How Cebu airport bidders chose their foreign partners
MANILA, Philippines – The heat is on in the bidding for the expansion of the Philippines' second busiest airport, the Mactan-Cebu International Airport.
The country's richest and most powerful — the Gokongwei, Pangilinan, Ayala, Aboitiz, Gotianun, Tan, Sy and Lopez groups — are competing or teaming up to get a chance at grabbing the P17.5-billion project.
Thrown into this mix are the world’s most reputable airport operators. The partnership ingredients of these consortiums, particularly the foreign side, must be made carefully as they can make or break the deal.
The project involves the expansion of the current Cebu airport terminal to accommodate the increasing number of tourists passing through, and the construction of a passenger terminal that has a capacity of 8 million passengers per year.
As per Department of Transportation and Communications (DOTC) regulations, all local companies bidding for the project are required to take in foreign airport operators as partners to compensate for their lack of expertise in airport operations.
To give them a competitive advantage, the bidding groups are going for some of the biggest names in airport management. Big ticket partners include the likes of Aeroport de Lyon (France), global airport operator ADC & HAS Airports (US), Changi Airport International (Singapore), Incheon Airport International Corp., (South Korea), infrastructure investment company Infratil Asia (New Zealand), GMR Infrastructure Ltd. (India) and Zurich Airport International AG, (Switzerland).
"What we are looking for is world class standards for our airports. This is exactly what we got today with the quality of consortia we have," said Transportation Undersecretary Rene Limcaoco.
How are these partnerships formed and what are the criteria when considering and choosing a foreign partner?
A courtship of different partners
The Gotianun-led Filinvest consortium, which partnered up with Changi Airports International Pte Ltd (CAI) describes the partnership as a ‘courtship of different partners.’
“All of them [the bidders] talked to more than one person. We talked to different people and if there is a meeting of the minds then people end up with the partnership,” said Filinvest CEO Lourdes Josephine Yap in a previous interview.
“I understand many of the players also make the rounds of talking to different groups. In some groups their consortium is already full and in some groups some people only want operators. It’s a combination of whether the role they are playing is acceptable to both parties and if the percentage of ownership is acceptable to both parties,” Yap added.
Their operating partner, CAI, runs Changi Airport, the world’ most awarded ‘best airport.’ It is the 7th busiest international airport and a major air hub in Asia. As of March 2012, Changi Airport served more than 100 airlines operating 6,100 weekly flights connecting Singapore to 60 countries and territories worldwide.
“Changi as a partner is of course one of the top choices. It’s always one of the top 3 best airports in the world. In terms of ownership structure what they were looking for and what we have to offer is also compatible,” said Yap.
Partner with Ayala?
When first considering the bid, CAI, whose airport operator’s owner, Temasek Holdings, had initially written the DOTC-Bids and Awards Committee (BAC), seeking clarification on whether it could participate in the bidding for the MCIA project despite a possible conflict of interest.
In early 2013, the initial rules set by the DOTC-BAC banned private groups with existing interests in airline business from joining the bid for the multi-billion contract. Singapore's Temasek has a stake in legacy carrier Singapore Airlines.
Transportation Secretary Abaya has previously explained that this decision was an effort to eliminate all possible conflicts of interest. Not long after, his peers in the Aquino cabinet's economic team prevailed. One senior Cabinet member cited Changi Airport Group as one of the foreign investors the government is hoping to attract to its Public-Private Partnership (PPP) projects.
However, why Temasek-Changi decided to partner with the Gotianun-led FilInvest raised eyebrows. The Singapore group already has a 47.3% interest in Ayala-owned Globe Telecom. The Ayala group has teamed up with another local diversified conglomerate Aboitiz Equity Ventures for the Cebu airport bid.
Way back in December 2012, the Ayala and Aboitiz joint venture already announced that they are tapping global airport developer ADC & HAS Airports, Inc., which operates 3 airports in the US that are of the same size as the Mactan-Cebu airport
"It brings with it the operational strength and technical resources of Houston Airport System (HAS) and the airport privatization and development experience of Airport Development Corp (ADC)," Ayala Corp told the exchange. ADC & HAS's portfolio also includes airports in market similar to Cebu, including Quito, Ecuador, and the one in San Jose, Costa Rica, as well as Liberia, Costa Rica and the Chungcheong Northern Province in South Korea.
Meantime, Pangilinan-led Metro Pacific Investments Corp. (MPIC) and Gokongwei-owned JG Summit Holdings Inc. said they were looking for technical skills when they chose Aeroports de Lyon as their foreign partner.
“Essentially we needed a technical partner. The ideal partner would be one who would not require a very large stake. It (Lyon) is someone we know very well. We have a good relation with them,” said Jose Ma. K Lim, the CEO of MPIC.
According to MPIC chief finance officer David Nicol, the airport was chosen because of its experience operating small to medium sized airports.
“There are some very famous names in other consortiums but it’s a slightly different discipline to be operating a smaller terminal,” said Nicol.
In 2011, Lyon-Saint Exupery Airport formerly known as Lyon Satolas Airport served 8,437,141 passengers, making it France's 4th busiest airport after Charles de Gaulle, Orly and Nice airports. However the airport, which serves the needs of a medium sized town of over 30,000 reisdents is not on the scale of Changi.
MPIC chair Manny V. Pangilinan also said they were looking for the assurance of a foreign partnership throughout the bidding process. “We want the certainty that they will be there during the bidding process,” he said.
Diversified conglomerate San Miguel chose Incheon International Airport, the largest airport in South Korea and one of the busiest airports in the world.
"The reason why we need a partner is because DOTC require you to have one. But if they don't require it we are confident we can do it ourself,” said San Miguel president and COO Ramon Ang, who is also the president of Philippine Airlines (PAL). The legacy carrier is owned by both San Miguel and the group of tycoon Lucio Tan. Both groups are joint venture partners in the Cebu airport bid.
“There are certain rules. You need for a foreign partner, Incheon came out to be the best suited for the project, that’s why we chose them. Our people have good relationship with them," added Ang.
The Incheon airport serves as a hub for international civilian air transportation and cargo traffic in East Asia. The airport has been rated the best airport worldwide by Airports Council International between 2005 and 2012.
Not long after San Miguel and Incheon partnered for the Cebu airport bid, San Miguel announced that it is also eyeing a Korean — without naming which Korean firm — for its NAIA Expressway toll road project it has won with its P11 billion bid.
The 7 groups of Filipino and foreign firms bidding for the Mactan-Cebu project include:
- Metro Pacific Investments Corp. (MPIC) and JG Summit Holdings, Inc. (joint venture), with Aeroports de Lyon
- AAA Airport Partners (joint venture of Ayala Land and Aboitiz Equity Ventures), with ADC & HAS Airports, Inc
- Filinvest and Changi Airports Mena Pte Ltd
- San Miguel Corp. and Lucio Tan group (joint venture) and Incheon Airport International Corp.
- First Philippine Airports (consortium of Lopez-led First Philippine Holdings Corp. (FPHC) and Infratil Asia Ltd.
- Henry Sy's Premier Airport Group and Zurich Airport International AG
- Megawide Construction Corp. and GMR Infrastructure Limited. (joint venture)
The winning bidder for this build-operate-transfer (BOT) project will be granted a 20-year concession.