KUALA LUMPUR (June 10): Using private money to fund public infrastructure like airports is not a good idea, says the International Air Transport Association (IATA).
Its regional vice-president for Asia-Pacific Conrad Clifford said an IATA study on private financing for airport infrastructure showed that a privatised airport does not deliver significant benefits to the consumers.
“One of the biggest issues is that if you go for private financing, the market demands a much bigger return on its investment than the government does. Thus, airport charges necessarily have to be higher,” he told Malaysian journalists on the sidelines of the airline grouping’s 75th annual general meeting in Seoul, South Korea recently.
“We also tend to see bigger airports as state-owned assets and are of strategic significance to a country. In that case, we don’t think it is a good idea for it to be funded through private money just because infrastructure investment has become costly,” he added.
“If you are a commercial entity, your goal is to maximise profit. If you are a state-owned entity, your goal is to maximise benefits for the community at large. You have a different driver and that tends to mean that government ownership is better than private ownership. It is more responsive,” he added.
In April, the Malaysian government had entered into four new operating agreements (OAs) with Malaysia Airports Holdings Bhd (MAHB), which saw MAHB’s 39 airports clustered into four regions, namely Kuala Lumpur International Airport, and airports in Peninsular Malaysia, Sabah and Sarawak. This was part of plans to open up opportunities for private sector’s participation in the country’s airport development activities.
However, details on how new private companies can come in to participate have yet to be announced.
Several state governments have also announced ambitious plans to build greenfield airports, such as the Kedah government which is planning a RM1.6 billion international airport in Kulim.
In an interview on May 11, Transport Minister Anthony Loke Siew Fook told The Edge weekly that in the past, airports had sought funds from the government for expansion, and usually had to take turns due to a lack of funding. Now, under the new OAs, all the clusters can be developed simultaneously.
He was also quoted as saying that the government does not encourage airlines to own airports or to run airports by themselves. “As for private investors, I think there is no clear distinction on that. I don’t foresee anything hindering that,” he had said.
On Malaysia’s openness towards private sector financing in a bid to ease the burden of public spending, Clifford pointed out that government-linked companies such as MAHB have access to much lower cost of capital than commercial institutions.
“The government can go to the market and raise money by issuing bonds much more cheaply than a commercial entity. That will reflect back on the final cost of the (airport) project. Interestingly, we have had similar discussions with other airports around the region and in some cases, we have been involved in showing them how to raise money internationally,” he added.
Clifford said IATA’s preferred option to fund airport infrastructure is always through public financing as it is “so much cheaper and we think that it fits better with the profile of a national strategic asset that is providing a service to the broader community like an airport”.
He noted that private investors would also be more interested in funding airports that have monopoly status. “You can [get private funding for] the crown jewels easily, but you won’t be able to [do so for] secondary airports where you can’t apply monopoly [airport] charges,” he added.
It is worth noting that the Malaysian Aviation Commission will soon be rolling out a new set of passenger service charges based on the airports’ facilities and service levels.
Citing the world’s best airports like Seoul’s Incheon airport, Singapore’s Changi Airport and Hong Kong International Airport’s, Clifford pointed out that none of them are privately-held.
“The example of London’s Heathrow Airport is the proof of the pudding is in the eating. The airport, which is owned by privately-held Heathrow Airport Holdings Ltd, has enormous problems and a lot of developments that haven’t been done over many years,” he said.
This article first appeared in The Edge Financial Daily, on June 10, 2019.