COVID-19: Airport infrastructure development risk

Ilia Lioutov by Ilia Lioutov | Sep 11, 2020

Due to the COVID19 crisis and its dramatic impact on the aviation sector, the ability of airports to maintain revenues became increasingly challenging. Airports are facing a severe financial risk threatening their liquidity, solvency, and debt , and major people risk with airport workforce and career continuity being jeopardized.

As most airports have been struggling to cover their most basic operating expenses, such as costs of personnel and essential services and utilities, their ability to fund capital projects poses a third risk.

The airport capital expenditure paradigm: Capacity and sustainability

In normal times, airports on a global level invest in the realm of $5 to $6 per passenger (figures in US Dollars) in capital projects in any given year; this is roughly equivalent to one-quarter to one-third of their total revenues. As such, the pay-as-you-go funding liquidity represents a key mechanism of investing in both expansionary capital projects and replacement of depreciated infrastructure. As for large projects, a solid liquidity position was a pre-requisite for financial leverage.

It is important to recognize the long-term and multidimensional nature of airport capital expenditure. Before the crisis, the first and foremost focus of capital projects was on increasing the capacity of airports in light of the looming capacity crunch. The shortage of airport infrastructure was particularly well reflected in the growing number of schedule-facilitated and slot-coordinated airports (Level 2 and Level 3 as per the Worldwide Airport Slot Guidelines) across the globe, and particularly in Europe and Asia.

In addition to the capacity enhancement agenda, capital projects have been increasingly focusing on improving service quality, notably from a passenger experience perspective, enhancing terminal facilitation and efficiency, and implementing state-of-the-art technologies that benefit all industry stakeholders.

The second major paradigm behind capital expenditure is defined by the sustainability strategy with a particular focus on decarbonization of airports. Many capital projects at airports across the globe have aspired to make airports more sustainable and resilient against climate change.

Airport infrastructure development on hold

In 2020, most airports had to either defer expansionary projects or scale back projects considered less essential. These projects have simply become unaffordable while the airport industry is facing the most dramatic crisis of its history.

While the current capacity of existing airport facilities is presumably sufficient to accommodate demand during the recovery, there is growing uncertainty regarding potential changes in regulations related to social distancing measures that have an immediate impact on the terminal capacity vis-à-vis traffic.

The ongoing crisis also questions airports’ short-term plans to modernize infrastructure towards sustainability and resiliency. The global airport community remains committed to effectively contribute to the Sustainable Development Goal number 9 as it stands for building resilient infrastructure, promoting sustainable industrialization and fostering innovation and must find innovative solutions to mitigate the airport infrastructure development risk. Following the crisis, investments in infrastructure will be needed more than ever to accelerate the recovery and stimulate job creation.

The key role of governments

Governments have a key role to play.

Supporting airport operators with relief measures and financial assistance packages is needed to ensure that airports continue to be in a position to undertake much-needed capacity and sustainability investments in their infrastructure.

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Ilia Lioutov

Ilia Lioutov

Senior Manager, Economics and Policy, ACI World
Ilia Lioutov is an air transport economist with in-depth expertise in economic and financial performance of airports. Lioutov is instrumental in developing ACI World policies in the domains of economic regulation and aeronautical charges, privatization and public-private partnerships, taxation, capacity development and slot allocation. His core responsibilities include formulating advocacy strategies at national and international level and representing the airport industry interests within political, economic and regulatory institutions. In addition to advocacy, industry representation and stakeholder management, Lioutov has an extensive analytical background and is a contributor to the flagship ACI publications including the Airport Economics Report, World Airport Traffic Report and the series of policy briefs on various topics including private sector participation, airport networks, economic impact assessments, taxation and industry crisis management.
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