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The beginning of the end for Subang’s Terminal 2

The old Terminal 2 in Subang, Selangor, which was once part of Subang International Airport, will be torn down to make way for the regeneration of Sultan Abdul Aziz Shah Airport.

Randhill Singh, general manager of land development at Malaysia Airports Holdings Bhd (MAHB), says the decision to demolish the ageing terminal building was made after it was deemed unsafe by the airport operator’s engineering team. He adds that the area will be cordoned off within the next two months to allow the demolition team to tear down the structure. The terminal building has been vacant since November 2009, when MAHB moved its corporate headquarters to Sepang.

What happens next with Terminal 2 will depend on a master plan for the airport. In March, MAHB had called a tender for airport planners to master plan and design the redevelopment of 1,200 acres of land surrounding Subang Airport into “the preferred city airport in Asia-Pacific”.
Describing the response as “overwhelming”, Randhill says about 50 local and international consultants attended the tender briefing and the last date for submitting their bids was May 13.

“The selected master planner will draw up a master plan, which will probably take about six months to complete, and then we will have a clear idea what will happen to the site of Terminal 2 and how are we going to expand Terminal 3 (now known as Skypark Terminal). Our initial plan was to demolish Terminal 2 and turn the site into aircraft parking bays. The outcome now will depend on the master plan,” he tells The Edge in an interview.

Under its regeneration initiative for Subang Airport, MAHB envisions a modern airport with a high rate of technology that also offers convenience to passengers.

“As Subang Airport caters to turbo­props and private jets, the investment in expanding the airport’s current capacity of 1.5 million passengers to 5 million passengers need not be big,” he says, noting that the airport’s enhanced facilities will be above Singapore’s Seletar Airport but lower than Changi Airport’s Terminal 4.

Still, the proposed demolition marks a reversal of the plans for the redevelopment of Terminal 2. Subang SkyPark Sdn Bhd, the manager of the RM45 million SkyPark Terminal at Subang Airport, had expressed interest in the project as far back as April 2011.

Randhill says MAHB had difficulty finalising its plans for Ter­minal 2 as it was still in negotiations with the government over its operating agreements (OAs), which were signed in February 2009. On April 12 this year, MAHB announced that the Cabinet had approved the extension of MAHB’s concession to operate 39 airports in Malaysia from 2034 to 2069.

“The 35-year extension was a big milestone for us. We see Subang growing fairly fast from now,” says Randhill.

The proposed master plan will also include the redevelopment of land around Subang Airport, which is managed by MAHB, into a business aviation hub with an aerospace ecosystem that includes maintenance, repair and overhaul (MRO) facilities and an aerotech park.

MAHB plans to do away with the cargo complex currently occupied by DHL and Raya Airways and turn it into MRO facilities when the two freight operators relocate their operations to Sepang by end-2021. However, this will be determined by the master plan.


Development of KLIA

Aeropolis to pick up pace

Another important priority for MAHB is the development of KLIA Aeropolis, which is set for a major boost after the government gave it another 35 years to operate the Kuala Lumpur International Airport (KLIA) in Sepang and the other 38 airports in the country recently.

The extension clears a major hurdle for the group to attract new investors to the area, according to Randhill, who also oversees KLIA Aeropolis.

KLIA Aeropolis has been years in the making. MAHB has been planning to turn some 10,000 acres of vacant land surrounding KLIA into a commercial, tourism and transportation hub as early as 2008 but it never took off in the way it planned due to a lack of investors.

At the time, the short-term lease was a major factor making investing in KLIA Aeropolis less attractive as MAHB could only grant investors leases until 2034, coinciding with the end of its concession to operate KLIA.

“Prior to the latest concession extension, in 2007, the government extended MAHB’s OAs, which saw the concession period for Subang airport ending in 2067, but that of the other airports, including KLIA, ending in 2034. That is why the development at Subang Airport was moving faster than that at KLIA Aeropolis,” explains Randhill.

Another challenge is the lack of budget to expedite the project. “We will only invest when we have secured the customer. We will do land preparation only when we have identified the market and we see that it can grow. We will not do speculative work,” says Randhill.

While the latest extension of the concession period to 2069 is heartening, it is clearly far from enough.

“When you talk about industrial development, a 50-year lease is doable. But when you talk about commercial development, it is considered short. In fact, most commercial investors prefer to acquire freehold assets as they offer an opportunity to get the return on their investment,” says Randhill.

What makes the development of KLIA Aeropolis even more challenging is that potential investors would be subleasing the land from MAHB, which is itself leasing it from the Federal Lands Commissioner.

Randhill also acknowledges that KLIA Aeropolis faces competition from other states wanting to develop their own aerospace industrial parks, and investors will not be lured until the government agrees to tweak the leases of the land surrounding KLIA to 99 years.

“A 99-year lease period would be more attractive to investors and, hopefully, the terms would also be business friendly. (With a 99-year lease) we can also go forward with larger-scale projects,” he says.

He notes that the government had given approval in principle to a 99-year lease for KLIA Aeropolis at end-2016. “However, we have not been able to conclude the final terms. We are still engaging with the government.”

Will it be too late for KLIA Aeropolis to jump on the commercial property bandwagon by then? “The pie is big and is growing. What is more important for us is to get things right,” says Randhill.

Thus, the group’s immediate priority is to continue its focus on the industrial real estate market, such as aerospace manufacturers and MRO and logistics companies.

Despite these challenges, MAHB has managed to attract major tenants, including China’s Alibaba Group Holding Ltd, Singapore-listed Boustead Projects Ltd and Japan’s Mitsui Fudosan Co Ltd to KLIA Aeropolis and UK-based Senior Aerospace UPECA to Subang Aerotech Park. “We expect to secure more investments in the months ahead,” he adds.

Since the launch of the KLIA Aeropolis concept master plan on May 23, 2016, the airport operator has drawn RM700 million worth of investments to KLIA Aeropolis and Subang Airport and generated 1,500 jobs.

“These investments are in the form of brownfield and greenfield infrastructure, totalling 890,000 sq m in gross floor area (GFA) and 150 acres. They include facilities built by Senior Aerospace and the development of Subang Aeropark Park by Boustead Projects, as MAHB’s joint venture partner in Subang, as well as the refurbishment of the former low-cost carrier terminal into KLIA Air Cargo Terminal 1, Mitsui Outlet Park’s Phase 2 expansion and Sepang Aircraft Engineering’s second hangar at KLIA Aeropolis,” says Randhill.

He deems the total GFA of 890,000 sq m and 150 acres of infrastructure developments achieved over three years as comparable with that of other industrial developers.

Today, more than one-third of the land at KLIA Aeropolis is developed, with airport infrastructure making up the bulk of it. On its part, MAHB has invested about RM150 million in the project over the past three years.

“We are looking to develop another 2,000 acres of the land surrounding KLIA over the next 25 to 30 years. This will bring the developed area to some 50% to 60%,” says Randhill.