Jul 28, 2014

Kansai/Osaka Airport concession to kick off in FY2015

Kansai International Airport

The New Kansai International Airport Co. (NKIAC) on July 25 unveiled its plan to implement a concession for the right to operate public facilities at the Kansai International Airport and Osaka International Airport (Itami Airport). The preferred negotiation right holder for the project that has entered into a basic agreement with NKIAC will be obligated to put up a special-purpose company (SPC) that will be tasked to undertake operation at both airports (special airport operation project). The SPC will become the operating right holder in accordance with the concession, giving it the right to operate the runways, taxiways, aprons, parking lots, passenger facilities, cargo facilities, offices and shops at both airports. It will undertake operations at both airports after it acquires shares in the group companies of NKIAC from the latter, succeeds various contracts and obtains movable assets. The project calling for the operation of both airports by the operating right holder is set to begin in fiscal 2015 and will run for 45 years until the end of fiscal 2059.

*Shares in group companies to be acquired, too

NKIAC will select the preferred negotiation right holder from the bidders and the SPC that will be established by the preferred negotiation right holder will take charge of the operation, maintenance/control and adoption of environmental measures for the runways, terminal buildings and other facilities at the Kansai and Osaka Airports for 45 years - from the scheduled start of fiscal 2015, until the end of fiscal 2059.

The operating right holder will set and collect the landing fees and other charges, and then use the revenues to cover the expenses needed in the execution of the project. NKIAC owns the assets at both airports, so it will monitor the operating right holder to find out if it is properly carrying out the business. Further, it will collect the price of the operating right from the operating right holder and then utilize such funds for paying off its debts and for paying the lease to the company that owns the land.

The SPC expects funding through a consortium. The requirements of the representative company are as follows: (1) It must be familiar with the laws/regulations and business practices in Japan, understands the background of the establishment and operation of the Kansai and Osaka Airports, and intends to contribute to the strengthening of the international competitiveness of Japan's industry, tourism and so on, and in the stimulation of the economy of the Kansai region, (2) It must assume a leading role in the investment into the SPC and the management operations after the start of the project, and (3) It must possess the necessary track record in operating passenger facilities, commercial facilities and other establishments that are of the same scale as Kansai Airport. The selection of the preferred negotiation right holder for the project needs to be approved by the Minister of Land, Infrastructure, Transport and Tourism upon consultation with the heads of the relevant administrative bodies such as the Minister of Finance, Minister of Foreign Affairs and the Minister of Defense.

The SPC that will be put up by the preferred negotiation right holder will be the operating right holder that will have the right to operate the runways, taxiways, aprons, parking lots, passenger facilities, cargo facilities, offices, shops and other facilities located at the airport premises and in the neighboring areas which are necessary in the implementation of the special airport operation project. Aside from entering into an implementation agreement with NKIAC, the SPC will also acquire shares (in the NKIAC group companies), succeed contracts and obtain movable assets from NKIAC. At present, the Osaka International Airport Terminal Co. (OAT) is scheduled to merge with NKIAC before the commencement of the airport operation project by the SPC.

With regard to the price of the operation right, NKIAC will only accept bids whose prices are above Y49 billion per year (minimum proposal amount), assuming there is no guarantee deposit. Under this assumption, gross operation right fees that will be paid for the entire 45-year period will reach a minimum of about Y2,200 billion. Now if a deposit of Y1,475 billion is made, then when such factors as the amount of deposit to be returned and the interest rate effect on the deposit are taken into account, the annual operation right fee will become zero and the project will turn into a lump-sum payment (in case of a 1.1% interest rate on the deposit).

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