MAHB rebuilds India footprints
Lim Cian Yai 
Istanbul Sabiha Gokcen International Airport (ISGIA) expects to welcome the arrival of 31 million passengers in 2017

IT has been two years of muted activities in India for Malaysia Airports Holdings Bhd (MAHB) after it hived off its stake in Delhi Indira Gandhi International Airport (DIGIA) and maintained its long-standing minority 11% stake in Rajiv Gandhi International Airport (RGIA).

However, things are looking up for the airport operator as the Indian government recently announced plans to build 100 airports. This will double the number in the next 15 years.

Additionally, the Indian government’s decision to ease the rules on foreign direct investments (FDI) augurs well for MAHB.

The Centre for Asia Pacific Aviation India estimates that the second most populous country with a population of 1.31 billion would need up to US$45 bil (RM181 bil) in investments to build 55 new airports by 2030.

Hence, plans are afoot for MAHB to re-build its footprints in India, with the airport operator’s objective to increase its international business.

It will do so by building a more balanced portfolio of investments beyond Malaysia – through equity acquisitions and management contracts.

Badlisham says MAHB will make a comeback in India because the opportunities there

MAHB’s managing director Datuk Badlisham Ghazali tells FocusM: “We will make a comeback in India because there are so many airports to be opened, besides plans by the government to privatise airport operations. We are in a good position to take advantage of the opportunities.


“We are looking at other secondary airports as well. It does not matter whether we do it with an existing or new partner.”

Having said that, he stresses that it has no intention to up its stake in RGIA. MAHB’s participation in it is a form of public-private partnership.

The airport holds 11% stake in RGIA, while the remaining stake is collectively held by GMR Group (63%), Airports Authority of India (AAI) (13%) and Government of Telangana (13%).

“Airports in India operate differently. They are highly regulated, and the government continues to open competing airports.

“Our partner (GMR Group) has benefited because it has a real estate component as well,” says Badlisham.

While the potential for airport operators in India is massive, analysts remain cautious on MAHB’s plan to expand its presence there.

An analyst says he is concerned about bureaucracy and red-tape issues in the country.

“India remains notorious for having one of the worst bureaucracies in Asia while decisions made earlier can be overturned later,” he says.

Furthermore, if MAHB prefers to expand the Indian market via equity participation, capital commitment too will increase.

Hence, he sees MAHB’s decision to pare off some stake in Istanbul Sabiha Gokcen International Airport (ISGIA) as a good move.

The analyst says some Malaysian companies such as Mudajaya Group Bhd which ventured into India years ago have yet to see fruitful returns.

Mudajaya acquired a 26% stake in a company that operates a 1,440 MW power plant in Chhattisgarh, India seven years ago. Only in May last year, it managed to commence the sale of 150MW power to several power distribution companies.

On a positive note, India’s reputation on the ease of doing business is picking up.

For the first time, the country broke into the top 100 in the World Bank’s Ease of Doing Business global rankings 2018. India was ranked 130 last year.


FDI reforms

The Indian government’s move in June last year to open up the skies and allow foreign investors to own up to 100% in local carriers is seen as a significant reform to welcome FDIs.

The extant FDI policy on airports allows for 100% FDI under an automatic route in greenfield projects and under 74% in brownfield projects.

FDIs beyond 74% for brownfield projects come under the government route.

Examples of brownfield airports are Mumbai and Delhi, while greenfield airports are those built from scratch such as the ones in Hyderabad and Bengaluru.

Of the 100 Indian airports to be built in the next 15 years, 70 will be greenfield developments while the balance are secondary airports or expansions to handle increasing numbers of passengers.

The easing of FDI rules could mean that MAHB can have greater control over airport operations.

MAHB’s disposal of its 10% stake in DIGIA to GMR Group two years ago was prompted by the notion that it was unable to have any “significant degree of control over operational decision making” at the airport.

It opined that since the shareholders’ agreement restricted foreign ownership in the airport to no more than 49%, it would not be in a position to exert influence on the terminal as it was unable to own majority shares in DIGIA.

The state-owned AAI now operates and manages 125 airports in India. It opened its doors to the private sector in 2006 to modernise airports in the country.

DIGIA and Mumbai Chhatrapati Shivaji International Airport were later privatised.

Just last year, AAI opened opportunities for the private sector to take part in operating the Ahmedabad and Jaipur airports.

Aviation analysts expect AAI to release more airports for private sector participation.

Studies by the Indian government think tank, NITI Aayog, found that privatised airports recorded better performance in regards to customer satisfaction when compared to those operated by AAI.

While India is viewed as a lucrative upside for businesses, Badlisham is cautious about the risks.

“Growth is still nascent. While population is huge, the middle-income class has not been developed. That is unlike Turkey which has a growing middle class and robust economy.

“Nevertheless we have benefited from our participation and providing services to our partner [in RGIA]. They [partners] have also learnt about brownfield development of airports from us,” he says.


Bidding for assets

Apart from India, Badlisham says MAHB is actively bidding for three assets. His priority by locality is primarily South Asia, Southeast Asia, Europe and South America.

“As for equity participation in services, we are confident of clinching five to 10 deals in the next three years,” he says.

MAHB is also a concession holder for project and maintenance services at Hamad International Airport in Qatar.

This is a segment where there are plenty of upsides to tap on, given the opportunities that arise at airports in the Middle East and South Asia.

Meanwhile, MAHB’s operation in Turkey via the Istanbul Sabiha Gokcen International Airport (ISGIA) is being closely watched by the public as well.

MAHB’s involvement in ISGIA could be traced to 2008 when it entered into a consortium consisting GMR Infrastructure Ltd (GMRI) and Turkey’s conglomerate Limak Insat ve San. Tic. A.S. (Limak) to manage, operate and maintain the airport.

Five years later, MAHB exercised its right of first refusal to acquire a 40% stake in both ISGIA and LGM Havalimani Isletmeleri Ticaret Ve Turizm A.S. (the hotel and retail arm of ISGIA) from GMRI for €225 mil.

In 2014, it exercised a second right of first refusal to buy the remaining 40% stake in ISGIA and LGM from Limak for €279.23 mil.

ISGIA has seen improved performance over the years although the operation made net losses in FY15 and FY16 ended Dec 31.

Revenue in FY16 grew to RM1.03 bil against RM985.79 mil recorded in the preceding year.

Earnings before interest, tax, depreciation and amortisation (Ebitda) also expanded marginally by 2.5% to RM710.93 mil compared to RM692.94 mil previously.

However, due to a significant amount of depreciation, amortisation and finance cost, net loss for the year widened to RM123 mil from RM3.81 mil.

Interest paid to service borrowings last year increased to RM459.11 mil from RM446.41 mil the year before.

The amount set aside for depreciation and amortisation increased to RM308.57 mil from RM216.6 mil earlier.


Geopolitical factors

Badlisham says while it’s true that ISGIA is in a net loss position, the fact is that investments in certain assets like airports involve geopolitical factors that are beyond its control.

“Nevertheless, of all the airports in Turkey, it is one of the most vibrant in terms of growth,” he says.

ISGIA is located in the Anatolia peninsula of Turkey, which is located on the Asian continent and accounts for 95% of the country’s area.

Vibrant and robust business activities in the peninsula have prompted more Turks to travel both domestically and internationally, thereby driving up ISGIA’s total passenger traffic.

Affected by terrorist attacks at Ataturk Airport in June, ISGIA’s international passenger traffic declined 1.8% to 9.53 million in 2016.

But unfazed by the event, domestic passengers travelled, as usual, resulting in 8.2% traffic growth to 20.11 million. The airport’s total passenger traffic expanded by 4.8% year-on-year to 29.7 million the same year.

ISGIA was on track to surpass the 30 million passenger mark last year for the first time in its history.

For the first 11 months of last year, ISGIA’s total passenger traffic for inbound and outbound grew by 4.8% to 28.74 million from 27.43 million the year before.

While Badlisham reckons ISGIA’s bottom line will have an impact on the holding company, he points out that there have been improvements in terms of cost structure and key ratios like passenger to revenue.

“Moreover, Ebitda and profitability are also related to capital structure. If we can get a new partner, that will help the capital structure moving forward.

“We have been actively explaining that the airport is an infrastructure asset with a payback period of between eight and nine years. We are now at the tail end of that timeframe,” he says.

Badlisham believes the future of ISGIA is rosy. The airport in Istanbul is in the midst of expanding its boarding hall. It will also construct a new boarding hall and passenger terminal.

However, this means the ISGIA’s burden to service debt and financing facilities will continue to soar.

ISGIA’s boarding hall will cost about €25 mil. Beyond that, it plans to set aside €100 mil for the second phase of expansion that entails the construction of the new boarding hall and passenger terminal.

Upon completion of the boarding hall expansion by this year, and the new terminal by 2022, ISGIA’s total passenger handling capacity will reach 65 million.

But Badlisham stresses that the plan for the second terminal in ISGIA has yet to be finalised.

“It is still under discussion and not a commitment we have to make this year.

“We are asking the Turkish government if it will allow an extension of the operating agreement or a new revenue stream like an increase in airport tax or new fee that we can levy. This will allow us to supplement the investment.

“Besides, it also depends whether we will have partners to carry some of the burden,” he says.

For the past few months, MAHB has been actively looking out for interested parties to take up the stake in ISGIA, but Badlisham declined to divulge the quantum of stake MAHB is ready to part with.

Nonetheless, he assures that it will not fully exit ISGIA.

It was reported that MAHB planned to sell between 30% and 49% stake in ISGIA, which is now MAHB’s largest single asset by passenger throughput.

Badlisham is confident the company will find a right suitor for the airport soon. But why does he want another stakeholder just two years after fully acquiring the airport?

“There were parties who wanted to acquire 40% of it, but we did not want others to have a say in the airport’s destiny.

“If the new investor also wanted the same control, we would be at the mercy of each other. Since right now we fully own the airport, we can dictate our own course,” he says.

CIMB Research says the disposal of a stake in ISGIA will be a catalyst for an additional upside valuation.

“The recent recovery in ISGIA passenger traffic growth, coupled with the opening of its second runway this year [with dual runway operations by next year], means that a partial disposal of the airport might now fetch a good price.

“If the potential sale is at a price higher than our assumed valuation, there is upside to our target price,” CIMB says in its notes.

TAV, the operator of Istanbul Ataturk Airport is reportedly keen on ISGIA.

When Limak exited ISGIA by selling its 40% stake in 2014, TAV said it was ready to take it if MAHB did not exercise its right of first refusal.

TAV has been facing earnings uncertainty as the Ataturk Airport will cease operations next year to make way for the new third airport in Istanbul, which is set to commence operations in October.

However, MAHB later took up the option by paying €279.23 mil to Limak for the stake.

Three years later, TAV is expressing strong interest in taking up a stake in ISGIA. But Badlisham stresses that talks are at a “chit chat” level only. “The world is small and we are quite friendly with everyone,” he says.

However, Badlisham says MAHB will not go for a fire sale of its stake in ISGIA.

Additionally, cooperation may also go beyond a formal equity partnership and could progress to enhancing the airport’s existing hotel, duty-free operation or airline engagement.

“We are not under pressure and are very optimistic. I think now we are in a better position than a year-and-a-half ago.

“It was a difficult task then as there were limited partners that we could talk to,” he says.

He stresses that the future capital commitment that ISGIA has to allocate for expansion is not the sole reason for MAHB to look for a partner.

“If we are desperate, we would have done it a long time ago. But that is not the case.

“We want to ensure we enhance the airport’s value. When we exited Delhi [DIGIA], we were recognised for our investment and the value we created,” he says.

Badlisham says MAHB’s stake as an airport operator in ISGIA was a mere 20% back then. As such, he does not see the shareholding level as a concern to remain as the operator of ISGIA.

“We came in as the airport operator when we just held 20% of ISGIA. Going forward we don’t think we need to own 100% for us to remain the operator. This is the commitment we made to the Turkish government,” he says.

MAHB’s ambition to extend its footprints beyond Malaysia will be met with great challenges.

But if it pans out, it will lift the airport operator’s standing on the world stage and the country as well.

Airport facilities’ facelift ongoing

IN the week between Christmas and the New Year holidays, Malaysia Airports Holdings Bhd drew a lot of flak when the KL International Airport (KLIA) was forced to shut down service of two aerotrains due to “emergency maintenance works that needed to be performed”.

The incidents left thousands of passengers stranded.

Aerotrains have been deployed at KLIA since 1998 to transfer passengers to and from the main terminal building and Satellite Building A.

Apart from the aerotrain breakdown issue, MAHB also received complaints on the poor state of restrooms, unfriendly staff and long queues at immigration checkpoints and auto gates.

The complaints did not help to arrest the fall in KLIA’s global ranking, which has declined over the years. KLIA is made up of two terminals – the KLIA main terminal and klia2.

The airport was ranked 34th among 100 international airports in the Skytrax World Airport Awards 2017. It was placed in the eight position five years ago.

MAHB managing director Datuk Badlisham Ghazali acknowledges that KLIA’s standard of service and hospitality offered to travellers needs to be upgraded.

“KLIA is a 20-year-old airport. As its traffic grew, it became one of the top 25 busiest in the world. It also faces tougher competition from newer and less busy airports.

“We have already commissioned a study by the International Air Transport Association [IATA] to ease congestion, improve passenger flow and enhance efficiency.

“The study will be completed this month, and inputs from it will be incorporated into KLIA’s expansion plans,” he says.

The two terminals collectively handled 52.64 million passengers in 2016, which was a 7.6% growth from the 48.93 million recorded in 2015.

Several initiatives have been taken to improve the airport’s facilities and service levels.

This includes the ongoing refurbishment of 224 toilets at KLIA’s main terminal, and close collaboration with agencies and airlines to better manage queues at check-in and immigration, baggage delivery and kerbside congestion.

“The enhancement may not necessarily translate to increased passenger count, but it will help in revenue generation.

“People tend to spend more when they have more time at the terminal. This ultimately boils down to providing merchants with better leasing rates for airport outlets,” he says.

So far, MAHB has spent RM30 mil on the refurbishment of 131 restrooms. Work was mainly to fix the piping, repaint ceilings and replace fixtures and fittings.

The airport operator is also pushing for a smoother and seamless check-in process.

“We have been asking Malaysia Airlines Bhd (MAS) to redo their check-in counters, but this was delayed because they were in the middle of transitioning to a new reservation system.

“We want to set up dedicated check-in kiosks and auto bag drop facilities for MAS in KLIA.

“And in klia2, we will be adding another 15 kiosks and auto bag drops just for AirAsia’s passengers,” Badlisham says.

As for the major aerotrain overhaul, he says MAHB has formulated a short- and long-term plan based on a study done by consultants to address the issue.

“Work to replace the trains will start this year. However, this is a long-term plan that will take two to three years to complete.

“In the short-term, we have already started overhauling the aerotrains in stages. This will increase the reliability of the existing ones in the meantime,” he says.


KLIA Aeropolis, MAHB’s next growth pillar

MALAYSIA Airports Holdings Bhd’s (MAHB) performance last year for its domestic segment was satisfactory with the nine months ended Sept 30 suggesting it is on track to achieve year-on-year growth.

Its net profit for the nine months just ended surged to RM208.63 mil from RM37.06 mil a year ago while revenue rose to RM3.4 bil from RM3.09 bil.

Meantime, total passenger traffic growth for MAHB-managed airports in Malaysia for the first 11 months of last year expanded at a healthy 9.2%, with international traffic registering double-digit growth of 14.1%.

Investors are positive on the counter, given the extension of the concession for the KLIA main terminal, klia2 and other Malaysian airports up to 2069 and the hike in passenger service charge effective Jan 1 – factors which boosted share price to its highest at RM9.40 on June 5 from RM6.09 in Jan 2, last year.

Many are also counting on the development of KLIA Aeropolis as the next growth pillar for MAHB, which has set its sights on growing its non-aeronautical revenue too.

The ideal contribution between aeronautical and non-aeronautical revenue will be split at 47% and 53%, as compared to 51% and 49% currently.

“With a strong aero base, we have opportunities to grow the non-aero segment. The ideal ratio for us will be about 47%:53% for aero to non-aero so that it puts less pressure on the aero division.

“Aside from Aeropolis, hotel, car park and retail activities, we are trying to monetise some vacant land to cater, for instance, to commercial development,” says its managing director Datuk Badlisham Ghazali.

Maybank IB believes MAHB is unlikely to achieve double-digit traffic growth in domestic operations, given that the industry is close to maturity and traffic will normalise this year.

The research house forecasts that traffic growth for Malaysian airports this year will be close to the historical compound annual growth rate of 7.3%.

As for Istanbul Sabiha Gokcen International Airport (ISGIA), traffic growth momentum is forecast to be robust at 8-10% as the economy and air travel sentiment have improved tremendously in Turkey.

It adds that the surge in international passengers and recovery of ISGIA will underpin MAHB earnings growth but the positive catalysts have been fairly valued at share price, judging from valuations that are at their 10-year peak.

Maybank IB retains a “hold” call on the counter with a target price of RM7.93.


ISGIA’s new CEO to up the ante

MALAYSIA Airports Holdings Bhd’s Istanbul Sabiha Gokcen International Airport (ISGIA) is set to celebrate a new milestone upon registering historic passenger arrivals of more than 30 million.

Goral believes the 8% growth in ISGIA’s passenger traffic this year is achievable

However, its newly-appointed CEO Ersel Goral is not resting on his laurels and plans to take the airport to greater heights. FocusM speaks with him.



Q: You joined ISGIA in Sept last year. What is your strategy and direction for the airport two to three years down the road?

A: I have only been with ISGIA for some three months, but I have been working in the aviation sector for the past 25 years.

ISGIA has significant potential for growth, either in passenger numbers or providing them with a total experience and satisfaction.

We want to improve the overall ratio of international passenger to 40% from just one third at the moment. This is a target which I believe is easily achievable.

It is not just about the airport. It’s essential to promote the entire region and city we are located in.


Turkish low-cost carrier Pegasus Airlines and Turkish Airlines make up over 90% of ISGIA’s total passenger traffic. Do you see the airport being over-reliant on the two airlines?

For the time being we depend on them since they constitute most of the passengers we handle.

Having the two major carriers in Turkey as our clients has its advantages. For instance, it’s always easier to communicate with two rather than multiple parties.

But that does not mean we do not welcome other carriers. We have some ongoing negotiation with other airlines.

For instance, we recently welcomed the inaugural flight of UTair (a Russian airline) from Istanbul to Vladikavkaz, Russia.

There are opportunities for us to draw more passengers from central Asia, and it is also our aspiration to rope in airlines from the Far East and North America over the shortest period.


Turkish Airlines is building a hub in the new Grand Airport. What is the spillover effect for ISGIA?

It will cause the transfer of existing traffic from Istanbul Ataturk Airport to Grand Airport. While seeing growth in Grand Airport, it will continue to grow passenger numbers at ISGIA as well.

Cargo traffic is another growth area for us. As Turkish Airlines transfer their activities to Grand Airport, its total cargo traffic is expected to reach one million tonnes.

We are negotiating with the airline to have 15-20% of its total cargo traffic at ISGIA.

If this happens, cargo volume at the airport will increase from 55,000 tonnes to between 150,000 and 200,000 tonnes, which means we will need to expand our cargo facility in the future.


Do you expect passenger traffic growth in ISGIA to reach 20%, which was the level before the failed coup attempt and the terror attack in 2016?

I am sure traffic growth will be in double digits when the new terminal is completed and Grand Airport is up and running. But, it will be a challenge for us to return to 20% growth.

The political unrest in Syria and Iraq seem to be under control while Turkey’s economic growth looks promising this year. We see the 8% growth we have projected as an achievable target.

Despite this, we still see traffic growth of up to 5%, and that means people are unfazed and still travelling.



This article first appeared in Focus Malaysia Issue 266.