The leaked special audit report revealed that Maldives Airports Company Limited (MACL) will forgo a yearly profit of over $41 million (MVR 632 million) if they proceed with the contested decision to hand over the management of the new seaplane terminal to Trans Maldivian Airways (TMA).
The special audit was commissioned by Parliament Public Finance committee in August, after ruling Maldivian Democratic Party (MDP) MP Yaugoob Abdulla raised alarm over MACL handing exclusive operation rights of the new seaplane terminal to TMA.
According to the audit report which is yet to be publicly disclosed, the 28,000 square meter, new 4-story seaplane terminal will cost MACL $55 million. The new facility will be ready for operations by July 2020, according to BUJC - the Chinese firm contracted for the construction. However, MACL announced last week that the terminal will start operations in May of next year.
THE AUDIT REPORT
The audit report evaluated three options for MACL to manage the operations of the new seaplane terminal by looking at the projected yearly income for each option, from July 2020 to June 2021.
The three options evaluated include implications to MACL if they were to:
- operate the new seaplane terminal under lease agreements currently in place, where seaplane operators operate their own seaplane terminals in already leased out plots;
- move ahead with the contested decision to handover the management of the new terminal to TMA;
- if MACL operated the terminal by itself and lease the plots at existing market rates
The report determined that the most profitable option for MACL would be to manage the operation by itself.
The calculations and figures used in the audit report are based on the current rates at which seaplane operators lease their plots for lounges and office spaces, as well as the rate at which MACL lease plots in Hulhule for commercial use.
The audit report uses the following base rates to evaluate their options:
Lease rates for seaplane operators currently in place:
- TMA: $10.35 (per square meter)
- Land plots: $6.90 (per square meter)
- IAS: $3 (per square meter)
- Passenger fee levied by IAS: $2.5 (per passenger)
Lease rates under discussion with TMA:
- Lease rate of $23.44 (per square meter)
- Passenger fee of $5 (per passenger)
- Note: no rates have been set for lounge areas
Lease rates as per current market rates:
- Lounge: $250 (per square meter)
- Office: $41.50 (per square foot)
Under lease agreements currently in place, where seaplane operators operate their own seaplane terminals in already leased out plots, the airports company will generate a yearly income of $2.7 million (MVR 41 million).
According to the special audit report, if MACL proceeds with the contested decision to handover the management of the new terminal to TMA, between July 2020 and June 2021, MACL is limited to generating a revenue of only $5.6 million (MVR 86 million).
However, should MACL operate the terminal itself and lease the plots at the existing market rates set for offices and lounges leased at the international terminal, over the same period, the airports company is likely to record an income of $47 million (MVR 729 million) per year.
The report then concludes that MACL would bear a loss of $41.6 million (MVR 641 million) if they proceed with the contested handover of the seaplane terminal operations to TMA.
During the special audit, MACL stated that it would not be possible to lease the lounges at the seaplane terminal at a market rate of $250.
However, the market rates stated in the report were determined by factoring in the current rate at which seaplane operators were already leasing out lounges to resorts, and the rate at which lounges were leased for at the international terminal area.
The report further reveals that plots at the international terminal area are leased to resorts for lounge development at an average rate of $252 per square meter. Lounges leased at seaplane terminals operated by TMA and IAS are currently leased out for rates ranging from $176 to $240.
Lease rates for office plots at the new seaplane terminal are also set at a significantly lower rate. The current market lease rate for an office space stands at $41.5 per square meter. However, at the lease rates currently under discussion with TMA, the rate for a square meter averages $23, the audit report finds.
AN ALTERNATIVE PLAN OF ACTION
Currently, TMA operates its own seaplane terminal at the airport. However, for the use of the newly built runway as per airport development plans, TMA is required to relocate, prompting MACL to build a new seaplane terminal intended for use by all seaplane operators as a common facility.
Accounting for the cost of relocation to TMA, the audit report offers an alternative plan of action for MACL.
As reported by Mihaaru, 5,382 square meters of lounge plots are to be leased to TMA at the currently agreed rate of $23.44, while the remaining 9,860 square meters of the allotment are to be leased at the market rate of $252. Even if areas designated for office plots and other uses are leased at the market rate of $41.5 per square meter, MACL will generate in income a $2.8 million a month, and a $33.7 million yearly, the report estimates.
The report goes on to indicate that landing over the terminal operations solely to TMA would give the company an unfair advantage over other seaplane operators and will disrupt the competitiveness of the industry.
Further, the allocation of plots in this manner would give more lounge plots for TMA, by allowing them to carry more passengers to resorts and thereby gain greater control of the market, and prevent companies with smaller operations from expanding their business.
ALLEGATIONS AGAINST MACL BOARD
On November 28, 2017, MACL’s former board of directors initiated discussions with TMA about the handover of the management of the new seaplane terminal.
A source familiar with the matter speaking to Mihaaru on the condition of anonymity said that while it is possible for MACL to recover their $55 million investment within two years, plans to handover the whole terminal operations to TMA indicates that there is likely more to the issue than simply a lack of capacity.
“MACL should build their capacity if they have the funds to do so”, the source contended.
Referring to the MMPRC corruption scandal orchestrated by former Tourism Minister Ahmed Adheeb during President Abdulla Yameen Abdul Gayoom’s administration, the source elaborated, “That was $72 million in corruption. This would, over the years, accumulate to a much larger amount”.
Champa Hussain Afeef, is one of the biggest tourism tycoons and TMA's majority shareholder when Blackstone acquired the company in 2013. To date, Afeef remains a member of TMA’s board of directors.
His business partner, Ibrahim Noordeen, with whom he runs Meeru Island Resort, sits on MACL’s board of directors.
Besides Noordeen, MACL’s board consists of Moosa Solih, Ibrahim Mahfooz, Mohamed Abdul Sattar, and Chairman Umar Manik (MU).
Manik is also a renowned tourism tycoon, and a shareholder of Universal Enterprises.
TMA - THE COMPANY
A consortium led by US-based Bain Capital and a Chinese tourism conglomerate, Tempus Group, on 19 December 2019 acquired the Maldives’ main seaplane operator Trans Maldivian Airways from Blackstone for approximately USD550 million.
According to foreign media, Bain Capital and Tempus Group proposed to buy 80 percent of TMA’s shares for USD 550 million (MVR 8.4 billion), making it the largest business acquisition in the Maldives to date. At the time, foreign media reported that other minority shareholders and local founders were staying on with a small stake.
Prior to the 2019 acquisition, TMA's majority share was held by the American company Blackstone, one of the leading investment firms in the world, while local tycoon Champa Hussain Afeef’s Kasa Holdings Pvt Ltd held the minority share.
Blackstone in 2013 acquired controlling stakes of TMA and its sole competitor, Maldivian Air Taxi (MAT) and merged the two under the TMA brand.
TMA currently operates a fleet of over 50 aircrafts, on regular flights throughout the country, making it the largest seaplane operator in the world.
In 2018, TMA operated over 120,000 flights, transferring over 1.29 million passengers, including 80,000 residents.
Seaplane is the preferred mode of transport between the main Velana International Airport and several tourist resorts, especially those located at a distance from domestic airports.