TAV Airports

Flying high

A pioneer in privatization

 

As the home of Islam’s two holiest cities, Makkah and Medina, Saudi Arabia is the foremost pilgrimage destination in the Islamic world, welcoming over 8m Muslims pilgrims every year. Long an important source of non-oil revenue, religious tourism constitutes a key targeted growth area in the country’s ambitious Vision 2030 development plan, which aims to increase the number of pilgrims visiting Saudi Arabia from current levels to 30m a year.

Improving the capacity and operation of the country’s transport infrastructure, as well as increasing private sector and international investment in the sector, is therefore a key objective of Vision 2030. One project that embodies these goals has been the redevelopment of the Prince Mohammad Bin Abdulaziz International Airport (Medina Airport) by the Turkey-based airport operating company TAV Airports Holding and its local partner Al Rajhi Holding Group and former partner Saudi Oger. The 25-year build-transfer-operate (BTO) contract was the first of its kind in Saudi Arabia and the airport has witnessed a 70% rise in passenger traffic since the project’s launch in 2012, with an award-winning new passenger terminal inaugurated in July 2015.

                                                                     

A landmark in Saudi privatization initiatives

Established in 1997, TAV Airports is the largest airport operator in Turkey, with five airports in Turkey and a further 12 airports abroad under its operation. Through its various subsidiaries, TAV Airports offers airside and landside operation services, including security, ground handling, IT solutions and retail, while its sister company, TAV Construction, provides airport engineering services. France-based operator Groupe ADP has bought into TAV’s capital in 2012 and further strengthened its presence in 2017, creating a significant global network that handles over 250m passengers a year.

The Medina Airport contract marked TAV Airport’s entry into the Saudi market. Since achieving international status in 2007, the airport had witnessed a significant increase in traffic that threatened to exceed its capacity of 5m passengers per year. This prompted the Saudi General Authority of Civil Aviation (GACA), in consultation with the World Bank’s International Finance Corporation, to announce a 25-year BTO tender for the expansion and operation of the airport in 2011. In partnership with the Saudi firms Al Rajhi Holding Group and Saudi Oger, TAV Airports submitted a bid for the contract and was announced as the winner in August 2011.

To execute the contract, TAV Airports and its two Saudi partners jointly established the special-purpose vehicle TIBAH Airports Development Company, which inked the Medina Airport contract with GACA on October 29, 2011. Under the terms of the agreement, TAV Airports would take over operation of the airport for a 25-year period, during which TAV Construction – in partnership with Al Arrab Contracting Company (ACC) – would also develop a new passenger terminal and carry out various runway improvements. For its part, GACA would retain its position as regulator, operate air traffic control and receive a share of the airport’s revenue. After signing the agreement, TAV Airports declared its pride at being involved in such a prestigious project and expressed its enthusiasm about the prospect of developing pilgrimage links between Medina Airport and its airports in Turkey, such as Istanbul Ataturk Airport.

The agreement constituted a landmark moment in Saudi Arabia’s recent efforts to increase private sector participation in the economy. It represented the first full public private partnership (PPP) in the Kingdom, with GACA retaining ownership of the airport while benefitting from TIBAH’s investment and TAV Airport’s operational expertise. Additionally, it was the first time in Saudi aviation history that a private company assumed management of an airport’s operations. Finally, TIBAH and its lenders – National Commercial Bank, Arab National Bank, and Saudi British Bank – reached an innovative $1.2bn financing agreement that was sensitive to the need for state ownership of a strategic asset such as an airport, while remaining faithful to sharia principles. In recognition of this, both the 2012 PFI Awards hosted by Thomson Reuters and the 2013 Euromoney Islamic Finance Awards handed prizes to the financing agreements’ organizers.

 

Award-winning results

TAV Construction and ACC broke ground on the new passenger terminal in the first half of 2012 and TAV Airports and Al Rajhi Group took over operation of the airport in June the same year. The consortium completed the first phase of work, which increased the airport’s annual capacity to 8m passengers, ahead of schedule in February 2015. Successful test flights took place in April that year, with Saudi Arabia’s King Salman bin Abdulaziz Al Saud officially inaugurating the new Medina Airport on July 2, 2015. The new 150,000-metre Islamic-inspired passenger terminal has a designated Hajj Terminal area, as well as six external pavilions nearby, to accommodate the increased passenger traffic during the Hajj pilgrimage period.

In terms of meeting GACA’s primary aims for the project, namely modernizing Medina Airport and expanding its capacity, the project has been a resounding success; the airport welcomed over 7.8m passengers in 2017 compared with 4.6m in 2012, when redevelopment began. This physical growth has also been reflected in growing revenues, which reached SR879m ($234m) in 2017, up from SR732m ($195m) in 2016 and SR565m ($151m) in 2015.

Furthermore, since its inauguration, the airport has won a host of global and regional awards in recognition of its design and operation. These include, among others, the World’s Best Airport Project at the 2015 Global Construction Summit in New York and GCC Airport Project of the Year award at the 2016 MEED Quality Awards for projects. It has also won plaudits for its commitment to the environment and was the first construction project in the MENA region to receive a Leadership in Energy and Environmental Design (LEED Gold) from the US Green Building Council.

Additionally, TIBAH has demonstrated a strong commitment to the Kingdom’s Saudiization program, investing in local talent by bringing in experts from across its global network to conduct extensive training exercises. Over the last three years, Saudi nationals have comprised on average 60% of TIBAH’s near 600-strong workforce.

 

An expanding footprint in Saudi Arabia

With the first phase of the Medina Airport project complete, TAV Airports and Al Rajhi Group are now in the planning stage for the next phase of work, under which the airport’s capacity will increase to around 15m passengers annually. If a third provisional phase included in the agreement with TIBAH is implemented, Medina Airport could become the port of arrival for almost 30m travelers a year.

In a partial testament to the success of the Medina Airport project, GACA named TAV Airports and Al Rajhi Holding Group as the winners of two 30-year BTO agreements tendered in early 2017 for the expansion of Yanbu Airport, Hail Airport and Qassim Airport. The contracts will see the joint annual capacity of Yanbu, Hail and Qassim airports increased from 4.7m to 11.5m passengers per year, with a total investment of $400m USD. Shortly after winning the new airport BTO agreements, TAV Airports and Al Rajhi Holding Group also announced the joint buy-out of Saudi Oger’s stake in TIBAH, taking their respective shares in the Medina Airport project to 50% - a deal which is yet to be closed. In 2018, TAV Airports and Al Rajhi Group established PAN Airports. PAN Airports is the first private airport operation company in the region and it will serve as an umbrella holding company, covering all activities of the JV, including TİBAH. PAN Airports is expected to seek airport investment opportunities in the region.

Similarly, TAV Airports’ sister company, TAV Construction, has won build contracts for a new terminal at Riyadh Airport and for hangars at Jeddah Airport, again in partnership with ACC.

These contracts are at the forefront of a national drive to develop aviation facilities through private partnerships. The private sector is expected to play a major role in achieving Vision 2030’s aim to strengthen Saudi Arabia’s position as a regional transport hub. With this goal in mind, the government created the Saudi Civil Aviation Holding Company in 2017 as a separate entity from the regulator GACA. The company is 100% owned by the Public Investment Fund, the Kingdom’s sovereign wealth fund, and is in the process of corporatizing each airport as a preliminary stage for privatization or PPP agreements.

In this context, TAV Airports and other prospective investors will be presented with an increasing number of opportunities to participate in the transport sector and support the achievement of the Kingdom’s development goals.

 

 


 

CEO Interview

Mustafa Sani Şener, President and CEO, TAV Airports Holding

 

How would you describe TAV’s overall experience as a foreign investor in Saudi Arabia?

The build-transfer-operate (BTO) contract for the development of Prince Mohammad Bin Abdulaziz International Airport (Medina Airport) was TAV’s first investment in Saudi Arabia. As the first full public private partnership (PPP) project here, it’s a historically significant project in the Kingdom, both in the aviation industry and more generally. To date it has been a productive and fruitful investment. We feel proud to have been trusted with the important task of serving the pilgrims and visitors to The Holy Prophet’s city and we are delighted to have received a number of honors, awards and distinctions that acknowledge our commitment to, and strategic direction of, this prestigious project. For example, Medina Airport was awarded the 2017 ACI Airport Service Quality Award, which is based on passenger surveys, for Best Airport in Middle East in the category of airports serving 5m-15m passengers per year.

We are continuously investing and innovating to offer the best travel experience to our passengers and to improve the quality of services provided at Medina Airport. Today, we are in a very good position in Saudi Arabia and the future looks promising, with several exciting new developments coming through in the last year.

 

 

How has the coordination been with government bodies and with your local partners?

From the outset, TIBAH Airports Development Company has coordinated closely with the Saudi General Authority of Civil Aviation (GACA), while also having regular contact with the Emirate of Medina Province, SAGIA, the Ministry of Transport, the Ministry of Hajj and Umrah, the Immigration Department, relevant Customs authorities, and other government agencies, local bodies and airline operators. We have found all of these bodies to be highly cooperative and committed to our partnership.

 

TAV has an extensive track record managing different airports around the world and so we were already familiar with the logistical challenges that coordinating with multiple government bodies can present, particularly in this instance considering that the Medina Airport project is the country’s first airport privatization. Our local partner Al Rajhi Holding Group has played a vital role in helping to overcome some of the difficulties associated with this.

 

 

What sets Saudi Arabia apart from regional peers in terms of its attractiveness to foreign investors?

Some of the pull factors that set Saudi Arabia apart from other countries in the region include its dynamic and promising aviation sector, its strategic geographic position, its young and educated population, and the significant potential for growth in the religious tourism sector. Likewise, the Kingdom’s ambitious Vision 2030 plan is a clear demonstration of the government’s intent to encourage private investment and promote tourism, multi-dimensional privatization initiatives, and radical market liberalization.

 

 

To what extent do you expect the privatization of the Kingdom’s airports to change the landscape of tourism, transport and logistics?

I anticipate the privatization of the Kingdom’s airports to have a significant impact on local economies, particularly in the tourism, transport, and logistics sectors. In practical terms, the privatization of airports will finance massive airport expansions, thereby generating direct jobs. Above and beyond this, however, the consequent increase in international commerce and tourism can provide additional indirect employment opportunities. In sum, I see the privatization of airports as engendering potentially significant boosts to local economies and, by extension, the national economy.

 

How would you rate the Saudi talent you are able to hire in the Kingdom, and what strategy has TAV adopted to address hiring and training?

During the initial phase of our project, we conducted research and analysis of the Saudi labor market to inform our recruitment and training strategy. As such, when we started hiring local talent we already had a comprehensive plan in place to train up our Saudi employees to the point where they were qualified to operate a world-class airport. We brought in experts from our other operations in Turkey, Georgia, Macedonia, and Tunisia, among others, to pass on their knowledge of best practice in their respective fields, and we coordinated with international training institutes to deliver globally recognized training where relevant. I should add that we also received support from Saudi Arabia’s Human Resources Development Fund to offer on-the-job-training for our local employees.

 

From a strategic point of view, we view our Saudi talent as a long-term investment. If we invest in Saudiization now, we will get our return in the future. Accordingly, our human resources (HR) team plays a significant role in the development of talent and localization of jobs. We provide our employees with job security and opportunities for personal development, while our HR team has developed sets of key performance indicators for each position and provides guidance so motivated individuals can advance within TIBAH. We also fully support Vision 2030’s commitment to increasing employment rates among Saudi women from 22% to 30% and are actively seeking to recruit greater numbers of women into our company.

 

 

What kind of expertise can foreign investors like TAV bring into the Kingdom’s airport operations sector?

We believe that investing in another country is also about transferring corporate knowledge and culture to that country. As a global airport management company and part of Groupe ADP, TAV has refined a highly professional business model that we have brought to our Saudi operations through our service companies, which are providing a range of services including duty-free retail, food and beverage, ground handling, information technologies, lounge operations, and meet-and-greet services. All of these services employ integrated accounting, finance, and reporting systems to monitor all our operations globally.

As previously mentioned, we provide our local Saudi talent with continuous training provided by experts our other operations to ensure that they understand our business model and embody our corporate culture. This is essential for increasing stakeholder satisfaction and enhancing our operations.

Global presence
7
Date of establishment globally
1997
Date of Saudi market entry
29/11/2011
Annual revenue in Saudi Arabia
2017: SAR 879m
Average revenue growth in Saudi Arabia
CAGR 21%
Total investment in Saudi Arabia
$1.2bn
Saudization rate
2017: 56%
Female employment rate
7
Percentage of local content achieved
80%
TAV Airports
  • Prince Mohammed Bin Abdulaziz International Airport
    Location
  • 590 (staff under Operation Company)
    Employees in Saudi Arabia
  • Turkey
    Country of Origin
“Some of the pull factors that set Saudi Arabia apart from other countries in the region include its dynamic and promising aviation sector, its strategic geographic position, its young and educated population, and the significant potential for growth in the religious tourism sector. Likewise, the Kingdom’s ambitious Vision 2030 plan is a clear demonstration of the government’s intent to encourage private investment and promote tourism, multi-dimensional privatization initiatives, and radical market liberalization.”
“I anticipate the privatization of the Kingdom’s airports to have a significant impact on local economies, particularly in the tourism, transport, and logistics sectors. In practical terms, the privatization of airports will finance massive airport expansions, thereby generating direct jobs.”
“From a strategic point of view, we view our Saudi talent as a long-term investment. If we invest in Saudiization now, we will get our return in the future. Accordingly, our human resources (HR) team plays a significant role in the development of talent and localization of jobs.”
Mustafa Sani Şener
President and CEO
TAV Airports Holding