Taking flight, or grounded by delay? Michael Horn  ;   The writer heads the Indonesian practice of Clyde & Co., a leading aviation law firm;  A specialist in infrastructure development and finance, he has worked on Indonesian projects since 1992; His experience includes Brisbane, Melbourne, Perth, Sydney and Wellington airports

JAKARTA POST,  31 Mei 2014

                                                

                                                                                         

                                                      

When should a city burdened with a congested, undersized airport not welcome planned airport construction?  Surprisingly, when there is too much of it. If competing planners have their way, Jakarta, a megacity in dire need of additional airport capacity, may find itself with too much planned capacity. With two major, and competing, West Java airport projects under discussion, the planned expansion at Soekarno-Hatta International Airport and the Air Force’s Halim Perdanakusuma Airport now open for domestic commercial flights, one might conclude that long-suffering Jakarta may eventually be spoiled for choice. Airport operators, public private partnership investors and airlines know that too much capacity from duplicative airports represents serious risk to their business models. If too much capacity is planned, demand will be diluted and nothing might get built. If too little is planned, Jakartans will be underserved. Planners will need a Goldilocks touch to ensure investors can make money, financiers will lend it and airlines don’t lose it. Airports deliver essential public services that are usually monopolistic in nature. They require heavy capital investments that can take decades to be fully recouped. If the natural monopoly is undermined at the planning stage, private sector investors will steer clear. The competing West Java projects give rise to the greatest concern. If dueling projects threaten to poach from the same catchment pool, neither might look commercially viable and both might fail to take wing. These airport projects, Karawang International Airport and Kertajati International Airport (also known as West Java International Airport, or Majalengka Airport) for several years have been the subject of a behind-the-scenes collision between national and regional ambitions. Karawang airport is championed by the national government and Japan (through the Japan International Cooperation Agency). Conceptualized as a major international gateway airport that will handle 60 million passengers a year, it is intended to serve Jakarta, Bandung and West Java generally. Although 70 kilometers east of Jakarta (twice the distance from Soekarno-Hatta to downtown Jakarta), Japan has impressive plans to connect Karawang airport to Jakarta via high-speed rail. It is also close to Cimalaya Port, for which the Japanese also have grand plans. The Japanese plans even envision that national government offices may move from congested Jakarta to a new satellite town near Karawang airport. It is a beguiling prospect and worthy of serious consideration. The price tag is very, very high, but Japanese Official Development Assistance (ODA) would go a long way toward covering the cost.National government support is of course also meaningful for success. But the support of the West Java government is also crucial. Karawang airport requires a site permit from it, and with Kertajati favored by West Java, it make not be forthcoming. Kertajati airport is strongly supported by the West Java regional administration, with foreign interest from Korea. Kertajati Airport is conceptualized as a much smaller airport of between one-fifth and one-third Karawang airport’s size and targets the Bandung/West Java catchment area. Kertajati would be the nucleus of a new town development as well. The West Java government proposes to develop a 1,800 hectare site, with 75 percent of it for non-aeronautical purposes, such as industrial, commercial, residential, recreational and cultural uses.  These plans are perhaps more aspirational than the Karawang airport plans, but not without merit. West Java’s industry and population make it a heavyweight among Indonesian provinces, and it makes sense for it to think big. Located much further east from Jakarta than Karawang airport, common catchment passenger sharing between Soekarno-Hatta and Kertajati is projected to be less than 2 percent. This would mean Kertajati may do much to benefit West Java but little to improve Jakarta’s air services. Karawang airport’s catchment area overlaps Soekarno-Hatta’s area by about a third, and a study suggests passenger sharing could be as great as 40 percent. This is good news, as it means Karawang airport will relieve pressure on Soekarno-Hatta. But Karawang airport’s catchment area also overlaps with about a third of the area from which Kertajati will draw its potential customers. And therein lies the nub of the problem. If building both runs the risk of neither achieving passenger targets, planners for both airports will struggle to present a feasible business case to investors. This in turn endangers the probability of either being built. Japan has experienced three-cornered airport competition similar to that shaping up in Java. Kansai, Osaka (Itami) and Kobe airports are reportedly in similar straits with less than optimum passenger loads, with the newest one Kobe operating well below capacity. Airlines have been affected too, with Japan Airlines (JAL) and All Nippon Airways (ANA) having to buy less efficient mid-sized aircraft to spread passenger loads over three airports, only to cut back on flights. Just how these competing interests will be resolved remains to be seen. Location alone suggests Karawang airport is the better choice as Jakarta’s second airport, and its ability to receive funding support further suggests Karawang airport will prevail. But it will still need the crucial permit, and support, from the West Java government for this. Kertajati may well have a future as a regional airport, replacing Bandung’s existing airport. Meanwhile Japanese interests will likely continue to develop momentum on an impressive array of projects proposed for Jakarta, of which Karawang airport is but one, and non-Japanese interests will weigh promoting alternatives or teaming up with Japanese partners on their projects. After such a long drought in building projects on this scale, Indonesians should be pleased to see that the level of interest in new projects is high. The trick, as noted, is in the Goldilocks planning to provide a commercially attractive project that is just right for investors. ●