Egypt's private airports await privatization
The private sector will increasingly turn to building airports over the next three years to link many of Egypt's outlying areas to the cities, according to a report in Al Ahram Weekly.
These airports, for which the government is offering incentives to investors, will be constructed under a Build, Operate and Transfer (BOT) system. The incentives include lucrative concessions for other projects in the areas served by the airports. Contracts for these facilities are an integral part of programs to develop various parts of the country.
The BOT system for airports was introduced in Egypt only two years ago when the contract for an airport at Marsa Alam was awarded to the Kuwaiti Group, Al-Kharafi. This airport is expected to be operational by the end of this year.
Other airports are now being constructed in the oases of the Western Desert, at El-Alamein on the northern coast and near tourist areas along the Red Sea. The government is expected to seek tenders for BOT airports in Sohag, Ain Sukhna, Borg El-Arab and Assiut.
For some areas slated to have airports, benefits have accrued to their inhabitants even before the facilities are operational. This is the case in the sparsely inhabited El-Farafrah and El-Bahariyya oases where airports will be completed during the next two years.
Captain Hamdi Abdel-Azim, head of the Central Administration for the Airports Sector, explained some of the work done in the area before building begins. "We worked closely with the district of the New Valley to solve problems related to poor electricity and telephone services. Fortunately, we have resolved the difficulties," Abdel-Azim told the Weekly.
The government is pursuing the BOT system with the aim of obtaining the most modern facilities and developing specific areas of the country. "The system allows more development to take place in strategic regions. Great potential has been hampered by scarce funding," he said.
Key to the selection of contractors for such projects is their demonstrated ability to build such facilities and engage in other development projects. An investor, if not enticed by the potential profits from an airport, may be attracted by the more lucrative concessions for projects such as land reclamation, food processing and educational enterprises.
By agreeing to contract for such projects, the companies gain rights over them for as long as 95 years. For example, the contracts for the airports in El-Bahariyya and El-Farafrah were awarded to the German Company ABB, one of the world's largest in the field of electricity. ABB will enjoy a 50-year concession, which includes an option to extend the contract for another 45 years. Ultimately, however, the airports along with the other projects will be handed over to the government.
Abdel-Azim explained that ABB was awarded the El-Farafrah and El-Bahariyya contracts due to its agreement to build a university and expand tourist-related infrastructure by building hotels, restaurants and recreation services. "By so doing, we guarantee faster and more comprehensive regional development, more job opportunities as well as more income," he said.
Airports in Hurghada, Sharm El-Sheikh and Luxor are currently being upgraded under the same system. "The target date [for completion of work] is 2050. The initial plan is to increase the capacity of these airports from 1,200 to 4,000 passengers per hour," Abdel-Azim said.
Over the past decade many private Egyptian airlines have taken to the skies. The reason most Egyptians are unaware of these firms is that they are restricted to specific niche markets. Private airlines mostly run charter flights from Europe on routes not serviced by EgyptAir. Consequently, all private firms must use provincial airports. Cairo remains under the full dominion of EgyptAir.
"My company is a hundred per cent Egyptian. Yet, it's deprived of many rights freely given to foreign firms," said Sayed Saber, Chairman of Aircraft Maintenance Corporation (AMC), one of the biggest Egyptian private airlines. The AMC chairman is outraged by the fact that foreign carriers can fly passengers in and out of Cairo, while his firm is denied access to the nation's central hub.
He contends that the growing system of international corporate alliances has rendered all skies open, including Egypt. "There is nothing to protect anymore," said Saber. Yet, EgyptAir is well aware of the current industry trends and is seeking to strengthen its international ties. Currently, many foreign airlines use EgyptAir facilities.
A few months ago a cabinet decree was issued allowing private Egyptian companies to run regular scheduled flights. These flights, however, must service routes not controlled by EgyptAir.
Many who believe that it will not have an immediate impact on their business have criticized the decree. "The step can only be effective if private firms develop greater corporate infrastructure. Unfortunately, such is not the case," Yehia El-Agati, Chairman of National Aviation, said in an interview with the Weekly.
The decree, according to El-Agati, presents a significant challenge to the national companies. Building profitable routes will be costly and take time. "To fly regularly with empty planes is to make huge losses," he said. In order to evade crippling losses an airline must rely on consistently busy routes. But these are already occupied by EgyptAir."
The private airlines have no access to the lucrative Hajj (Mecca pilgrimage route) market.
Every year, thousands of Egyptians make this spiritual trek, but often the religious experience is marred by transportation delays. The pilgrims are stranded at airports for hours before they are allowed to board the plane. The private carriers see this as a monopoly hardship that can be removed once they are allowed greater market access.
Some private companies have given up on the passenger business and shifted to cargo. Yet, the competition in this sector is stiff. "We face heavy competition from other regional companies -- especially Lebanon and Israel," said El-Agati. He explained that exorbitant landing and parking fees at Egyptian airports create unfavorable conditions.
"For example, the cost for transporting 40 tons of vegetables is almost $700. The same cargo can be transported at a much lower price from competing ports," he said.
Private airlines claim they are overburdened with fees, costs and taxes. "We pay LE21 departure tax for every passenger," said AMC's Saber. Last year his company paid LE6 million ($1.5 million) to cover these costs. "Private airlines abroad are granted these facilities by their governments. This uneven playing field makes competition almost impossible," he added. "To start an airline is a very costly matter. To keep it going is even costlier."
The Egyptian Civil Aviation Authority stipulates that in order for a company to begin regular flights, it must have LE100 million ($25 million) starting capital. Then, it must obtain an operating certificate.
"To be granted this certificate, the company must meet the criteria set by the Egyptian Civil Aviation Authority for maintenance facilities, operation facilities, storage space at airports and personnel," said Saber.
Costs in the airline industry are enormous. In daily operations, airlines must maintain a fleet of advanced aircraft. The training of highly qualified personnel is a continuous process. "Training a qualified pilot costs $100,000," said Saber and, to keep staff their pay must be consistent with international standards.
To compete effectively, private carriers must minimize these costs. Alliance systems have proven very effective. "There are different aspects for cooperation: standardize aircraft fleets, exchange maintenance equipment and expertise. If we do so, costs will be cut in half," said El-Agati. – (Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)