Govt to corporatise Singapore Changi Airport

Govt to corporatise Singapore Changi Airport

Temasek to buy newly created entity to be headed by Liew Mun Leong

By VEN SREENIVASAN

(SINGAPORE) Award-winning Changi Airport and its operating businesses will be sold to a Temasek-controlled company next year.

Class act: Given Changi Airport’s world-beating reputation, many observers believe a corporatised entity could emerge as a formidable and nimble contender to capture lucrative global airport management contracts
The yet-unnamed-company (Newco) will be headed by its new chairman, listed CapitaLand boss Liew Mun Leong. And its new chief executive officer will be Civil Aviation Authority of Singapore (CAAS) deputy director-general for operations Lee Seow Hiang.

Meanwhile, the government, through a newly created civil aviation authority, will continue steering national aviation policy and goals, while maintaining oversight and governance over the new monopoly operator. This authority will be headed by chairman Lee Hsien Yang, with Brigadier-General (NS) Yap Ong Heng as its new director- general.

The restructuring kicks in on July 1, 2009.

The changes were announced by Transport Minister Raymond Lim and Senior Minister of State for Transport Lim Hwee Hua yesterday morning.

This will be Temasek’s first major foray into an airport investment, although it already has significant airline investments, which include Singapore Airlines, Tiger Airways, Jetstar Asia and Great Wall Airlines in China.

Mrs Lim explained that the corporatisation would enable the airport to stay nimble and capitalise on new opportunities, while retaining its talent. ‘The whole idea of transferring ownership to Temasek is to have a clearer separation of the role of the policymaker, regulator and the operators,’ she said.

As to why no global private airport operator was invited to bid for Changi, she said the airport was a strategic national economic asset whose future development and growth strategy would have to be dictated by both commercial goals and national interests. For example, the regulator and the Newco need to work closely with each other on infrastructure and capacity planning for the airport.

She added that there were no current plans to privatise or sell the Newco.

Temasek will pay an undisclosed price for the entire airport assets and business. This price will be based on a valuation by the government in a separate exercise, Mrs Lim added.

Analysts like Vincent Ng of Standard & Poor’s Asian Equity Research believe that this price could be pegged to a matrix of factors, including Changi’s earnings and the valuations of airports around the region.

Changi Airport chalked up a surplus from operations of $367.7 million for the year ended March 31, 2007 - a 7.7 per cent dip from the record $398.3 million a year earlier. The fall was due to a 14.5 per cent rise in operating expenditure to $730.9 million, due mainly to increased operating activities and higher expenses incurred on maintenance, depreciation, as well as airline promotions and incentive schemes. Nevertheless, topline operating income rose to a record $1.099 billion for 2006-07 from $1.037 billion as buoyant market conditions saw aircraft movements rising to 214,224, from 204,138 the previous year. The airport gets 60 per cent of its income from non-aero and commercial activities.

Changi is also likely to be compared to competitors like Airports of Thailand (AOT), which manages half-a-dozen Thai airports, including Bangkok’s Suvarnabhumi. AOT’s market capitalisation is US$1.05 billion, which is half its listed net book value. Closer to home, Malaysia Airports Berhad, which manages KLIA and other airports around the country, has a market capitalisation of US$756 million, which is about 86 per cent of its book value.

Thus, analysts reckon Changi could be worth anywhere between US$1.5 billion and US$2 billion.

‘But it could be sold at a slight discount to Temasek, as the deal is an internal transaction,’ said S&P’s Mr Ng.

Temasek’s managing director of corporate development, portfolio management & systems, Ng Yat Chung, said his investment company expected to be able to ‘earn its costs of capital’ from the Changi investment.

Mr Ng added that Temasek would also stick to its strategy of keeping the actual operations of the business at an ‘arm’s length’.

He said: ‘I do not foresee Temasek departing from the way we deal with all our portfolio companies. We will help the company by assembling a good board and we will hold the board accountable for the proper running of the company, as we do with all our portfolio companies.’

Plans for the corporatisation first surfaced in August 2007 when Transport Minister Mr Lim said the move would give Changi Airport ‘greater flexibility to attract and retain top talent to compete with global airport operators’.

Changi Airport handled a record 36.7 million passengers in 2007, making its the sixth busiest airport in Asia after Tokyo, Beijing, Hong Kong, Shanghai and Bangkok. It expects to handle as many as 50 million passengers in five years.

Many see the corporatisation as a prelude to a possible privatisation and ultimate listing, 5-10 years later. It is a path similar to that taken by several others, including Singapore Telecommunications, Singapore Post, Singapore Power and the Port of Singapore Authority.

Also, given Changi’s world-beating reputation, many observers believe that a corporatised entity could emerge as a formidable and nimble contender to capture lucrative global airport management contracts.

Source : Business Times - 08 Oct 2008

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