Istanbul’s new airport delayed as contractors and officials abandon project
Istanbul’s giant new airport, a flagship project of the ruling Justice and Development Party (AKP), is in serious trouble. The unfinished airport’s soft opening was held in October, but in December the government announced delays pushing the transfer of operations to the new airport to March 3, 2019.
That date has been pushed back once again, due to fears that an early move could lead to a catastrophe at the airport before March 31 local elections. Meanwhile, the contractors who had signed on to lucrative contracts to build and operate the airport are now deserting the sinking ship one by one.
Further questions have been raised by the departure of Funda Ocak, the head of Turkey’s General Directorate of State Airports (DHMI). Ocak was the state official responsible for the airport project, but with construction supposedly on the verge of completion, she said she was retiring.
Construction began on June 7, 2014, and the opening date was originally set for Oct. 29, 2017. Citing unforeseen problems with the foundations, the opening date was postponed to exactly a year later, again falling on Republic Day, the anniversary of the founding of the Turkish Republic.
A consortium of construction firms with close links to President Recep Tayyip Erdoğan – Cengiz, Limak, Kalyon, Kolin and Mapa – won the tender with a bid of more than 22 billion euros ($25 billion) on May 3, 2013, setting up a joint company called Istanbul Grand Airport (IGA) for the project.
The terms of the Public Private Partnership model the firms signed up to were supposed to grant their consortium the right to operate the airport for 25 years, in exchange for them meeting the expenses of building it without state assistance. In the end, though, the expenses were beyond the consortium, which received 4.5 billion euros in credit for the first phase of construction from Turkish public and private banks, with the Treasury co-signing the debt. The DHMI also agreed to act as guarantor for the consortium.
Last year the five contractors applied for further credit of 1.5 billion euros, on the basis that financing problems were holding up construction to the point they would be unable to meet the deadline for the opening. The Treasury and DHMI again agreed to undertake the debt, bringing the total guaranteed by the state to 6 billion euros, despite assurances that no public money would be spent on the project.
The terms of the Public Private Partnership deal state that for 13 years after the airport opens, the contractors are guaranteed an annual income of 6.3 billion euros from the 90 million passengers projected to travel through the airport annually. Any shortfall will be paid to the consortium by the Treasury.
Yet for all intents and purposes, the airport remains closed. The Oct. 29 opening was held for political purposes, and only the flights from the airport are Turkish Airlines routes to the Azeri capital Baku, Ercan in Northern Cyprus, and Ankara.
The full transfer of operations from Istanbul Atatürk Airport was postponed to Dec. 31, then to March 3, and now appears likely to be delayed once again. The IGA has denied this, but with just weeks left until the opening date, there are still no signs it will open.
News from the IGA. Kolin left the venture in January, transferring its 20 percent stake to Kalyon, which now holds 40 percent of shares in the airport and a 2.4-billion euro share of the debt. Two more of the five companies are reportedly seeking to turn over their shares after a significant fall in the lira’s value last year left them scrambling to repay their debts.
Economic circles in Turkey say Turkish Airlines’ Airport Real Estate Investment and Operation corporation is preparing to take over between 40 percent and 60 percent of the shares, potentially making the airline the majority partner in the new airport.
If so, between 2.4 billions euros and 3.6 billion euros of the debt will be passed to Turkish Airlines, and by extension to the Turkish state. The 49 percent of the airline’s publicly traded shares have been added to the Turkey Wealth Fund, which is chaired by President Recep Tayyip Erdoğan and headed by his son-in-law Treasury and Finance Minister Berat Albayrak. Turkish Airlines’ newly created real estate corporation, too, is part of the fund’s portfolio.
Meanwhile, the request to postpone the March 3 opening date is widely rumoured to have come from the AKP’s mayoral candidate for Istanbul, former prime minister Binali Yıldırım, who fears that if the airport opens before it is ready it could lead to an accident that would spell disaster at the polls on March 31.
Airport Haber, a prominent aviation news site in Turkey, has quoted experts as saying the three airports in Istanbul will not be able to abide by international air traffic control rules while operating simultaneously due to the volume of traffic, and warned of serious risks.
The company operating Atatürk Airport, which like the new airport is located on the European side of the city, has a contract to run the airport until early 2021. Reports state that due to the risks involved if both European airports operate at the same time, the chances the new airport will operate at full capacity until then are nil.
Meanwhile, DHMI chairwoman Ocak announced her resignation on Feb. 13, sending shockwaves across the capital city.
Ocak, who has worked at DHMI since 1985 and served as its general manager since 2016, said she was retiring due to fatigue and said she wanted to spend more time with her family. But sources in Ankara say her decision was forced by the mounting chaos at the new airport, political pressures over the project, and economic problems caused by its rising costs to the public.
Main opposition Republican People’s Party deputy leader Aykut Erdoğdu launched a blistering criticism of those costs before the soft opening in October, presenting documents to parliament to back up his point.
Erdoğdu spoke of the series of mistakes during the airport’s construction that he said had cost the public 4.59 billion euros, approximately 5 percent of the budget.
The costs to public coffers incurred by the IGA’s unpaid fines and rent due to delays amounted to malfeasance by public officials, said Erdoğdu.
“They want to offload the legal responsibility for the debt and rent caused by the delays onto Turkish Airlines. The national flag carrier airline is taking a legal and financial beating from the IGA,” he said.
These costs are rising every day, as the uncertainty over the airport’s full opening leads to cancelled flights and loss of revenue from its commercial operations.
As the March 31 local elections draw near, it seems increasingly unlikely that Erdoğan’s government will be able to achieve the political victory of opening the airport without risking a potentially catastrophic accident. But with economic pressures making the elections a critical test for the government, it is sure to seek a solution that will do its election campaign the minimum amount of harm possible.