Indian, French JV To Develop, Operate Indonesia’s Kualanamu International Airport In A 6 Billion Deal

Indonesia is seeking to develop Kualanamu International Airport in Medan as a regional hub through a $6 billion joint venture comprising Indian and French airport operators.

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The goal is to expand the airport and increase the annual passenger flow from 10 million prior to the pandemic to 54 million.  

The earthquake and tsunami that struck Indonesia’s northern coast in 2004 wreaked devastation. Medan, Indonesia’s fourth-largest city, is just down the coast from the worst-affected region in North Sumatra.

The government has long wanted to give a special focus on the island of Sumatra due to the existence of the oil and gas industry in the area.

It was reported earlier this year that PT Angkasa Pura II, one of Indonesia’s state airport operators, was looking for a strategic partner to help turn the Kualanamu airport into a “western hub” for the country. Indonesia intends to rival Changi and Kuala Lumpur international airports as regional hubs. 

File:KualaNamuAirport.jpg - Wikimedia Commons
The Kualanamu Airport (Wikipedia Commons)

Last Week, the GMR Airports Consortium, a joint venture between India’s GMR Group and France’s Aeroports de Paris Group, was awarded a contract to operate Kualanamu International Airport in Indonesia’s North Sumatra Province with local state-owned Angkasa Pura II. 

Angkasa Pura Aviasi will be a joint venture between these companies, with Angkasa Pura II holding a majority stake. According to a news release from Angkasa Pura II, Kualanamu would be operated by Angkasa Pura Aviasi under a 25-year “strategic partnership” worth $6 billion. 

A Regional Hub

The joint venture intends to develop the airport as a regional hub, with the goal of increasing passenger traffic and bringing it up on a par with Indonesia’s main international gateway, Jakarta’s Soekarno-Hatta Airport.

Although the objective of attracting 54 million is still small in contrast to Changi’s 68 million and KLIA’s 62 million passengers in 2019. With the current joint partnership, however, Indonesia is hopeful to attract major traffic from South Asia, North Asia, and Australia too. 

Singapore’s Changi Airport is a major hub for the Star and Oneworld airline alliances, and it is served by a number of major airlines. It is widely regarded as one of the world’s best, has strong connections to the Asia Pacific area. As air traffic in Southeast Asia continues to expand at a rapid pace, Changi’s potential is undeniable.

Similarly, Kuala Lumpur International Airport or KLIA is an important traffic point for Southeast Asia. Indonesia is hopeful that the new project will help the country’s tourism sector to flourish and eventually become an alternative choice for Changi and KLIA as a major transit hub. 

Singapore’s Changi Airport Terminal 1 (Wikipedia Commons)

Looking ahead, the International Air Transport Association (IATA) predicts that Indonesia will become a “standout performer”, rising from 10th largest aviation market in 2017 to fourth-largest by 2030. From 2017 to 2037, Indonesia is expected to add 282 million new passengers, bringing the total number of passengers to more than 400 million per year. 

Indonesia is an archipelago with over 17,000 islands, and its land-based transportation infrastructure is severely lacking. As a result, expanding air transport capacity is critical for people and commodities movement as well as national economic growth.

“We recognize Kualanamu’s strategic importance,” Kartika Wirjoatmodjo, Indonesia’s Deputy State Enterprise Minister, said in parliament on December 2. “It has a vast capacity and can be expanded up to become a world-class airport.”

He emphasized that Kualanamu can be used as a base to limit Changi and KLIA’s dominance and that GMR Airports has earmarked 56 trillion rupiah ($3.89 billion) to the expansion. However, he didn’t mention any timeframe for the project. 

Alvin Lie, an independent aviation industry analyst, quoted by Nikkei Asia as saying, “the expansion of Kualanamu is a long-term strategy with ‘calculated risks’, thus a prolonged coronavirus outbreak or new concerns about the omicron variety are unlikely to derail the project.”

However, Lie emphasized the need to make North Sumatra and the nearby areas as tourist destinations, claiming that Lake Toba, the world’s largest crater lake and the province’s main domestic tourist destination, is insufficient.

There are also plans to build a new airport in Bali to relieve the pressure on Denpasar’s Ngurah Rai Airport. Despite the fact that a location has been proposed in the north of the island, Bali has been subjected to significant environmental strain as a result of its appeal as a tourist destination.

Indian Firm’s Participation  

The GMR Group owns and operates major airports in India, including Delhi’s Indira Gandhi International Airport and Hyderabad International Airport. It also built airports in the Philippines and Greece.

Additionally, the company has a partnership with Aeroports de Paris, which operates the Paris-Charles de Gaulle, Paris-Orly, and Paris-Le Bourget airports.

Kualanamu International Airport has a high potential to become a major hub in Southeast Asia. GMR Airports Consortium won the contract to develop it through a worldwide competitive bid procedure. The letter of award is scheduled to be released in the coming days, with project agreements expected to be signed by the end of the year.

The project signifies GMR Airports’ entry into Indonesia’s fast-growing aviation sector, which is the largest in ASEAN and a high-potential market, and the company would like to take this opportunity to reaffirm its commitment to transforming Medan Airport into Indonesia’s western international hub and contributing to the country’s overall infrastructure development, said Srinivas Bommidala, Chairman Energy & International Airports, GMR Group.