Case Studies: Modlin Regional Airport, Warsaw, Poland

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Project Overview

Modlin.png
Figure 1: Modlin Airport Terminal, Poland

Source: Kuryłowicz& Associates http://www.apaka.com.pl/en#/projekty/lotnisko-w-modlinie
Modlin regional airport, Poland
Project Type: Brownfield
Type of Project Financing: Public
Contract duration: 5 years
Budget: 331 807 669,05 PLN (approximately 82M EUR)
Project Time Line
2003: Members of Parliament, members of the local government and entrepreneurs signed a letter of intent concerning the location of the airport on the premises of former military airfield in Modlin.
May 2005: Draft business plan was developed for investment project entitled "Establishment of a new communication airport by means of modernization of the existing and building new infrastructure for handling aircraft, passengers and cargo on the premises of the former military airfield".
October 2006: Civil Aviation Office issued a letter of commitment to provide a license to establish a public airport in Modlin. Permit for the establishment of a civil airport.
10 September 2009: Building permit is granted. The Voivode of Mazowieckie issued a building permit.
8 February 2010: The facility is entered in the register of civil airports kept by Civil Aviation Office.
12 March 2010: The investment project received an environmental decision.
8 October 2010: Official start of construction.
29 October 2010: Agreement with Mostostal for the construction of the terminal signed.
1 February 2012: The management of WizzAir announces that as on 18 July 2012 they will move all their flights from Chopin Airport to Warsaw/Modlin Airport.
8 February 2012: The Irish airline Ryanair announces it will launch flights from Warsaw Modlin Airport
6 June 2012: Regional Building Inspector issued an operational permit for the airside of the airport, and the runway obtained a positive decision of the Air Force Institute of Technology.
7 July 2012: An Open Day at the airport.
13 July 2012: On 13 July, the President of Civil Aviation Office accepted airport taxes for Warsaw/Modlin Airport as requested by the company Mazowiecki Port Lotniczy Warszawa-Modlin Sp. z o.o.
15 July 2012: First scheduled flights. WizzAir and Ryanair operating from Modlin. The new airport taxes tariff will become effective on 15 July.
22 December 2012: Closing airport runaway indefinitely for safety reasons. The construction was built using improper materials. By a Decision of the Regional Building Inspector the concrete part of runway was closed, as a result of which the airport was able to handle only those aircrafts for the landing of which a runway length of 1500 m was sufficient.
4 July 2013: Re-opening airport after construction works to fix the runway.
17 July 2013: Wizz Air announced it would not return to Modlin despite its re-opening.
30 September 2013: First scheduled flights after re-opening - Ryanair returned to Modlin.


Introduction

The project entails the building of a new airport for Warsaw (capital city of Poland) and Mazovia Region for low-cost airlines and charter flights. The project is based on an old military runway located 35 km from Warsaw.

First plans assumed:

  • rebuilding and lengthening of the runway
  • building new taxiways and airport terminal
  • rebuilding existing railway siding and building railway station on the airport (both not realised)
  • building fright terminal (not realised).

Realisation of the project was delayed by a few years. After a few months of operation, the airport was closed due to technical and safety reasons.

The re-opening of the Modlin Airport was in June 2013, however, only one airline decided to operate from it.

The Contracting Authority (Public Party)

Mazowiecki Port Lotniczy Warszawa Modlin Sp. z o.o. Contracting authority is a public entity with participation of regional self-government (30,37% shares), the Town of NowyDwór Mazowiecki (4,81%), State-owned enterprise "PortyLotnicze", 30.39% and Military Property Agency, 34,43%.

Sources of Financing

The total budget for the project amounted to 331 807 669,05 PLN (approximately 82M EUR), including:

  • European Regional Development Fund subsidiary: 64 736 000 PLN (approximately 16M EUR)
  • National budget subsidiary: 11 424 000 PLN (approximately 2,85M EUR)
  • Owners sources: 255 647 669,05 PLN (approximately 64 M EUR)

Users

Warsaw Modlin is the first airport in Poland established specifically with the intention to be used by low-cost airlines and charter carriers. Starting from June 2012, it operates as a regional public airport complementary to the Warsaw Chopin Airport. The airport handles international short- and medium-distance flights. Air operations are carried out 24hrs a day.

The airport's specific orientation at low-cost airlines is reflected in certain components of the infrastructure, particularly the terminal with no designated business waiting area, no luxury commercial or food court areas and no jet ways.

Nowadays, Modlin Airport is used by one, big, regular passenger airline (Ryanair), and realises negligible charter flights and general aviation. A small cargo terminal is planned (2015/16). Table 1 lists the forecast and actual traffic volumes.

Table 1-Forecasted and actual traffic volumes

Year Forecast Actual % Actual vs Forecast traffic
2012 900 000 857 481 95%
2013 2 300 000 344 566 15%
2014 2 900 000 1 703 219 59%


Project Timing

The concept of building the airport was formulated in 2003. The initial agenda for the investment project was announced in 2005, and after this date preparation works run. Construction works started in 2010 and ended in 2013. Substantial complementary infrastructure not realised included essential connections such as the foreseen railway connector and station, and other infrastructure such as the cargo terminal.

Project Locality and Market Geography

Modlin Airport is located only 35 km North-West from the center of Warsaw, but is not well connected - Modlin Airport has no convenient, direct connection to the capital city, (bus connection takes up to 2 hours (average 40-60 minutes), while the railway connection takes up to 1,5 h and needs one change to bus).

Procurement & Contractual Structure

The investment process was divided in 20 small contracts. Separate tendering process was inter alia for:

  • demolition of existing buildings
  • logging the trees
  • dispose of the cut wood
  • modernising runway and taxiway
  • construction of the airport traffic control tower
  • construction of the roads and parking areas
  • construction of the water and waste infrastructure
  • construction of the telecommunication networks
  • construction of the fence
  • modernisation of hangars
  • construction of the ILS/DME system ( instrument landing system)
  • construction of the passenger terminal
  • procurement of furniture
  • check-in counters for passenger terminal
  • luggage control equipment for passenger terminal
  • refuse bins with and without ashtray for passenger terminal and many more.

The Central Anti-Corruption Agency (CBA) found irregularities in the application of the Public Procurement Law, including, inter alia, an undervaluation of contracts and sharing contracts for parts. The material gathered was submitted to the Prosecutor's Office.

Tendering

The main elements of ongoing contracts were: upgrading of runway, construction of airport terminal and other structures and facilities (over 20 tenders). During the execution of works, the Contracting Authority (The company Mazowiecki Port Lotniczy Warszawa-Modlin) granted three basic contracts with 62 additional works.

Contract Structure

“The company Mazowiecki Port Lotniczy Warszawa-Modlin did not have formal procedures for conducting the investment process, taking into account the risks that may occur at each of its stages, and also did not have sufficient staff resources, allowing for self-management and monitoring of contracts.

Notably, the preparation of vague and inconsistent provisions of the agreement and terms of reference resulted in additional works with direct assignment of more than 5 million zl. The Supreme Audit Office considered the assigned works as unjustified.

The documentation developed for the runway construction did not state clearly the type of aggregate to be used for the concrete mix in the construction of the belt. As a result, the contractor did not have documentation that warrants the exclusion of particles with high water absorption, which may be damaged by frost and defrosting. The related close down of the airport caused financial losses in the range of PLN 34.4 M.

Risk Allocation

There is no detailed information about risk share between SPV (Mazowiecki Port Lotniczy Warszawa-Modlin Sp. z o.o.), designer, constructor and other entities. As a result of the over 6 months close down of the airport operation and delay in ILS (Instrument Landing System) installation, several lawsuits are currently in court, e.g. SPV contra main contractor of construction runway (PLN 34,4M), Wizzair Airlines contra SPV (PLN 11 M), LS Airport Services contra SPV (over PLN 1 M).

Modlin1.png
Figure 2: Risk allocation

Performance

The primary business objectives for the airport in Modlin were too optimistic. Reasons of not meeting objectives are not only the result of potential traffic overestimation, but also the failure to build reliable transportation connections (no appropriate rail and road connections) to Warsaw.

In addition, the business results reflected in the airport shut down for a few months after its launch. This event shifted the chances of achieving break event point for investments by 4-7 years . The location of the airport was controversial to both aviation experts (position into delta of 2 rivers, withseveral misty days), as well as environmentalists (breeding place of many valuable bird species). The construction process became risky due to the fragmentation of works. The latter, not only led to accusations of breach of the Public Procurement Act, but also contributed to the lack of control over the quality of the work of the contracting authority.

Despite the lack of infrastructure and transport links to the airport causing considerable inconvenience to passengers, it is now the 6th airport in the country, with the highest growth rate in number of passengers.

Project Outcomes

The main problem of Modlin Airport is the lack of transport infrastructure to/from airport, as a result of partly external factors and partly the low effectiveness of bodies managing the airport and the Region.

The plan of transport infrastructure for Euro 2012 was unrealistic and additionally, several planned main roads in Poland were not realised because of the financial crisis of 2009.

The plans for the railway connection were realised partly. Coaches to service Warsaw-Modlin Airport line were bought, however, building the rail infrastructure (rail station at the airport and upgrading the track) outgrew the Regional self-government and after several years of preparation works, the issue was passed to PKP (national railways).

Inconvenient passenger transport connections, delays in ILS system operation and break in airport operation resulted in Wizzair discreditation to Modlin Airport.

Suburban airport last year handled over 1.7 million passengers. Thus, Modlin in terms of passenger traffic volume, was in the sixth place in Poland and ahead of, among others, Poznan airport. According to forecasts, in 2015, the number of passengers in Modlin is to increase to 2.5 million. Although it is only used by Ryanair, it is fast expanding its route network. With this development, the airport terminal in Modlin may become too small fairly quickly. Expectation was for it to handle nearly 3 million passengers a year. Therefore, there are plans to enlarge the airport .

References