Just 12 months ago, airports across the Middle East were struggling to keep pace with double-digit annual growth in cargo and passenger demand. This spiralling demand led established contractors to turn away work and attracted an influx of construction and engineering companies and consultants.

In June, Gulf projects tracker MEED Projects listed active airport construction projects worth nearly $52.5bn in the GCC, Iraq and Iran. Despite this, the global recession has hit airlines and the aviation industry hard, making some airport expansion plans look over-ambitious.

The region's airlines will make losses of $1.5bn in 2009, according to forecasts from the International Association of Travel Agents, even though it expects the Middle East & North Africa (Mena) to be the only region in the world that will achieve passenger growth in 2009.

But the extent of the global economic downturn has thrown into question the scale of regional airport construction - and not least, whether the demand is there to support a fivefold increase in regional passenger capacity in the short-to-medium term (see table).

Competitive business

"Abu Dhabi, Dubai and Qatar are all competing for exactly the same intercontinental hub business," says one Dubai-based aviation analyst. "And there are questions now over whether there will be enough business in the near term to make all three succeed."

Dubai's new Al-Maktoum International airport, scheduled to open in June 2010, aims to handle 160 million passengers by 2020, becoming one of the largest airports in the world.

Downturn or not, Dubai Airports, the state company responsible for the emirate's airport expansion programme, remains bullish. "We cannot speak for other airports but Dubai is moving forward to meet anticipated growth," a spokeswoman tells MEED. "We are taking a proactive approach to avoid the situation [in Europe]...where congestion is hurting service and connectivity.

"Dubai International's throughput is reaching 40 million [passengers], and our capacity is more than 60 million. That gap is closing, as we are adding one airline every two monthson average. Within the next few years, our capacity will cross 80 million to match anticipated growth."

The Mena region is the only one to register international passenger growth for the first six months of the year compared with the same period in 2008, at 6 per cent. "While the slowdown has made airlines and airports cautious, especially with expansion projects, the level of confidence [in airport construction] appears to be intact," says the spokeswoman.

In 2008, the construction industry was dealing with spiralling local inflation and soaring prices for materials such as cement, steel and aluminium. For example, in the UAE, ready-mix concrete prices peaked at $100 a tonne in July 2008, compared with $73 a tonne in December 2006. As a result, airport construction prices soared. The cost of Qatar's flagship New Doha International airport has risen from $11bn to $14.5bn.

National carrier Qatar Airways attributes this hike to the acceleration of the airport's expansion, combining phases one and two for start-up capacity of 24 million passengers from 2011. Originally, phase one should have opened in 2009. Capacity will increase to 50 million passengers after 2015.

Akbar al-Baker, chief executive officer (CEO) of Qatar Airways, says construction of the airport must move forward to keep pace with demand. "Qatar's economy is projected to grow at a rate close to 10 per cent this year, bringing business and trade to the country," he says. "On a wider scale, the Middle East region has maintained strong growth in freight and passenger traffic while the rest of the world has retracted."

Nevertheless, Doha is urgently trying to rein in project costs to take advantage of falling construction materials and labour prices, which have both fallen by up to 30 per cent in the Gulf since their peak in the summer of 2008. Fresh tenders are being issued for phase three of New Doha International after the original tenders were cancelled in March.

Bidders for the contract, which is due to be issued this month, include the local Qatari Diar and France's Vinci Construction Grands Projets; Korea's Hyundai Engineering and Samsung Corporation; and Belgium's Six Construct with the local Midmac Contracting Company.

Turkish conglomerate TAV, the main contractor for the terminal construction contract, confirms that renegotiations are under way and that these are slowing progress on the project.

"Some of the airport's construction packages are being renegotiated on the instructions of the client," says Yusuf Akcayoglu, regional director for TAV. "Many of these contracts were fixed before the downturn and it is creating a delay to work that we need to subcontract."

The most prominent such case is the decision of Dubai's civil aviation department to re-award contracts for the project to build Dubai International airport's $1.3bn Concourse 3, which is due to open in 2012.

In April, the department awarded the main construction contract to local contractor Alec, having failed to agree terms and conditions with the original consortium of the local Al-Habtoor Engineering, Japan's Takenaka Corporation and Murray & Roberts Contractors (Middle East) of South Africa. This has raised questions about the pace of progress on Dubai's new airport.

"Dubai's Al-Maktoum International airport has been delayed due to the combination of falling short-term demand and the opportunity for airport projects to negotiate better construction prices," says Ali al-Naqbi, chairman of the Middle East Business Aviation Association.

"With a drop in construction material and labour costs of 15-20 per cent this year, it is not surprising that companies are trying to renegotiate contracts to take advantage...We see this happening in the UAE, in Qatar and in Bahrain. It is logical for airports to try to build today's construction prices into these projects."

Material prices remain low. In July, the cost of rebar (reinforcement steel bars) had fallen to AED2,000 ($545) a tonne, from AED7,000 a tonne in January, a downward trend mirrored in construction materials ranging from cement to aluminium.

Project delays

This uncertainty about costs is contributing to delays in finalising construction tender deadlines. Tenders have been postponed for the expansion of Sanaa International airport in Yemen. And Sharjah International airport will review its year-end passenger figures before deciding the pace of future expansion, says Tom Foster, regional market sector director for air transport at UK construction con-sultant Halcrow, which reviewed Sharjah's existing facilities for the Sharjah Airport Authority in 2008.

Oman has extended the closing dates for tenders at Seeb International, Salalah International and Ras al-Hadd airports. The deadline to bid for Muscat's new passenger terminal has been extended by four months to 31 August and the deadline for Salalah's new terminal building to 17 August.

In May, Oman's Transport & Communications Ministry awarded the $1.3bn first-phase construction contract for Muscat's Seeb airport to a joint venture of TAV and Athens-based Consolidated Contractors Company (CCC).

The ministry has finalised a key contract for the planned new airport at Sohar, awarding the $99m civil works contract to Austrian construction company Strabag.

Not all airport projects are being delayed, however. Saudi Arabia's General Authority of Civil Aviation (Gaca) is accelerating construction of the new terminal at King Abdulaziz International airport in Jeddah. Gaca will award key contracts in the summer, aimingto finish the new terminal a year early, in late 2012.

In April, Gaca awarded the initial $500m works contract for the airport to the local Al-Mabani General Contractors, having commissioned France's Aeroports de Paris to redesign a larger terminal, at more than 600,000 square metres and able to handle 30 million passengers a year.

Al-Mabani is emerging as a big hitter in Saudi airport construction, having previously won an $80m contract with Gaca to renovate seven domestic airports and a second, $80m contract to build a new terminal at Najran airport, where construction started in January.

TAV, meanwhile, is working on $8bn worth of airport construction projects from Enfidha in Tunisia to Qatar, where the New Doha International terminal construction contract is worth an estimated $3.5bn.

Construction companies say that while airport expansion remains more buoyant as a construction sector than real estate, control has passed from the contractor back to the client thanks mostly to the new pricing environment. Airport construction is specialised, putting it off limits to new entrants. Halcrow, long established in regional airport and general construction, says that airports have generated 5 per cent of its regional earnings in recent years.

Meanwhile, projects continue, if more slowly than before the global downturn began last year. Oman has unveiled the three-phase project blueprint that will expand capacity at Muscat International airport's new terminal from 12 million passengers a year in 2012 to 48 million by 2050. The project consultant is France's Aeroports de Paris Engineering.

Jordan's Airport International Group (AIG) is expanding Queen Alia International airport after winning the 25-year airport management concession in 2007. In April, AIG expanded the airport boundaries from 86,000 sq m to 100,000 sq m to speed up planned expansion. From February 2012, Queen Alia International will handle 7 million passengers a year. Phase two will expand capacity to 12 million passengers within the timeframe of the concession. The airport handled 4.5 million passengers last year, following annual growth of 16 per cent.

The redesign has increased the project's costs from $700m to $750m, says Curtis Grad, CEO of AIG. The construction contract has been awarded to a joint venture of Cyprus-based Joannou & Paraskevaides and J&P-Avax of Greece, each of which holds a 9.5 per cent stake in AIG.

Price swings

"Construction is going ahead under the fixed-price design-and-build contract signed 18-20 months ago," says Grad. "Although material prices have fallen since then, fuel prices were higher. Now it is up to our contractors to adjust to the swings in market prices."

TAV's Akcayoglu remains bullish about the prospects for regional airport construction, which, so far at least, is proving significantly more resilient than real estate construction.

"So far, none of the GCC's current airport expansion projects have stopped or been abandoned as a result of the economic downturn and some, such as Abu Dhabi, New Doha Inter-national and Seeb International, have expanded their original plans into larger projects," he says. "Although most of the world is going through an economic downturn, the GCC countries are moving forward with government-backed infrastructure projects. These countries want to become global hubs for business, tourism and finance. To achieve this, they must expand their airport capacity. To date, there has been no downsizing."

However, Akcayoglu says it remains to be seen whether there is sufficient demand to support the planned five-fold increase in Gulf passenger capacity in the medium term. "All [these airports] are competing for the same market and perhaps not all will succeed," he concludes. "There could be mergers and take-overs in future."