Japanese airport investment opportunities

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1 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

2 1. Circumstance, Trend and Target 2. Airport concessions in Japan 3. Upcoming transactions 1

3 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

4 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. (10,000 ( 万人 ) persons) 羽田便利用者 Haneda Airport flight passengers 関空または伊丹便利用者 Kansai or Itami Airports flight passengers 中部または名古屋便利用者 Chubu or Nagoya Airports flight passengers その他 Other %, 402 5%, %, %, 1, %, 754 6%, %, 1,013 50%, 2, %, 751 5%, %, %, 2, %, %, 1,026 6%, %, 1,312 58%, 3, %, 1,324 21%, 1,652 55%, 4, %, %, 1,674 60%, 5, %, 1,452 15%, 1,441 15%, 1,428 14%, 1,356 15%, 1,472 15%, 1,418 14%, 1,281 15%, 1,398 14%, 1,305 7%, %, 1,679 62%, 5, %, %, 1,620 62%, 5, %, %, 1,532 62%, 5,941 国内航空旅客数の推移 Numbers of Domestic Air Transport Passengers %, 632 8%, % 1,461 64%, 5, %, 1,434 63%, 5, %, %, 1,335 64%, 6, %, %, 1,287 13%, 1,205 65%, 6, %, %, 1,256 15%, 1,248 6%, %, 1,072 66%, 5,959 66%, 5, %, %, 1,033 12%, %, 5, %, 1,243 6%, %, 5, %, 1,488 6%, %, 1,124 64%, 5, %, 1,918 18%, 1,73818%, 1,738 18%, 1,643 6%, %, 1,243 63%, 5,792 Total number of passengers in FY2016: million %, 563 6%, %, 1,340 62%, 5,879 14%, 1, %, %, Kansai or Itami 1,376 Airport flight passengers ( 年度 (FY) ) 61%, 5,824 61%, 5,908 Other Chubu or Nagoya Airport flight passengers Haneda Airport flight passengers 3

5 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 (10,000 ( 万人 ) persons) 首都圏空港 Airports in the ( capital 成田空港羽田空港 area ) (Narita and Haneda) 関西空港 Kansai Airport 国際線航空旅客数の推移 Numbers of International Air Transport Passengers Total number of passengers in FY2016: million Local airports 16%, 1, 中部空港 Chubu Airport 地方空港 Local airports %, 284 6%, Kansai 13%, %, 1,915 Airport 12%, 703 7%, %, %, %, 532 9%, %, 581 7%, %, 1,728 10%, %, 577 7%, %, %, %, 505 9%, %, 556 8%, 449 9%, 533 8%, %, 1, %, 498 8%, 437 8%, 430 8%, %, 488 8%, %, 1,205 8%, %, 1,143 11%, %, 1,11620%, 1,114 19%, 1,123 19%, 1,101 9%, %, 1,041 7%, %, 1,011 18%, %, 1,011 8%, %, 1,285 20%, 1,044 Airports in the capital 23%, 1,098 19%, 854 area 21%, 937 (Haneda and Narita) %, %, 1,230 6%, 490 6%, 524 Chubu Airport %, 66 8%, 1%, %, %, 118 2%, 26 22%, %, %, 118 3%, 50 20%, %, %, %, % %, %, %, %, %, %, %, %, %, %, %, %, %, %, %, %, %, ( 年度 (FY) ) ( 昭和 ) ( 平成 ) 4

6 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 Target ,0 19,7 8,6 5,2 6,1 6,7 7,3 8,3 8,4 6,8 6,2 8,4 10,4 13,4 60,0 40,0 28,

7 Breakdown of int l visitors by country/region of origin Italy 13 (0.4%) Germany 20 (0.7%) France 27 (0.9%) U.K. 31 (1.1%) Canada 31 (1.1%) India 13 (0.5%) Vietnam 31 (1.1%) Philippines 42 (1.5%) Indonesia 35 (1.2%) Malaysia 44 (1.5%) Singapore 40 (1.4%) Russia 8 (0.3%) 6 Thailand 99 (3.4%) 4 Hong Kong 223 (7.8%) Spain 10 (0.3%) 5U.S.A. 138 (4.8%) North America 168 (5.9%) 3 Taiwan 456 (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. Note 4: Adapted by the JTA based on material prepared by the JNTO Australia 49 (1.7%) Other 110 (3.8%) 5 major European countries 100 (3.5%) Total 2,869 Asia: 2,434(84.8%) 1 China 736 (25.6%) East Asia: 2,129(74.2%) South-east Asia: 292(10.2%) 2 Republic Of Korea 714 (24.9%) 2017 (Unit: 10,000 people) 6

8 Strategic relaxation of visa requirements Date 2013 July July 3 September 30 Country Thailand Malaysia Philippines Vietnam Indonesia India Indonesia Philippines November 20 Vietnam December 1 Indonesia 2015 January 19 China January 11 India 2016 February 15 Vietnam India October 17 China January 1 Russia 2017 February 1 India May 8 China January 1 India 2018 August 1 Philippines Growth in numbers of international visitors after the substantial relaxation of visa requirements 250,000 万 200,000 万 150,000 万 100,000 万 550,000 万 0 万 80,000 60,000 40,000 20,000 0 Number of visitors to Japan from the Philippines Approx.158,000 people After the substantial relaxation of visa requirements (September 30, 2014) 54% year-on-year increase ~ Number of visitors to Japan from Russia Approx. 55,000 people Approx.243,000 people ~ Approx. 77,000 people After the substantial relaxation of visa requirements (January 1, 2017) 41% year-on-year increase ~ ~12 7

9 Change in JTA budget (Units: billions of yen) Initial 当初予算 budget Supplementary 補正予算 budget Japan Tourism Agency was inaugurated (Oct 2008) H18(2006) H19(2007) H20(2008) 2008 H21(2009) 2009 H22(2010) 2010 H23(2011) H24(2012) 2013 H25(2013) 2014 H26(2014) 2015 H27(2015) 2016 H28(2016) 2017 H29(2017) H30(2018) 8

10 1. Circumstance, Trend and Target 2. Airport concessions in Japan 3. Upcoming transactions 9

11 Airports in Japan National airports (19) Corporate airports (4) Local airports (65) Defense / Civil airports (9) Sapporo Asahikawa Chitose Wakkanai Obihiro Shin-Chitose Hakodate Memanbetsu Kushiro Misawa Kobe Hiroshima Iwakuni Matsuyama Miho Kitakyushu Fukuoka Niigata Sendai Komatsu Hyakuri Narita Haneda Itami Chubu Kansai Yao Oita Nagasaki Kochi Tokushima )Kumamoto Shizuoka Takamatsu Kagoshima Miyazaki 97 airports 127 million people Naha 10

12 Four types of airport management system in Japan 1 National airports (ex. Haneda(Tokyo), Hiroshima) 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) Ownership: Private sectors Operation: a) Aerodrome Private sectors b) Non-aerodrome Private sectors 3 Local airports (ex. Kobe, Shizuoka) Ownership: Local governments (Prefectures, Cities) Operation: a) Aerodrome Local governments b) Non-aerodrome Private sectors 4 airports 65 airports 4 Defense / Civil airports (ex. Tokushima, Ibaraki) Ownership: Ministry of Defense (MOD) Operation: a) Aerodrome MOD b) Non-aerodrome Private sectors 19 airports 9 airports Air traffic control is conducted by MLIT in every airport 11

Aim of airport concession i) Separated management Current system MLIT : Aeronautical activities (Runways, Apron etc) Private companies : Non-aeronautical

ii) Profit pooling of multiple airports The revenue and expenditure of 28 national airports are managed together in a single accounting system.

13 Aim of airport concession i) Separated management Current system MLIT : Aeronautical activities (Runways, Apron etc) Private companies : Non-aeronautical activities (Terminal Buildings etc) After concession Integrated management of the whole airport. ii) Profit pooling of multiple airports The revenue and expenditure of 28 national airports are managed together in a single accounting system. Incentivized individual airports working closer in tandem with the local community to promote growth. developed network stimulated air transportation industry Improved accessibility Revitalization of local communities 12

14 Framework of airport concession Before MLIT - Air traffic control After MLIT SPC - Ownership and operations of the runways and related facilities (aprons, taxiways, lights, etc.) Provision of operating right bidding Integrated operations under private management Financial Institutions Terminal building company Acquisition of shares MLIT monitoring Investors Pre-determined 13

Transaction timeline T-21m Market sounding T-14m T-12m T-9m T-0m T+3m T+6m T + 9m Publication of the implementation policy Publication of the application guideline Screening process by the government

15 Transaction timeline T-21m Market sounding T-14m T-12m T-9m T-0m T+3m T+6m T + 9m Publication of the implementation policy Publication of the application guideline Screening process by the government First screening committee Competitive dialogue Second screening committee Selection of preferred negotiation right holder Grant of the operating rights Commencement of the terminal building operations Commencement of the airside operations Handover period Training provided 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

16 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 Not simply a privatization integration of airside operations with landside operations Need to replace MLIT employees Structure Concession rights designated on runway (and parking). No holding periods Investment incentive throughout the concession Local initiative Many of the larger airports are owned by a central government Decision to utilize the concession scheme is deeply influenced by the local governments Bids based on 1) price and 2) proposal Proposals on Air service development, Service quality, Operations, Safety etc. Items unique to each airport added based on the situation Third party selection committees 15

17 Overview of transactions National Airports (19) administered by the National Government Military Airports (9) It s open for private aviation within an extent that doesn t hinder the defense activities (3)Wakkanai (20)Sapporo (21)Chitose (4)Kushiro (2)Shin-Chitose (5)Hakodate Kansai Airport (private operation started) Number of passengers : 28.7mil in 2017 Location: Osaka Pref. (population 8.8mil) (28)Iwakuni (7)Niigata (26)Misawa (6)Sendai Sendai Airport (private operation started) Number of passengers : 3.4mil in 2017 Location: Miyagi Pref. (population 2.3mil) (10)Matsuyama (13)Kitakyushu (8)Hiroshima (23)Komatsu (24)Miho (22)Hyakuri (1)Haneda (12)Fukuoka Fukuoka Airport (Agreement signed) Number of passengers : 24.0mil in 2017 Location: Fukuoka Pref. (population 5.1mil) (27)Yao (16)Oita (14)Nagasaki (11)Kochi (25)Tokushima (15)Kumamoto (9)Takamatsu (18)Kagoshima (17)Miyazaki (19)Naha Takamatsu Airport (private operation started) Number of passengers : 2.0mil in 2017 Location: Kagawa Pref. (population 1.0mil) 16

18 Overview of transactions National Airports (19) administered by the National Government Military Airports (9) It s open for private aviation within an extent that doesn t hinder the defense activities (3)Wakkanai (20)Sapporo (21)Chitose (4)Kushiro (2)Shin-Chitose (5)Hakodate Airports in Hokkaido (2020 commencement) Number of passengers : around 28mil* in 2017 Location: Hokkaido Pref. (population 5.4mil) * Total of 7 major airports Kansai Airport (private operation started) Number of passengers : 28.7mil in 2017 Location: Osaka Pref. (population 8.8mil) (28)Iwakuni (7)Niigata (26)Misawa (6)Sendai Sendai Airport (private operation started) Number of passengers : 3.4mil in 2017 Location: Miyagi Pref. (population 2.3mil) (10)Matsuyama (13)Kitakyushu (8)Hiroshima (23)Komatsu (24)Miho (22)Hyakuri (1)Haneda Hiroshima Airport (2021 commencement) Number of passengers : 3.0mil in 2017 Location: Hiroshima Pref. (population 2.8mil) (12)Fukuoka (27)Yao (16)Oita (14)Nagasaki (11)Kochi (25)Tokushima (15)Kumamoto (9)Takamatsu (18)Kagoshima (17)Miyazaki Takamatsu Airport (private operation started) Number of passengers : 2.0mil in 2017 Location: Kagawa Pref. (population 1.0mil) Fukuoka Airport (Agreement signed) Number of passengers : 24.0mil in 2017 Location: Fukuoka Pref. (population 5.1mil) (19)Naha Kumamoto Airport (2020 commencement) Number of passengers : 3.3mil in 2017 Location: Kumamoto Pref. (population 1.8mil) 17

19 Airport Ranking by passenger numbers airport 2016 pax % of (Million) intn'l Stauts Note 1 Haneda % Terminal building listed 2 Narita % Corporate airport 3 Kansai %Concession started Bundled with Osaka 4 Fukuoka %Concession to start in Shin Chitose %In 2 nd phase of bids 7 airports bundle 6 Naha % 7 Osaka %Concession started Bundled with Kansai 8 Chubu % 9 Kagoshima 5.4 6% 10 Sendai 3.4 8%Concession started 11 Kumamoto 3.3 5%In 2 nd 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 %Implementation Policy in FY Shin Ishigaki 2.5 3% 18 Takamatsu %Concession started in Ohita 1.9 7% 20 Hakodate %In 2 nd phase of bids 7 airports bundle * Transaction completed * Pipeline 18

20 19 1. Circumstance, Trend and Target 2. Airport concession projects in Japan 3. Upcoming transactions

Hiroshima airport (Overview) Route Network Route Network 北京 Beijing 大連 Dalian ソウル Seoul 上海 Shanghai 札幌 ( 新千歳 ) Sapporo New- Chitose 仙台 Sendai 成田 Narita 東京 ( 羽田 ) Tokyo(Haneda) Traffic Trends 3500

21 Hiroshima airport (Overview) Route Network Route Network 北京 Beijing 大連 Dalian ソウル Seoul 上海 Shanghai 札幌 ( 新千歳 ) Sapporo New- Chitose 仙台 Sendai 成田 Narita 東京 ( 羽田 ) Tokyo(Haneda) Traffic Trends ( 000) 台北 Taipei 香港 Hongkong 沖縄 ( 那覇 ) Okinawa(Naha) 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 8 th 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

22 Hiroshima airport (Financials, Schedule) Financials Schedule Million JPY EBITDA FY 2018 Implementation policy Application guideline (RFP) FY2019 Bidding and Screening Selection of Preferred negotiation rights holder -400 Aero Non Aero 21

23 Hiroshima airport (Growth potential) Tourist demographic Inbound tourism trends Country share of Inbound Touists Hiroshima Prefecture Inbound Tourists ( 000) 100% 90% Others Others 80% Korea 70% Taiwan Korea 60% Hong Kong China 50% Taiwan % Europe Hong Kong 30% 20% 10% 0% Oceania Americas Hiroshima China Europe Oceania Americas Japan < 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) FUK 2.

5h line from HIJ 北九州山口宇部 (reference) Bullet train 1.

Hiroshima prefecture 2,844 '000 drive time Okayama

477 1:10 Takamatsu City 421 2:10 Matsue City 206 2:10

104 2:30 Tatsuno City 77 2:10 Soujya City 67 1:20

east of the city of Hiroshima sitting in between the

grow its catchment area serving cities in the wider

24 Hiroshima airport (Growth potential) FUK 2.5h line FUK 2h line 福岡 2h line from HIJ 2.5h line from HIJ 北九州山口宇部 (reference) Bullet train 1.5h line(from FUK,KIX) < Source : Hiroshima Prefecture> Hiroshima airport(hij) 松山米子岡山高松 KIX2.5h line KIX2h line 関西 Catchment area population Hiroshima prefecture 2,844 '000 drive time Okayama City 719 1:30 Matsuyama City 515 2:20 Kurashiki City 477 1:10 Takamatsu City 421 2:10 Matsue City 206 2:10 Izumo City 172 2:00 Shunan City 145 1:45 Tsuyama City 104 2:30 Tatsuno City 77 2:10 Soujya City 67 1:20 Tamano City 60 1:45 Hamada City 58 1:50 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 catchment area serving cities in the wider Chugoku region. 2 時間圏域 ( 福岡空港, 関西国際空港 ) Bus connectivity already 2 spanning 時間圏域 7 cities in the region. 2 時間半圏域 2 時間圏域 2.5 時間圏域 ( 福岡空港, 関西国際空港 ) 23

Hiroshima airport (Tourism Potential) Collaboration

Hiroshima by providing foreign tourists with tours in

Long-stay typed cruising and resort (reference:cruise

jp/cabins/type2) Sanctuary for cyclists Commercialize

Kusama 2004 photography by Mie MORIMOTO YAYOI KUSAMA

25 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 (reference:cruise guntû HP Sanctuary for cyclists Commercialize the food of Setouchi Onomichi City Museum of Art Yayoi Kusama 2004 photography by Mie MORIMOTO YAYOI KUSAMA Paradise of nature and art Offer satisfying stay unique to Setouchi Commercialize the Setouchi local products recognized all over the world 24

26 Hiroshima airport (Aircrafts operated) JAL B (165seats) Spring Japan SJO B (189seats) China Airlines CAL B (158seats) ANA B (405seats) IBEX Airlines IBX CRJ-700(70seats) Air China CCA B (157seats) B787-8(335seats) CRJ-200(50seats) Air Seoul ASV A321(195seats) Domestic B (270seats) International Hong Kong Express HKE A320(180seats) A321(194seats) China Eastern CES A319(120seats) Silk Air SLK B737-MAX8(156seats) 25

Airports in the Kyushu region 1h20m 1h40m 5h~7h 1h40m 50m Nagoya 1h40m 3h30m~5h30m 3h20m 2h30m Flight time Rail time DOMESTIC Distance from the 3 metropolitan areas (Tokyo,

27 Airports in the Kyushu region 1h20m 1h40m 5h~7h 1h40m 50m Nagoya 1h40m 3h30m~5h30m 3h20m 2h30m Flight time 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 2 1 3 Current status Airport 2017Traffic (Million) Status 1 Fukuoka 23.8 Concession Agreement signed 7 6 2 Kitakyushu 1.6 Study in progress 3 Oita 1.

28 Airports in the Kyushu region Airports in Kyushu Current status Airport 2017Traffic (Million) Status 1 Fukuoka 23.8 Concession Agreement signed Kitakyushu 1.6 Study in progress 3 Oita Miyazaki Kagoshima 5.6 Study in 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

29 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

Japanese Inbound & Outbound Travel Market Update

/ Japanese Inbound & Outbound Travel Market Update Japan Association of Travel Agents May 2017 Global Trend (results) International Tourists Arrival: 1,235 million Average Annual Growth Rate: 3.9% (2005-2016)