Never in history has one region of the world presented the aviation community with such a plethora of new, state-of-the-art airport facilities within such close proximity as now are presented by the principal new airports of the so-called Hong Kong, Macau, Shenzen Triangle.^2/ These three airports, namely Chek Lap Kok in Hong Kong, Macau International Airport in the Territory of Macau, and Shenzen Airport, located in the Chinese Province of Guangdong -- all of which are situated within a 100 kilometer-radius -- provide the region with unprecedented opportunities for development. But many questions have been raised regarding the feasibility of locating so many airport facilities together in a region that historically has not produced the traffic necessary to support such a great expansion of the infrastructure. This paper is designed both to introduce the reader to the three projects, and to address the question of whether these airports can succeed given the competition that each will present.^3/

II. THE HONG KONG, MACAU, SHENZEN TRIANGLE: PERFECTLY POSITIONED GEOGRAPHICALLY AND DEMOGRAPHICALLY IN THE HEART OF ONE OF THE WORLD'S FASTEST GROWING REGIONS

What and where is the so-called "triangle"? Located on the southern coast of China, at the point where the Pearl River Delta meets the South China Sea, the triangle is situated in one of the world's fastest growing regions, whether measured by population or economic growth. There are many factors that will influence the success of the three new airports in this region, but perhaps the most important is their location in the heart of this growth. Indeed, the rate of growth -- namely over 10% annually -- is extraordinary, particularly in light of the stagnant state of the economy in many regions of the world, and there is an expectation that it will remain in that range for the foreseeable future.

What is driving this growth? It is, of course in large part the similarly unprecedented and extraordinary growth taking place in China itself, particularly in Guangdong Province proximate to the Delta, as well as throughout Asia. Indeed, it is impossible to consider the potential of these airports without taking this especially important element into account.

A brief review of the statistics tells the story: It is estimated that the world gross domestic product ("GDP") should grow by approximately 3.4 percent over the next decade. This is an average of 4.7 percent for developing countries, and 2.5 percent for mature economies. For comparison purposes, the forecast GDP is 2.4 percent for the U.S., and 3.6 percent for Japan. Economic growth for the developing countries of Asia is expected to average 6 percent per year. China, by comparison, is forecast to have a GDP of 7.2 percent per year, by far the world's largest growth percentage.^4/ Thus the Pearl River Delta - which is one of the areas leading this growth - presents extraordinary opportunities in the next decade and beyond stemming from this economic boom.

The growth in the aviation sector also is remarkable, with China's air traffic averaging, according to some estimates, 20% per year each year since 1980, with impressive double digit growth forecast for the foreseeable future.^5/

Each one of the three triangle airports is located in the very epicenter of this growth, and each is linked by major highway, water or railway with this burgeoning region. Indeed in addition to airports, there are a number of new railways and superhighways being constructed in the region which feed into and from the heart of China. The catchment area, therefore, is phenomenal. Moreover, the population of the region is growing at a tremendous rate. For example, the major cities in the region, including Hong Kong, Macau, Shenzen, Guangzhou and Zhuhai, together have a population of over 23 million people. This is equivalent to nearly nine percent of the population of the entire United States.^6/ A few other comparisons also are meaningful: the region's population is approximately the same size as the populations of Sweden, Norway, Denmark and Finland combined; larger than the entire populations of Australia and New Zealand combined;^7/ and greater than the combined populations of Los Angeles, San Francisco and Chicago.^8/ The important Chinese city of Guangzhou -- which sits on the Pearl River estuary and from which there are existing or planned super highways and railway projects stretching south to Zhuhai and Macau, and west and south to the Shenzen Special Economic Zone and Hong Kong -- has a population of 6 million people, approximately the same number as the metropolitan area of San Francisco, Oakland and San José.^9/ And this is just a beginning: it is estimated that by the year 2010, the population of the region will be 37 million.^10/

Another unusual factor affecting these airports -- one likely to be critical in determining the success of each project -- is their geographical relationship to each other. All three of the airports are located almost contiguous to each other at the point where the Pearl River Delta flows into and merges with the South China Sea. The distances between the various airports are minimal, since they all exist with a 100 kilometer-radius, and the time it takes to travel between them is comparable to, for example, travel time for the average resident of Los Angeles or Washington, D.C. between home and LAX or Dulles International Airport respectively. Thus, a typical jetfoil trip between Macau and Hong Kong, or between Hong Kong and Shenzen, takes just under an hour. This raises the question to be addressed later, namely whether the market is large enough to support the huge increase in airport infrastructure in this region.

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III. THE THREE NEW AIRPORTS OF THE PEARL RIVER DELTA : DIFFERENT FACILITIES; DIFFERENT NICHES

The fact that all three airports are new and are located in such close proximity does not mean that they all offer similar facilities and opportunities. Indeed, a brief summary of each demonstrates that the differences between them are considerable.

A. Chek Lap Kok: Hong Kong's Ambitious Replacement For Congested Kai Tak

The fame of Hong Kong's new Chek Lap Kok airport ("CLK") precedes its opening, which is scheduled for 1998. Few, if any, new airports have ever received more publicity than CLK. There are a number of reasons for this, including the fact that the existing Hong Kong airport, Kai Tak, has been unable for many years to handle the demands made upon it, generating considerable criticism of the Hong Kong authorities for their failure to address the issue sooner. In addition, there has been extensive debate in recent years regarding the feasibility of the airport plans and the selection of the many contractors employed to bring the project to completion. Some, but not all, of that controversy has now faded, and, controversial or not, the airport's construction is now well underway.

There is no doubt that it is an impressive project. CLK Island, off the northern coast of Lantau Island, is approximately 25 kilometers from Hong Kong's Central Business District, and is one of the world's largest construction projects ever undertaken. When completed, CLK will be the world's largest airport-related project. Site reclamation was completed in the summer of 1995, and the actual construction phase is well underway. Of the airport's 1,248 hectare land area, over 900 hectares - more than three quarters of the total - was reclaimed from the sea.^11/

The airport's construction presents major logistical challenges, partly because of the sheer scale of the project, but also because of the relative remoteness of the island, the fact that the project is being built on reclaimed land, and the short time frame allocated for construction. Construction is nearing its peak in mid-1996, and it is an impressive sight to see the miniature city that has been erected on the island for the approximately 14,000 workers who are housed there. Some 7,000 other personnel commute to the island daily, and a major marine handling and loading facility has been established at Lok On Pai in the new Territories, some eight kilometers away, for assistance in transporting the vast amounts of construction material to the site.^12/

The airport will be significant by any measure. The passenger terminal, initially opening with a Y-shaped concourse with 38 aircraft gates and an apron with at least 19 remote stands, will have the capacity for 35 million passengers annually. The airport will be capable of handling the largest jets currently flying. Indeed, it is estimated that on a busy day up to 600 aircraft will land or take off, 113,000 passengers will use the terminal building, and 4,400 tons of cargo will pass through. The baggage handling system will be capable of handling over 19,000 bags an hour, and the driverless train that will act as an automated people mover will be capable of carrying 5,270 passengers per hour. There are plans for future concourse expansion and an additional passenger terminal, and the ultimate design capacity of the airport is 87 million passengers and 9 million tons of cargo a year by 2040. There will be six major retail and catering zones within the airport, comprising some 150 outlets. Indeed, it is clear that CLK plans to be on the cutting edge of airport retailing strategy. CLK also is aggressively marketing and developing a substantial airport-related commercial property portfolio within the landside area of the airport, to include offices, hotels, retail, freight forwarding and other commercial facilities.^13/

The overall plan also includes a major commitment to ensuring that passengers are well-served when they leave the airport. The world's longest suspension bridge span, carrying a railway as well as a road - namely the 1,377 meter main span of the Tsing Ma Bridge - will connect the airport with Hong Kong, and the project has also spawned a third road tunnel under the Hong Kong Harbour, the six-lane Western Harbour Crossing, two kilometers long. In addition, there will be an express railway service to the airport, as well as a new local rail service through Kowloon to Tsing Yi and north Lantau, the 34 kilometer "Airport Railway".^14/

The time line for the project has been unusually short, being driven in part by the problems caused by Kai Tak's undercapacity, in part by the threat posed by the other airport developments in the region - all of which were and are much further ahead than Hong Kong's. It also has been fueled by the 1997 reversion of Hong Kong to China and the resulting desire of the Hong Kong Government to have the parameters of the project, as well as much of the construction, agreed and completed well in advance of the changeover. Thus the plan to build the new airport was originally announced by the Governor of Hong Kong in late 1989; the provisional Airport Authority - with a mandate to plan, design and construct - was established in the spring of 1990; the Master Plan was completed in early 1992; and the Sino-British Joint Liaison Group formally approved plans for the financing of the airport in November 1994.^15/ There is no denying the nature of the impressive scope of project or its potential.

B. Shenzen: The First Locally Funded And Managed Airport Of Its Kind In China

Opened in 1991, the Shenzen Airport is designed to serve as a new international hub for Southeast Asia. Located in the Pearl River Estuary only 32 kilometres from the town of Shenzen (which has a population of nearly 1 million), the goal of the developers is to take advantage of the economic boom focused in Guangdong Province, and to serve as a complement, rather than a competitor, to the other airports being developed in the region. The airport has already enjoyed considerable success. In 1992, the first full year of operation, it handled 1.66 million passengers and ranked seventh busiest among all the airports in China. By 1995, it was the People's Republic of China's fifth busiest airport, with over 4 million passengers. Its average growth rate in the first four years of operation has been more than 35%, and it currently enjoys service on 74 domestic and 7 international routes.^16/

The airport's present facilities include one 3,400 meter runway, capable of handling 747-400 aircraft, 8 gates and 4 remote stands, and an air cargo terminal capable of handling up to 200,000 tons of cargo annually. Because of the airport's success, extensive plans for future growth have been developed based on traffic forecasts that apparently have been taken as far into the future as 2022. Indeed, information released by the Shenzen Airport Company (SAC), a state-owned enterprise (subordinate to the municipal government) which manages the facility, shows that the "ultimate" capacity of the airport (i.e., beyond 2022), is 70-80 million passengers and 3,000,000 aircraft movements. This certainly would rival Hong Kong's CLK, and is an highly optimistic view given the 1997 projections of 8 million passengers and 61,500 aircraft movements. The long term plans call for the development of a second runway and extension of the existing runway to 3,900 meters, as well as the completion of a second terminal.^17/

As with the other three airports in the region, the Shenzen Airport is well located in relationship to the remainder of the Pearl River Delta. It is connected to both the Guangzhou-Shenzen Highway (which leads to the important provincial capital of Guangzhou) and to the Hong Kong-Shenzen-Guangzhou-Zhuhai Expressway, while to the north is the ferry terminal from which there is frequent and regular service to Hong Kong.

Aware of the need to retire the significant amount of debt it carries, the airport does not plan to rely entirely on its core business for its economic well-being. Instead, SAC, in addition to managing the airport, is in the process of developing a separate, but related, aviation industry group of more than ten subsidiaries, covering real estate, advertising, and various other lines of business related to aviation. Expansion into these areas resulted in a first time profit for SAC in 1995.^18/

Thus overall the airport is well positioned to take advantage of the local economic boom, and appears to be approaching the competitive issues with a desire to be a complementary component of the triangle's airport infrastructure, rather than a need to be the most prominent of the region's airports.

C. Macau International Airport: A New Gateway To The Pearl River Delta And All Of China

Less than an hour away by jetfoil from Hong Kong is another extraordinary project -- one which is often referred to as Hong Kong's major competition^19/. There are many aspects to the Territory of Macau's project that are remarkable. But perhaps most remarkable is the fact that, prior to the development of the new airport -- which opened for commercial operations in November of 1995 -- Macau had no airport or air service whatsoever.^20/ While the new Hong Kong airport is clearly an impressive engineering and logistical undertaking, one could argue that it did not take a lot of faith to commit to the project. Certainly there were major obstacles, including politically. However, access to the Hong Kong air transportation market has long been sought after, and indeed in recent years the most significant problem for Hong Kong's aviation infrastructure has been that Kai Tak has been unable to accommodate the many airlines and other aviation users who need such access. Accordingly the Hong Kong authorities had, and have, every reason to assume that a new airport that allows for substantially expanded operations will attract the users necessary to justify and pay for the new facilities. Kai Tak, after all, is currently the world's fourth busiest airport for international passengers, and the world's second busiest for freight.

In Macau, however, there was no such record to rely on since Macau has had no airport, and access to the Territory has always been by means of water from Hong Kong or the neighboring islands, or directly from China across the land border. Thus it took a major act of faith, and indeed a remarkable commitment and coordination effort between the various governments involved, namely the Macanese, Chinese and Portuguese governments, to conceive and execute the project.

The Territory of Macau is situated on the meridional skirt of the South China Coast, conveniently in the middle of the delta formed by the Pearl and West Rivers. It comprises a peninsula occupied entirely by Macau, which is connected to the island of Taipa by two bridges. Taipa is in turn connected to the island of Coloane by a causeway. The total area of Macau is a mere 19.3 square kilometers, of which some 7 square kilometers is taken up by the City of Macau. Taipa and Coloane are, respectively, 4.5 and 7.8 square kilometers. The estimated population of the Territory is approximately 411,000, with Chinese nationals comprising some 95% of the total.

Macau is currently a Territory under Portuguese administration, and is virtually self-governed, with considerable administrative, financial, economic and legislative autonomy. In 1987, the Governments of the People's Republic of China and of Portugal signed a "Joint Declaration on the Question of Macau", which among other things determined that Macau would maintain its present status of a Chinese Territory under Portuguese administration until December 20, 1999, when sovereignty will revert to the People's Republic and Macau will become the "Special Administrative Region of Macau". It will retain a high degree of autonomy, and this will be supported by what is called the "Basic Law". This is, in effect, a constitution that will remain in force for 50 years after enactment, and which covers a broad range of policies and fundamental guarantees. Because of this situation, there is remarkably high confidence in Macau and China regarding the Territory's future.

The new Macau International Airport, which uses the designator code MFM, is located on the island of Taipa, and since its opening has already attracted a considerable amount of service. For example, despite being a total newcomer to the aviation arena, Macau already has service to many of China's principal cities, including Beijing, Xian, Shanghai, Dalian, and Tianjin, as well as to other regional points in Asia, including Japan, Taiwan, Singapore, Malaysia and Korea. Service to Europe is also available.^21/ Because of its strategic location, the airport also is ideally positioned as a hub for freight and express cargo for the entire Asia-Pacific region, particularly since the airport will be open 24 hours a day. The airport's hub carrier, Air Macau, already is well positioned to develop into an important regional carrier^22/.

The technical capabilities of the airport are state-of-the-art, with a CAT II ILS equipped 11,000 foot runway able to handle the largest long-haul aircraft flying nonstop from Europe or the United States. Under the first phase of development, the airport has the capacity to handle 6 million passengers a year, which will increase to 12 million under the second phase. The passenger terminal is designed to be especially efficient and user friendly. It is a first class facility, and, given that the runway is built on reclaimed land, is a particularly impressive engineering success.

Thus the three airports together offer airlines and other airport users an impressive array of facilities within the Delta region.

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The question constantly being asked about the Hong Kong and Macau airports, as well as those at Shenzen and Zhuhai, is whether all of them can survive and prosper given their proximity to each other, the fierce competition that exists for traffic in the region, and the political uncertainty surrounding the reversions to China of Hong Kong and Macau.

There is certainly a great deal of room for speculation, especially given the political uncertainties. But there are many signs that augur well for the success of these projects. Indeed, one can argue that in time there will be few, if any, who will look back on the commitment that has been made to developing this new infrastructure and see it as a mistake.

This conclusion is based on a number of factors. The first is population growth, which, as noted above, is extraordinary in this region, and promises to remain that way for decades to come. It is impossible to ignore the tremendous influence that this growth is likely to have on the local infrastructure and a few more statistics are instructive in this regard: The population of China doubled between 1950 and 1990, and by the beginning of this decade China was home to over 20% of the world's population. An increase of over 35% is expected over the next 40 years. Indeed, the growth is not expected to peak until the year 2035. Compare this to past and future growth rates in North America and elsewhere: For example, in 1950 North America had a population of approximately 166 million. By the year 2000 that figure will be 295 million, and by the year 2050 it will be 326 million. That represents significant growth. But Asia by contrast (not even including India, which has extraordinary growth figures of its own), which had a population of 1.2 billion in 1950, will double that figure by the year 2000 to 2.7 billion. And by 2050 the figure will be 4.9 billion, of which over 1.5 billion will live in China, more than the entire population that Asia had in 1950.^23/ As noted earlier, the population of the Pearl River Delta region alone is expected to increase by 14 million in the next 15 years.^24/

These figures cannot fail to have a strong impact on the aviation marketplace, as well as the world's economy in general, and the remarkable growth expected in the Asian, and particularly Chinese, aviation industry will in turn influence airport usage. As the Boeing Commercial Airplane Group notes:

Population increases cause corresponding increases in air travel. Second, and more important, increasing household income makes air travel more affordable to more people... Projected increases income are driving the traffic growth for the Asia-Pacific region. Households in developing countries will be crossing the threshold where air travel becomes affordable. Over a third of the world's population lives in such countries. Only a small portion of the population has to begin to fly for there to be sizeable increases in air travel... Asia-Pacific growth is led by China....^25/

Boeing thus predicts that "over the next ten years, Asia-Pacific countries will lead growth in air travel", and that in China alone, air travel will grow over 14% per year, nearly twice the Asia-Pacific average^26/. McDonnell Douglas has similar predictions of growth^27/.

Nor is the growth limited to passenger travel. As McDonnell Douglas^28/ notes in its review of the world's airplane fleet needs through the year 2013:

World cargo traffic has historically outpaced the development of passenger traffic, spurred by international dispersion of manufacturing and rapid expansion of global trade. Over the last 20 years, air cargo has grown nearly 1.5 percentage points faster than passenger traffic on an average annual basis...and...the volume of air cargo will amass to a fourfold increase by 2013 compared to its present level. As in the passenger segment, Asia-related markets will outpace other routes....much of the increase in cargo [will be] attributed to long range intercontinental markets tied to Asia^29/.

The third factor of importance, which is of course linked to population growth, economic development and growth in air travel, is the ever-worsening lack of capacity in the aviation infrastructure. As noted above, there are many predictions regarding air travel growth. But frequently those discussions fail to focus on whether the aviation infrastructure will grow commensurately so that there will be adequate capacity to handle the growth. In reality, there is inadequate planning in this regard, and insufficient capacity will become an increasing problem as we move into the next century.

The United States is a perfect example of the crisis that is developing. The U.S. travel market has experienced extensive growth in recent decades, particularly since the airline industry was partially deregulated beginning in 1978. What has not grown at the same rate is the aviation infrastructure. Indeed, the Denver International Airport, which has suffered considerable criticism for being too large and unnecessary, is the only major new airport that has been built in the United States in decades. As a result of these changes and lack of new airport development, the U.S. is currently experiencing what the FAA terms "serious congestion" at more than twenty airports.^30/ Serious congestion means that the airport experiences a significant number of delayed flights. The FAA predicts that even if all the new runways planned under the FAA's National Plan of Integrated Airport Systems for 1993-97 are indeed built, ten U.S. airports will remain severely congested. If the construction does not take place and other major capacity improvements are not made, then 36 airports will be "severely congested" by the end of the decade. It is estimated that the cost of bringing existing airports up to current design standards and adding sufficient capacity to meet projected demand over the next five years would be $30 billion.^31/

Similar problems exist in many areas of the world, and Asia is not immune. Access problems at airports such as Narita, Japan, and Kai Tak have been with us for some time, and some, such as those at Narita, show few signs of abating. Thus inadequate capacity remains one of the central challenges facing the industry today, and it is a problem that will only become more serious as time presses on. Boeing recently estimated that by the year 2005, less than a decade from now, economic and travel growth from the Asia-Pacific region will dominate the world travel market. Travel in China alone will grow by 14%, and 24% of all new travel miles will be generated by the Asia-Pacific countries.^32/ This means that the Asia-Pacific region will be in great need of additional aviation infrastructure for the foreseeable future.

Thus rather than being expensive albatrosses, as some predict, the impressive projects at Macau and Hong Kong, as well as those at Shenzen and Zhuhai, can be part of the solution to this problem. At the moment the questions may be: Is there room for all these airports? Can the market support so much new infrastructure? In the future the questions are likely to be: How can we further expand these airports? And: Where can we build another one?

A. CLK and The New Macau International Airport: Separate Roles and Vastly Different Political Climates

In viewing the competitive issues facing the Triangle's four airports, it is important to take into account the differing roles and political climates affecting each one. The role that each is likely to play stems, at least in part, from the historical place each has - or in the case of Macau has not, since there was no airport - played in the past. Hong Kong, for example, has long been a sought after destination, not only because of its geographical position and the importance of Hong Kong trade, but also because access has been unavailable to so many carriers. Hong Kong's limited access has tended to make traffic rights into Hong Kong one of the most sought after assets in the international aviation community. It is likely, therefore, that access to Hong Kong will continue to be highly sought after, even after the new airport opens. Thus much of Hong Kong's future traffic base is fairly assured, despite the political changes that lie ahead.

Depending on the policies adopted by the Hong Kong and succeeding governments, what is not assured, however, is that all the traffic currently seeking access to Hong Kong will be able to receive it when CLK commences operations, and this opens up opportunities for the other airports.

Macau is a spectacular example of the competitive possibilities in this regard. First, it has a first class, state-of-the-art facility, which, unlike CLK, is already open for business. An airline that has been seeking access to Hong Kong, or additional access to supplement existing services, can start service immediately to Macau, rather than waiting for CLK to open (and even then perhaps find out that the access they seek is still not available). Thus Macau has the opportunity, if it is sufficiently aggressive, to attract carriers that have been shut out of Hong Kong or have been unable to acquire sufficient access there to suit their needs.

Second, Macau offers access to Hong Kong itself that in many ways rivals CLK's access. Remember that CLK, unlike Kai Tak, is not located close to Hong Kong's central business district, but rather is nearly an hour away by road, water or rail. The fact is that access to the Hong Kong central business district will take about the same amount of time from Macau, just an easy ferry ride away as from CLK. The ferries depart every fifteen minutes from Macau and deposit passengers in the heart of Hong Kong less than an hour later. Speedy helicopter access also is available.

Third, the Macau authorities have done an outstanding job of coordinating with other local governments in setting up customs and immigration processing to minimize time and effort for passengers and cargo alike.^33/

Fourth, the Macau airport offers a much smaller, facility than does Hong Kong, and one that is highly passenger friendly. Passengers have to walk only very short distances between landside and airside, and there are none of the additional inconveniences that come with having to use trains to travel intra and infra terminals, as will be the case with CLK. In other words, big is not always better, and Macau offers many advantages in this regard. Indeed, given the many inconveniences that passengers experience internationally, the prospect of arriving after a transpacific flight into a smaller, simply laid-out, easy to navigate terminal is far more pleasant than having to deal with vast numbers of people and immense terminals as will be the case at Hong Kong. As international travel expands in the coming decades and as airlines compete to provide their passengers with special and highly personalized service, the conveniences and attractions of an airport like Macau are likely become even stronger.

Fifth, Macau offers special opportunities with respect to cargo traffic. Geographically, the airport is perfectly positioned to be an Asia hub for freight and express cargo. It also has a full range of cargo facilities, including an 8,000 square meter cargo warehouse and plenty of additional room to build additional warehouses, cargo sorting facilities, etc. Close links with the appropriate government agencies in Macau, such as customs, and plant/animal inspection, as well as with shipper and forwarder organizations, are already established.^34/ In addition, because the airport is brand new and airlines are only just beginning to establish their operations there, cargo airlines wishing to serve the airport or establish a hub there are likely to have greater flexibility in making suitable arrangements than they would have at an established airport.

Sixth, Macau has substantially lower landing fees than does Hong Kong, on average 13% lower.^35/ For any airline planning substantial operations in this part of the world and comparing the relevant advantages and disadvantages of CLK and Macau, this could prove to be a decisive factor.

Seventh, there is the critical issue of traffic rights. It is of little help to have adequate physical capacity at a given airport if the traffic rights are not available to the carriers seeking access to that airport. Zhuhai is a perfect example of this. It has a new, state-of-the-art facility, but international service is not permitted. In this regard, Hong Kong and Macau are a study in contrasts. The bilateral air services agreements affecting Hong Kong, which until recently have been negotiated through the United Kingdom, have always been highly restrictive. As a result, many carriers seeking access to Hong Kong have either been shut out altogether, or unable to provide the level of service they desire. In addition, beyond rights from Hong Kong to other parts of Asia have also been severely restricted, thereby limiting Hong Kong's economic attractiveness to carriers. Now, of course, Hong Kong is in the process of negotiating "stand alone" agreements to replace its existing bilateral. The signs are, however, that severe restrictions will remain in those agreements.^36/

Macau, by contrast, has elected to negotiate bilateral air services agreements - well over 20 already - that, by means of traffic rights to and beyond Macau and open designations for carriers, provide significant opportunities for carriers wishing to serve this region, or indeed establish a hub there. As time goes by, the approach taken on this issue by the Macanese, Portuguese and Chinese Governments is likely to give Macau a major competitive edge in the region.

Finally, there is the issue of access to China, and this may prove to be the most important factor of all. Until recently, Macau has been viewed by many as a much sleepier neighbor than bustling Hong Kong, and is sometimes referred to as the Monte Carlo of Asia. Connected primarily in people's minds with the many casinos that exist there, Macau has not been thought of in the world as a major trading center. The fact is, however, that Macau already plays the role of a major trading center, and is moving into a phase of its economic development that will catapult the Territory into a major gateway for China and other Asian trade.

In terms of its own economic growth, Macau is also experiencing very high rates, comparable to those elsewhere in China. Real GDP growth over the last five years has averaged approximately 6%, unemployment rates are extremely low, and favorable tax incentives are attracting new businesses.^37/ Many of these are developing because of the new airport. For example, a 400 hectare site is being reclaimed between Taipa and Coloane islands for development into a residential/leisure project and industrial park. The impressive Concordia Industrial Park is a commercial enterprise established in 1993 by the Macau Government and a private enterprise comprising a number of inland Chinese and local investors. The Park includes a pier for the shipment of non-containerized goods, and a container port offering direct cargo links with all the main ports in the Pearl River Delta as well as Taiwan. There are easy road links into China, the border with which is just 20 minutes away. In the center of the city of Macau, the new South Bay Lakes project - to be completed by 1999 at a cost of $1.4 billion - will be a 16 million square feet complex of shopping malls, luxury hotels, residential and commercial buildings.^38/ Indeed, there is so much economic development in Macau that the Territory is being referred to increasingly as one of the "rising dragons" of Asia.

This internal development reflects only a small part of Macau's overall potential, however, and it is here that political issues and differences may play a decisive part, since Macau has a very different relationship with China than does Hong Kong. The route that Macau, and its administrators, Portugal, have taken towards handing back sovereignty to China could not be more different than their Hong Kong counterparts, and the close and positive relationship between Macau and China shows in the degree to which the two are cooperating, not just with respect to the development of the airport, but also the overall economic growth and welfare of the region. Unlike in Hong Kong, there is a very high degree of coordination between Macau and neighboring Zhuhai and Guangdong Province with respect to the developing infrastructure, so that by the time the plans are completed there will be a formidable network of roads, super highways, railways, power plants, container ports, bridges and communication links throughout the region. This means that companies investing in the region will have immediate access to the region that, as noted above, is among the fastest growing in the world today.

Will the political factors ultimately determine the success or failure of the new Hong Kong and Macau airports? Probably not. Macau already has the support of the Beijing authorities for its developing infrastructure, and while Hong Kong may suffer some setbacks following the 1997 reversion to China, it is difficult to believe that the Beijing authorities will, in the long term, act against their own interest insofar as CLK's development is concerned.

B. Shenzen: A Niche of Its Own?

Where does the Shenzen Airport fit into the regional competition? Can it, too, survive? It is too soon to tell, but the signs are good. SAC has already positioned itself as a complement, not a true competitor, to the region's other airports and with its solid start and wise diversification beyond its core business, the impact of the local economic boom on the airport's business can only be positive. The airport's limitations lie largely in the area of traffic rights. The PRC's existing bilateral air services agreements with most countries are restrictive, but Shenzen needs international traffic rights if it is to develop into a major Asian hub as planned. Without these, its growth will be stymied. With such rights, its potential is significant.

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For U.S. and other companies facing decisions about where to invest their time and resources for the future, the prospect of investing in this region can be a daunting one, especially given the uncertainty about the airports' future. But the reality is that airports worldwide generate significant economic activity and new jobs, and the airports in this region are likely to do the same. For example, airports in 30 of the largest U.S. metropolitan areas generate annually more than $250 billion in economic activity, $81 billion in wages, and nearly 4 million direct and indirect jobs; and it is estimated that every $1 billion invested in airport development projects creates approximately 50,000 jobs.^39/

International air service is a particularly good generator of economic growth. For example, in 1990 the U.S. Department of Transportation adopted its so-called "Cities Program", under which certain U.S. cities became eligible for international air service under circumstances that previously would have precluded that service. It is estimated that more than $3.8 billion a year in economic activity developed from the new service from nine U.S. cities to 17 international destinations that started between 1990 and 1992, adding 83,000 jobs to the U.S. economy. A study by the State of Maryland showed a $100 million economic gain after the first year of new service between Amsterdam and Baltimore/Washington International Airport by a KLM combination services flight three days per week.^40/ These gains occurred in regions where economic growth was minimal.

A final word about doing business in the region. This is an age in which governments often find it difficult to agree, and in which press reports seem to emphasize the differences and hostilities between countries and cultures, rather than the friendship and similarities. And too often companies from one region of the world tend to try to do business in another area the same way that they would do business at home. This approach often ends in failure. Often forgotten is the need to invest in effective communication, as well as in making every effort to understand the needs, the wishes, the values, and the customs of those with whom one is doing business. The Pearl River Delta offers companies worldwide unprecedented opportunities for investment and co-operation. It is impressive and exciting region of the world with a long and remarkable history, and the prospects are exciting.

The first step towards doing business there is to begin to develop meaningful, long term relationships with the governments and businesses in the region, and to make the long term commitments that are necessary. This is not a place in which to invest short term for quick profits. The Chinese and other area governments are, as they always do, looking ahead to the future and planning well into that future. For companies wishing to make that same long term commitment, and who can bring to the table the values that are deemed important in this region, particularly in the all important area of trust, the long term gains can be tremendous.

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ARTICLE SUMMARY

Never in history has one region of the world presented the aviation community with such a plethora of new, state-of-the-art airport facilities as are now presented by the principal new airports of the so-called Hong Kong, Macau, Shenzen Triangle, namely Chek Lap Kok (CLK) airport in Hong Kong (currently under construction), the Macau International Airport in the Territory of Macau (which opened in November of 1995), and Shenzen Airport, which has been open for business since 1991.

The airports together provide the region with unprecedented opportunities. But is there a need for them all? Can they all survive?

The so-called Triangle is located on the southern coast of China, at the point where the Pearl River Delta meets the South China Sea. It is one of the world's fastest growing regions, with economic growth running at approximately 10% per year -- several percentage points ahead of the average for China, where the forecast gross domestic product (GDP) is currently at over 7% per year. This compares with a forecast GDP of 2.4% for the United States, 3.6% for Japan, and 6% for the developing countries of Asia. Population growth rates in the Pearl River Delta are also impressive, and the catchment area for the airports is large by any standards. Thus the major cities in the region -- Hong Kong, Macau, Shenzen, Guangzhou and Zhuhai -- together have a population of over 23 million people, which is equivalent to nearly 9% of the population of the entire United States. It is estimated that by the year 2010, the region's population will be 37 million.

The three airports are located almost contiguous each other, all within a 100 kilometer radius, and the travel time between them is minimal. Thus a typical jetfoil trip between Macau and Hong Kong, or Hong Kong and Shenzen, takes just under an hour.

Although the airports are competitors, they are far from similar, each with its own special niche. Hong Kong's CLK, which at least in the short term will have the most extensive facilities of the three, is one of the largest construction projects undertaken anywhere in the world, and more than three quarters of the total land area was reclaimed from the sea. When it opens in 1998 it will have 38 gates, an apron with at least 19 remote stands, and the capacity to handle 35 million passengers annually. The ultimate design capacity of the airport is 78 million passengers and 9 million tons of cargo by the year 2040. The airport is supported by a complex network of ground transportation systems, including new roads and railways connecting the airport to downtown Hong Kong and other localities.

The new Shenzen Airport may eventually rival CLK in size. In its first full year of operation, 1992, it handled 1.66 million passengers and ranked seventh busiest of all airports in China. By 1995, it had moved into fifth place, and its growth rate in the first four years of operation has been over 35%. It currently enjoys service on 74 domestic and 7 international routes. The ultimate capacity of the airport, viewed by Shenzen as "beyond 2022", is 70-80 million passengers. Although it opened with only one runway, there are plans to enlarge the existing 3,400 meter runway to 3,900 meters and to add another of the latter size. The airport is well connected by highway and waterways to the rest of the Pearl River Delta region.

Less than an hour away by jetfoil from both Shenzen and Hong Kong is the impressive new Macau International Airport, which has been open for operations for only a few months as of press time. The airport is a first for Macau; prior to now, access to the Territory had been by means of water, or by land via China. One could certainly view the decision to build the airport as an act of faith: Macau has no history of air service, its Territory comprises only 19 square kilometers, and its population totals less than 500,000. However, it has many aspects to recommend it, including a positive relationship politically and economically with the People's Republic of China (to which the Territory will officially revert in 1999), a new airline based at the airport (Air Macau), and a state-of-the-art facility that is open 24 hours a day. Under the first phase of development there are plans to handle 6 million passengers a year, growing to 12 million in the second phase. Even in the first months of operation it can boast service to numerous major Asian cities, throughout China, and to Europe.

Although it may be too soon to predict the future economic success or failure of these three airports, the signs augur well for all of them. First, the unprecedented population explosion taking place in the region, combined with double-digit economic growth, will in turn produce an equally unprecedented demand for airport capacity. Second, the need for greater airport capacity is growing throughout the world, but nowhere more than in Asia. Third, since Hong Kong's existing airport, Kai Tak, is one of the world's busiest, it is unlikely that CLK can be anything other than a success. Fourth, Shenzen and Macau both offer services or facilities than CLK will not; Macau, lower landing fees and a new gateway to China and all of Asia through its liberal bilateral air services agreements; and Shenzen, a location in the heart of booming Guangdong Province. Indeed, it appears likely that in the future, instead of asking whether these airports can survive, the questions will be: can we further expand the facility? And, where can we build another one?

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Footnotes:

1/ Rachel Trinder is a partner in the Washington, D.C. law firm of Zuckert, Scoutt & Rasenberger, where she practices extensively in the fields of aviation, aerospace and international business. She is also Executive Vice President of the firm's consulting group, Farragut International L.L.C., which provides aviation and aerospace consulting services worldwide.

2/ This article is based on a speech given by the author in Los Angeles in April 1996 to the Asia-Pacific Aviation Symposium, organized by the U.S. Department of Commerce, the U.S. Federal Aviation Administration, and the California Trade and Commerce Agency. The views expressed herein are solely those of the author, and do not purport in any way to represent the views of the author's law firm, consulting firm or their respective clients.

3/ A fourth project, Zhuhai airport, also is located in the Pearl River Delta in Guangdong Province not far from Macau. Although the facilities are state-of-the-art, for political reasons the Chinese Government authorities thus far have not permitted international service to and from Zhuhai. If and when this changes, Zhuhai may become a more forceful competitor to the Hong Kong, Macau and Shenzen airports. Until then, however, it remains a purely domestic airport with no hope of being a player in the international marketplace, and it is unclear whether Zhuhai will prove to be a white elephant or a jewel of the 21st century.

4/ 1996 Current Market Outlook, Boeing Commercial Airplane Group Marketing, March 1996.

5/ The Boeing Company, for example, estimates that air travel in China will grow at approximately 14% per year in the near term. See 1996 Current Market Outlook, footnote 3 supra.

6/ U.S. Bureau of the Census, April 1996.

7/ Source: United Nations Population Fund, April 1996.

8/ Source: United Nations Department of International Economic and Social Affairs.

9/ Id.

10/ A comparison of the population of the other major cities in the region helps to place the population data in perspective: Hong Kong is approximately the same size as Guangzhou, with just over 6 million people; and there are four other cities in the region which have populations of more than one million, all located in the Delta: Jiangmen (3.6 million); Foshan (3 million); Dongguan (1.4 million); and Zhongshan (1.2 million). By contrast, Shenzen has a population of nearly 900,000, Zhuhai has nearly 600,000, while Macau has approximately 400,000.

11/ Source: Provisional Airport Authority Highlights, 1995; Authority's Annual Report, 1994/1995.

12/ Id.

13/ Id.

14/ Id.

15/ Id.

16/ Source: Shenzen Airport Company.

17/ Id.

18/ Id.

19/ Since 1992, the author and the law firm of which she is a partner have advised the Civil Aviation Authority of Macau ("CAAM") on matters pertaining to the establishment of a bilateral air services agreement with the United States. The views expressed in this article do not purport in any way to represent the views of the CAAM.

20/ Although Macau has never had a commercial airport, ironically it has a long aviation history, which started as early as 1891, when Thomas Baldwin and his younger brother flew over Macau in a hot air balloon and performed acrobatic tricks. Later, in 1922, a Frenchman born in Hong Kong, one Charles Ricou, was instrumental in establishing an aviation company in Macau named "Macau Aerial Transport" (MAT). Regrettably MAT was unable to secure the necessary authority to link Macau by air with Hong Kong and China, and the company never provided commercial air services. Following World War II, another company, "The Macau Air Transport Company" was established to provide so-called "cigarette runs" between Macau and Hong Kong operating Catalina flying boats. In July 1948 one of the Catalinas, "Miss Macau", was hijacked, one of the first known acts of air piracy in world aviation history. A fascinating account of Macau's century-long aviation odyssey can be found in Aviation in Macau: One Hundred Years of Adventure, by Luís Andrade de Sá.

21/ For example, TAP Air Portugal, under a code-sharing agreement with Sabena Belgian World Airlines, began flights to Macau from Lisbon via Brussels in April 1996, and both Scandinavian Airlines Systems and Swissair began all-cargo service the same month. Source: Macau International Airport Newsletter, March/April 1996.

22/ Air Macau, which operates Airbus A320 and A321 equipment, is based at the new Macau International Airport, and is already developing an important regional presence. The airline, which is partially owned by China National Aviation Corporation, already provides service to Taipei and several Chinese cities.

23/ The Universal Almanac, Part III, The World, pp. 329-357.

24/ Source: United Nations Department of International Economic and Social Affairs.

25/ 1996 Current Market Outlook, Boeing Commercial Airplane Group, March 1996, p.12.

26/ Id., pp. 10-12.

27/ McDonnell Douglas, in its Outlook for Commercial Aircraft 1994-2013, expects that "[a]irlines based in [the] Asia-Pacific [region] will expand faster than any region, averaging 8.3% growth per year. By 2012, traffic flown by Asia-Pacific carriers will exceed that of those based in North America. By [2013], 35% of the world's passenger traffic will be flown on Asia-Pacific airlines" (p.16). The aircraft manufacturer also predicts that "Asia-Pacific airline fleets will add nearly 3,100 jetliners over the next 20 years, tripling in size by 2013" (p.26).

28/ Other studies also show the significant gains in cargo traffic through the first half of the 1990s. See, for example, the Airports Council International Airport Traffic Report 1990-1994, which shows, inter alia, that for the first time the Pacific region handled more cargo than did Europe during this period.

29/ McDonnell Douglas Outlook for Commercial Aircraft 1994-2013, pp. 47-49.

30/ FAA Aviation Forecasts Fiscal Years 1990-2001, March 1990.

31/ Federal Aviation Administration; and Quality of Life  . . . The Unspoken Promise; The Case for Infrastructure Investment, The Associated General Contractors of America, 1995.

32/ By contrast, traffic growth rates in North America and Europe will be much smaller: North America is estimated at 4.0%, Europe at 4.4%, and North Atlantic flying also at 4.4%. Latin American flying will grow by only 5.7%. Source: 1996 Current Market Outlook, Boeing Commercial Airplane Group, March 1996.

33/ See, for example, "New Liberal Temporary Import Regulations", Macau International Airport Newsletter, March/April 1996, describing Macau's new External Trade Regulations, "designed for the facilitation of trade".

34/ Source: Civil Aviation Authority of Macau.

35/ Id.

36/ There is also the critical issue of whether the Sino-British Joint Liaison Group will approve the new "stand-alone" agreements. Although it is likely that the British component of the group will approve the agreements, there is speculation that the political difficulties between China and the United Kingdom regarding Hong Kong will lead to, at a minimum, delays in processing approval and in some cases outright denial. It is noteworthy, for example, that the new stand-alone agreement finalized in the fall of 1995 between Hong Kong and the United States has yet to be approved by the Sino-British Joint Liaison Group.

37/ Source: Civil Aviation Authority of Macau.

38/ Id.

39/ Airports Action Agenda For the Clinton Administration And 103rd Congress, Airports Council International.

40/ New Jobs Generated By Open Skies, Release issued by U.S. Airports For Better International Air Service, October 14, 1992.