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Japan Wanted An Airport.It Got A Real Mess


International Business

JAPAN WANTED AN AIRPORT.IT GOT A REAL MESS

Satoru Kanazawa knows time is running out. A large countdown display hangs over his desk at the Transport Ministry in Tokyo. Its red digits are flashing an alert: Just 100 days until Kansai International Airport (KIA) opens for business.

Eight years after it ignited an ugly trade dispute between Japan and the U.S., Kansai airport is again in the public glare. With experienced American contractors relegated to minor roles, engineering fumbles by Japanese builders have pushed costs up to $15 billion--double the initial estimates. To compensate, airport authorities have jacked up landing fees, outraging domestic and foreign airlines and dampening demand for the airport itself.

As a result, even before the first jumbo jet touches down on the artificial island in Osaka Bay, KIA faces a half-billion-dollar loss in its first year, say transport officials. One reason is that interest on the debt alone will run $560 million a year.

sinking landfill. Staggering as they are, these cash losses are nothing compared with the wound to Japan's prestige. A decade ago, Japan's farsighted bureaucrats dreamed up Kansai as a new "gateway" linking North America and Japan with the emerging air routes of Asia. But the bungled execution has left neighbors questioning Japan's ability to pull it off. "There is much confusion about how so many things could have gone wrong," says Takao Toshikawa, editor of the political newsletter Insideline.

Diplomatic foul-ups have dogged Kansai since its inception. In 1986, airport authorities fought pitched battles with U.S. trade officials, who insisted that the construction be opened to American bidders. Japan managed to keep most of the business at home. But the struggle put Japanese bid-rigging in an international spotlight.

Technical blunders were just as embarrassing. The airport was built on an artificial island. But Japan's army of engineers couldn't prevent it from settling back into the bay. Shoring up the island caused the worst cost overruns--and delayed the opening by 18 months.

But the most serious miscalculation was over how many airlines would want to use the airport. In mid-May, KIA President Tsuneharu Hattori announced that international flights would number only 300 a week when the airport opens in September--less than half the original projection. KIA has bagged commitments from Canada, Australia, and a dozen small Asian countries. But big U.S. and European carriers are still waiting on the sidelines.

That's because KIA has set landing fees at $25 per ton, or about $10,000 for a jumbo. That's 10% more than at Tokyo's Narita Airport--the world's most expensive--and nearly five times as much as at New York's John F. Kennedy International Airport. "The operating costs at KIA are exorbitant," grouses Robert Lamansky, Northwest Airlines' director of government affairs in Tokyo.

"A PARADOX." Even domestic carriers were outraged that KIA would insist on such a premium, at a time when airlines are slashing jobs to stanch red ink. Indeed, international carriers racked up a cumulative $11 billion in losses over the past three years, according to Japan Airlines Chairman Susumu Yamaji. "That is more than the total profit of the airline industry since commercial flying began," he says. JAL alone lost an estimated $250 million in the year ended in March, 1994, on top of $423 million the year before.

Despite the firestorm, KIA's Hattori is standing firm, insisting that airport fees are just a small part of airlines' total costs. In the end, "demand for the new airport facilities will justify the higher costs," he says.

Even if the airlines recover and decide to pay up, however, Kansai will be a tough balancing act for Japan's bureaucrats. The Transport Ministry is determined to regulate the traffic to the advantage of Japan's own airlines. But foreign carriers such as Northwest and United Airlines are clamoring to be allowed to pass through Japan to other destinations, and so pick up lucrative Japanese business traffic. There's the rub: If the airport is too successful, it opens up Asia to the aggressive Americans, which will hurt Japanese carriers even more.

That's driving Japan's usually patient bureaucrats to distraction. "I'm caught in a terrible paradox," groans Kanazawa, the Transport director overseeing KIA. "To promote Kansai airport, I must help U.S. airlines increase their flight frequency. But if they end up dominating the booming Asian market, it'll be the end of Japan's own airlines." So much for the virtues of bureaucratic planning.Neil Gross in Tokyo


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