The potential rewards for getting this right are enormous. Airports around the world are at near-capacity and those regions which can build new airports or increase capacity at existing ones will benefit from the increased trade and economic activity this will bring.
In 2017 12 of Asia's top 20 airports were operating at or above capacity, according to research by the Development Bank of Singapore (DBS). DBS said that passenger numbers are growing in Asia by 5.1% a year, compared to the global average of 3.5% a year.
More capacity is clearly needed, and DBS estimates that this means investment of US$516 billion in airports in Asia over the next 20 years. Where will the money come from? Private finance and operation should be part of that picture.
Full privatisation of airports is unusual outside of the UK – most countries see airports as national assets and income streams. In Asia 88% of airports are publicly owned. But private funding and expertise can be introduced without full privatisation.
Early public private partnerships (PPPs) such involved the private sector designing and building airports and sharing gross revenues. This was the case for airports in Cyprus and Jordan, which Pinsent Masons advised on.
These days a more common approach is for a government to sell a concession to operate and develop a whole airport or elements of it, such as parking or baggage handling. The build-operate-transfer (BOT) model works this way, with ownership reverting to the government after the period of the contract.
This allows a government to retain overall ownership but to benefit from the risk-sharing, capital and expertise of a private partner.
"The debate shouldn’t be about which [approach] is better, but what are the main objectives for considering involving the private sector," the DBS analysis said. "Every possible model should have a solid strategic definition of objectives and a sound business case before any decision is made."
One operation that is widely seen as a success is the construction of a new terminal at Mactan-Cebu International Airport in the Philippines. The project was operated as a PPP and it tripled the airport's capacity. It was funded by a $75m loan from the Asian Development Bank, which Pinsent Masons advised on, as well as US$450m of debt from a consortium of Philippine banks.
There are challenges for governments which want to involve private finance or expertise in their airports. Problems are caused by a failure to use sufficiently specific terms of reference during procurement, which in turn affects the ability of these projects to attract sufficient investor interest, due to the lack of well-structured deals.
Restrictions on foreign ownership may also diminish interest. In Indonesia, for example, foreign investors cannot own a majority stake in an Indonesian airport. In Vietnam seven international and 15 domestic airports are operated by public body Airports Corporation of Vietnam, and in the Philippines there are restrictions on foreign investment but there is provision for private sector consortiums to team up with majority locally-owned contractors to develop airports.
There are particular challenges for governments which wish to have an airport built on a greenfield site. They must compete with established airports which are usually closer to population centres and transport infrastructure, and raising investment is more difficult because investors see greenfield airports as more risky, both operationally and financially.
In India development has focused on the 'aerotropolis' concept, the integration of airport development with commercial, residential and land transport development. The first aerotropolis airport, the Kazi Nazrul Islam International Airport, opened in 2014.
Airport development activity in China is extensive. Accounting and consultancy firm PWC predicted that it would account for more than half of the US$275 billion spent on airports in Asia between 2015 and 2025. But opportunities for private sector are limited since the Chinese government treats airports as part of defence and security, restricting private sector involvement.
China is getting involved with other countries' airport projects, though. Chinese state owned enterprises are developing and investing in airports in Africa and elsewhere as part of the country's 'belt and road' foreign infrastructure development programme.
But this activity faces the same barriers as that of other international investors - Israel recently took steps which effectively excluded China from involvement in its aviation market, citing security concerns.
There are many upcoming opportunities in Asia. Indonesia has four airports in the pipeline near Medan, Lombok, Komodo and Batam. In the Philippines an unsolicited proposal by a local conglomerate to develop an airport in Bulacan has been "approved for procurement" subject to a Swiss challenge, while two regional airport upgrades are awaiting approval. The government has also received an unsolicited proposal for development of the airport at Sangley Point.
PPP projects to expand airports are planned for seven of Japan's Hokkaido airports and two bidders have been shortlisted, Groupe ADP and its local partner, and Mitsubishi Estate Co, Tokyu Railway, and Hokkaido Airport Terminal Co. The awarding of the contract is expected in July.
Expansions are planned for north Sri Lanka, Myanmar and Thailand's U-Tapao International Airport, while the design of Suvarnabhumi Airport Terminal 2 was recently decided. The Vietnamese government is reviewing a feasibility report for a third terminal at Tan Son Nhat International Airport. Greenfield development opportunities also exist, for a third airport in Jakarta and the Kumamoto Airport in Japan.
Catherine Workman is a projects finance expert specialising in airport concessions at Pinsent Masons, the law firm behind Out-Law.com