Japanese takeaway

Japan has traditionally treated foreign influences with a degree of suspicion. Its airports follow that same trend in trying to minimise foreign ownership and investment despite poor performance by local operators.

Take, for example, Japan Airport Terminal (JAT), which operates the terminals at Tokyo International Airport, or Haneda, the country’s biggest domestic hub and one of the world’s busiest. The company also runs duty-free concessions at Narita International, which encompasses about 60% of Japan’s international passenger traffic.

Foreign ownership in JAT rose to 31.5% at the end of March, up from 24.7% in September 2007. Australian investment bank Macquarie, which owns airport investment unit Macquarie Airports, began buying up shares in JAT last July and now has just under 20% of the company in its portfolio, making it JAT’s biggest single shareholder.

Squeals of protest
Macquarie’s acquisitiveness has prompted squeals of protest from local government and calls for protectionism of a vital national asset that is key to the Japanese economy.

Japan’s government has considered a plan to cap foreign ownership of Japanese airport to less than a third, but this proposal has met with a mixed reception in the highest circles of government.

Takeover defences were introduced to fend off non-Japanese interests, with the government adopting a bill to revise airport development laws. Surprisingly, however, the new legislation omitted a clause included in the original draft, which provided for new restrictions on foreign ownership.

Ruling party overruled restrictons
Japan’s Ministry of Land, Infrastructure, Transportation and Tourism was reportedly the main mover behind the proposed restrictions, but the ruling Liberal Democratic Party has other plans and overruled the ministry and snipped out the restrictions in the bill.

The government appears increasingly convinced that a new balance is needed between security requirements and the promotion of foreign investment in Japan, and that foreign investment may promote more efficient management.

The focus now is on the float of Narita International Airport Corp in 2010 and whether Japan will really allow foreign ownership and control over its infrastructure assets. An attitude of “give us the money, but let us still run it the way we want to” doesn’t sit well with international banks like Macquarie and could undermine prospects for the Narita float.

So what’s going wrong with Japan Airport Terminal?
The company’s performance crawls along behind its peers, with a return on equity of 3.5%, below its own target and way behind its major rivals at around 11%. France’s Aeroports de Paris, for example, achieved 11.2% in 2007.

Sky high charges
Turnaround of aircraft at Japan’s airports is relatively expensive compared with international rivals, and while Narita’s and other Japanese airports’ duty-free operations generate a healthy 60% of total revenue, there are concerns that high airport fees will drive airlines to divert their trans-Pacific routes away as high jet fuel prices start to bite.

The question has to be asked whether Japan really wants to invite international investment into its airport sector. Macquarie says that it will not move beyond its present stake for the moment. It is waiting for real access and ability to change Japan’s airports for the better.

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