"High Times For Hong Kong's Airport"

Monday, December 27, 2004

High Times For Hong Kong's Airport 
A public offering could help it fend off competition from mainland rivals 
Business Week


Opening day at Hong Kong International Airport six years ago was a fiasco.
Despite the facility's $4.6 billion price tag, baggage went missing,
elevators stalled, and foul smells wafted from the bathrooms. Worse, within
24 hours the freight handling system collapsed, and cargo operations had to
be shifted back to the old airport for six weeks. Today, though, all that is
just a bad memory as the new airport's fortunes are taking off. Passenger
traffic stands at a record high, cargo volume jumped 19% this year, and
profits hit $63 million in 2003. Advertisement 

IPO IN THE OFFING 

Now, city officials want to cash in on that success by floating the
airport's shares. Although no details have been set, the government in
November began a three-month consultation period on the issue. A sale of 25%
of the airport's stock, the amount analysts say is being discussed, could
raise $1 billion or more. That would help offset the $5.5 billion deficit
the city is expected to amass this year, though officials deny that raising
money is their goal. "The main benefit of the proposed privatization would
be to subject the airport to even stronger market and commercial
discipline," says Howard Lee, an assistant secretary in Hong Kong's Economic
Services Bureau.

That newfound discipline might come in handy as the airport faces growing
competition from the mainland. In August, Guangzhou's $2.4 billion Baiyun
International Airport opened just 110 miles to the north. It could become a
major cargo hub for the legions of manufacturers in the Pearl River Delta.
And Shanghai's Pudong Airport is trying to establish itself as China's
primary passenger gateway. Even closer, Shenzhen airport is mounting a
challenge for freight, while Macau is emerging as a favored center for
budget airlines. In a study this year for Hong Kong's Airport Authority,
consultant GHK forecast that while Hong Kong airport's cargo volume will
nearly double by 2020, its share of the Delta's total will slide from 90% to
less than half. Hong Kong will have to make do with "taking a smaller share
of a larger pie," says GHK Managing Director Jonathan Beard.

The challenge for Hong Kong is keeping its neighbors from eating too much
pie. Hong Kong already has some strategies in place. Ferry services now feed
cargo and passengers to the airport from mainland cities. And Hong Kong
officials are negotiating to acquire stakes in the Shenzhen and Zhuhai
airports to strengthen their hand in China. Hong Kong's airport has come a
long way in six years. Making it a private company may give it the edge it
needs.


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