$50 Million Deal for PAA?

Clark for Free!

By Tonette Orejas


April 29, 2011

CLARK FREEPORT—An airline partly owned by President Benigno Aquino III’s cousin has decided to locate its hub at Diosdado Macapagal International Airport (DMIA) in a major step toward the facility’s transformation as the nation’s premier airport.

The move last March by Philippine AirAsia (PAA) of businessman Antonio “Tonyboy” Cojuangco was hailed by Victor Jose Luciano, president and chief executive officer of Clark International Airport Corp. (CIAC).

But not everyone is happy with the PAA’s move under what was described by critics as a $50-million “sweetheart” deal that includes, among others, waiving fees and the priority use of a new terminal building.

Luciano said the waived fees are an incentive given to other airlines. “It’s not a new thing,” he said.

He said the decision of PAA, which is 40 percent owned by Asia’s biggest low-cost carrier, the Malaysia-based AirAsia Berhad, finally gave the DMIA an “anchor airline,” or a carrier headquartered elsewhere but using the Clark facility as a major base.

Cojuangco, PAA chief executive officer Marianne Beloso Hontiveros and Harbour Centre chair Michael Romero each own 20 percent of the airline. Cojuangco was the biggest contributor to his cousin’s presidential campaign in last year’s election.

Luciano said getting AirAsia to become an anchor airline took five years, or almost the length of time it served the Clark-Kuala Lumpur and Clark-Kota Kinabalu routes, despite the DMIA’s attractions: an executive order designating it as the country’s premier international airport, its strategic location, upgrades in facilities at the former US air base and other incentives.

‘Sweetheart deal’

CIAC could not get the country’s flag carrier, Philippine Airlines, into DMIA because “it simply did not want to,” Luciano said.

CIAC wooed AirAsia in the third quarter of 2010. Tony Fernandes, AirAsia’s group chief executive officer, announced the joint venture in December 2010. A memorandum of agreement (MOA) was signed on March 24 and Malacañang announced the CIAC-PAA deal.

A “$50-million sweetheart deal” for Cojuangco is how a Philippine Daily Inquirer source described the arrangement.

Sources among CIAC employees who asked not to be named for fear of losing their jobs said they were afraid the deal put the DMIA at a disadvantage.

Under the MOA, a copy of which was secured by the Inquirer, the signatories—CIAC, through Luciano, and PAA, through Hontiveros—agreed on 15 terms.

They include PAA’s commitment to dedicate 13 aircraft within five years until 2015, CIAC’s waiving of aeronautical fees (landing, take off, parking fees), CIAC’s setting aside 10 to 30 percent of passenger terminal fee for AirAsia Group’s marketing fund, and PAA’s priority use of a new budget terminal and the need to consult it on the design and development of the facility.

Inquirer sources were asking if the deal was clinched by PAA because Cojuangco is Mr. Aquino’s relative.

“Is the open skies policy of [Mr. Aquino] connected to the entry of his cousin in the airline industry and airport?” asked one of the sources in an e-mail to the Inquirer last week.

Talks long before P-Noy
Cojuangco dismissed suggestions of irregularity. He said talks with the Malaysian budget airline “started way back in 2006.”

“We helped them set up in Clark where they have been operating at least two years now,” Cojuangco told the Inquirer. “That was way before P-Noy even considered running for the presidency.”

Luciano said there was no time that Mr. Aquino, his economic advisers, friends or relatives had called him to favor PAA. He said Cojuangco was “not involved” in negotiations with CIAC.

“A representative of AirAsia Berhad was more actively engaged. But I learned that Tonyboy wants the hub in Subic [Bay Freeport in Zambales] because he has invested in a resort there. He was cold to the idea of Clark and since he was a minority [owner], he had to follow the majority’s decision, which is Clark,” Luciano told the Inquirer on Wednesday.

Cojuangco, he said, relayed this message to CIAC officials, through Hontiveros: “This is good for the country.”

Best hope for DMIA

The $50 million, supposedly the contract’s worth, is not mentioned in the four-page MOA notarized in Makati City. “That’s an invention,” Luciano said.

An Inquirer source said the $50 million is a “conservative projection” based on total departing passengers of PAA within 11 years from 2015 to 2026.

The amount is reached, the source said, if the total of 27.5 million departing passengers is divided by 117 passengers per Airbus 320 at 65 percent load factor. This is equivalent to 235,000 flights multiplied by $216 per flight, the current fee paid by AirAsia at DMIA.

“To think that fee is already a discounted rate,” the source said.

But to Luciano, the issue is not Cojuangco or his blood ties with the President.

It all boils down to what is the “best hope” for the DMIA so it can evolve into a competitive international services and logistics center in the Asia-Pacific region and become the premier international gateway as envisioned by Executive Order No. 174 signed by former President Fidel Ramos.

“This is a case of giving up this much to be able to obtain more,” he said.
Revenue projection

For instance, an AirAsia medium revenue projection showed that from 2.2 million passengers, DMIA can raise fees and revenues worth P1.7 billion within five years. The waived fees and marketing funds collected consist only of 7.5 percent and 6.45 percent, respectively.

The financial study also showed that without an anchor airline, traffic at DMIA in 2007 up to 2010 grew at 7 percent yearly among international passengers and 41 percent yearly among domestic passengers.

AirAsia, he said, showed a remarkable growth, which can be done by its subsidiary in DMIA.

Carrying only 200,000 passengers in 2001, AirAsia shuttled 31 million passengers in 2010.

A CIAC report said PAA’s hub operations will start in December this year, targeting 5 million passengers in three years to short and long-haul flights to Japan, Iran, France and New Zealand.

Luciano said the marketing fund, to be used for local and global promotions of DMIA, is not an expense because it brings returns.
Budget terminal

The MOA’s provision on the development and operation of a new budget terminal said “priority shall be given to [PAA] for its use in a designated area within the new budget terminal.”

“For this purpose, [PAA] will be consulted [on] the design and development of the building of the budget terminal, incorporating therein the airline’s requirements throughout the development phase,” the MOA said.

Luciano said the preference is given to help PAA fit its operations in the new facility.

MOA being reviewed

CIAC Chair Nestor Mangio, in a separate interview, said the MOA has yet to be presented to the board.

DMIA’s financial and legal officers were involved in the crafting of the MOA, Luciano said. He said this would be presented to the new CIAC board after the May 2 stockholders’ meeting.

The MOA is being reviewed by the Office of the Government Corporate Counsel, he said.

Luciano urged detractors within and outside CIAC to “give the DMIA a chance so that Clark, as an engine for economic growth in the [base] conversion process, would really deliver.” With a report from Daxim L. Lucas

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