MANILA, Philippines – The Gokongwei-led JG Summit Holdings Inc. is interested in expanding into airport infrastructure projects, specifically the NAIA Terminal 3 airport facility, the base of its airline unit Cebu Pacific's Manila operations.
“JG Summit Holdings Inc. would be interested in infrastructure business like airport operations,” Lance Gokongwei, a director of JG Summit, wrote in a reply to abs-cbnnews.com’s questions.
Gokongwei is also the CEO of JG Summit’s budget airline unit Cebu Pacific Air, which is one of the two local airlines operating at the sprawling Terminal 3 at Ninoy Aquino International Airport (NAIA), the country's main gateway.
Cebu Pacific, which has clinched the top spot from Philippine Airlines (PAL) in the domestic airline market, consolidated its local and regional flight operations at NAIA 3 when the terminal facility partially opened in July 2008.
“NAIA Terminal 3 is the perfect home of Cebu Pacific Air in Manila. As the Philippines largest national flag carrier in terms of total passengers carried, NAIA-3 is the only airport terminal that will fit CEB’s large and rapidly expanding operations,” Gokongwei wrote.
Cebu Pacific has grown its passenger base exponentially since it transferred its Manila-based operations from two separate locations—the congested NAIA 1 and Domestic Terminal—to NAIA 3.
Business risks
NAIA 3 is a controversial build-operate-transfer project that was mired in legal, financial, structural and safety issues. It stood idle for 6 years before the government finally started partial commercial operations in 2008. The inaugural flight was Cebu Pacific’s.
“In 2008, none of the airlines wanted to move to NAIA-3. CEB (Cebu Pacific) [was] the only airline that worked with the Manila International Airport Authority (MIAA) to make the terminal operational and a full-fledged International Airport,” Gokongwei stressed.
Until now, other international airlines have deferred their transfer to NAIA 3 due to ownership and legal issues that beset the government, which is currently operating and managing NAIA 3 through MIAA. These messy issues have yet to be addressed as the government still has to fully compensate Piatco, the terminal builder.
To add insult to injury, the NAIA 3 concessionaires, including Cebu Pacific, recently received another eviction notice from Piatco, citing unresolved payment issues between them and the government.
While all these are being sorted out, the Aquino government is dead set in cleaning up the Piatco legal mess and completing the repair and retrofit works at the terminal. Currently, only half of the facility is occupied by Cebu Pacific, PAL budget arm AirPhil Express, several concessionaires, and a few government offices. There are areas that have been found structurally unsafe, especially during an earthquake. Baggage handling and most backend operations are still manually handled.
In a previous interview, Transportation Secretary Jose de Jesus had explained that the NAIA 3 was not included in the priority list of the Aquino government’s public-private-partnership scheme for key infrastructure projects due to these inherited issues.
Once these are all worked out, the right to manage and operate NAIA 3 will be up for grabs.
By that time, NAIA 3, which was designed for legacy airline operations, will either be a dedicated terminal for international flights, or a combination of both local and international. It’s a future Cebu Pacific would like to have a say in.
First mover
“NAIA-3 is best suited for airlines like CEB. We will generate the highest return to the government, and continue to serve the most number of passengers in the country. CEB is the fastest growing airline in the Philippines and will continue to offer the widest connectivity to the all major tourism destinations," Gokongwei said.
Cebu Pacific is currently handling over 10 million passengers a year and has previously announced that its growth trajectory is pointing to a 13 million passengers a year by 2013. That seems to fit the 12 million passenger capacity of NAIA 3 when it finally becomes fully operational.
The group seems to be banking on goodwill. After all, they were the first to move in at NAIA 3 in 2008 despite the business and political risks that linger up to now. It allowed the government to make productive use of the facility for the past 2 years, even if only a portion was useable.
“NAIA Terminal 3’s main source of revenue is generated from airport terminal fees collected from the large passenger base of CEB,” Gokongwei noted.
However, a terminal executive once remarked to abs-cbnnews.com that NAIA 3 was built to fit the operations of legacy airlines. There are VIP rooms that are core to the business model of full-service airlines, which consider business and frequent travelers as key target markets.
These and more facilities and equipment at NAIA 3 may seem unfit to the operations of no-frills airlines, like Cebu Pacific, which taps budget travelers who would rather buy their own tickets online instead of a travel agent. Cebu Pacific also has some smaller planes that don’t need passenger tubes, which NAIA 3 has a lot of.
Cargo facility
But it seems to be a half-full-half-empty perspective. Gokongwei considers the existing NAIA 3 facilities lacking for full-service airlines, too.
“NAIA Terminal 3 will have difficulty having operators, like legacy carriers, who handle substantial cargo, since it has no cargo terminal facility,” he stressed. Some airlines carry cargo, another revenue driver, in their planes' underbelly.
A tunnel that connects NAIA 3 to the cargo facilities currently available at NAIA 1 and 2 was one of the contract amendments sought by Piatco. These amendments were nullified by the Supreme Court in 2003.
Construction of NAIA-3 was almost finished in December 2002 when the Arroyo government nullified the concession contract and succeeding amendments due to allegations of corruption and other wrongdoings.
The Gokongwei group is a diversified conglomerate with interests in food manufacturing, retail, property, telecommunications, banking, and aviation.
The patriarch, John Gokongwei Jr, was one of the Chinese-Filipino tycoons that grouped together in the 1990’s to make an unsolicited bid to build and operate NAIA 3. The Piatco consortium, which challenged the tycoons' bid, won the NAIA 3 concession.
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