US$76m NEEDED TO UPGRADE THE RUNWAY OF KINGSTON’S NORMAN MANLEY AIRPORT!

 A section of the runway at Norman Manley International Airport in Kingston. (PHOTO: MICHAEL GORDON)—

THE runway at the Norman Manley International Airport (NMIA) will cost US$76 million (J$8.5 b) to extend, rehabilitate and modify as part of a wider capital investment plan (CIP) set for the future concessionaire.

Investors aiming to acquire the NMIA are required to spend a total of US$134 million on capital investments, led by the runway upgrade, newly released government documents indicate.

Last week, the ‘NMIA Public-Private Partnership’ published an invitation seeking to shortlist private sector entities with proven experience in the aviation sector to operate, finance, develop and maintain the NMIA. It means that the State will relinquish its responsibility to upgrade the facilities for 25 years. Government ultimately expects to divest the airport by 2015.

The NMIA in Kingston is the second largest of three international airports in Jamaica.

“The majority of the works will be required within the first 10 years. About 78 per cent of the total CIP will be required within the first 10 years of the concession period with the runway end safety area (RESA) and runway rehabilitation accounting for more than 57 per cent of the total CIP,” stated the NMIA Kingston Information Memorandum, which contains expenditure tables sourced from consultants and the International Finance Corporation (IFC), the finance arm of the World Bank.

The 2.7-kilometre runway will see an additional 500 metres of length with an even longer section for a runway end safety area. Debate on the length of the runway surfaced following an incident in December 2009 when American Airlines flight 331 overshot the runway. None of the 148 passengers on board were killed. The Boeing 737 jet skidded off the runway during rainy weather, broke through the perimeter fence, and stopped on the beach across from the road leading to Port Royal. The aircraft broke in three places.

The US$134-million CIP will fall under three categories including airside upgrades costing US$76 million, led by the runway extension; terminal upgrades at US$46 million, led by maintenance; and ancillary upgrades at US$11 million, led by the replacement of electrical substations.

The bulk of the investment by the concessionaire comes at a time when the airport earnings are dropping. NMIA currently operates with the fourth lowest earning before interest, tax, depreciation and amortisation (EBITDA) margin at 18 per cent when compared to a sample of 80 airports globally, the document indicated.

“As can be seen in the benchmarking… in terms of EBITDA margin, NMIA is towards the lower end of the sample of airports, though still higher than Mexico DF, Haneda and Frankfurt airports,” the document stated, adding that the average EBITDA margin is 47.7 per cent for the sample.

It indicates that opportunities “likely exist” to improve financial performance at NMIA.

The NMIA is projected to earn US$4.7 million in EBITDA for 2014, compared with US$6.5 million a year earlier, NMIA Opportunity documents indicate. Total passengers are estimated at some 1.37 million at NMIA with expectations that the number will increase to 2.1 million at the end of the concession, based on “long-term economic growth combined with liberal air services market environment.

NMIA total revenues are projected at US$26.1 million in 2014 or 7.1 per cent less than a year earlier. Its aeronautical revenue “slightly” underperforms the average of a selected sample of similar size airports, most of which are located in the Latin American and the Caribbean region, stated the document. Additionally, NMIA indicates that Jamaica earns some US$9.40 in aeronautical revenues per passenger which underperforms the regional and global benchmark at US$11 and US$13.80 respectively.

“Apart from the security charges, NMIA’s aeronautical charges have not increased systematically in proportion to allowable costs over the past 12 years, and landing charges were unchanged for an extended period between 1998 and 2007,” stated the document.

Non-aeronautical revenues (led by commercial activities) make up 52 per cent of total revenues which outpaces the regional and global average at 34 per cent and 42 per cent respectively.

The IFC will act as the lead advisor in the structuring and implementation of the project. The Development Bank of Jamaica, Government’s privatisation agency, and the PPP Unit will act as co-advisors.