Developing tomorrow’s aviation hubs

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Right around the world, massive infrastructure development projects are building new airports or adding significantly to existing capacities. It is through these and other huge aviation hubs that the industry will revolve in coming years; we look at three airports on different sides of the Atlantic all involving huge investment programmes and see how each of them have chosen to fund their new-build or expansion work

Istanbul New Airport is the biggest infrastructure project in Turkey’s history and the gateway, when finished, will be an example of the importance of the aviation industry not only to Turkey but to global connectivity.

​Located 35km from Istanbul city centre, the gateway is expected to cover an area of 76.5 million square metres and be able to handle up to 200 million passengers a year.

​On the question of the importance of this massive project, Hüseyin Keskin – CEO of IGA Airport Operation – explains: “Turkey has a very strong economy, being the seventh-largest in Europe and of course our Istanbul New Airport will also have a big meaning to both Turkey’s the economical and social developments.” IGA was formed in October 2013 to oversee the construction and then to operate Istanbul New Airport for a period of 25 years.

Keskin explains that Istanbul Economics Consultancy, an independent research and consultancy company, together with think-tank EDAM (the Center for Economics and Foreign Policy Studies), conducted a research project and published the results in the form of the ‘Istanbul New Airport Economic Impact Analysis’. According to this, only recently published, report, the airport could provide employment for up to 225,000 people by the year 2025.

Also according to the analysis, when all developmental phases of the gateway are completed, the new airport will contribute up to 4.89% of Turkey’s national income per capita, while upon completion of all phases of its development, its contribution to the tourism sector would be perhaps as much as US$7 billion, notes the Istanbul New Airport Economic Impact Analysis.​

“For the aviation industry, the new airport will have a huge meaning as well, because it will be one of the world’s biggest aviation hubs,” Keskin observes. The belief is that nearly 100 airlines will fly to 350 different destinations worldwide when the airport is completely finished.

​Moreover: “Istanbul Airport City is an exceptional new urban development, located next to Istanbul New Airport. It covers an area of almost 10.5 million square meters. It features hotels, offices, shopping centres, hospitals, schools, exhibition facilities and mosques.

​“It is an integral part of the development of the city of Istanbul. The mix of shops, offices and event centres will serve the entire city, and not only airport customers,” Keskin informs. “With the Gayrettepe-Airport Metro Line, scheduled for completion in 2018, it will be just a 25-minute ride into the city of Istanbul.”

​As of early Summer 2017, 44% of Istanbul New Airport is said to have been completed. There are no less than 24,000 people working at the site of the new gateway now (April), and in June this figure is expected to reach 30,000. “We completely stick to our schedule. The opening is planned for 2018,” Keskin says.

​There are a total of four different phases of development of the airport planned. Phase 1 is to be finished next year.

At that time, the first terminal and three runways will be able to serve up to 90 million passengers a year. In Phase 2 and 3, the airport will be extended to include an additional terminal and two more runways. That milestone is expected to be reached in 2023. The last phase will be finished in 2028 and, after this, the airport should be ready to serve that enormous throughput of up to 200 million passengers a year.

​The cost of such a programme is obviously enormous. “We have signed a contract with six banks for an amount of 4.5 billion euros ($4.84 billion),” Keskin reports. “This contract covers the first phase of the airport. Additionally, the development is funded by the project’s sponsors. The relation between the banks and project sponsors is 75:25.

​The responsibility for acquisition lies with the DHMI, the Turkish General Directorate of State Airports Authority.

​“The IGA and joint venture group is eager to complete the first phase as soon as possible and open our airport next year. It will be clear from the first operational year that actual financial returns will be higher than expected,” he insists.

​The four-phase construction programme will require a total investment amount of 10.2 billion euros ($11 billion), Keskin says. “We are focusing on the first phase at the moment, which has an investment budget of approximately 6 billion euros ($6.45 billion).

​“The airport will have three terminals and six runways, while the first phase alone will include construction of three independent parallel runways, taxiways, apron, terminal building, air traffic, communication and meteorology systems, plus other service buildings.”

​Istanbul New Airport represents the biggest public private partnership (PPP) project in Turkey, but the financial model has previously been used for many other projects, Keskin notes. The model is called Build-Operate-Transfer (BOT) and is a particular type often used to finance infrastructural projects. The model requires that a private entity receive a concession from the private or public sector. “With that capital, it is possible to realise the whole project. At the end, the investment will be transmitted back to the donors,” he adds.


​Building at Seattle-Tacoma
One of the many North American airports investing heavily in new infrastructure is Seattle-Tacoma International Airport, also known as Sea-Tac. And the need for such investment is obvious: the gateway’s operator, the Port of Seattle, says that while the airport handled 45.7 million passengers last year, by 2034 it expects to be handling as many as 66 million passengers on an annual basis (Sea-Tac is currently the ninth-biggest US airport by passenger numbers).

Lance Lyttle, Managing Director of Sea-Tac International Airport

​In fact, Seattle-Tacoma International Airport managing director Lance Lyttle believes that the gateway is “behind the curve” when it comes to investing in the facilities necessary for a successful future.

​“We are trying to catch up: some of these facilities [currently under construction, of which more below] should already have been built. We need to keep pace with the growth in demand,” he says.

​And the airport is doing just that. Four major infrastructure projects represent current priorities. The first is the North Satellite Modernization project, on which the Port of Seattle officially broke ground in February this year. The airport’s North Satellite facility is more than 40 years old and in real need of modernisation and expansion, both because of its age and the ever-increasing volumes of passengers using Sea-Tac and its North Satellite.

​It will be increased in size by 200,000 sq ft and will boast a total of 20 gates, up from the current 12. The current facility is being totally refurbished as well as expanded, including such developments as an entirely new lounge for the satellite’s only carrier customer, Alaska Airlines.

​The second current focus of infrastructure development is a new International Arrivals Facility (IAF). The current International Arrivals terminal (the airport’s South Satellite) is also more than 40 years old and can’t handle the throughput of today’s peak passenger demand. Sea-Tac is already handling 1,900 passengers an hour at peak times, while the current facility’s capacity is just 1,200 arrivals per hour. Upon completion of the new IAF, capacity is expected to reach 2,600 passengers per hour.

While construction has already begun on the North Satellite, approximately 30% of the design phase of the IAF has been completed, while several “enabling projects” have also been launched with regard to the latter’s development. The IAF is expected to be completed by 2019, while the North Satellite is to be developed in two phases, completion of which are scheduled for 2019 and 2021 respectively.

​Sea-Tac also has two other major focuses for development on the drawing board today. One is an integrated baggage handling system that will open in phases and is expected to be fully completed by 2023; the other is the development of the airport’s South Satellite Facility, which will no longer house Customs operations once the new IAF opens. The gateway’s operating authority is currently looking at concepts for this, Lyttle confirms.

​The price of all these projects is not small. For example, the North Satellite’s development is expected to cost in the region of $600 million, the IAF about $660 million. All the projects are to be financed by a combination of three mechanisms: the airport’s own ongoing revenues, new bond issues and Passenger Facility Charges (PFCs, which are levied on the airport’s airline customers).​

And these four current development programmes are only the tip of the iceberg. Sea-Tac’s Sustainable Airport Master Plan (SAMP) envisages the need for the gateway to add another 34 to 35 gates over the plan’s lifetime to 2034, for example, part of a huge process of development. The airport will primarily be expanded to the north, Lyttle informs, with the Port of Seattle having reached the “preferred alternative” phase, and about to “zero in” on an overarching plan for development.

That process of zeroing in on a specific programme is expected to be completed before the end of this year, when the strategy will then go forward to environmental review and more detailed planning.

​Change is going to be extensive, but there is no doubt that the need is there, Lyttle says. The airport is coming under strain from the ever-increasing number of airlines and passengers seeking to use it, driven in large part by what is a booming regional economy. Microsoft, Amazon, Boeing and Starbucks are just some of the companies expanding their presence and creating further traffic through the airport, he notes. The airport’s growth is a reflection of the requirements of its catchment area and the strength of the region’s economy, Lyttle concludes.


Heathrow’s third runway
One of the most controversial airport development programmes of today is to be found in the UK, at Britain’s busiest air gateway, London Heathrow. After a hard-fought struggle waged by the airport authority and other pro-expansion interest groups, last year the Conservative Government gave the green light to the ambitious project to build a third runway at the airport. The decision remains controversial.

Nevertheless, Heathrow has a strong track record of delivering major infrastructure projects, says a spokesperson for the gateway. “Indeed, the airport has been transformed by an £11 billion ($14.2 billion) private investment programme over the past decade which has made the UK’s hub a more efficient airport that offers better value to our customers, while at the same time enabling us to fulfil our vision to give passengers the best airport service in the world.”

​Heathrow’s planned expansion programme involving a third runway will “build on this success”, the spokesperson continued.

Right now – May 2017 – the UK Government is currently consulting on a draft National Policy Statement (NPS) for expansion that will establish the policy framework that will apply to a third runway at Heathrow, and the policy tests that the project must meet. After feedback is gathered from stakeholders across the UK, the Department for Trade (DfT) will submit a final version to Parliament, with a vote to follow. If successful, the NPS would become officially designated and provide the policy framework that will apply to a third runway at Heathrow.

​In parallel to the Government’s NPS process, Heathrow will also launch its own Phase 1 consultation to gather feedback from stakeholders on options for the Northwest Runway Scheme, the Heathrow spokesperson explains. The feedback gained will form the basis of a preferred master plan for the scheme, which will then be further refined during a Phase 2 consultation to take place in the summer of 2018. A final plan is expected to be submitted to the Planning Inspectorate as part of an application for a Development Consent Order in the summer of 2019.

​Heathrow Airport Limited is certain that the project will be seen through. “Now that the planning process is underway, we are getting on with delivery,” the spokesperson says. “We want as much as possible to be built off-site, with a British supply chain – creating jobs and growth while we build and a legacy of skills that Britain can export round the world.

​“British suppliers played a key role in helping us to deliver T2 [Terminal 2] on time and on budget and we’re looking forward to having them play an even larger role in the development of an expanded Heathrow – through initiatives like the upcoming Business Summits and the Logistics Hub launch.”

​The expansion is going to be financed through a combination of debt and equity, not as a separate project. Expanding Heathrow will be entirely privately financed at a cost of £16 billion ($20.7 billion). But, the spokesperson insists: “As a successful business, each year we successfully raise hundreds of millions of pounds in cost-efficient debt in six different currencies through both public and private markets. Our shareholders are proud to be a part of our business and excited about taking forward the development of the UK’s hub airport.”

​A particular feature of the proposed development comes in its ‘modular’ format. “A key innovation we’re implementing in our expansion plans is to make the project modular – from planning all the way through to construction,” the spokesperson explains. “Under this framework, when risks come to bear, we have the option to pursue a different module of the programme. This helps speed up the construction time, gives us greater quality control, is more cost effective and helps reduce environmental impact at the airport as fewer lorries will be using local roads.

​“With a phased approach to development, we will bring facilities online to match demand – helping to insulate the project from shocks caused by cyclical global economic downturns.”