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Overcapacity And The Investment Capital Headache
By Binh Nguyen
Tuesday,  May 3, 2011,15:56 (GMT+7)

Overcapacity And The Investment Capital Headache

By Binh Nguyen

Tan Son Nhat International Airport is more and more overcrowded, and needs to be upgraded
The absence of Vietnam’s airports in the list of world’s best airports is understandable, as infrastructure is poor and unable to catch up with demand

Airlines complaining about overcapacity at airports, especially having to wait before landing and departing in peak hours, has become common over recent years, and even more so at Tan Son Nhat and Noi Bai international airports.

Terminal T1 of Noi Bai Airport has a design capacity of around 6 million passengers per year but it had to receive 9.5 million guests in 2010. Although Tan Son Nhat Airport has separate terminals for domestic and international flights, it also suffers overcapacity. Last year, this airport served 15.5 million guests, 8 million of which were on domestic flights.

Airlines are also anxious during peak seasons, as airport capacity is limited, airplanes have to hover around waiting for their turn to land. Such conditions not only increase airlines’ operational costs but also result in delayed flights and declining service quality.

Not only Noi Bai and Tan Son Nhat, many local airports are also experiencing deteriorating service quality due to poor infrastructure. For instance, Vinh Airport has a small terminal area, yet has to serve passengers of seven flights taking off and landing everyday, leading to overcrowded waiting room and a lack of passenger boarding stairs and service staff.

The investment capital headache

Poor airport infrastructure has affected the aviation industry. Even though the situation has been acknowledged by both management bodies and businesses, it seems to be unsolvable, with the biggest obstacle being funding deficit.

One of the solutions to Noi Bai Airport’s overcapacity is to build a second terminal (T2). However, this project is being delayed due to difficulties in site clearance. According to the inspection of the progress of Noi Bai’s T2 and Nhat Tan Bridge led by Deputy Prime MinisterHoang Trung Hai in February 2011, the construction of T2 needs to clear 115 hectares, which started in April 2008, but so far only 85.12 hectares have been retrieved. The investor, Northern Airports Corp., says the budget allocated for site clearance from 2008 to 2010 was VND89 billion, and VND10 billion for 2011. However, site clearance compensation alone has amounted to VND650 billion, not to mention some VND1,000 billion for relocation and ground leveling.

Up till now, the investor has poured VND500 billion into the project but if the budget allocation is slow, construction pace can hardly be accelerated. Therefore, Northern Airports Corp. has requested sufficient capital for site clearance from the Government; the funding for infrastructure construction may come from the public, as this is a long-term project with feasible recovery of investment.

Meanwhile, this year, Southern Airports Corp. has also been assigned by the Government and the Ministry of Transport to map out a feasibility study for the Long Thanh International Airport project in Dong Nai Province, with annual capacity of 100 million passengers. Total investment capital of phase 1 is forecast to be over US$6.7 billion, in which US$696.5 million are for site clearance compensation.

While big airports are struggling to find investment capital for expansion or upgrade to alleviate their overcapacity, some localities are asking for permission to build airports or upgrade their existing ones into international airports. A leader from the Civil Aviation Administration of Vietnam recalls that during a field trip to devise a plan for aviation development, some local authorities asked to build airports without scientific and economic bases. Some provinces wanted to upgrade their existing airports into international ones, despite the fact that no foreign airlines have flown there. For example, in Central Vietnam, there are four international airports including Danang, Phu Bai, Cam Ranh and Chu Lai, but only Danang Airport receives four international flights a week from Silk Air of Singapore. The remaining flights are chartered due to low economic efficiency.

In 2011, the Civil Aviation Administration of Vietnam plans to complete the zoning plan for Phan Thiet Airport after working with the leaders of Binh Thuan Province People’s Committee on the project’s location according to the local authorities’ suggestion. The matter is whether it is worth investing in building Phan Thiet Airport while Southern Airports Corp. has been assigned to devise a feasibility study for Long Thanh International Airport (Dong Nai Province), which provides a basis for construction and operational launch before 2020. Besides, many people have been concerned with the same question for Thanh Hoa Airport when this project was announced, since Vinh Airport was only 100 kilometers away.

The lessons from overwhelming investment in seaports and shipbuilding factories without economic efficiency are still reverberating. Therefore, airport zoning plans should avoid repeating the same mistakes.

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