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Infrastructure: Airports


 

Sector Background and Potential

With its archipelagic character, the Philippines depends on air and sea transport much more than countries with large continuous landmasses. Since a high percentage of domestic and international commerce and travel is by air and sea, the efficiency of aviation and maritime transportation has become increasingly critical to national competitiveness. There is much room to improve efficiencies and improve the logistics costs for goods and associated services. The high cost of domestic marine transport has long been questioned, while the enormous potential for tourism – both domestic and international – is greatly influenced by the quality of airports and seaports. Solutions to the numerous challenges involved in creating an efficient modern air and sea transportation system require addressing policy and regulatory impediments as well as upgrading and rationalizing airport and seaport infrastructure and networks.

View Updated Figure Here.

Figure 68 shows the high rate of growth in passenger volumes for domestic air transport, tripling following the deregulation of the industry by former President Ramos in the early 1990s.

 

 

 
 

For several years (e.g. 1996-1997 and 2006-2007) annual increases were roughly 20%. Filipinos are flying more than ever, as competition in the aviation sector has provided affordable alternatives to maritime travel. More affordable air fares since the mid-1990s have also stimulated the growth of domestic tourism. Similar high rates of growth can be expected in the next few years, which will require more investment in modernizing airport infrastructure. Not only new terminals are needed. Few airports are equipped for night operations and most need navigational and radar improvements. Policies that encourage more direct international flights to secondary cities are urgently needed to relieve congestion at the Ninoy Aquino International Airport (NAIA).

Figure 69 shows the WEF ranking of air transport infrastructure for the ASEAN-6 with the Philippines ranked lowest, slightly lower than Vietnam and Indonesia and considerably lower than Malaysia, Singapore, and Thailand.

The Philippines lacks a modern showcase international gateway airport. Currently, the country has no airport even close to the quality of new facilities as regional competitors such as Bangkok, Beijing, Guangzhou, Hong Kong, Incheon, Kuala Lumpur, Nagoya, Narita, Osaka, Shanghai, Singapore, and Taipei. First impressions of foreign visitors arriving at the leading international gateways Manila, Cebu, and Clark are that terminal facilities are modest (NAIA Terminal 2 and Terminal 3 and Mactan), small, or dilapidated (Clark and NAIA Terminal 1 and domestic).

At NAIA, the airport master plan of the early 90s for three new terminals has not been followed. The cargo terminal has yet to be built, while new domestic Terminal 2 (T-2) and international Terminal 3 (T-3) terminals were built but have not been used for their original purposes. The new GOJ-financed domestic terminal that opened in 1999 has been used exclusively for domestic and international flights of Philippine Airlines (PAL) despite not being designed for requirements of international aviation (customs, immigration, and lounges).

 

 

 

 
 

The new international terminal, built by a Philippine-German joint venture, was expropriated by the GRP in 2004 when the owners were accused of corruption and overpricing. The two arbitration cases filed in the International Criminal Court in Singapore and International Centre for Settlement of Investment Disputes in Washington, have been decided in favor of the government in that the Anti-Dummy Law was violated. The DOF has given assurance that the government is committed to pay any amount the local Expropriation Court decides is due investors. Meanwhile, Cebu Pacific, the other major Philippine-owned airline, and Air Philippines and PAL Express have been allowed to relocate their NAIA flights from the ancient domestic terminal to T-3. International carriers, unwilling to move to T-3 until the ownership dispute is resolved, continue to operate from the very outdated Terminal 1 (T-1).

Full operation of T-3 will require the present taxiway to be closed so that only one runway will be available to all domestic, international, and general aviation flights. A fuel depot and lines must also be in place. Aside from T-3 being underutilized, the lengthy period since the government expropriation has created an irritant in RP-European relations and harmed the country’s investment image abroad. Expansion of NAIA beyond its current area of 600-hectares would require extensive demolition of business and residential areas.

The 1991 eruption of Mt. Pinatubo and subsequent erosion of Philippine political support for American military bases gave the GRP operational control of two extremely large installations at Clark and Subic in Central Luzon. Two decades later the special economic zones together host almost 145,000 employees and are becoming increasingly integrated, with Subic the international seaport and Clark the international airport serving the adjacent provinces.72 DMIA has room to build a 2nd and even a 3rd parallel runway adjacent to the two existing runways.

The Subic-Clark zone has tremendous potential for aircraft and ship assembly and maintenance, education, ITES, logistics, manufacturing, medical tourism, retirement, and tourism and could host many hundreds of thousands of more jobs with sound policies, promotion, and investment. Road connections from Manila to Clark and to Subic have greatly improved. In the decade ahead, the North Rail will become operational to San Fernando. A high-speed rail to link NAIA and DMIA has been proposed, and extension of rail service to Subic in the future should be considered, should the project be implemented (see Map 1).

Outside Central Luzon, airports in the various regions are being improved, although only a few have international service. Under the new National Tourism Act of 2009 (RA 9593), a province can be declared a Tourism Economic Zone, which could allow air or cruise ship service of any flag to operate with low taxes. Pocket open skies, which has stimulated tourism in several places in Asia, has not been tried in the Philippines, despite urging of such a policy for Clark from domestic business groups and foreign chambers.

However, the GRP negotiated bilateral air traffic rights agreements with 26 countries from May 2007 through February 2010, greatly expanding the potential number of flights between the Philippines and each country.73 These agreements are effectively bilateral open skies agreements since it will take many years to fully utilize the allowable inbound flights. Foreign airlines are burdened with the Common Carriers Tax (CCT) and Gross Philippine Billings (GPB), as well as customs, immigration and quarantine (CIQ) overtime charges, taxes and fees not imposed elsewhere and which make serving the Philippines less attractive for foreign airlines than more business-friendly regional destinations.

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 72 Clark: 57,118 (2010) and Subic: 86,631(2010); total for freeports is 143,749.
73 Australia, Bahrain, Brunei, Cambodia, Canada, Finland, Hong Kong, Iran, Japan, Kuwait, Libya, Macau, Malaysia, Netherlands, New Zealand, Oman, Qatar, Russia, South Korea, Singapore, Spain, Thailand, Turkey, United Arab Emirates, United Kingdom, and Yemen.

 

 

 
 

Map 1: High-speed rail connecting NAIA and DMIA


 

Foreign airlines and international courier delivery firms are currently considered public utilities and cannot serve the domestic market except as minority partners owning no more than 40% of equity. The two foreign courier delivery firms with hubs in the Philippines have shifted their hub flight operations from Clark and Subic to China to serve the latter’s fast-growing market.

 

 

 
 

Recommendations (15):

A. The GRP should prioritize investments in airport terminal, runway, and communication facilities. There is a need for an NCR/Central Luzon Transportation Master Plan that includes a strategy for development, until mid-century, of the major gateway airport(s) as well as minor airports. The plan should include ground rail and road transport infrastructure linking the airports and cities, including major ports. (Medium-term action DOTC and NEDA)

B. There should be only one international airport per region, with existing airports converted into international airports, in preference over building new airports. (Medium-term action by DOTC and NEDA)

C. Outside Central Luzon, priority should be given to Laguindingan in Northern Mindanao. At Mactan, the runway should be extended and high-speed ferry links to Tagbilaran increased rather than creating a new airport at Panglao. (Medium-term action DOTC and NEDA)

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74 There is another view that NAIA should remain the primary international gateway since transferring to a less convenient airport may curb the growth of carrier services through a decrease in demand and an increase in operating expenses. There will be a market for regional, domestic, and general aviation services in Clark but not a full scale international gateway, even with a high speed rail connecting the airport to the CBDs in Metro Manila. Instead, NAIA should be expanded by expropriating land around the airport, be improved through major upgrades, and be optimized through better terminal allocation and efficient airport use management.

 

 

 
 

D. Make Clark an alternative gateway to Manila/NAIA.75 Eventually make Clark the primary international gateway and NAIA the secondary, but still the primary domestic hub.76 Connect with a high-speed rail line (see Map 1). (Long-term action DOTC and NEDA)

E. The local Expropriation Court should quickly decide the amount due to NAIA T-3 investors. Subject to needed repairs and additional construction, begin to fully utilize the terminal for growing domestic traffic and for regional traffic using narrowbody aircraft. (If widebody aircraft are to use T-3, a new taxiway should be built separate form domestic runway 13-31.) (Immediate action DOT and DOJ with private sector)

F. Because T-1 is closest to international runway 06-24 and the international cargo terminals, T-1 should undergo phased renovation for continued use by long-distance widebody aircraft. T-1 should eventually be connected to T-2 to allow domestic to international transfer between buildings.77 (Medium-term action DOTC)

G. A new fuel depot for NAIA is needed as the current depot leaks and is too close to T-1 and T-2. (Medium-term action DOTC)

H. If most international traffic is moved to Clark, there should be a second parallel runway, a terminal with a 20-million passenger capacity, and a high-speed rail connection.78 (Long-term action DOTC and private sector)

I. Quickly resolve the downgrading of the CAAP from Category 1 to Category 2 status by the US FAA and the 2010 EU decision to prohibit Philippine carriers from European airports. (Immediate action DOTC and CAAP)

J. Improve the business and investment climate for international air carriers and enhance long-term connectivity, tourism, and trade competitiveness by setting the level of aviation taxes and charges to conform to international agreements and standards by removing discriminatory tax burdens such as the CCT and GPB.79 (Medium-term action DOF, DOT, and Congress)

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 75 NAIA has a land area of only 600 hectares, while DMIA has 2,367 hectares. NAIA is hemmed in by roads and dense commercial and residential development; Clark is not. NAIA cannot expand; Clark can.
76 NAIA handles 90% of the country’s international and 75% of domestic traffic. Manila Domestic Terminal is the oldest. Terminal 1 is the second oldest (1980s) and in an advanced stage of dilapidation. Over 20 foreign carriers use its 16 gates. Terminal 2 was opened in 1999. PAL, using 7 gates for domestic and 5 for international, has outgrown T-2. Terminal 3 has 20 gates but was built along the domestic runway which cannot handle wide-body aircraft.
NAIA runways are currently operating at full capacity from 7:00 am to 7:00 pm. Tourism is growing steadily, increasing the need for more international flights at Clark.
 77 For T-1 and T-2 to connect, the fuel depot and NAIA cargo terminal must be relocated; the fuel depot at its current location is a hazard to both terminals.
 78 Other Asian countries have relocated international gateway airports outside congested capital city airports. Hanoi, Hong Kong, Incheon, Jakarta, Kuala Lumpur, Nagoya, Shanghai, and Tokyo are examples. In some cases (such as in Nagoya and Tokyo) the older inner city airports have subsequently been allowed limited international flights. For residents of northern parts of the NCR, Clark is closer than Manila because of better highway connections to DMIA.
 79 These tax burdens often exceed profit margins of international carriers and are not imposed in other regional countries. In the past decade Air Canada, Air France, British Airways, and United Airlines ended service to the Philippines, and Northwest Airlines dropped one of its daily wide-body flights.


 

 

 
 

K. Amend the Immigration Act of 1940, Tariff and Customs Code of the Philippines, and the IRRs of the Quarantine Act to relieve the burden from customs, immigration, and quarantine overtime, meal, and transportation charges for airlines and shippers. Declare 24/7 operations at all international airports and ports and make the State shoulder the overtime payments for CIQ personnel. (DOT, DOTC, DOF, DOJ, DOH, and Congress)

L. Revise take off and landing fees, make weight the main determinant, charge the same fees to international and domestic airlines.80 (Immediate action by DOTC)

M. Modify equity rules to allow Asian low-cost carriers to compete in the domestic market.81 (Medium-term action Congress)

N. Complete US$ 270 million GOJ-funded Communications, Navigation, and Surveillance/Air Traffic Management project of the DOTC to modernize Philippine airports and improve air travel safety. (Medium-term action DOTC)

O. Make Palawan a Tourism Economic Zone, adopting pocket open skies supported by infrastructure and a favorable tax regime (e.g. relief of taxes and fees such as GPB and CCT)82 (Medium-term action DOTC, DPWH, DOF, DOT, Congress, and LGU).

Airports and Seaports FGD Participants, Moderator and Secretariat Members
November 26, 2009
Joint Foreign Chambers of the Philippines
FOCUS GROUP DISCUSSION ON AIRPORTS AND SEAPORTS

 

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 80 International airlines pay double the take off and landing fees charged to domestic airlines even for the same aircraft types, in effect subsidizing the domestic carriers.
81 ASEAN is moving towards complete open skies and may someday adopt unrestricted ownership of airlines operating within ASEAN. Indonesia, Malaysia, and Vietnam permit up to 49% foreign ownership of an airline. Most bilateral air service agreements (ASAs) specify that beneficiary national airlines have substantial if not majority local ownership.
 82 Successful pocket open skies examples in Asia include Hainan province in China, Kota Kinabalu in Malaysia, and Siam Reap in Cambodia. In 2009, each received 750,000, 562,000, and 2.2 million international visitors, respectively.

 

 

 

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