of hurdles which need to be overcome:

As mentioned above, the price tag on this project is a huge burden. Project financing in Turkey has been a real problem in recent years as a result of erratic government policy and tight conditions in the eurozone. Indeed, three members of the winning consortium recently failed to secure financing for a US$1.96bn electricity grid project they had been awarded. The airport contract states that companies will pay the full EUR22bn sum over the 25-year concession, but even so, the success of Turkey as a regional air hub is not guaranteed, and thus traffic and revenues may not permit the winning companies to meet their financial obligations.

Then, there is the competition that Istanbul’s third airport is putting itself up against. Gulf states, notably Dubai and Abu Dhabi in the UAE, are already established regional hubs with recognisable national carriers. Despite an impressive advertising campaign and sponsorship deals, Turkish Airlines is not yet perceived as the global carrier that it wishes to be.

Furthermore, the construction of the new six-runway giant airport will take place on a site which is currently a quarry. Preparation of the site for construction is likely to be an extremely technically difficult and costly exercise, and will require the felling of over half a million trees, thus raising environmental opposition.

More detailed analysis of Turkey’s ambitions of becoming an east-west economic and logistics hub is available to our subscribers at Business Monitor Online.