The sobering effects of an Asian financial turmoil would normally make infrastructure strategists think twice about building a new airport. At Jakarta, for example, passenger numbers have fallen 40% in 1998, Seoul passenger numbers tumbled 20% and across Asia, passenger levels have dropped by an average of 6% a year.

But a more-than-cursory glance at the project list in Asia, suggests that airport projects are more immune than airlines to economic downturns. A $400 million new airport in Malaysia, the $5.8 billion Inchon International airport in Korea and the $5.3 billion Chubu International project in Nagoya, Japan, are just a few of a series of airport projects planned for the next 10 years in Asia.

The reason for the growth in airport projects in Asia and beyond is simple. Expansions are continuing in the belief that long-term growth needs better airport infrastructure provision. In Europe airport expansion continues also. Oslo and Milan opened new airports in 1998 while Berlin, Athens and Lisbon will also open new airports in the next 10 years. Latin America too has large growth plans while a major new airport for Sydney, Australia, looks likely to get approval imminently. In the US, the projected growth of passengers is lower than elsewhere which reflects in the number of projects.

But in Asia, where the financial crisis hit hardest, the growth in airport projects will accelerate. The Japanese government, for example, is speeding up plans to build a new third airport for Tokyo after being thwarted in its attempts to construct a second runway at the congested Narita airport. Meanwhile, in Thailand the government is still pondering whether or not to build a new international airport for Bangkok. Plans for a new airport at Nong Ngu Hao have been around for years and initially it was due to open in 2000 but plans have been postponed, then revived, as different governments juggle the finances.

Now the plan is to first privatize the airport authority then build a runway and the new terminal by 2004 with a second runway following in 2005. The airport will be able to handle more than 30 million passengers a year but it is still expected to cost up to Bt130 billion ($187 million) to build. A final decision on whether to build the airport will probably not be made until the airport operator is privatized and that is not due until the end of 1999.

But how are these projects being financed? Some have opted for complete direct public financing such as Hong Kong's hapless Chek Lap Kok, while others use private finance ? maybe not for the main terminal or runways ? but for periphery projects.

Says Adrian Williams of aviation advisers Hawkpoint Partners: ?This tends to be the case in many Asian airports. Private money generally goes into relatively small projects such as cargo facilities, catering and so on while the core of the terminal structure is generally funded by the public sector.?

Government subsidies are still a key part of many airport financings

In Europe, the financing pattern is quite different. Yet even here, where airport privatization is at its most mature, the state still pays a key role. Two recently completed airports in Oslo Gardermoen and Milan Malpensa were financed with public money but two more on the architects' drawing boards, Athens and Berlin, are likely to be largely financed through the private sector. Why is there this dichotomy? Says Williams: ?Whether public or private money is chosen depends on a range of things. On how rich the government is or what subsidies are available. Even if the project is mostly financed by private money, there is usually a fair degree of public support. With the exception of Stansted airport in the UK, there is no example in Europe of a major airport project being financed by private finance alone.?

Finance for Athens Spata is however still coming largely from the private sector. A European Investment Bank loan of Dm1.95 billion ($1.1 billion) is backed up by commercial bank loans totalling Dm610 million, a European Cohesion Fund grant of Dm455 million, Greek state grants of Dm275 million, share capital worth Dm250 million and an airport development fund worth Dm490 million, raised through existing departure taxes. ?All this,? says Mark Call of the Portland Group of consultants in London, ?proves that even the very largest of airport projects can be financed through the private sector.? But this model of private initiative will be well tested in the next year as the funding for the new Berlin Brandenburg airport is completed.

Construction work is due to start in 2002 and when completed in 2007, the new airport will have the capacity for more than 20 million passengers a year compared with the total capacity of Berlin's three airports of 12 million. The project includes the building of an extension to the runway and adding a second 4km runway on the other side of the terminal buildings. But financing for Berlin Brandenburg is still to be put in place and according to Adam DeCoucy Ling of Credit Suisse First Boston in London, the lead arrangers, will probably not be until a formal planning application is made at the end of this year.

Says DeCoucy Ling: ?Because we are talking about four years before building begins, and eight before the airport opens, financing has not yet been put together. However, the way the privatization has been structured, the Berlin airport company will be sold and the new owners will have certain obligations to putting in equal amounts of equity in order to support the financing.?

The result is that a final structure is likely to see a combination of retained earnings and newly introduced equity representing about 30% of the total financing.

This pattern in Europe towards privatization as a way of raising cash is likely to continue as there is less need for public resources to be directed into building airports. Says Williams of Hawkpoint Partners: ?The advantages of a privately-owned airport are that it then operates as a commercial business and so the burden of providing infrastructure capacity to meet demand is relieved from the state.?

In addition, and if the Airport Council International (ACI) is to be believed, airport revenues in Europe are about to fall as duty free revenues dry up. Figures from a recent ACI report show that up to 46% of airport revenues come from non-airspace sources so airports may have to look for other sources of revenue for projects. One of these could be the airlines. In the US, airlines commonly pay for and build their own terminals with the publicly-owned airport providing ground services and infrastructure. Whether or not this trend will spread to Europe is still an open question but a notable exception, Lufthansa now owns a 40% share in the new Munich Franz-Josef Strauss airport, at a stroke gaining an exclusive terminal at its own hub. So far this is the exception rather than the rule and more privately owned or publicly-listed airports are likely to emerge over the next few years.

To some, this is no bad thing. Says Mike Howarth, managing director of Airport Strategy & Marketing in London: ?Privatization is a breath of fresh air. Where once airports were sleepy utilities they are now much more commercially aware. With the new Athens airport for example, they need to get new traffic in very quickly and have to market themselves more than they were used to.?

In the US, the existing structure of airport funding means that large scale privatization is highly unlikely. Says Call: ?There is a fundamental contrast between US airport financing and the rest of the world. In the US there is not the private ownership perspective so equity as a means of finance does not exist.?

The US airline hub system means that separate airlines dominate certain airports; American at JFK New York, Continental at Newark New York, United in Chicago O'Hare are just a few examples. But where this has spawned an efficient network of air routes and a booming passenger airline industry, it has also stymied the desire for privately-owned and commercially-orientated airports.

Says Call: ?The reasons airlines do this is so that they can transfer passengers onto other flights they run themselves. The result is that US airports have huge departure halls that are completely empty at certain times of the day while at other times there are hundreds of people rushing between one gate and another. This doesn't serve the interests of the passengers too much and is clearly an over-investment on the airlines side.?

Privatization of airports, a notion that has gripped European governments, is not a feature of US airport developments. The US has a bond-financing system of raising funds that enables the public sector to raise cash cheaper than any private sector operator could manage. This results in a disincentive for the private sector to become involved in financing airport projects unless an airline needs a new terminal built in order to expand services.

According to Call: ?The drive for privatization comes when there is a need for investment and the state is reluctant to become involved. For now there is no financial crunch so there is no lobby for privatization ? the airlines don't want it, the airports don't want it, the Federal Aviation Authority doesn't want it.?

To raise the bulk of the finance for new projects, airlines use Passenger Facility Charges to raise funds. These effectively place a layer of pricing on every ticket sold but do not add any incentives to add service value to the airport facility. Says Call: ?I think this is one reason why governments in other parts of the world that require airport financing are looking towards equity-based funding.?

But low projected passenger growth and a sporadic system of airport building does not add up to a stalled airport expansion programme. In June the Port Authority of New York, the owners of JFK Airport and Newark Airport, approved two $1 billion projects for terminal expansion. American Airlines is building a brand new terminal at JFK due to be opened in 2006 while Continental Airlines is building the second project at Newark.

The bulk of the $1 billion JFK project will be funded by American Airlines but the Port Authority will still contribute $102 million.

In Chicago, United Airlines is also spending $1 billion on two new terminals providing 20 more gates.

In Latin America, the trend towards privatization is developing fast. Mexico has already sold some of its airports and has plans to sell the rest. Peru is expecting bids for Lima airport imminently, while airports in Uruguay, Honduras, Panama, Nicaragua and El Salvador are all at different stages of the privatization process.

In Brazil, Infraero, the country's state-owned airport operator, has been spending an average of $550 million a year to expand and develop the countries 67 airports including a brand new passenger terminal and cargo terminal at São Paulo and a $100 million new airport in Rio Branco. And in Argentina, seven airports are likely to be sold in the next two years which will precede a new international airport project in Neuquen.

Elsewhere in the emerging markets, privatization has scarcely scratched the surface. Eastern Europe, the second largest aviation growth market in terms of passengers after Latin America, has failed to sell one of its main airports to the private sector. Why privatization has worked in Latin America and not eastern Europe seems largely down to the willingness of governments. ?I think it is a question of political will,? comments Williams. ?But also the size of the market is an incentive. Much more capacity has been added in recent years in Brazil, Argentina and Chile and the economies are much stronger.?

If all the world's airport projects are built, there will be all the capacity we need to travel plus room to grow. A downturn in the emerging Asian and Latin American economies may prove to be just a blip.