Govt Turns To Firms To Streamline Unprofitable Airports

TOKYO (Nikkei)--For decades, the Japanese government spent enormous amounts of money to build nearly 100 airports throughout the country, as part of its focus on public works. Now, the central authorities and the governments of numerous prefectures and municipalities are struggling to cope with the mountain of debt stemming from the decision to build these unprofitable airports.

All Nippon Airways Co.'s (9202) daily flight from Odate Noshiro Airport, Akita Prefecture, leaves for Tokyo's Haneda Airport shortly before 11:00 a.m. But once that flight has departed, the airport lobby falls silent for six hours until the next scheduled flight.

There used to be a regular afternoon service between Odate Noshiro and Osaka International Airport, but the route was scrapped two years ago.

Slightly more than 100,000 people passed through Odate Noshiro Airport in 2012. That figure accounts for just one-seventh of the initial passenger estimate when it opened its doors to the public in 1998.

Maintenance Costs

The firm that runs the airport needs to spend 440.91 million yen a year to cover maintenance and other costs. These expenses are 12 times higher than the revenue it generates from landing fees and other sources. As a result, the airport operator can't even afford to remove snow from the runway unless the Akita prefectural government pitches in.

In Niigata Prefecture, five air cargo companies did business at Niigata Airport until 2008. But now, only one cargo operator remains. The airport used to act as Japan's hub for importing tulip bulbs from Europe. But now tulip bulbs arrive by sea, thanks to advanced refrigeration technologies. In fiscal 2011, Niigata Airport's total cargo volume fell to one-tenth of its peak in fiscal 1995.

Of Japan's 98 domestic airports, only four are privately owned and operated: Narita International Airport, Central Japan International Airport, Kansai International Airport and Osaka International Airport (also known as Itami Airport). The rest of Japan's airports are run either by the central government or local authorities. Most of these airports have been bleeding red ink for years.

In 2008, the government changed course and decided to stop building new airports, due to its rising fiscal deficit. By then, there were already dozens of unprofitable airports across the country.

Outsourcing Management

Now, the government and those regional governments that run airports are turning to private companies to handle management. For example, the state-run Itami Airport integrated its business operations with privately run Kansai International Airport last July. It is now pushing ahead with management reforms.

Keiichi Ando, a former official at Sumitomo Mitsui Banking Corp., is the president of airport operator New Kansai International Airport Co., which runs Itami Airport and Kansai International Airport. He has proposed a number of ways to improve Itami Airport, such as increasing landing slots for airplanes and attracting commercial facilities as tenants to attract more customers. In fiscal 2013, Ando plans to raise the number of arrivals and departures by 10% from fiscal 2011.

The Transport Ministry will submit a bill in the current Diet session to allow the government and regional governments to manage airports through private companies. In the U.K., a major fund in which Mitsubishi Corp. (8058) has a stake has acquired the management rights to London City Airport. It plans to increase the number of passengers due to expanded flights on popular routes.

But now, Japan's central government and regional authorities need to start using public funds to shore up flagging regional airports.

Makurazaki Airport in Kagoshima Prefecture will close down in late March. It will be the third publicly run airport to do so.

"We can't ask people to keep bearing the financial burden anymore," said an official from the Makurazaki municipal government. The site of the airport will be turned into a large-scale solar energy farm in spring 2014.

"The government needs to scrap about 10 out of 60 or so remaining airports, excluding facilities on remote islands that are essential to the lives of people," said Ushio Chujo, a Keio University professor who specializes in the economics of transportation.

(The Nikkei, Feb. 20 morning edition)

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