Airport with no customers ready to open

Ibaraki touts facility as tool for long-term growth, critics say it's just another in long line of construction boondoggles

by Chris Cooper and Bradley K. Martin

Bloomberg

The $268 million Ibaraki Airport is on schedule to open for business in March 2010. The hard part will be persuading an airline to fly there.

The government and Ibaraki Prefecture, home to 3 million people, are paying for the airport, which will be part of the Air Self-Defense Force’s Hyakuri Air Base in Omitama, won’t have train services and is a half-hour drive from Ibaraki’s capital, Mito.

Japan Airlines Corp. and All Nippon Airways Co., which operate 90 percent of flights in the country, don’t plan to use it.

As the global credit crunch drives Japan into its first recession since 2001, the country is building roads and airports that have helped make it the world’s most indebted major economy. Critics say many of the projects have little economic value beyond the building industry.

“The government is squeezing health-care and other social programs and then spending billions and trillions of yen on useless construction projects,” said Stephen Church, an economist at securities researcher JapanInvest in Tokyo. “Ibaraki is just a small example of that.”

Japan has borrowed money every year since 1965 to finance its budget, saddling each household with the equivalent of ¥17 million in debt. The spending has pushed the government’s debt to the highest among the Group of Seven economies — 170 percent of annual gross domestic product last year, compared with 63 percent in the United States, according to the Organization for Economic Cooperation and Development.

Ibaraki’s airfield will open just as Japan’s biggest international airport, Narita, an hour’s drive to the south, completes an expansion. Tokyo’s Haneda airport, the world’s fourth-busiest, is set to open a new runway the same year.

“We’re not planning any flights from Ibaraki Airport,” JAL President Haruka Nishimatsu said Tuesday. “It’s out of the question.”

His company and ANA have cut unprofitable regional routes and slashed profit forecasts this year as higher jet-fuel prices and a global economic slowdown led to fewer passengers.

JAL recorded its biggest decline in international passengers in five years in September, while ANA flew fewer people overseas for a seventh straight month.

“We don’t think of the airport as a ‘Field of Dreams,’ ” Ibaraki Gov. Masaru Hashimoto said in an interview, referring to the movie starring Kevin Costner about an Iowa farmer who builds a baseball diamond in his cornfield.

The film’s theme, “Build it and they will come,” mirrors the governor’s argument that investors won’t appear unless infrastructure is in place. “We want the airport to add to the long-term economic growth of the region,” he said.

Ibaraki isn’t the first Japanese airport to have to battle for planes. Kansai International Airport opened in 1994 in southern Osaka Prefecture as an alternative to Itami airport to the north. While international flights operate from Kansai, domestic flights still use Itami. Another airport, in neighboring Kobe, opened two years ago.

“The problem with Osaka is obvious from the sixth floor of the hotel at Kansai airport,” said Mark Schwab, vice president for the Pacific region at UAL Corp.’s United Airlines. “With the naked eye, I can see three airports.”

United has slashed its service from Kansai to one daily flight to San Francisco, from five international flights.

Other projects haven’t produced promised benefits. JapanInvest’s Church pointed out that a ¥253 billion reclamation project that closed off part of Isahaya Bay in Nagasaki Prefecture with a 6.4-km seawall, completed in 1997, is a “complete white elephant.”

The project was designed to create farmland even as the number of farmers in Japan fell and local fishermen opposed it.

“There’s no coordination in terms of demand for projects,” said Akane Enatsu, who analyzes Japanese regional government spending at Nikko Citigroup Ltd. in Tokyo. “Japanese infrastructure projects have too optimistic projections and then can’t satisfy them.”

In Ibaraki, local officials hope landing fees about 30 percent lower than those at Narita will lure low-cost carriers. Still, no airline has decided to use Ibaraki Airport, said Mitsuru Iso, a local government manager responsible for promoting the airport.

Gov. Hashimoto said talks continued with three or four airlines, including AirAsia X Sdn., partly owned by Southeast Asia’s biggest discount carrier, AirAsia Bhd.

AirAsia X may start flights to Japan from Kuala Lumpur next year and is considering using Ibaraki, Tony Fernandes, chief executive officer of the AirAsia group, said in September.

“Ibaraki Airport could be the gateway to the Tokyo metropolitan area for low-cost carriers from Asia,” said Geoffrey Tudor at Japan Aviation Management Research, which has done consulting work for the prefecture.

As the airport gets built, shops north of the railroad station in the city of Mito are closing as customers switch to suburban malls.

“We need an economic package for the town rather than an airport,” said a shop clerk who would give only her surname, Yamanashi. “All the shops along here are suffering.” The women’s clothing store where she was working was plastered with closing-down sale signs.

Ibaraki Prefecture faces a shrinking population that’s one of Japan’s fastest-aging, with more than one in five people over the age of 65.

“It’s the youngsters who will use the airport,” said 60-year-old Osamu Onoguchi, who heads the office of Mito’s Chamber of Commerce and Industry. “They’re also the ones who’ll have to pay for it.”