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SMC’s takeover of NAIA: A game changer for PH

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THE award to develop and operate the Ninoy Aquino International Airport won last week by a consortium headed by the San Miguel conglomerate, together with its ongoing New Manila International Airport project in Bulacan, will be a game changer that could help trigger, finally, the country’s quantum leap away from its 30-year economic doldrums since 1987.

RSA, the new airport magnate. SMC PHOTO

It could be a chicken-and-egg phenomenon, of course, and it is definitely only one of myriad factors for economic growth. But the building of huge modern airports by a country has consistently historically been the harbinger, trigger or verification of its economic take-off.

Many factors explain this: it makes it easy for foreign capital and their executives to travel to and from the country to supervise their investments, thus encouraging more ventures; it makes imports and exports to the country, especially of light but high-value airline-borne products, reliable and fast; it gives tourism a boost; it is a catalyst for the growth of other industries, even of entertainment and mall enterprises.

In Southeast Asia, for example, these airports were built roughly when their economies took off: Singapore Changi Airport in 1981, Kuala Lumpur International Airport and the Hong Kong International Airport in 1998, and Thailand’s Suvarnabhumi Airport in 2006. A kind of warning that we’re being overtaken was Vietnam’s construction of a new international terminal in 2007 for its Tan Son Nhat International Airport, built by the US military to accommodate its biggest warplanes.

With SMC winning the contract to renovate and run NAIA for 15 years, we could soon have airports at par with those mentioned above. In 2020, SMC was given the government authority (and the congressional franchise) to build the New Manila International Airport (NMIA) in Bulacan, which will cost P737 billion, the country’s biggest single private investment. Construction of the airport’s two runways and terminal buildings began last year, and it is expected to be finished by 2027.

SMC will thus be totally in charge of running the greater Metro Manila’s international and domestic airports, the efficiency of which will be one of the biggest factors for the Philippines’ economic growth.

NMAI

The two airports will be complementing each other. The NMAI will have a capacity of 35 million passengers per year starting in 2027 and 100 million when it is finally completed. On the other hand, NAIA’s rehabilitation by SMC will increase its capacity to 62 million, double its design capacity of 31 million.

SMC’s two international airports.

By 2027, therefore, the combined capacity of the two international airports will be 93 million passenger movements. This would be double the 48 million passenger traffic in 2019 (before the pandemic struck), and thus, it will, with a 52 percent capacity utilization, make passenger movement through our airports easier and faster. By comparison, Singapore’s Changi Airport has a passenger capacity of 85 million and had a 68.3 million passenger movement in 2019, for a capacity utilization of 80 percent. (See photo)

The fact that the SMC consortium will be in full control of both NAIA (which includes the two international terminals and one domestic terminal) and the NMAI in Bulacan will enable it to direct passenger movements in a mix that would be most efficient, both in terms of avoiding congestion and maximizing its profits. That our biggest airports will be managed by a private firm, which has proven to have one of the best executive corps in the country and even in Asia, after years of being run by government bureaucrats and employees — whose leadership changes every six years — makes it likely that we will finally have an efficient international gateway.

In the bidding for NAIA, SMC beat three other consortiums: the “super consortium” of the Ayalas, Gotianuns, Andrew Tan, Lucio Tan and the Gokongweis. Suspected as the consortium’s hidden ace is the fact that it includes the Aboitiz clan, viewed as the business group closest to President Ferdinand Marcos Jr. A third bidder was the GMR Airports consortium led by the Indian airport builder and operator that the group is named after.

Fee

Among the many requirements for winning the contract was an upfront fee to government of P30 billion and an annual payment of P2 billion. The winning bidder will have 15 years to run the airport, extendable by 10 years.

What decided which group would be given the award, though, was a single percentage: that representing the government’s share in the airports’ revenues when it is handed over to the winner starting in September and through its renovation and management for 15 years. When the bid documents were opened on February 8, most people in the room were stunned. The SMC consortium offered 82 percent as the government share, unbelievably bigger than the GMR Airports consortium’s 33 percent and the taipans’ 26 percent. (However, since passenger terminal fees are not included in the computation, the actual share of government will be 60 percent, with the remaining 40 percent going to the SMC consortium.)

SMC CEO Ramon S. Ang (referred to universally by his initials RSA) has been quoted as saying that he bids high to make sure government gets the best deal. During this round of bidding, he was also quoted as saying that he bids high to keep all other players honest.

RSA has said so often he wants his businesses to also contribute to the national economy rather than solely to SMC’s bottom line, so he has been offering more revenues to government in bids for government contracts. Indeed, SMC in 2013 bid P11 billion for the NAIA Expressway (NAIAx) project, the first to lead to NAIA’s Terminal 3 in 2013. Its nearest competitor, Metro Pacific, bid a fraction of that, P305 million.

High

Many observers at the time said RSA’s bid was ridiculously high that the project’s cost would drag SMC itself down. It didn’t, and NAIAx has been one of SMC’s profitable business segments. What RSA saw wasn’t only an expressway to the airport but also to the entertainment complex (Mall of Asia, Solaire, City of Dreams, etc.) at the reclaimed land adjacent to Manila Bay that has boomed, as well as the link to SMCs Skyway Stages 1, 2 and the South Luzon Expressway that extends all the way down to the STAR Tollways. SMC’s two cement factories, Eagle and Northern Cement, among the largest in the industry, are already planning expansion projects, as NMIA alone would gobble up all of their cement production. Who else would build the expressways going south and north of NMIA but San Miguel Infrastructure?

RSA has proven to have a knack for seeing values in projects — which taipans with their corps of MBAs can’t — that allows him to be magnanimous in offering a bigger share to government.

He certainly understands a recent development in airports as a business, as a March 2014 article entitled “The Airport Experience in Asia ” explained:

“In addition to incorporating a variety of commercial functions into passenger terminals, airports are developing their landside areas. This includes the growth of hotels, office and retail complexes, conference and exhibition centers, logistics and free trade zones. Consequently, many airports now receive greater percentages of their revenues from non-aeronautical sources than from aeronautical sources.” Indeed, 50 percent of Singapore’s Changi Airport’s revenues come from the rental income of the multitude of restaurants and stores there, with only 32 percent accounting for airport service.

That description above of the modern airport (“hotels, offices and retail complexes) is exactly how RSA describes the “Aerocity” that will be part of the NMIA in Bulacan.

Total

San Miguel Holdings owns 33 percent of the consortium that won the bidding, called SMC Strategic Airport Partners. Its technical partner, which owns 10 percent, is the Incheon International Airport Corp. It built and operates Korea’s biggest international airport, ranked as the world’s fourth-best international airport. The two other partners RMM Asian Logistics Inc. with 30 percent share and RLW Aviation Development Inc. with 27 percent appear to be passive investors. This means that SMC — therefore RSA — will be in total command of the project, which corporations and the military require since such a setup would not be hampered by conflicting views and agendas in a consortium consisting of several normally egoistic magnates.

A maverick among the mostly property-based magnates, many of whom had pejoratively dismissed him as just “Danding’s mechanic” (which he was though), RSA, 70 years old, has proven, in the 21 years that he has led SMC, to be a resolute CEO in entering a new line big-league of business, completing it, and even making it profitable, which would assure its sustainability.

Thus, RSA has led SMC subsidiaries to be among the most profitable firms it has diversified into: Petron Corp., San Miguel Power, San Miguel Infrastructure (expressways including the unexpectedly profitable Naiax, Bank of Commerce, San Miguel Properties). Indeed, revenues from its original food and beverages business are now only 20 percent of the conglomerate’s total revenues. Unlike most magnates, RSA is a mechanical engineer by education, which his associates say gives him the nuts-and-bolts insight into running industrial enterprises, especially an enterprise like an airport.

To be honest, my dreary view of this country’s economic prospects has changed a lot with SMC’s winning of the bid for renovating NAIA and its on-schedule construction of its totally new international airport in Bulacan. Every Filipino traveler indeed gets depressed when, after exiting from Singapore’s Changi Airport and Thailand’s Suvarnabhumi Airport, he enters his country through a crowded, dimly lit, decrepit NAIA.

After 36 years of aborted plans to build a world-class airport for the capital, we may finally get airports we can be proud of. If that’s the only accomplishment under the Marcos, Jr. administration — even if the NMIA was launched as a part of former President Duterte’s Build, Build, Build program — I’d give it a B+ grade in performance, not the D+ so far. But I hope they change NAIA’s name.

On Wednesday: A conglomerate-based economic growth


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This Post Has One Comment

  1. Dorina S. Rojas

    Let’s hope things will turn out right as we expect them to be, or else, we will be living with dreams of an airport that may never exist in our lifetime.

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