Ninoy Aquino International Airport (NAIA) in Manila is the largest airport in the Philippines and the primary international gateway into the country. It is a busy airport, with nearly 31 million passengers transiting in 2022 and over 45 million in 2023. Built to handle roughly 32 million passengers a year, NAIA is already over-capacity even as demand for air travel is expected to keep rising in the years ahead.
NAIA, which since 1982 has been run by a government corporation called the Manila International Airport Authority, is also frequently ranked as one of the worst airports in the region, plagued by flight delays and other operational issues. Last year, for instance, several personnel were caught extorting money from a tourist who was passing through the airport.
The government is aware of these issues and has decided that the best way to fix them is by turning to the private sector. NAIA has been the target of privatization efforts in the past, but it was the Marcos administration that finally got the process rolling in earnest last year, with several companies bidding on a 15-year concession to operate the airport.
The concession was awarded to San Miguel Corp (SMC), a massive conglomerate that straddles much of the Philippine economy. San Miguel is well-known for its global beer brand, but it has interests in a wide variety of sectors including real estate, energy, oil, and transportation infrastructure.
In addition to operating a number of expressways and public transit systems in the Philippines, SMC is currently developing the New Manila International Airport which is located about 35 kilometers north of Manila and is slated to be operational in 2027 or thereabouts. Now, in addition to developing Manila’s new international airport, SMC has the right to operate the old international airport for a period of 15 years, with a possible 10-year extension.
The deal, on its face, appears to be extremely favorable for the government. According to the terms of the concession, SMC (which is partnering with South Korea’s Incheon airport) will invest heavily in rehabilitating NAIA. According to media reports, the deal requires SMC to invest 88 billion Philippine pesos (around $1.5 billion) in upgrades within the first six years, and to increase the airport’s passenger capacity to 62 million.
The financial side of the deal is also very generous to the government, with the concession structured in such a way that about 60 percent of annual revenue will go directly to the state. The other bidders, including existing operator Manila International Airport Authority, were way below that, offering revenue splits somewhere in the 25 to 35 percent range. In addition, SMC must pay an upfront fee of 30 billion pesos, which is about $500 million.
The interesting thing is that despite suffering from chronic under-investment and poor management, Ninoy Aquino International Airport has historically been a profitable asset for the national government. Under its old arrangement with the Manila International Airport Authority, the government took 20 percent of the airport’s gross revenue and at least 50 percent of its annual net income as a dividend.
Including taxes and other fees passed through to passengers, NAIA generated an estimated 6.75 billion pesos ($115 million) for the state in 2023. Obviously, the government thinks under private management earnings will be higher, and now it will also be off the hook for the costly capital expenditures needed to modernize the airport.
One might wonder how exactly SMC plans to invest billions of dollars in upgrading an aging airport, while also offering the government a very generous revenue split, and still earn a profit. That is a good question and the plan, whatever it is, will very likely involve higher prices, with the Department of Transportation already announcing several fee increases would start kicking in later this year. Existing tenants and businesses in the airport are also expecting cost increases as the new management takes over.
The Philippines, more so than many of its neighbors, often shows a willingness to turn key infrastructure such as electricity, municipal water, and now its biggest international airport, over to private market actors. This frequently results in higher prices for consumers which is, of course, part of the trade-off when you use the private sector to provide and manage critical infrastructure. Given NAIA’s well-chronicled operational issues and the government’s unwillingness or inability to invest the necessary funds to bring it up to date, in this case, it might be a trade-off worth making.
FAQs
Last year, for instance, several personnel were caught extorting money from a tourist who was passing through the airport. The government is aware of these issues and has decided that the best way to fix them is by turning to the private sector.
What are the reasons for airport privatization? ›
However, a study of a large number of privatisations discussed in the rich collection of academic literature up until 2010 identified the following six most significant objectives for airport privatisation, in order of importance (Graham, 2011): (1) improving efficiency and performance; (2) providing new investment ...
Why is the Philippines privatized? ›
privatization policy in the Philippines are fourfold: to reduce the financial burdens to the government due to losing and inefficient GOCCs; to reduce the involvement of government in'economic activities; to promote greater efficiencyin government operations; and to raise funds from the sale ofGOCCs and assets to ...
Why should Manila airport's US $3 billion revamp be about more than just money? ›
With its strategic location, the airport ought to be one of Southeast Asia's main gateways to elsewhere in the region and beyond. But without upgrades it risks being further overshadowed in the eyes of travellers and businesspeople by regional rivals – including the airports serving Indonesia's new capital, Nusantara.
Are airports in the Philippines owned by the government? ›
An airport intended for public use is a property of public dominion under the Civil Code and thus belongs to the state. An owner of an airport used for private operations must be a Filipino citizen or a corporation or association organised under Filipino law, at least 60% of whose capital is owned by Filipino citizens.
Why are US airports not privatized? ›
Finally, many state and local governments were under increased fiscal strain. Perhaps the worst reason to privatize airports (or anything else) is simply because a government needs some cash. In the end, you can only do that one time and privatizing just to get the cash may lead you to make a less than optimal deal.
What are the benefits of private airports? ›
2. Advantages of Privatizing Airports
- 2.1. Increased Efficiency and Innovation. Increased efficiency and innovation. ...
- 2.2. Access to Capital and Investment. ...
- 2.3. Improved Customer Service. ...
- 3.1. Potential for Monopolistic Behavior.
- 3.2. Loss of Government Control and Oversight. ...
- 3.3. Impact on Airport Employees.
The government of Corazon Aquino had initiated a wide-ranging privatization programme selling 122 companies for US$2 billion in 1986-1992.
Why does the US no longer own the Philippines? ›
Except for the brief interruption of the Japanese occupation between 1942 and 1945, the United States ruled the Philippines from 1898 to 1946, after which, the Philippines was granted independence after being devastated by the Second World War. The US supported the dictatorship of Ferdinand Marcos.
Why does the US want the Philippines? ›
Throughout the country, expansionists insisted the United States keep the Philippines as a base for expanding trade and influence in the Pacific. Advocates of American naval power, like Roosevelt, argued that if the United States did not keep the archipelago, Germany or Japan would take it instead.
Manila is considered to be part of the world's original set of global cities because its commercial networks were the first to extend across the Pacific Ocean and connect Asia with the Spanish Americas through the galleon trade; when this was accomplished, it was the first time an uninterrupted chain of trade routes ...
Why is Manila so important? ›
Manila is the centre of trade and finance in the Philippines. Trade flourishes within the metropolitan area and between the city and the provinces and other countries. Most of the Philippines' imports and exports pass through the port of Manila.
Why do people want to move to Manila? ›
In Manila, the capital of the Philippines, most expats are based. This destination offers various experiences due to its size, stimulating environment, and challenging nature. Having a home in Manila allows you to enjoy all the cultural amenities a modern city can offer.
What airline is owned by the Philippines? ›
Philippine Airlines (PAL) is the Philippines' flag carrier and only full-service network airline, as well as the first commercial airline in Asia.
Who is the real owner of Naia airport? ›
The Manila International Airport Authority (MIAA; Filipino: Pangasiwaan ng Paliparang Pandaigdig ng Maynila) is a government-owned and controlled corporation and agency under the Department of Transportation of the Philippines responsible for the management of Ninoy Aquino International Airport (NAIA) formerly Manila ...
Who is the owner of Philippine Airlines? ›
Corporate affairs. Philippine Airlines is owned by PAL Holdings (PSE: PAL), a holding company responsible for the airline's operations. PAL Holdings is part of a group of companies owned by business tycoon Lucio Tan. ANA Holdings, the holding company of All Nippon Airways, has a 9.5% stake in PAL Holdings.
Why would a municipality pursue airport privatization? ›
In addition to reducing demand for government funds, privatization has been promoted as a way to make airports more efficient and financially viable.
What are some of the benefits of airport and ATC privatization? ›
“Overwhelming evidence from the U.S. government and other reports shows separating operations has led to better performance on safety, service quality, cost, and financial stability and has the potential to save businesses billions of dollars that are currently lost to system inefficiencies, cancelled and delayed ...
What makes an airport private? ›
“Private airport” means an airport, publicly or privately owned, which is not open or available for use by the public, but may be made available to others by invitation of the owner or manager.
Why TSA should be privatized? ›
There are multiple reasons why reforming the TSA model would prove beneficial. A private model would allow for strengthened accountability, a decrease in operation costs, enhanced management of labor, and better focus on security threats and problems. Privatizing aviation screenings would be beneficial for security.
