Sinking under debt, Kansai airport privatisation presents test for Abe

Kansai airport can stand a little shaking as we learned during the great hanshin earthquake, but that doesn't mean it is a good deal for private cos to buy it. No matter where you go public funded businesses do use money in the most effective way. Most likely a private company will do a better job with it.

This could easily become another too big to fail private company, as it would operate what has become an important transport hub. So the minute something goes wrong, it's easy to predict that the public will be asked to cover the loss.

We also shouldn't assume that a private company will operate the airport better, even if better means simply more cost effectively, as many large companies also have bureaucratic waste, and when companies talk about efficiency it usually entails externalizing the cost, so society ends up paying anyway. Nuclear energy was cheap until the true cost of an accident and the price of dealing with waste and decommissioning are included. Fast-food seems cheap until the cost to the environment, health and subsidizing low wages are included, etc...

They're going to have to take a haircut from the mindless malinvestment of public funds(wasted tax confiscation).

Who in their right mind would want to purchase Kansai Airport in it's current condition? (Actual and economical) Kansai when it first came online was a Godsend for flying internationally out of Japan, no need to go from Haneda to Narita.

Since Narita increased domestic flights and Haneda has increased international one's it is cheaper and more convenient to fly out of either one of those two vs Kansai.

Flights, for me anyway, out of Kansai, are way more expensive as well. I avoid it at all costs.

This could be disastrous. Those of us from Sydney know all too well what privatisation can do! Macquarie Bank purchases Kingsford Smith Airport & jacks up the price of everything - especially the parking. You can't even get from customs to your boarding gate without forcibly going through endless duty free shops. Infrastructure-wise - no noticeable changes. Ugh!

Who in their right mind would assume $10 billion in debt?

I'm sure the new corporate owner will expect to privatize its profits and socialize its losses and risks.

As with most things, the best way to find the "right" price is to put it up for auction with no reserve.

This will never happen. Not at this price/on these terms. And probably should't happen.

No private owner will agree to take on that level of debt. It just won't happen. Or, if they do, there will be terms that allow them to put the debt back to the government or have the government service the debt if certain conditions aren't met. Rest assured that they would structure the deal in such a way as to ensure no responsibility for the debt, ultimately.

Beyond the debt and debt servicing, I would well imagine that any private owner would want complete freedom to use any and all methods to raise revenue and cut costs. This would undoubtedly result in conflict with the government over methods and appropriateness and I am sure the government would want to retain some veto rights over the private company's actions. A disaster waiting to happen.

Bottom line, the airport was a grandiose infrastructure project, like so many others around the country. Its ability to be profitable on an operating basis over the long term is questionable but one could see that possibility existing (as opposed to, say, Kobe Airport). However, it will only happen if the government recognises that the upfront investment is sunk cost and needs to be written off/way down.

The Business World to The Government of Japan:

Hahahahaha, yeah, right.

Is this typical of Japan of the last few decades, or what? First Kansai over-builds an airport, that is now sinking. Then Tokyo/Abe jump in to try to save the day by privatizing it. But, he's stymied by the Kansai government which wants to charge 6 times the going rate, so they can get back all the money they've lost over the years. Japan continues to be its own worst enemy because of too many special interests, in this case the Kansai government, that have their own agenda and refuse to see the big picture.

Kansas continues to be a HUGE white elephant. Unless the government or new private ownership can reduce the high landing fees (currently the second highest in the world after Narita at around $7,500 for a Boeing 747) attracting airlines and passengers will continue to be a big problem.

White elephant. Typical of all the money wasted on glorious infrastructure projects over the last 2 decades that have been economically useless and unlikely to ever make their money back.

A classic example of poor planning and research by people with money in their hands and dollar signs in their eyes.

This airport will always be a money pit, figuratively and literally. The only way to salvage it is to let it turn back into a landfill. The ship be sinking!

This airport has been pretty much a disaster from the beginning. Time and again when they had 'new ideas' for the airport and asked investors and carriers what they thought those asked immediately and unanimously said "No" and that it was a bad idea, but Kansai Airport and the Osaka government then said, "We don't need your input," (despite asking for it) and built anyway. A prime example is the second runway, which put it in further debt, and which saw the loss of a number of airlines (moved to Chubu or just cut flights to Japan outside of Narita) because the landing costs became far too expensive. No one will want to help with the bailouts of Kansai because it is a money pit, and even IF some companies decide to buy into it, the airport will go downhill even faster because if prices are increased KIX will lose even MORE carriers and go further into the red.

Construction of Terminal #2 "that far" seems unnecessary. It does not make any sense when you have to come to terminal #1 for everything except restroom. Everything includes transit, trains, bus, better restaurant, even plane take off / landing.

Kansai when it first came online was a Godsend for flying internationally out of Japan, no need to go from Haneda to Narita.

Before Kansai, Osaka Itami was the main international airport for the Osaka area, not Haneda or Narita.

Looks like Itami will go back to becoming the defacto Kansai area international airport, like Haneda will be.

Interesting. The privatization scam is all about private investors and banks being able to get their hands on the cash flow generated by public assets. It has zero to do with who can run the business better, or with government finances and taxes.The government of Japan issues the net supply of yen, and it has no need to either sell / give away assets to cover previously run up costs or to take your yen through taxes to pay for the building and operation of those assets when it already has an infinite supply of yen. But as infrastructure is by definition unprofitable, for the scam to work you need a combination of selling it for a sweetheart, below true market value price, and then gouging the customers with monopolistic pricing and cutting costs by not doing the required ongoing investment and maintenance. None of this is a secret and has been going on globally for years. The only question here is why the government agency involved is refusing to play the game and give the airport away at a profitable-for-investors price like they are expected to. Either they don't know how the game is actually played (likely), or they do understand and simply don't want to play (much less likely).

Personally I was very annoyed when my budding relationship (well, a fling with potential!) with a hunky pilot got stopped in its tracks when his airline decided to yank all flights to Kanku, because of the ridiculously high landing fees.

Flights, for me anyway, out of Kansai, are way more expensive as well. I avoid it at all costs.

Me too, and I live in Kansai. The last time I used it was a couple of years ago when my domestic flight was diverted there. I strolled around for a bit and was kind of shocked at all the shuttered shop fronts, and how desolate the whole place seemed. It's starting to look downright shabby.

It's a poorly-located airport for the vast majority of people in the Kansai area, built by yakuza-controled construction companies, loads of scams and backhanders that the Osaka-fu taxpayers are still paying for. They should put it on ebay at a knock-down price.

http://www.japaninc.com/article.php?articleID=1181

http://www.japantimes.co.jp/news/1998/09/01/national/kansai-airport-chief-sentenced-for-taking-bribes/#.VQafo_yhy_g

http://www.japantimes.co.jp/news/2002/02/19/national/bid-rigging-eyed-at-kansai-airport/#.VQah0Pyhy_g

http://www.inochi-life.net/archives_destination_kansai_airport2.html

http://www.thefreelibrary.com/Bid+rigging+suspected+in+Kansai+airport+projects.-a084261088

Advice to the business community: wait long enough and you'll likely get your KIX for free.

The debt will have to stay with the government if the airport is to be privatised. If it really was generating money, as the article claims, it should be kept in public ownership. Manchester city council make a reasonable sum from their part ownership of Manchester airport and it's used to fund local services. Unfortunately, that doesn't work when your airport is built using overpriced, rigged bids and is sinking into the sea.

KIX has several things going against it despite being an engineering feat when it was unveiled. One is the huge fees compared to others (waived in part to get low cost carriers to take up some spare capacity). Next is Itami which was supposed to close but did not with Kobe Marine Air adding to the glut (Japan has some 52 airports for 47 prefectures, airports to and from nowhere).

Next is the Shinkansen which can get one to Haneda and Narita (which means that Chubu Airport in Nagoya is another white elephant as an international airport).

And then there is Incheon. I know folks who buy a ticket to Incheon, overnight there and fly off to a third country destination all for less than flying round trip between KIX and elsewhere.

Good luck trying to unload it. Personally I like KIX quite a lot because unless you are flying on a Chinese airliner there are only one or two flights a day to destinations, which makes the lines move quickly. The restaurants are good -- I am partial to the Ganko, where you can by sushi and carry it through security. Incheon is better, though, on this score and I like flavor in my food.

Just one more example of the pie-in-the-sky pork-barrel-spending ventures the gov't squandered on. Once again the taxpayers are left to absorb losses while the politicians and contractors slip away unnoticed. We'll see many more projects just like this surfacing as the country's economic woes become more apparent. One more "Can't be helped..."

Prelude to things to come.

Abe advisers have touted the Kansai deal, which will be followed by sales of rights to operate smaller airports, highways and water utilities in Japan, as crucial for creating a market for infrastructure and building a base of experience for Japanese companies to operate such projects overseas.

But first there actually has to BE a deal. Trying to recoup all your costs in one sale is doomed to failure.