Plans for the privatization of Saudi Arabia’s airports and aviation services are advancing, with the state aiming for full private sector ownership by 2020.
The move forms part of the government’s efforts to increase productivity and efficiency within its aviation industry and, more broadly, diversify its income streams while reducing state expenditure.
Significantly, the scheme will also facilitate the separation of the industry regulator and airports operator.
Collaborative drive
In mid-November the sector’s regulatory agency, the General Authority for Civil Aviation (GACA), outlined plans to privatize all 27 of the Kingdom’s airports under its operational control through to 2020. Other aviation services such as navigation and IT are also slated to be transferred to the private sector.
Saudi Arabia’s plans for its aviation industry were high on the agenda at the Jeddah Economic Forum 2016, which took place over a three-day period at the beginning of March.
The forum explored the opportunities and challenges that Saudi Arabia faces in its plans to transfer state-run entities to private stakeholders under the National Transformation Project.
Faisal bin Hamad Al Sugair, chairman of the Saudi Civil Aviation Holding Company and a GACA adviser, told forum participants that he expects the privatization drive to gain pace in 2016.
According to GACA, King Khaled International Airport (KKIA) in Riyadh, the air navigation sector and the IT sector are all slated for privatization by the end of the year.
Youssef Al Abdan, former director-general of KKIA, told OBG that in addition to producing greater efficiency and improved service, privatization would reduce the burden on the government budget.
“The process will also help bring Saudi Arabia’s aviation industry in line with international norms, by separating the regulator and the operator,” he said.
Privatization timeframe
This process took a key step forward in late February, with news that Dublin Airport Authority (DAA) International, a unit of the Irish state-owned airport operator, had won a tender to manage and run the new Terminal 5 at KKIA.
Under the agreement, DAA International will operate the facility for an initial five-year term.
The 106,500-sq-metre domestic terminal, which is scheduled to open in the coming months, according to local media reports, will have the capacity to handle 12m passengers per year. This should help accommodate growing passenger traffic, which climbed by 7.4% in 2015 to 11.7m.
The rest of KKIA’s operations are also slated for privatization, with the airport’s management to be remodeled as a corporate structure by the end of the first quarter of 2016, according to GACA.
Privatization of the Jeddah and Dammam airports is scheduled for completion by the end of 2017, with the remaining air hubs, which are largely domestic and smaller-scale service facilities, to be transferred between 2018 and 2020.
Private sector-led expansion
Private sector players have already played a part in the expansion work at the Mohammad Bin Abdulaziz Airport in Medina, which began servicing flights last year.
The 157,000-sq-metre airport was developed as a 25-year build-operate-transfer (BOT) scheme by the TIBAH Consortium, a joint venture comprising of local companies Al Rajhi Holding and Saudi Oger, as well as Turkey’s TAV Airports.
According to media reports, this was the first such BOT contract to be signed in the Kingdom.
Under the $1.2bn expansion project, passenger-handling capacity has more than doubled to reach 8m.
Subsequent builds over the lifespan of the 25-year contract are designed to scale up capacity to 18m and then 40m in anticipation of larger volumes of travelers. Passenger traffic has grown by nearly 20% per annum since 2011.
Open door for investment
The privatization process has been crafted with a view to maximizing participation from international investors. There will be no restrictions on international operators who meet the requirements to enter the bidding process, nor will they be required to have a Saudi partner, Al Sugair said in early January.
“All international companies, operators, who are qualified, can participate,” he told media in early January. “There is no requirement for a local partner, that's up to the companies.”
Local investment in some airports has been capped at 25% to ensure foreign operators having a majority stake in operating contracts, GACA noted.
Earlier attempts at aviation privatization have met with investor enthusiasm: the Saudi Airlines Catering Company and the Saudi Ground Services Company were listed on the Saudi Stock Exchange in 2012 and 2015, respectively.
The initial public offerings were part of a gradual privatization of the individual units of Saudi Airlines, a process initiated in 2006.
Oxford Business Group
5 April
