5 days ago
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Disruptions can produce beneficial effects. Even the absolutely disruptive Elon Musk operation to cut down the Federal bureaucracy will uncover instances of abuse or outdated staffing and programs that had been going on for years.
When San Miguel Corp. (SMC) took over NAIA management, they uncovered many long-neglected problems. The parking area is a good example. It was always difficult to get parking space at Terminal 3 and the new management found out why. There were cars abandoned for years and the parking rates were so low that the residents of nearby condos used the airport for overnight parking. After the right moves were made, it is a lot easier now to find parking there.
Sweetheart deals were uncovered on rentals or leases that drastically reduced potential income for the airport. A government corporation leased land from the airport authority which it was subleasing at tremendous profit. They have three lease contracts, the first is for 20,000 square meters at a ridiculous 20 centavos per sqm and subleased to Cebu Pacific for P314 per sqm. The second is for 2,555 sqm, leased at 20 centavos per sqm and subleased to Airbus Helicopters for P309 per sqm (hangar), P103 per sqm for ramp and P361 per sqm for office space. Another contract is for 5,723 sqm at 60 centavos per sqm.
These extremely low lease rates remained unchanged since 1974 or for 50 years. Just imagine how much money MIAA lost through the years for those highly commercial lots on Domestic Airport Road. Market rates should have been charged with no exceptions.
Inside the terminals, food and other concessions pay P1,200 per sqm and there are reports that some locators pay as little as P60 to P700 per sqm. SMC raised this to P1,600 per sqm.
The tenants should be paying mall rates of at least P4,500 per sqm because airport terminals provide prime selling space and with foot traffic similar to malls, or even more.
There were also initial complaints about the increase in landing fees for the airlines. But it was explained to them that the rates were just adjusted to regional levels. ADB did the study on the airport management privatization that included recommendations on what the landing rates should be. The ADB recommendation was included in the bidding papers used by SMC and the other bidders in computing their bid rate.
The owners of PAL and Cebu Pacific knew the landing rates would increase because they were part of the losing consortium. In the end, they accepted the new rates. NAIA can’t be charging the lowest rate in the region forever.
The San Miguel-led consortium has committed to pay the government 82.16 percent of revenues, P30 billion upfront and a fixed P2 billion annual payments in addition to investing P5 billion a year for airport upgrades for 25 years.
Indeed, the big local companies leasing land for their corporate aviation hangars have started to pay higher lease rates at NAIA.
So, why is Lufthansa complaining about the new lease rates? And why is the government so afraid that they may leave? We should go ahead and take Lufthansa’s bluff.
There are at least five other international aviation companies waiting in the wings, ready to take over the day after Lufthansa leaves, and absorb all the workers so no one will lose their job.
Lufthansa is angry that their lease will increase when their contract expires mid-year. Land lease in NAIA was raised to P710 per sqm per month. Lufthansa had been paying only P23 per square meter per month for 25 years. Even in Clark, the lease there is P450 per sqm per month. Cathay Pacific, Singapore Airlines, Air Asia and a couple of Middle Eastern airlines have sent word they are ready to pay the new rates should Lufthansa leave. That means Lufthansa is underpaying.
Lufthansa’s threat to leave is an empty one. It loves the Philippines and its aviation services market. It recently invested a million dollars to put up line maintenance in General Santos airport for domestic carriers.
Our government should not be pressured by Lufthansa. It would be unfair to San Miguel if the government forces them to accommodate Lufthansa’s demand. The consortium submitted its bid based on assumptions in the term sheet provided by our government. It will send a bad signal to investors that contracts signed by our government mean nothing because changes can be done on a whim.
Our government should have learned from the PIATCO case where it lost big time in the Supreme Court because of unilateral changes to signed contract terms. If the government wants to indulge Lufthansa, it must do so outside of the terms of the PPP contract. If they force San Miguel to grant a discount, San Miguel can very well ask for a change of its committed fees to the government. And then the other bidders will also raise questions if San Miguel is allowed to reduce its contracted commitments.
It opens a can of worms. If Lufthansa gets its discount, from San Miguel or from the government, the local airlines already paying the increased rates on their NAIA leases will demand equal treatment.
Potential investors are more interested in how our government respects a done deal than applaud government’s efforts to keep a current investor happy by changing the terms of a much-lauded privatization contract in midstream.
Duterte unilaterally invalidated the water concession contracts of Manila Water and Maynilad Water which made foreign investors hesitate to come here. That’s why we find it hard to attract investors despite all the new legislation providing more and more incentives. Sanctity of contracts is important for investors. Our government keeps forgetting that.
Boo Chanco’s email address is [email protected]. Follow him on X @boochanco
