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Mar 19, 2010

New R6,7bn King Shaka airport gets set for takeoff

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With about six weeks to go, developers of South Africa’s second-largest transport infrastructural project, after the Gautrain, the R6,7-billion greenfield King Shaka International Airport, in KwaZulu-Natal (KZN), insist that the project will be ready for ‘takeoff’ on May 1.

At about 19 500 m2, Durban’s new airport will boast 18 passenger aircraft stands and a 3,7-km runway, which is 60 m wide; it will accommodate the world’s biggest aircraft, including the Airbus A380; have the capacity to handle 7,5-million passengers yearly; create 270 000 direct and indirect jobs; and use 380 000 l/d of jet fuel.

Airports Company South Africa (Acsa) communications and brand manager for Durban International Airport Colin Naidoo tells Engineering News that, although it has been challenging to deliver the airport by the May 1 deadline, which itself is aligned to the FIFA World Cup kick-off of June 11, all the deadlines will be met.

And if the proponents of the development are correct, the airport has ‘blue sky’ potential well beyond the football tournament, and could add as much as R20-billion a year to the country’s gross domestic product.

Engine for Growth

KZN MEC for Economic Development and Tourism Michael Mabuyakhulu says that the airport will serve as an engine for driving economic growth and development for the next 30 years, actively promoting resort development and tourism, as well as stimulating passenger and cargo growth, particularly the perishables sector and other low-weight, high-value manufacturing activities, with a view to stimulating greater international passenger and cargo demand.

Dube Trade Port (DTP) MD Rohan Persad says that this airport will have a fundamental impact on the structure of KZN’s economy because of the currently very limited air connectivity and capability.

From a local government perspective, eThekwini city manager Dr Michael Sutcliffe tells Engineering News that the airport will positively impact on the economic growth rate of the city and, hence, the provincial and national economic growth rates.

Sutcliffe argues that the new infrastructure will provide an important third international airport hub for airfreight and passenger visits. “In future, the airport will provide the city with a great node, around which we will continue to build the northern corridor of eThekwini.”

Similiarly, National Council of Provinces delegation member Alf Lees, quoted in the Mercury, says that the project represents a “fantastic opportunity for boosting the economic growth and development of not just KZN, but the South African economy as a whole. “When this is completed, it will be up to the private sector to look at taking advantage of the business and trade windows of opportunity that will be opened. I think we are all underestimating the economic catalyst that this new facility is going to create for us,” he says.

While the operation of the airport will create direct and indirect employment, the construction of the airport has also created significant employment opportunities, with many small, emerging KZN-based companies involved in the construction.

The Ilembe joint venture, comprising 18 companies, is responsible for the design and construction of the new airport. Construction and management consultancy Turner & Townsend project services director Jon Broadhead says the project is a fast-tracked one, requiring a far greater level of collaboration between contractors and designers than is usually the case in South Africa.

He previously told Engineering News: “You do not often get a chance to work on a greenfield airport as only five have been built in the world in the past ten years.”

This is but one of the unique qualities of the new airport, which has been branded the second-largest infrastructural project in the country, as well as boasting an airfreight cargo facility that is the first of its kind for Africa.

However, the commissioning of this new airport is mired in controversy, fuelled since the project’s inception in 2006.

Still Controversial

But the aviation industry, globally, has been no stranger to the strain that many industries are experiencing as a result of the difficult economic climate. In fact, it appears that airlines are reeling from the worst effects of the recession in the industry’s history.

Board of Airline Representatives of South Africa (Barsa) CEO Allan Moore tells Engineering News that the building of the greenfield airport, considering the fragile nature of passenger traffic growth, adds no value to the local aviation industry. “There is nothing at this airport that would have warranted the spend on the facility. To move the airport from the southern part of the city to stimulate growth in the north con- sequently results in depriving the south of any economic stimulus.

“The new facility was built with little or no consideration of the general aviation community and a number of operations in this sector in Durban are under threat. The new airport also does not currently have any facilities for either military or police aviation.”

Besides the economic impacts that such a move will have on the south of Durban, other concerns, relating predominantly to the environment, the transportation of fuel and the increasing costs to be incurred by airlines and commuters, cast a shadow over this development.

Acsa’s regulator has already indicated it will not accept Acsa’s application for a tariff increase of 133%, an increase which will significantly affect already stressed airlines and exclude many people from travelling. Instead, the regulator has suggested 59,9% this year, and another 25% in the second year, which is an 89,9% increase in the next two years.

Moore says that the biggest segment of the request for an increase in tariffs for the next permissions cycle was a result of the need to fund King Shaka International Airport.

“The increase in passenger charges and landing and parking fees for the airlines, countrywide, was totally unnecessary and against the will of the international airline community. The cumulative effect on the airlines is a rise in the cost for every available seat mile, which may lead to a drop in the viability of the South African route for some of the marginal airlines and airlines with a less developed route network.”

International ratings agency Fitch Ratings downgraded Acsa’s national long-term rating to ‘AA–’ (AA minus) from ‘AA’ and affirmed the short-term rating at ‘F1+’, last year. Fitch said that the downgrade reflected that over the next two to three years, rising capital expenditure (capex) and an expected decline in passenger numbers owing to the economic downturn would increase Acsa’s financial leverage beyond the levels considered appro- priate for its previous ‘AA’ rating. Fitch attributed much of the capex to King Shaka International Airport.

Extravagant Waste

Representing some 230 airlines globally, International Air Transport Association (Iata) director for industry charges: fuel and taxation at Iata, in Geneva, Jeff Poole says: “Quite simply, the extravagance that is King Shaka International Airport cannot be justified. There is no sustainable business case underpinning its rushed development. Local and international airlines agree that the airport is premature with insufficient traffic or demand to support it.

“Acsa has allowed the programme costs to spiral out of control. Instead of keeping within the original R3,15-billion budget, Acsa now expects King Shaka to come in at about R7,6-billion, and it wants to pass the entire cost burden onto airlines and their customers, recouping its outlay by hiking tariffs at OR Tambo International Airport and its other airports,” he adds.

Poole indicates that Acsa, which enjoys a virtual monopoly status in South Africa, is determined to pursue a R12,6-billion capex agenda through to 2015, despite reporting decreasing traffic over the past 18 months. It is also applying differential tariffs for local and foreign carriers, a move that discourages traffic growth, which will have negative consequences for South Africa’s economy.

“Airlines support the ‘user pays’ principle, and are willing to pay for the use of facilities that add value, deliver efficiencies and provide a value-for-money service. But why should they pay for the construction of an airport that is not needed, and which most airlines do not even plan to use? As would be the case in any other industry, surely Acsa’s share- holders, which have earned handsome dividends over the past 15 years, should recapitalise the company so it can fund its own capex programmes?” he asks.

Long-Term Benefits?

However, while the short-term benefits of the new airport appear murky, to say the least, some still see long-term virtue.

Studies have indicated that such an airport was probably in the best interests of the province, given that, for example, the current Durban International Airport, located in the opposite direction of the new airport, in the south of Durban, is too small to handle the growing tourist and commercial trade through Durban, which also boasts the country’s busiest port.

The new airport will have the capacity to handle 7,5-million passengers a year, compared with the 4,7-million passengers a year currently handled at Durban International Airport, and it could be expanded to handle up to 45- million passengers a year by 2060.

So, too, is the future expansion essential for Durban to remain the country’s premier port as, currently, 67% of the country’s container traffic flows through this port.

Also, interest in Durban International Airport is gaining considerable momentum in many circles, particularly from State-owned utility Transnet, which has highlighted the idea of converting Durban’s existing airport into a dugout container terminal to relieve the congestion at the port.

Engineering News previously reported Transnet’s Tau Morwe as saying that the City of Durban, Acsa and the KZN provincial government were holding discussions on how best to use the prime airport site, which is only   12 km from the city centre.

Further, once developed as a trade port [at King Shaka International Airport], the new 15 800-m2 cargo terminal will have the long-term capacity to process up to two-million tons a year, adding benefit to the city.

Durban‘s container traffic has grown exponentially since 1994. The port was designed to handle 900 000 twenty-foot equivalent units (TEUs) a year, but is currently handling at least 1,5-million TEUs – and it is projected that it will handle 3,5-million TEUs by 2020.

There has been a legacy of low investment in container facilities in South Africa, which has meant that most of the infrastructure, and the ports, in particular, have reached capacity limits. Also, any port terminal congestion is critical.

The trade zone, which will be linked to the new airport’s airfreight component, will support and generate new investment in the airfreight-related businesses and associated services, while, by providing state-of-the-art airfreight handling facilities, it is expected to attract industries such as automotive components, electronics, clothing and textiles, perishables and value-added logistics.

‘Where are the Opportunities for the Dube Trade Port? An Assessment of the Potential Demand from Some Time-Sensitive and Time-Critical Sectors’, a paper by the University of KwaZulu-Natal’s Development Studies Department’s Myriam Velia and Imraan Valodia, reports that the DTP offers unique opportunities by providing the beneficiaries new airfreight support capacity for manufacturing and agricultural perishable goods through the airport.

Currently, goods produced in KZN are, when required, shipped by air to reach foreign markets through OR Tambo International Airport. This typically first requires that the goods be forwarded by truck to Johannesburg, a process which takes one day. “As such, an important economic spillover of the setting up of a provincial airfreight base is that the province would, at least, capture financial resources related to transport that are currently spent in Gauteng,” the paper states.

Also, the DTP will further support its dominant time-critical function by its strategic position. The paper states: “As it is situated between two important (national and provincial) harbours (Durban and Richards Bay), exporters located at the DTP would have easy access to goods imported by sea. “The transformation of inputs into time-critical goods is supported by bonded zone packaging freight villages. The DTP industrial development zones’ main incentive is in the form of a concession on value- added tax.”

The report highlights that, with 70% of goods reaching Durban proceeding to other provinces, the city’s role is currently one of a gateway. Durban faces problems similar to other international port cities. “The new developments around the setting of the industrial development zones and improved transport would, at least, tackle the problem of absent linkages between port, city and key local actors.”

The key challenge across the freight logistics network, however, is not merely to deal with the backlog in capacity creation, but to start developing ahead of demand. Failure to do so will constrain South Africa’s ability to develop its tradable goods sector, and could leave a permanent hole in the current account; hence, King Shaka International Airport could be the much-needed catalyst in unlocking KZN’s logistics chain.

Edited by: Creamer Media Reporter
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