TNAG-0775-FCO40-979-Possible-new-airport-for-Hong-Kong-1978 — Page 57

-AMP-

FINANCING A NEW AIRPORT

The purpose of the proposed airport is to provide facilities on a financially self-supporting basis, together with an acceptable return on investment, to satisfy the increasing demand for air transport that can- not be served by Kai Tak and to remove the increasing noise pollution and safety hazard from Kowloon. An analysis of the past record of air- port revenues and operating expenditures at Kai Tak and a forecast of revenues and expenditures for two decades (to 1995), based on past experience and the most probable passenger forecasts, indicate that airport revenues will easily cover repayment of all funds advanced or borrowed for airport construction and interest on such funds. In addition, the sale of land and structures at Kai Tak, after all operations have been transferred to the new airport, might bring in revenue almost equal to the construction costs of the new airport.

The planning and construction program will be spread over a decade (1975-1984), and the capital costs in constant Hong Kong dollars with January 1974 value would be HK $4,016 million. With the concurrence of the Steering Group, a constant inflation rate of 6% per year has been assumed. Because the inflation rate was somewhat higher in 1974, the escalation has been applied as if the estimated construction costs in constant currency were an average of 1973 values. The construction costs for the new airport in current dollars are estimated to be HK $5,585. In addition, HK $380 million must be spent to expand terminal and other facilities at Kai Tak to handle demand until the new airport is open. With additional amounts to cover new furniture and equipment and a Hong Kong loan repayment, total capital expenditures for 1975-1984 will be HK $6,011 million.

A forecast of annual gross revenues from airport operations was prepared based on a landing and parking fee schedule anticipated by the Civil Aviation Department. Other revenues are related to traffic as developed from prior experience, with an allowance for 6% per annum inflation for items without fixed fees and using the most probable forecast for passenger, cargo, and airport operations. Over the 21-year period (1975-1995), revenues will increase from HK $211 million to approximately HK $2,800 million. Based on experience and allowing for 6% per annum inflation, annual recurrent expenses will increase from HK $55 million in 1975 to HK $700 million in 1995. The resulting net revenues from airport operations will increase from HK $156 million in 1975 to approximately HK $2,100 million in 1995. The gross profit

34