Japan is no stranger to extreme weather events, but its airport sector is bound to continue attracting investment thanks to a robust tourism sector, said one of several analysts Infrastructure Investor polled following the partial power outages and flooding super-typhoon Jebi caused at Kansai International Airport.
Nearly two weeks after Jebi, the strongest storm to hit Japan in 25 years, wreaked havoc across Southern Japan when it made landfall on 4 September, the airport is still struggling to recover. The international terminal is set to be fully operational by the end of this week.
The destruction caused by the typhoon has become an important test for Kansai International Airport, which since 2015 has been run by Kansai Airports, a consortium led by Japan’s financial services group Orix and France’s infrastructure operator Vinci, under a 44-year concession.
“The government promised to provide support to the SPC in a ‘force majeure’ [situation] including financing,” Atsushi Sugihara, director of infrastructure & PPP at PwC Japan, told Infrastructure Investor, adding that details have not been made public.
“The market players are watching when, what amount and how they execute this promise, and whether their support is more than [what is established] in the contract,” he said.
In a report, Moody’s pointed out that the closure will cause “a loss of revenues” for Kansai Airports, while it argued that most of the reparation costs will be covered by the operator’s insurance, and any extra cost will be assumed by the owner of the airport – state-owned firm New Kansai International Airport.
The report also mentions an “improbable” renegotiation of the fixed yearly payment to the owner of the infrastructure under the ‘force majeure’ clause of the concession.
“The Japanese concession market has just begun, and this is the first test case on whether [the] Japanese government [will] observe the concession agreement for ‘force majeure’, or provide more support for recovery. Actually, all players and financial providers are focusing on that,” Sugihara said.
A spokesman for Kansai Airports declined to comment on questions regarding how the burden of the costs will be distributed among the different parties, and about a possible renegotiation of the contract.
Kansai Airports told Infrastructure Investor the company is not receiving financial support from Japan’s national government or the Osaka prefecture.
The Civil Aviation Bureau of Japan’s Ministry of Land, Infrastructure, Transport and Tourism declined to comment on the issue.
Despite uncertainties regarding the reparation costs and loss of revenue, Kumiko Kakimoto, vice president and senior analyst of project and infrastructure finance at Moody’s Japan K.K., told Infrastructure Investor that Kansai Airports’ financials “will continue to [out]perform” projections from the concession agreement.
Similarly, most analysts agreed that Japan’s relatively high frequency of natural disasters will not deter investment in the country’s infrastructure sector.
“The infrastructure operators in Japan have been aware of [the] frequency and risks of natural disasters to have more capital expenditures to meet the stricter safety guidelines. If investors can be persuaded the risks are balanced vis-à-vis returns, I don’t believe this causes reluctance in investments,” Kakimoto said.
Japan has ramped up its efforts to privatise some of the most important airports in the country. In June, the government awarded the operation of the Fukuoka Airport to a consortium that included Singapore’s Changi Airport. In May, MLIT invited bids from the private sector for the operation and management of seven airports in Hokkaido, the northernmost island of the country, under a 30- to 35-year concession.
The government is also in the process of tendering the operation of Kumamoto Airport on Kyushu island, and Hiroshima Airport on Honshu, the country’s main island.
“The main reason why airport projects are so attractive is that inbound tourism is one of the few growing sectors in the Japanese economy,” PwC Japan’s Sugihara said. “Everybody understands MLIT’s deregulation for aviation and pressure from foreign low-cost carriers will be a game-changer for the historically closed market [controlled] by national flag carriers.”
In the fiscal year ending 31 March 2018, the airport served a record-breaking 28.8 million passengers and posted net profits of ¥28.3 billion (€216 million; $253 million), a 62% year-on-year increase.