Stick or Twist? One of Indonesia’s state airport operators wants to develop airports in Africa, but could well do better by remaining focused on its home market

12 November, 2019

Angkasa Pura II (AP II), one of the two (with Angkasa Pura I) state-owned airport operators in Indonesia, has said it will target African countries for airport development and management opportunities as part of its 'Go Global' initiative to increase investments abroad.

AP II took part in the Indonesia-Africa Infrastructure Dialogue forum in Aug-2019, where it identified seven potential investment opportunities to expand airport capacity in South Africa, Egypt, Ethiopia, Morocco and Algeria. Additionally, AP II also identified nine potential airport construction projects in Egypt, Ethiopia, Angola, Tanzania, Sudan, South Africa, Rwanda, Burkina Faso and Zambia.

This decision comes at an interesting juncture for AP II. Not only is it involved with airport development in Indonesia by taking on more airports itself, such as Bandar Lampung Radin Inten II airport, it also has to cater to the possibility of having to work with the domestic or foreign private sector at Indonesian airports in the future.

These include the Cardig International Consortium, which contains Changi Airports International, the only bidder for the 'Komodo' airport, and unnamed Malaysia investors that have been invited to bid for new airport projects in the country, including the Singkawang airport.

Moreover, AP II has had to prepare for a possible IPO (Initial Public Offer) of its own and potentially the conflicting proposal under consideration by the Minister of State Owned Enterprises to integrate the airline Garuda Indonesia and the airport operators AP I and AP II into a single aviation holding company. Right now it's all a bit of a contradictory mish-mash.

MAP - PT Angkasa Pura II oversees 13 airports in western Indonesia, but has its eyes on AfricaSource: CAPA - Centre for Aviation.

In the 2018 edition of the CAPA Airport Privatisation and Finance Review the following observation was made about airport development and privatisation in Indonesia:

"There seems to be a piecemeal and uncoordinated approach to privatisation in Indonesia, involving the expansion of the two state airport operating companies AP I and AP II (especially II, which is to be privatised itself) and the encouragement of private sector interests, especially those in the southeast Pacific region. Some European and other western investors still tend to be wary of opportunities in this part of the world, where the business culture is quite different and messages about prospects and the procedures to handle their sale or concession tend to be mixed."

In the circumstances, perhaps AP II's decision to look abroad for opportunities of its own is quite justified. But why Africa? Well, let's start with 'why not anywhere else?'

While Indonesia is Southeast Asia's largest economy, AP II might have some difficulty establishing its bona fides on the international stage if it were to pitch for a concession in Europe or a lease in the United States for example. It has no experience outside the country, and while it is responsible for Jakarta's Soekarno Hatta airport - which has almost doubled in size in the past decade or so to be the world's 20th busiest airport in 1H2019 - most of AP II's airports are in the 100,000 to 10 million ppa range and hosting mainly domestic services.

That is not a disadvantage in Africa, where any sort of foreign assistance, be it operational or financial (preferably both), is welcome, and especially so if the provider is also able to offer management expertise.

Up to now it has predominantly been the Chinese who have been offering it. The Airport Privatisation and Finance Review pointed out that, "more than half the airports in Africa will exceed their current capacity by 2020. But privatisation initiatives remain limited by perceptions of limited opportunities to generate both aeronautical and non-aeronautical revenues, of inefficiencies and of corruption, whether or not perceptions have any merit".

All of the countries above have, at one time or another, sought out foreign operators and/or investors. Rwanda struggled to find an operator for its USD800 million Bugesera airport in Kigali, the biggest project on the continent. It is still thought in South Africa that ACSA cannot satisfy demand with its airports, and the privately owned Lanseria airport, north of Johannesburg and currently handling two million ppa, is targeting 18 million "in the long term" and investing over USD100 million in new infrastructure.

Although it is not mentioned in AP II's list, Cape Verde is open to concessioning its airports, which might suit AP II, which has experience of its own with vacation airports, such as Ngurah Rai on Bali.

While Africa continues to underperform in aviation terms by comparison with other regions, the industry's associations - IATA and ACI in particular - are bullish about Africa's long term prospects, with IATA forecasting Africa's compound annual growth rate (CAGR) of passengers as being the second highest in the world by 2037, after Asia Pacific and before the Middle East. Hence one can understand AP II's enthusiasm for that market.

The other relevant IATA forecast, though, is that by 2030 Indonesia will be the world's fourth largest market, and there seems to be more certainty about that! So the question is what AP II should do. Stick or twist?