Taking over

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As the US military moves out of the Philippines, so FedEx moves in.

Paul Lewis/SUBIC BAY

WHEN THE US NAVY pulled out of the Subic Bay naval base in the Philippines in November 1992, the local Olongapo City authorities inherited an $8 billion military base with no tenant and 42,000 redundant workers. From what was a potential economic disaster, the base has since been transformed into an all-too-uncommon Philippine success story.

To date, Subic Bay has attracted 158 companies and, subject to settlement of a US-Japanese bilateral agreement, is expected to be home to FedEx's new intra-Asia cargo hub (Flight International, 28 June-4 July, P11).

Withdrawal of the USN from Subic Bay, after a 94-year presence, came less than 18 months after the US Air Force had abandoned Clark AB, also in the Philippines. While the USAF had been forced out by the volcanic eruption of Mount Pinatubo in June 1991, the USN was effectively evicted by the Philippine Senate's rejection of a new ten-year base treaty.

The 18,000Ha (7,290acres) site offers unrivalled features, including one of Asia's finest deep-water harbors, a ship-repair yard, warehousing, its own 31.5MW power station, shopping centres, hotel, housing estates, schools and recreational outlets. It also possesses its own international-size airport in the form of the Cubi Point US Naval Air Station.

While Clark AB was buried under metre-deep volcanic debris, and then subjected to wholesale looting, Subic Bay emerged relatively unscathed from the ecological disaster. Prevailing winds carried much of the volcanic dust away, while 8,000 local unpaid volunteers secured and maintained the vacated base.

Perhaps its biggest asset is the former Olongapo mayor Richard Gordon, who now heads the Subic Bay Metropolitan Authority (SBMA), tasked with converting the base to commercial use and attracting investment.

While the USN was shutting up shop at Subic Bay, FedEx was scouting the region for a suitable site from, which to base an overnight intra-Asia express freight service. In addition to enabling connections to destinations within Asia, the hub was needed to provide a feed into FedEx's North American and European networks.


The hub therefore needed to be centrally located within Asia, so that the company could collect freight late at night and deliver it to anywhere in the region the following day. Other major deciding factors were 24h airport operations and self-handling rights.

"This was absolutely critical," says FedEx regional managing director John Quinn. "Self-handling gives us control over the whole operation. Not every airport in Asia allows you to do that," he adds.

Cubi Point appeared to be ideal. The airport was removed from any built-up areas and virtually unoccupied. It offered a 2,745m (9,000ft)-long runway, adjoining taxiway, 26Ha of aircraft apron parking and four maintenance hangars covering 15,000m2 (160,000ft2).

Furthermore, the airport is located within the tax-free Subic Bay Freeport area, created by the Government to help Gordon attract investment. Consequently, unlike Manila's Ninoy Aquino International Airport (NAIA), there is no requirement for a bonded warehouse at Subic Bay International Airport (SBIA), so reducing the time needed to process trans-shipments.

The Philippine Government has shown added flexibility by allowing FedEx a change of size between the McDonnell Douglas MD-11F and the smaller Airbus Industrie A310 to match route demand, although FedEx is making use of many existing Philippine air agreements which specify the size of aircraft used. "If we didn't have that ability, we wouldn't really be able to operate a hub," says Quinn.

Negotiations with the Philippine authorities have not entirely been smooth going. The deal came close to suffering a last-minute derailment by the Government's reluctance to grant FedEx an operating permit for longer than a year. Philippine transport secretary Jesus Garcia relented only after FedEx founder and chairman, Frederick Smith threatened to go elsewhere.


A major precondition, which had to be met before FedEx could set up, was a complete revamping of Cubi Point to bring it into line with modern civil-airport standards. "We didn't contribute to that. They had to bring to the table an airport that was safe and secure for commercial purposes," says Quinn.

One result of Clark AB having been plundered was the USN's determination to remove any equipment from Subic which it could re-use. This included, Cubi Point's Texas Instruments ASR-8 radar, precision approach landing instruments and communications equipment.

"When the Navy was pulled out, everything was taken by them. The only navigation aid they left behind was the non-directional beacon," recalls Andres Dacayanan, director of the new SBIA.

Dacayanan, like many of his 90 staff, is no stranger to Cubi Point, having previously worked for the USN for over 18 years as a controller. He adds: "We've been operating the airport for two and a half years, ever since the Navy went. We didn't close. It was Philippine controllers who oversaw the last US Navy aircraft flown out."

Cubi Point remained open to limited local traffic until September 1994, when it was closed for renovation. The SBMA, armed with a $40 million loan from the World Bank, revamped and re-equipped the airport to international civil standards in less than five months. "Everything a modern airport has, we now have," says Dacayanan.

The most expensive new addition to the airport has been the installation of a $6.2 million Westinghouse ASR-9 primary-/secondary-surveillance radar. The radar, coupled to an AMS 2000 computer system/user interface, is capable of handling up to 300 tracks simultaneously, up to a maximum range of 370km (200nm)

Subic controllers are officially responsible for airspace to a radius of 18.5km, but in practice, are now taking over control of inbound aircraft from Manila's old analogue air-traffic-management system up to a radius of 33-37km. "Subic today boasts the most modern ATC [air-traffic-control] systems in the Philippines," claims a former Manila controller, now attached to SBIA.

SBIA has also been completely refitted with new air-navigation systems, furnished by Alcatel at a cost of $7.2 million. Equipment includes a Series 400 instrument-landing system, with localiser, glide-scope and distance-measuring equipment for Category I operations.

The close proximity of surrounding mountains has required the installation of a Doppler very-high-frequency omni-directional-range system on Grande Island, just over 1.5km from the runway threshold. Other new systems include meteorological sensors integrated with the ASR-9 radar, differential global-positioning system and VHF/UHF/HF transmitter/ receivers for the airport tower.


Cubi Point's runway was constructed originally to a pavement class No (PCN) 61 standard, to handle aircraft up to a Lockheed C-5 Galaxy, but only occasionally. Furthermore, a major section of the runway at one end suffered from subsidence, and was only ever temporarily repaired by the USN.

Under the direction of UK airport consultancy Halcrow, the runway was ripped up and relayed with concrete slabs, overlaid with asphalt, to a heavier PCN 64 standard. The taxiway and aprons were also given a new concrete and bitumen overlay to handle FedEx's MD-11s. New lead-in landing lights were added, stretching 300m from the end of the threshold.

In the longer term, there are tentative plans to expand the airport by reclaiming land from Subic Bay and, possibly, adding a second runway. "What we really need is more space for aircraft parking and the addition of an international passenger terminal," says Dacayanan.

The passenger terminal is the more pressing requirement, with the fourth Asia-Pacific Economic Forum due to be held at Subic Bay in November 1996. Consideration is being given to converting the VC-5 ramp and hangar at the south-east end into a passenger-handling area.


FedEx's operation at SBIA centres on a 10,220m2 double-bay hangar, converted into a freight-handling terminal. The hangar has been refurbished with new wiring and outfitted with a conveyor belt for package sorting. An external canopy has been added at the back of the hangar, to provide cover for cargo containers being unpacked during the monsoon season.

A smaller adjoining building houses FedEx's ramp office, previously located at Manila's NAIA. When it is fully operational, the hub will employ 150 sorters, plus 50 additional support staff, including technicians for aircraft line maintenance. SBIA will be a "quick-turn location", and is not being equipped for any heavier type of aircraft maintenance.

FedEx has refused to disclose its investment in the new hub, but plays down local Philippine press reports that it is in the realm of several hundred million dollars. "We're spending $2 billion on capital for the total corporation, and what we're investing here is a very small amount of that," says FedEx.

The company has a six-month first-refusal option on the two remaining unoccupied hangars at SBIA, but has not yet decided whether to exercise this and expand its operation. FedEx refutes any suggestion that this is designed to keep competition out. "We're not interested in restricting anyone else from doing business here," claims Quinn.

TNT Worldwide has already expressed interest in relocating its joint-venture carrier Pacific East Asia Cargo (PEAC) and hub operation from NAIA to Subic. It is understood to be negotiating a line-haul agreement with FedEx to trans-ship each other's consignments to different regional destinations (Flight International, 10-16 May, P16).


FedEx plans to base up to five A310s at SBIA from early July. The aircraft will be used to form a network overlay connecting Subic with Hong Kong, Kansai, Kuala Lumpur, Penang, Seoul, Singapore, Taipei and Tokyo. A separate company, Airfreight 2100, has been contracted to fly between Subic and NAIA two to three times a day, using a Cessna 208.

Planning also calls for Bangkok, Jakarta and, in the longer term, the Vietnamese cities of Ho Chi Minh and Hanoi to be linked into the network. This is likely to form the basis of a line-haul agreement with TNT, which already serves Jakarta and expects shortly to add Bangkok, Ho Chi Minh and Shanghai to its PEAC network.

FedEx's longer-range MD-11s and DC-10s will continue to be operated to different point destinations in Asia from the company's Anchorage gateway, flying mainly via Tokyo's Narita International Airport. Shipments from Anchorage are fed into FedEx's Memphis superhub and smaller regional hubs in Chicago, Indianapolis, Newark and Oakland.

Anchorage is also linked to SBIA via Narita, using MD-11 and DC-10 freighters. An additional transpacific MD-11 service has been added between Subic and Oakland, via Kansai. Shipments into Oakland can connect with seven US states, using FedEx's West Coast overlay.

Quinn explains: "With one more frequency across the Pacific, we can have very late cut-offs in south-east Asia, connect with our Subic hub, and then launch a flight at such a time that it will allow us a sort window at Oakland."

Not all of FedEx intra-Asia flights will touch down at SBIA. The carrier has applied to the Taiwanese Government to establish a regional hub at Taipei's Chiang Kai Shek International Airport. It will have its own MD-11 connections with Anchorage and Narita.

In addition, an A310 "loop service" will be added between Taipei and Singapore, bypassing Subic. A second Singapore-Taipei loop will link with Penang using a MD-11. This is to maintain the present level of service from the USA and avoid any delay in shipments by flying unnecessarily through Subic.