[Vantage Point] BDO lifts NAIA rehab

BDO chairperson Teresita Tan Sy-Coson’s guarantee to bankroll the cost of rehabilitating the decrepit Ninoy Aquino International Airport to the tune of P119 billion played a crucial role in how SMC SAP & Company won the bid to do just that.

SMC SAP, a group led by conglomerate San Miguel Corporation, won the bidding on 82.2% revenue share offer for the government to enhance and manage the country’s main gateway. SMC SAP revenue share offer tops those of the two other groups which tendered a revenue share of below 35%. SMC SAP beat the GMR consortium, which proposed a share of 33.3%, and the Manila International Airport Consortium, which proposed a share of 25.91%.

Initially, the other bidders had questioned the financial capabilities of SMC SAP. Rappler’s Lance Yu wrote about the credentials of the members of San Miguel’s conglomerate and how two of its partners – RMM Asian Logistics and RLW Aviation Development – “will contribute to the rehabilitation project, given that both companies were incorporated mere days before the bid submission deadline and have a meager paid-up capital of a few million.” He also cited a leaked document which floated the idea that the[se] companies “were being used as mere nominees to circumvent the [Greater Capital Region] airport limitation in the [instructions to bidders] which is capped at 33%.”

Of the four bidders, the financial capabilities of the SMC-SAP looks unimpressive. Two companies in the consortium which were formed only on December 15 last year have only P6.25 million in capitalization. RMM Asian Logistics’ president is Raymond Miller Moreno, former owner of the defunct Liberty Telecom. 

RLW Aviation Development, on the other hand, is headed by a certain Robert Lee Wong. As newly registered companies which together supposedly control 57% of the SMC consortium, questions were raised on its technical and financial capability. It would appear that the two companies in the SMC-SAP consortium have no track record, funds, and operational knowhow.

Some suspect that the SMC consortium is only using these rashly set up companies as fronts to skirt ownership cap under the bidding rules. San Miguel’s ownership of the Bulacan Airport, restricts it to only own 33% in NAIA.

Rappler wrote that RMM Asian Logistics and RLW Aviation Development each have a 30% and 27% ownership stake, respectively: “If these companies were indeed acting as merely nominees, then that means San Miguel could effectively act as if it had a 90% stake in the airport, with the other 10% going to its partner Incheon International Airport Corporation.”

Now that the winning bidder has been officially announced, Department of Transportation (DOTr) Secretary Jaime Bautista tells Rappler that all these have all been resolved and the issue has become moot. He expressed the hope that there will be no other hindrance to the much-needed rehabilitation of the NAIA.

Sy-Coson’s generous guarantee, Bautista says, played a big role. It has given his department some comfort that the winning bidder will not lack the needed wherewithal to pursue the project. 

A feather in Bautista’s cap

Nine hundred billion pesos in 25 years: that is the amount the government will receive from the proceeds of the long-delayed NAIA rehabilitation. Bautista says the SMC group will sign the concession agreement within the next 30 days. The government gets an upfront payment of P30 billion upon signing, and another P2 billion over the year.

The NAIA rehab required hard work from the DOTr’s technical working group and the Manila International Airport Authority (MIAA), with invaluable assistance from the Asian Development Bank (ADB) as transaction adviser.

More than three decades ago, then-president Fidel V. Ramos tried to start the ball rolling for the privatization of Terminal 3. Unfortunately, the plan did not push through. For many years since then, the NAIA rehabilitation remained a pipe dream. It was like a  ball that was tossed around just for fun and with little seriousness, mostly by those who seemed to find it more profitable to keep the airport squalid and rundown. 

This latest iteration of the airport’s privatization under Bautista’s administration went through the wringer. Fortunately, efforts to delay its implementation have proved futile. To prevent further delays, the DOTr stuck to a tight deadline. Bautista was adamant about making NAIA a better airport ASAP, focusing mainly on the economic benefits that such an undertaking will bring to the country. 

Bautista has set his sights on the rehabilitation of the NAIA as one of his legacy projects. He often bemoans the embarrassment the country has had to endure from air travelers who suffer from entering or exiting the Philippines through a dilapidated airport.  

In our usual tete-a-tete, he expressed his deep desire and resolve to make the airport’s rehabilitation his number-one priority. He believes that making the NAIA a world-class gateway presents several advantages that can significantly enhance both the aviation infrastructure and the overall economic development of the Philippines. 

For one, NAIA currently faces challenges, such as congested terminals, outdated facilities, and inconsistent service quality. Bautista hopes that the winning bidder would finally upgrade terminals, modernize facilities, and implement efficient passenger processes, leading to a vastly improved passenger experience, including smoother check-ins, shorter wait times, and better amenities. This ultimately enhances customer satisfaction which could spur significant growth in tourism.

What he hopes to achieve are better surveillance systems, improved runway infrastructure, and enhanced emergency response capabilities. By addressing safety concerns and meeting international standards, Bautista says, the airport would become more reliable, reducing the risk of accidents and incidents, and increasing confidence among airlines and passengers.

NAIA currently operates above its designed capacity, leading to congestion and delays. Revitalizing the airport would involve expanding terminal capacity, optimizing runway operations, and streamlining air traffic management systems. These improvements would enable NAIA to accommodate more flights and passengers, reducing delays and enhancing overall operational efficiency.

As the primary gateway to the Philippines, NAIA plays a crucial role in facilitating tourism and trade. By improving the airport’s infrastructure and services, the country can attract more international visitors and investors. A modern and efficient airport not only creates a positive first impression, but also encourages repeat visits and business engagements, ultimately contributing to economic growth and job creation.

Upgrading NAIA would enhance the competitiveness of the Philippines within the global aviation industry. With neighboring countries investing in modern airports and transportation infrastructure, it is essential for the Philippines to remain competitive. A rehabilitated NAIA would attract more airlines, encourage new routes, and position the country as a key aviation hub in the Asia-Pacific region, driving economic development and connectivity.

Bautista is convinced that overhauling the NAIA would generate significant employment opportunities across various sectors, including construction, hospitality, retail, and aviation services. Additionally, the increased economic activity resulting from improved airport infrastructure would stimulate growth in related industries, thereby creating a multiplier effect on job creation that would contribute to overall economic development.

SMC commitment 

In a statement, Ramon Ang, president and chief executive officer of Top Frontier Investment Holdings, Incorporated and the largest shareholder of SMC, said SMC SAP & Company aims to “create an integrated airport network” that “elevates the Philippines as a prime hub for tourism, business, and investment in the region.” 

The winning bidder has to double the annual passenger capacity of the airport to 62 million on a 15-year concession contract. According to government records, NAIA handled 48 million passengers in 2019 prior to the pandemic, well beyond its 33.2 million capacity.

San Miguel, which is in the thick of building another international airport in Bulacan, has committed at least P122.3 billion CAPEX through the concession period. Its management of the Manila gateway would not conflict with the airport in Bulacan. By next year, NAIA is expected to see improvements  – including shorter queues and more parking spaces – while the Bulacan gateway is not expected to open until 2027. 

The winning consortium for NAIA, which includes SMC and Incheon Airport of South Korea, will be taking over MIAA’s role for the next 15 years. The contract may also be extended for up to 10 more years.

In a separate statement, SMC’s communication group says: “Our proposal is designed not only to elevate NAIA to world-class standards but also to ensure that the government benefits from the most advantageous revenue-sharing agreement. This aims to secure a favorable outcome for our shareholders while prioritizing fairness and long-term sustainability over immediate profits. Recognizing the weight of the responsibility entrusted to us, we are committed to collaborating closely with the government and our various stakeholders, harnessing every resource available to us, to transform NAIA into a modern international gateway that Filipinos will be proud of.” – Rappler.com

Val A. Villanueva is a veteran business journalist. He was a former business editor of the Philippine Star and the Gokongwei-owned Manila Times. For comments, suggestions email him at mvala.v@gmail.com.