The Commission of Audit (CA) has released the performance audit report “Operation of Macau International Airport Company Limited”, in which it reviewed the management and operation of the Macau International Airport (hereinafter refer to as “MIA”), and explored whether its management model could properly manage the business it operates and whether it has an effective inspection mechanism to ensure the proper use of public resources invested by the Government of the Macao Special Administrative Region (hereinafter refer to as “MSAR”). This audit reviewed the documents from January 2008 to April 2019, focusing on the major projects carried out at MIA in recent years and the operation and management of MIA by Macau International Airport Company Limited (hereinafter refer to as “CAM”).

Regarding the update of the MIA Baggage Handling System (hereinafter refer to as “BHS”), the audit report stated that since the original hold baggage security screening process required the security screening to be carried out before the check-in procedure, there was a risk that explosives could be placed in the checked baggage. In response to this obvious problem, CAM expected to solve the security loopholes through the project of updating the BHS, which was a four-level automatic screening system for explosives. However, the BHS still had fundamental problems after the acceptance of the system: the mis-tracked baggage needed to be sent to the fourth level screening for manual checking, therefore affecting the efficiency of baggage handling; moreover, the failure to show the X-ray image of the mis-tracked or high-risk baggage at the fourth level screening could pose a huge risk to the security operator when handling these baggage that may contain explosives. Due to the impossibility to show the X-ray images, the airport security procedures set for the BHS had safety concerns and was not accepted by the Civil Aviation Authority, resulting in the system not being able to put into operation.

Faced with such serious security problems, the CAM management took a negative attitude, and even ignored the requirements about the X-ray images at the forth level screening, which was defined in the original design specification. In 2014, the CAM management considered that the system already met the design requirements, and regarded the remedial measures as upgrade plans and set them aside. As a result, the new equipment in which CAM had invested more than 70 million patacas were not put into operation. After the MSAR Government required CAM to improve airport security in June 2018, a working group was set up to follow up the relevant work and only approved the BHS upgrade plan almost nine months later. However, the relevant upgrade plan could not completely solve the problems of BHS system and the risks still existed. As at April 2019, there was no formal report or discussion on the problems of BHS system in the Executive Committee and the Board of Directors.

The audit report also reviewed the preparation work for the construction of the MIA temporary business aviation hangar. According to the Airport Development Reference Manual of the International Air Transport Association (hereinafter refer to as “IATA”), hangars are usually used for aircraft maintenance, so the hangers in general city airports are not only built for parking. According to the “Macau International Airport Master Plan” (hereinafter refer to as the Airport Master Plan) approved by the MSAR Government in 2011, a permanent business aviation hangar would be provided for the maintenance services after the completion of the first phase expansion. However, the CAM management, on the grounds of developing MIA into a business aircraft maintenance center, considered that it was necessary to construct a hangar as early as possible. As a result, without sufficient research and discussion on the investment returns, the CAM management insisted on investing 240 million patacas to construct a temporary business aviation hangar three years and five months in advance; also this hangar would have to be demolished after the expected operation period of nine years (the actual period only has eight and a half years). The actual operation of the hangar, from the start of operation to its demolition, there would be very likely a great loss between 80 million and 166 million patacas according to the current prices.

Looking at the causes of the problems, the first is that the CAM management did not give importance to the analysis of investment return. Although the analysis of investment return and the operation model were not formally reported and discussed at the meeting of the Executive Committee and the Board of Directors, the project was still approved. Meanwhile, although the CAM management conducted a simple internal analysis of investment return at the internal meeting before deciding to construct the hangar, there were fundamental flaws in the related analysis, including: poor estimation according to the functions and positioning of the hangar and its future operation model; overestimation of the revenue and underestimation of the expenses; also it overestimated the residual value of about 68 million patacas. Besides, tenants of the outdoor parking stands can change to the hangar; therefore, it leads to self-competition and the influence on income was not taken into account. In addition, the analysis also did not consider the option of using the land of the hangar for other purposes, such as being converted into outdoor parking stands; moreover, though excluding the deficiencies in estimation which led to the serious overestimation of the rate of return, even if the estimation is correct, the actual return of the project calculated at the internal rate of return (hereinafter refer to as “IRR”) is only 2.01%. Therefore, the project of constructing and operating a hangar faces great uncertainties and risks, and unless the project has a proportional and appreciable return, it should not be recommended as an ideal investment.

On the other hand, the temporary business aviation hangar was planned to provide maintenance, repair and overhaul services (hereinafter refer to as “MRO”) in order to develop MIA into a business aircraft maintenance center, which was approved by the Executive Committee, the Board of Directors and the MSAR Government through different occasions and ways. However, after the termination of the contract with the MRO contractor due to the internal and external factors that caused failure to deliver the hangar to the contractor, the CAM management did not actively find another MRO supplier; on the contrary, it changed the purpose of the hangar for aircraft parking only on the grounds of the keen demand for parking resources and the difficulty of management of the original plan. In fact, the provision of MRO services is a more reasonable and economically viable position, and the current 15 outdoor business aircraft parking stands at MIA, which were rebuilt in 2016, provide sufficient parking stands for long-term tenants at lower rents than the hangar. However, the utilization rate was still less than 75% until 2018, so there were no urgent needs for more parking stands and imbalance between supply and demand. As there were no maintenance services, the temporary business aviation hangar failed to achieve the expected economic benefits.

The investment in the temporary business aircraft hangar without in-depth studies is most likely to make a loss, and the decision to change the purpose of the hangar for aircraft parking only also causes lower potential income, both of which harm shareholders’ interests. On the other hand, CAM conducted international tendering for the provision of MRO services and awarded the contract, but the contract was terminated before the operation of the hangar; subsequently, CAM decided not to provide MRO services suddenly. This has a long-term negative impact on the international reputation of MIA, especially in terms of its consistency, reliability and professionalism.

In the general comments of the report, CA pointed out that the “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area” released in 2019 clearly indicated to develop a world-class airport cluster in the Greater Bay Area and support MIA in expanding and developing regional business aircraft services. Therefore, whether the development and operation management of MIA is satisfactory influences not only Macao, but also the development plan of the Greater Bay Area, having a regional impact. However, this audit result reflected that there were obvious deficiencies in the CAM’s management work and the decision-making process. In general, CAM should seriously follow up the problems found in this audit, pay attention to the major loopholes and the weak parts in the internal control system, identify their causes and deepen the reforms in order to protect the interests of shareholders and the public.

The report previously submitted to the Chief Executive, can be downloaded from the Commission of Audit’s website (http://www.ca.gov.mo), or is freely available at the Commission of Audit Office from today during office hours.