CAA - MCDONALD'S AGREEMENT

Ground-breaking deal will help attract similar investments from other multinational food franchises

By Syed M. Aslam
Sep 25 - Oct 01, 2000

The signing of an agreement between the Civil Aviation Authority and McDonald's fastfood chain to open an outlet at the Quaid-e-Azam International Airport will help give a considerable boost to the non-aeronautical revenues of the Authority.

McDonald's has already paid CAA Rs 6.5 million in non-refundable good-will money and another Rs 25 million in advance rent for the outlet expected to be operational by early next year. It is expected to earn an yearly revenue of a minimum Rs 69 million based purely on a fixed percentage of the gross turnover.

The deal include leasing of 2 acre of land to the McDonald's for a period of thirty years. CAA will be responsible to provide the electricity and water to the park surrounding the outlet while McDonald's will be responsible for the maintenance of the park. McDonald's will also be allowed to set up kiosks within the QIAP premises and would have to pay for the power and water bills used by the outlet and the kiosks.

The Assistant General Manager Commercial CAA, Nasir Rizwan Hashmi, told PAGE that ground-breaking deal will help attract similar investments from other multinational food franchises as some 6 million passengers plus at least another 18 metres/greeters use QIAP annually. He said that half of 400 acres of CAA's prime land has been marked to increase the non-aeronautical revenues.

New Proposals

CAA has received three proposals for housing projects including one from Sheikh Ahmed Hamad of Dubai Aviation about a public housing scheme. The House of Habib, a prestigious industrial group, has shown interest to build a housing project and the talks are well beyond the initial stage. Similarly Kentucky Fried Chicken, Pizza Hut, Dunkin Donuts, Pearl Continental and Marriot Hotel chains have also expressed interest and talks with them are in the conceptual stage, Nasir added.

CAA has also received eight bids for the construction of cargo village on BOT or BOO basis at the QIAP and also an interest by the City School to establish one of its branches.

Fixed revenue

CAA is expected to earn an annual revenue of between Rs 69 million to Rs. 83 million from the leasing of space at the QIAP to the McDonald's depending upon the gross turnover. A feasibility report prepared by McDonald's volume of monthly gross sales at the QIAP outlet will be Rs 120 million per month while CAA puts it at moderate Rs 100 million per month. As the CAA will be earning a fixed revenue of 5.75 per cent of the gross turnover this means a minimum earnings of Rs 5.75 million per month or Rs 69 million per year as per its own calculations and Rs 6.9 million per month or Rs 82.8 million per year if the McDonald's estimate are correct.

Traditionally 85 per cent of CAA's revenue come from aeronautical charges; from aircraft landing, parking and housing fee; embarkation fee and over-flying charges for using national airspace by the carriers. The rest of the 15 per cent comes from non-aeronautical charges such as rental and lease of office, cargo and commercial spaces at the national airports and CAA land around them. Sixty-five per cent of all the CAA revenues, both aeronautical and non-aeronautical, is contributed by the Karachi International airport, the premier airport of the country.

The recent attempts by the CAA to increase its non-aeronautical revenue could better be explained in the financial problems which it keeps of facing due to non-payment of billions in unpaid aeronautical dues from the domestic carriers including the state-owned PIA which owes the biggest amount and comparatively smaller amounts from the 4 private carriers.

As mentioned earlier just 15 per cent of CAA's revenue comes from its non-aeronautical activities. Some 400 acres of prime CAA land around the Karachi Airport yet remains undeveloped to deprive it of the immense potential which such an opportunity offers. The realisation has helped CAA take initiatives to offer half of this land to increase its non-aeronautical revenues and by signing the McDonald's deal a ground has been broken to attract more national and multinational investors. The land site development can help increase the non-aeronautical revenues of the CAA.

Though the non-aeronautical revenues seem to remain stagnant at some 15 per cent of the total CAA revenue, the statistics, however, fail to represent a true picture. Nasir said that though CAA has all along been bettering its non-aeronautical revenue over the years they seem to remain the same as 90 per cent of it is rupee-based unlike aeronautical charges which are totally dollar-based on all international sectors. The continuous devaluation of the currency has resulted in giving a boost to CAA's aeronautical revenues unlike its non-aeronautical revenues which are primarily rupee-based. So despite the increase, the ratio of non-aeronautical charges seem to remain stagnant compared to aeronautical revenues which automatically surge by each successive currency devaluation, Nasir added.