CLIENT
The client is an airport operator who has entered into a concession agreement to operate the commercial retail area of airport terminal, a car parking area, a business aviation center and a hangarage complex for one of the busiest city airports in Malaysia.
FULL STORY
In 2019, the client has experienced cash flow deficit due to the high bank loan repayment as a result of CAPEX incurred and rental lease payable to the asset owner to cover the previous shortfall during construction period. The cash flow deficit is expected to continue until both the bank loan and shortfall of rental lease to finish repay in the next 10 years.
The current concession sub-lease terms will end in 20 years. However, the client has difficulties to recover the high CAPEX spent upfront and rental lease due to the short timeframe. Therefore, the client aspires to review the concession agreement and optimize returns to parties involved while exploring potential revenue optimization plans on current concession assets.
With these objectives, the client had engaged our team under 27Capital to review the concession agreement and conduct a revenue optimisation exercise for the business.
KEY OUTCOMES
The team begun with a thorough review on the airport operator concession agreement to establish a baseline understanding on the salient terms on the commercial and operational clauses. This allowed the team to structure a strategic negotiation approach to re-negotiate the existing concession agreement, while exploring the possibility of various revenue optimization plans.
Working with our subject matter expert in Aviation industry, who has extensive know-how for airport operation, we conducted a full-fledge operational review on the entire airport terminal operation to identify the value leakages or wastages in its operational. A separate team was tasked to carry out a financial review which looked at its current cost structure, revenue stream, and assess the historical financial performance throughout the concession period.
On the operational side, several sources of leakages were identified, mainly from the low utilisation of worker and ineffective organisational structure which impede the company to monitor and evaluate the workers’ performance systematically. Several improvement initiatives were recommended to streamline the reporting structure and working mechanism to ensure a lean organisation and operation across all departments.
The financial team had also discovered various interesting insights by evaluating the financial performance of the concessionaire from new perspective and new performance indicators. It is unsurprising that the concessionaire did not realise that they were not utilising the space effectively to generate monetary return while it many these spaces are treated as idle assets over the years. Working with our Aviation team, we have made several revenue proposals to the client to monetise the space.
With our comprehensive approach of revenue optimization and the substantial expertise in business aviation industry from our subject matter expert, 27Group has managed to ascertain the airport’s as-is operational performance and framed the revenue optimization proposals on all the concession assets.
