Japanese Airport Investment Opportunities

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Japanese airport investment opportunities

Hiroki Yasui Director for Policy Planning and Coordination

Airport Governance Reform Unit Japan Civil Aviation Bureau (JCAB) The Ministry of Land, Infrastructure, Transport and Tourism (MLIT)

Ministry of Land, Infrastructure, Transport and Tourism 1. Circumstance, Trend and Target 2. Airport concessions in Japan 3. Upcoming transactions

1 Circumstance around airports in Japan

● Decreasing of population ＋ Centralization in urban areas ● Capturing a rapidly growing demand in Asia

Shifted focus of airport policy “development to management”

Deregulation and the proliferation of LCCs

Vastly expanded Open Skies Agreements

Positive support by Japanese government 2 Trends in domestic air passenger transport

 The demand for domestic air passenger transport in Japan started to decline in FY2007 due to increased fuel prices. As a result of the global economic recession after the Lehman crisis in 2008 and the Great East Japan Earthquake in 2011, the demand continued to decline. However, the demand started to increase again in FY2012 due to LCCs starting to compete with major airlines.  Approximately 60% of domestic airline users start from Haneda Airport. Total number of passengers in FY2016: 98.12 million (10,000（万人） persons) Numbers of国内航空旅客数の推移 Domestic Air Transport Passengers Haneda Airport flight 9 812 10 000 羽田便利用者 9 666 9 697 9 606 passengers 9 458 9 549 9 449 9 485 9 520 9 198 9 279 9 249 9 066 関空または伊丹便利用者Kansai or Itami Airports Other 9 000 15%, 1,452 15%, 1,472 flight passengers 15%, 1,428 14%, 1,356 15%, 1,418 8 600 19%, 1,918 15%, 1,441 14%, 1,281 8 387 18%, 1,73818%, 1,738 7 810 15%, 1,398 14%, 1,305 8 221 18%, 1,643 中部または名古屋便利用者Chubu or Nagoya Airports 7 905 8 000 Chubu or flight passengers 7%, 645 7%, 674 17%, 1,488 Nagoya 7%, 637 7%, 648 8%, 712 7%, 644 15%, 1,256 7%, 632 15%, 1,248 6%, 610 Airport flight 7%, 650 7%, 597 6%, 563 6%, 577 16%, 1,243 6%, 571 passengers その他Other 17%, 1,324 7 000 14%, 17%, 14%, 6%, 513 6%, 498 6 525 16%, 16% 15%, 1,335 18%, 1,620 1,287 13%, 6%, 484 14%, 14%, 14%, Kansai or Itami 1,532 1,461 1,434 13%, 18%, 1,679 1,205 6%, 460 1,340 1,377 1,376 Airport flight 7%, 532 13%, 1,243 passengers 1,674 13%, 13%, 6 000 16%, 1,026 1,072 1,033 12%, 1,124 945 6%, 378 21%, 5 000 1,652 4 378 20%, 4 042 1,312 4 000 17%, 751 19%, 754 5%, 239 6%, 259 64%, 65%, Haneda 62%, 62%, 64%, 63%, 66%, 62%, 61%, 61%, 3 000 22%, 62%, 6,216 6,136 63%, Airport flight 60%, 5,949 5,941 5,905 5,947 5,959 66%, 66%, 64%, 5,908 2 545 960 5,701 67%, 5,792 5,879 5,824 passengers 25%, 5,477 5,546 5,490 5,456 5,258 1,013 16%, 402 55%, 2 000 5%, 118 58%, 4,302 28%, 3,809 711 55%, 50%, 2,427 1 000 2,016 52%, 1,314 0 3 197550 198055 198560 19902 19957 200012 200113 200214 200315 200416 200517 200618 200719 200820 200921 201022 201123 201224 201325 201426 201527 20162016201628 （年度）(FY) Trends in international air passenger transport

 Demand for international air passenger transport in Japan registered a record high in FY2016, despite a temporary decline since 2001 at the time of the 9/11 terrorist attacks, the Lehman crisis and the Great East Japan Earthquake.  Passengers using airports in the capital area (Haneda and Narita Airport) account for 60% of the total number. 9 000 Airports in the capital area Total number of passengers 8 654 (10,000（万人）首都圏空港（成田空港・羽田空港）国際線航空旅客数の推移 (Narita and Haneda) Numbers of International Air Transport Passengers persons) in FY2016: 86.54 million 関西空港 Local Kansai Airport 7 904 airports 8 000 16%, 1,401

中部空港Chubu Airport 16%, 1,230 6 849 7 000 地方空港 6%, 524 Chubu Local airports Airport 6 329 6%, 490 6 069 14%, 956 6 000 5 806 5 831 Kansai 5 651 13%, 792 5 540 5 613 22%, 1,915Airport 5 408 5 440 12%, 703 7%, 450 5 302 10%, 567 10%, 563 5 336 5 166 9%, 532 9%, 518 10%, 581 7%, 447 22%, 1,728 10%, 514 11%, 577 10%, 532 7%, 449 5 000 10%, 534 4 777 9%, 547 10%, 556 10%, 505 9%, 533 8%, 449 8%, 451 20%, 1,352 4 415 4 453 9%, 498 8%, 438 8%, 437 10%, 488 8%, 430 8%, 420 19%, 1,205 8%, 364 19%, 1,143 11%, 467 19%, 1,123 19%, 1,101 4 000 9%, 414 20%, 1,116 20%, 1,114 19%, 1,041 7%, 332 19%, 1,011 18%, 957 19%, 1,011 8%, 348 24%, 1,285 20%, 1,044 Airports in 3 290 the capital 23%, 1,098 19%, 854 area 9%, 284 21%, 937 (Haneda 3 000 6%, 194 and Narita)

16%, 533 56%, 4814 1 930 56%, 4456 2 000 60%, 4091 6%, 118 62%, 3774 61%, 3885 3%, 50 61%, 3569 62%, 3611 62%, 3457 61%, 3472 63%, 3385 64%, 3417 63%, 3540 63%, 3414 1 339 20%, 382 57%, 62%, 3197 60% 3046 58%, 65%, 2903 9%, 118 2777 2%, 26 69%, 2663 1 000 827 22%, 294 2279 8%, 66 72%, 8%,1%, 145 9 67%, 1380 73%, 901 607 0 4 197550 198055 198560 19902 19957 200012 200113 200214 200315 200416 200517 200618 200719 200820 200921 201022 201123 201224 201325 201426 201527 201628 （年度）(FY) （昭和）（平成） Foreign visitors to Japan

○ The number of foreign visitors to Japan rose to a record high of over 28 million in 2017 with a national ambition to increase further.

million

44 Target 40

32 60,0 28

20 40,0

16 28,7 12 24,0 19,7 8 13,4 8,6 10,4 4 7,3 8,3 8,4 6,8 6,2 8,4 5,2 6,1 6,7 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2020 2030

5 Breakdown of int’l visitors by country/region of origin Italy Russia Spain Australia 13 (0.4%) 8 (0.3%) 10 (0.3%) 49 (1.7%) Germany 20 (0.7%) Other 2017 110 France (3.8%) (Unit: 10,000 people) 27 (0.9%) ① China ⑤U.S.A. 736 U.K. 138 (25.6%) 31 (1.1%) (4.8%) 5 major European Canada North countries 31 (1.1%) America 100 (3.5%) India 168 13 (0.5%) ⑥ (5.9%) Vietnam Thailand Total 31 (1.1%) 99 (3.4%) Philippines 2,869 ④ Hong 42 (1.5%) （） Kong Asia: 2,434 84.8% Indonesia 223 East Asia: 2,129（74.2%） 35 (1.2%) (7.8%) South-east Asia: 292（10.2%） Malaysia 44 (1.5%) ② Republic ③ Of Korea Singapore Taiwan 714 40 (1.4%) 456 (24.9%) (15.9%) Note 1: Figures in parentheses are shares of overall visitors. Note 2: “Other” includes other countries in Asia and Europe. Note 3: Totals may not be the same as the sum of individual values, due to rounding. 6 Note 4: Adapted by the JTA based on material prepared by the JNTO Strategic relaxation of visa requirements

Date Country Growth in numbers of international visitors after the Thailand substantial relaxation of visa requirements

Malaysia Number of visitors to Japan from the 2013 July 1 Philippines Philippines Approx.243,000 people Vietnam 25250,000万 Approx.158,000 Indonesia 20200,000万 people July 3 India 15150,000万

Indonesia 100,000 After the substantial relaxation of visa September 30 10万 2014 Philippines requirements (September 30, 2014) 550,000万 54% year-on-year increase November 20 Vietnam 0万 0 December 1 Indonesia 2013.10～2014.09 2014.10～2015.09 2015 January 19 China January 11 India Number of visitors to Japan from Russia Vietnam 2016 February 15 Approx. 77,000 people India 80,000 October 17 China 60,000 Approx. 55,000 people January 1 Russia 2017 February 1 India 40,000 After the substantial relaxation of visa May 8 China requirements (January 1, 2017) 20,000 January 1 India 41% year-on-year increase 2018 7 August 1 Philippines 0 2016.01～12 2017.01～12 Change in JTA budget

(Units: billions of yen)

30030

Initial当初予算 Supplementary補正予算 budget budget 25025 24.8

21.0 20.020.0 20020

15015 Japan Tourism Agency was inaugurated 12.7 (Oct 2008) 10.1 10.0 9.7 9.8 9.9 10010 9.1 6.5 6.4 6.3 6.3 5.5 50 4.2 5 2.6 2.6 1.9 1.5 0.9 0.05 0 0 H18(2006)2006 H19(2007)2007 H20(2008) 2008 H21(2009) 2009 H22(2010) 2010 H23(2011)2011 2012H24(2012) 2013H25(2013) 2014H26(2014) 2015H27(2015) 2016H28(2016) 2017H29(2017) 2018H30(2018) 8 1. Circumstance, Trend and Target 2. Airport concessions in Japan 3. Upcoming transactions

9 Airports in Japan

Wakkanai National airports (19) Memanbetsu Asahikawa Corporate airports (4) Sapporo Obihiro Kushiro Local airports (65) Chitose Shin-Chitose Defense / Civil airports (9) Hakodate

Misawa

Kobe Niigata 97 airports Sendai Hiroshima 127 million people Iwakuni Matsuyama Komatsu Hyakuri Miho Narita Haneda Kitakyushu Itami Chubu Kansai Fukuoka Yao Oita Nagasaki Kochi Naha Tokushima )Kumamoto Shizuoka Takamatsu Kagoshima Miyazaki

10 Four types of airport management system in Japan ① National airports (ex. Haneda(Tokyo), Hiroshima) 19 airports Ownership: MLIT Operation: a) Aerodrome (development and maintenance of runways, navigation aids, etc.) ⇒ MLIT b) Non-aerodrome (construction and maintenance of terminal buildings, services to air passengers, etc.) ⇒ Private sectors ② Corporate airports (ex. Narita, Kansai) 4 airports Ownership: Private sectors Operation: a) Aerodrome ⇒ Private sectors b) Non-aerodrome ⇒ Private sectors ③ Local airports (ex. Kobe, Shizuoka) 65 airports Ownership: Local governments (Prefectures, Cities) Operation: a) Aerodrome ⇒ Local governments b) Non-aerodrome ⇒ Private sectors ④ Defense / Civil airports (ex. Tokushima, Ibaraki) 9 airports Ownership: Ministry of Defense (MOD) Operation: a) Aerodrome ⇒ MOD b) Non-aerodrome ⇒ Private sectors

※ Air traffic control is conducted by MLIT in every airport 11 Aim of airport concession

Current system After concession i) Separated management ➢MLIT : Aeronautical activities ・ (Runways, Apron…etc) Integrated management of the whole airport. ➢Private companies : Non-aeronautical activities (Terminal Buildings…etc) ii) Profit pooling of multiple airports ・Incentivized individual airports working closer The revenue and expenditure of 28 national in tandem with the local community to promote airports are managed together in a single growth. accounting system.

⇒ developed network ⇒ stimulated air transportation industry Revitalization of ⇒ Improved accessibility local communities 12 Framework of airport concession Before After

MLIT - Air traffic control

MLIT SPC

- Ownership and Integrated operations under operations of the Provision of private management Financial Institutions runways and related operating right facilities (aprons, taxiways, lights, etc.) bidding

Terminal building MLIT monitoring company Acquisition of shares Investors

Pre-determined 13 Transaction timeline

T-21m • Market sounding

T-14m • Publication of the implementation policy T-12m • Publication of the application guideline • Screening process by the government • First screening committee T-9m • Competitive dialogue • Second screening committee T-0m • Selection of preferred negotiation right holder

T+3m • Grant of the operating rights Handover period T+6m • Commencement of the terminal building operations Training provided T + 9m • Commencement of the airside operations by the government

Upon the commencement of the airside operations, government staff will be reduced but may be utilized for a period of 3 – 5 years.

* Example; timeline for actual transactions will be tailored accordingly 14 Main characteristics of Japanese concession

• Takeaway from prior transactions have been incorporated to ensure a smoother process and better incentives. • Understanding of historical and cultural aspects are key to success.

Bidding process • Bids based on 1) price and Not simply a Structure Local initiative 2) proposal privatization • Concession rights • Many of the larger airports • Proposals on Air service designated on runway (and are owned by a central development, Service • integration of airside government quality, Operations, Safety operations with landside parking). • Decision to utilize the etc. operations • No holding periods concession scheme is • Items unique to each • Need to replace MLIT • Investment incentive deeply influenced by the airport added based on the employees throughout the concession local governments situation • Third party selection committees

15 Overview of transactions

“National Airports” (19) (3)Wakkanai administered by the National Government (20)Sapporo “Military Airports” (9)※ (21)Chitose ※It’s open for private aviation within an extent (4)Kushiro (2)Shin-Chitose that doesn’t hinder the defense activities (5)Hakodate

Kansai Airport (private operation started) (26)Misawa Number of passengers : 28.7mil in 2017 Sendai Airport (private operation started) Location: Osaka Pref. (population 8.8mil) Number of passengers : 3.4mil in 2017 Location: Miyagi Pref. (population 2.3mil) (7)Niigata (28)Iwakuni (6)Sendai

(8)Hiroshima (23)Komatsu (22)Hyakuri (10)Matsuyama (24)Miho (1)Haneda (13)Kitakyushu

(12)Fukuoka (27)Yao (16)Oita (14)Nagasaki (11)Kochi (25)Tokushima (15)Kumamoto Takamatsu Airport (private operation started) (9)Takamatsu Number of passengers : 2.0mil in 2017 (18)Kagoshima (17)Miyazaki Location: Kagawa Pref. (population 1.0mil) Fukuoka Airport (Agreement signed) Number of passengers : 24.0mil in 2017 (19)Naha 16 Location: Fukuoka Pref. (population 5.1mil) Overview of transactions

“National Airports” (19) (3)Wakkanai administered by the National Government Airports in Hokkaido (2020 commencement) (20)Sapporo Number of passengers : around 28mil* in 2017 “Military Airports” (9)※ (21)Chitose (4)Kushiro Location: Hokkaido Pref. (population 5.4mil) ※It’s open for private aviation within an extent * Total of 7 major airports (2)Shin-Chitose that doesn’t hinder the defense activities (5)Hakodate

(8)Hiroshima (23)Komatsu (22)Hyakuri Hiroshima Airport (2021 commencement) (10)Matsuyama Number of passengers : 3.0mil in 2017 (24)Miho Location: Hiroshima Pref. (population 2.8mil) (1)Haneda (13)Kitakyushu

(12)Fukuoka (27)Yao (16)Oita Takamatsu Airport (private operation started) (14)Nagasaki (11)Kochi (25)Tokushima Number of passengers : 2.0mil in 2017 (15)Kumamoto (9)Takamatsu Location: Kagawa Pref. (population 1.0mil) (18)Kagoshima (17)Miyazaki Fukuoka Airport (Agreement signed) Number of passengers : 24.0mil in 2017 (19)Naha Kumamoto Airport (2020 commencement) Number of passengers : 3.3mil in 2017 Location: Fukuoka Pref. (population 5.1mil) 17 Location: Kumamoto Pref. (population 1.8mil) Airport Ranking by passenger numbers

2016 pax % of airport Stauts Note (Million) intn'l 1 Haneda 85.7 20% Terminal building listed 2 Narita 39.0 81% Corporate airport 3 Kansai 28.7 76%Concession started Bundled with Osaka 4 Fukuoka 24.0 26%Concession to start in 2019 5 Shin Chitose 23.1 15%In 2nd phase of bids 7 airports bundle 6 Naha 21.2 17% 7 Osaka 15.7 0%Concession started Bundled with Kansai 8 Chubu 11.5 48% 9 Kagoshima 5.4 6% 10 Sendai 3.4 8%Concession started 11 Kumamoto 3.3 5%In 2nd phase of bids 12 Miyazaki 3.2 4% 13 Nagasaki 3.2 2% 14 Kobe 3.1 0%Concession started in 2018 Follows Kansa - Osaka 15 Matsuyama 3.1 1% 16 Hiroshima 3.0 17%Implementation Policy in FY2018 17 Shin Ishigaki 2.5 3% 18 Takamatsu 2.0 15%Concession started in 2018 19 Ohita 1.9 7% 20 Hakodate 1.8 11%In 2nd phase of bids 7 airports bundle * Transaction completed * Pipeline 18 1. Circumstance, Trend and Target 2. Airport concession projects in Japan 3. Upcoming transactions

19 Hiroshima airport (Overview)

Route Network Traffic Trends (‘000) Route Network 札幌（新千歳） Sapporo New- Chitose 3500 大連Ｄａｌｉａｎ仙台北京 3000 Ｂｅｉｊｉｎｇ Sendai ソウルＳｅｏｕｌ成田 Narita 東京（羽田） 2500 Tokyo（Haneda) 上海Ｓｈａｎｇｈａｉ 2000

沖縄（那覇） 1500 台北 Okinawa（Naha) Ｔａｉｐｅｉ香港Ｈｏｎｇｋｏｎｇ 1000

500

0 2013 2014 2015 2016 2017 シンガポール Singapore Haneda Narita Other Dom Intn'l

• The Hiroshima metropolitan area houses c.2.1 Million inhabitants making it the 8th biggest metropolitan area in Japan. • While Tokyo routes make up c.60% of the traffic, competition is fierce with the bullet train (taking less than 4hours between Tokyo and Shin-Hiroshima station). LCC flights to Narita have reinvigorated the Tokyo routes. 20 Hiroshima airport (Financials, Schedule)

Financials Schedule Million JPY EBITDA 1600 • FY 2018 1400 – Implementation policy 1200 – Application guideline (RFP)

1000 961 1027 1119 800 871 • FY2019 600 1040 400 – Bidding and Screening

469 – Selection of Preferred negotiation 200 375 304 320 rights holder 0 2012 2013 2014 2015 2016

-200 -196

-400 Aero Non Aero

21 Hiroshima airport (Growth potential)

Tourist demographic Inbound tourism trends Country share of Inbound Touists Hiroshima Prefecture Inbound Tourists (‘000) 100% 3000 Others 90% Others 2500 80% Korea Taiwan Korea 70% Hong Kong 2000 60% China

50% Taiwan 1500

40% Europe Hong Kong 30% 1000 China 20% Oceania 500 Europe 10% Americas Oceania Americas 0% 0 Hiroshima Japan 2011 2012 2013 2014 2015 2016 2017

< Source : Hiroshima Prefecture>

• Hiroshima is an unique tourism destination with high recognition in the Western countries as well as in Asia. This demand is currently served predominantly by high speed rail. 22 Hiroshima airport (Growth potential)

Catchment area drive 米子 '000 2h line from HIJ population time Hiroshima prefecture 2,844 2.5h line from HIJ KIX2.5h line Okayama City 719 1:30 Ｈｉｒｏｓｈｉｍａ Matsuyama City 515 2:20 ａｉｒｐｏｒｔ（HIJ）岡山 KIX２h line ＦUK 2.5ｈ line Kurashiki City 477 1:10 Takamatsu City 421 2:10 Matsue City 206 2:10 FUK 2h line 高松 Izumo City 172 2:00 山口宇部関西

北九州 Shunan City 145 1:45

松山福岡 Tsuyama City 104 2:30 Tatsuno City 77 2:10 （reference） Bullet train 1.5h line（from FUK，KIX） Soujya City 67 1:20 Tamano City 60 1:45 Hamada City 58 1:50 < Source : Hiroshima Prefecture> Total 5,865 * Cities with over 50,000 people / sub 2.5h drive time

・Hiroshima airport(HIJ) is located 50km east of the city of Hiroshima sitting in between the larger international airports of Fukuoka(FUK) to the west and Kansai(KIX) to the east. ・ Due to this location, the airport has the potential to grow its catchment2時間圏域（福岡空港，関西国際空港） area serving cities in the wider Chugoku region. 23 ・Bus connectivity already ２時間圏域spanning 7 cities in the region. 2.5時間圏域（福岡空港，関西国際空港）時間圏域２時間半圏域 2

2時間30分圏域 Hiroshima airport (Tourism Potential)

Collaboration with Setouchi DMO Attempt to attract tourists for Hiroshima by providing foreign tourists with tours in the Setouchi region.

Long-stay typed cruising and resort Sanctuary for cyclists Commercialize the food of Setouchi (reference：Cruise guntû HP http://guntu.jp/cabins/type2）

【Onomichi City Museum of Art】 Yayoi Kusama 2004 photography by Mie MORIMOTO ©YAYOI KUSAMA Offer satisfying stay unique Commercialize the Setouchi local Paradise of nature and art products recognized all over the to Setouchi world 24 Hiroshima airport (Aircrafts operated)

JAL Spring Japan〔SJO〕 China Airlines〔CAL〕 B737-800（165seats） B737-800（189seats） B737-800（158seats）

ANA IBEX Airlines〔IBX〕 Air China〔CCA〕 B777-200（405seats） CRJ-700（70seats） B737-800（157seats）

B787-8（335seats） CRJ-200（50seats） Air Seoul〔ASV〕 A321（195seats）

《Domestic》《International》 Hong Kong Express〔HKE〕 B767-300（270seats） A320（180seats）

China Eastern〔CES〕 A319（120seats） Silk Air〔SLK〕 A321（194seats） B737-MAX8（156seats） 25 Airports in the Kyushu region

1h40m 1h20m 5h～7h

●Nagoya 50m 1h40m 3h30m～5h30m 1h40m

3h20m Flight time 2h30m Rail time

・DOMESTIC Distance from the 3 metropolitan areas (Tokyo, Osaka, Nagoya) bring stable domestic traffic. ・East Asia Closer in proximity to East Asia with historically deep ties. ・ASEAN Easily reached by narrow bodies from many ASEAN cities. 26 Airports in the Kyushu region

Airports in Kyushu Current status Airport 2017Traffic Status ② (Million) ① ① Fukuoka 23.8 Concession ③ Agreement signed

② Kitakyushu 1.6 Study in ⑦ ⑥ progress

③ Oita 1.9

④ Miyazaki 3.2

⑤ Kagoshima 5.6 Study in ⑤ ④ Progress ⑥ Kumamoto 3.3 In bidding

⑦ Nagasaki 3.2 Study in progress

・The Fukuoka and Kumamoto airport concession projects stimulating the other local municipalities to study concessions for their local airports.

27 Disclaimer

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Civil Aviation Bureau, Ministry of Land, Infrastructure, Transport and Tourism, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 28