This article first appeared in Corporate, The Edge Malaysia Weekly, on July 11 - 17, 2016.

MITSUI Fudosan Co Ltd, Japan’s biggest developer by sales, made its first retail entry into Malaysia in May last year, opening its first flagship outlet mall in Southeast Asia in the Kuala Lumpur International Airport (KLIA) development in Sepang. The move was seen as a major investment coup by Malaysia Airports Holdings Bhd (MAHB), which is spearheading efforts to turn KLIA into a world-class airport city under the KLIA Aeropolis initiative.

However, Mitsui Outlet Park KLIA is part of just one of three clusters in the 24,710-acre development surrounding KLIA, says MAHB managing director Datuk Badlisham Ghazali.

KLIA Aeropolis is far more than just a retail shopping and entertainment zone. It is a blueprint to develop a supportive service ecosystem for the aviation-related sector in the country. 

The master plan covers logistics, maintenance, repair and overhaul as well as aerospace-related services.   

Launched in May, the KLIA Aeropolis master plan is based on three clusters: air cargo and logistics; aerospace and aviation parks; and meetings, incentives, conventions and exhibitions (MICE) and leisure. It is part of MAHB’s plan to build on its non-aeronautical income stream, which currently makes up about 50% of KLIA’s total revenue.

In an interview with The Edge, Badlisham says MAHB will first focus on the development of the first two clusters. The third cluster will come in later unless it helps add value to the profile of the proposed airport city, like Mitsui Outlet Park KLIA.

MAHB general manager of corporate planning Randhill Singh says the company is expected to ink several memoranda of understanding (MoUs) for development with partners under the aerospace and aviation parks cluster at the Farnborough International Airshow 2016 in the UK on July 15. However, he would not name the companies.

“Airports today don’t only serve aircraft and passengers but also cargo … So far, we have (attracted) cargo and logistics providers like KL Airport Services Sdn Bhd and Raya Airways Sdn Bhd as well as General Electric International Inc and Spirit AeroSystems Malaysia Sdn Bhd under the aerospace cluster,” he adds.

As MAHB is aggressively developing KLIA Aeropolis, Randhill assures that the existing Malaysia International Aerospace Centre (MIAC) in Subang, Selangor, will not be ignored but will be maintained, representing part of MAHB’s overall airport city development. Currently, maintenance, repair and overhaul (MRO) companies, including Spirit AeroSystems, BAE Systems and Airod Aerospace Technology Sdn Bhd are operating out of Subang. MIAC was set up following the launch of the government’s national aerospace blueprint in 1997.

“KLIA Aeropolis will function as the core of MAHB’s aerospace ecosystem, which includes the Subang and Melaka airports,  where KLIA will serve as a hub for aero manufacturing, MROs and OEMs (original equipment manufacturers). Take Spirit AeroSystems. It builds aerostructures, including fuselages, pylons, nacelles and wing components [for the Boeing 737 out of Subang]. Beyond that, there are other aircraft OEMs that do different parts of the aircraft, from seats to engines, that can set up their base at KLIA,” says Randhill.

“Subang alone cannot accommodate all of these companies [due to limited available land]. Currently, it focuses on some parts of the supply chain, such as OEMs for light aircraft and helicopters, as well as providers of aircraft training and engineering services.

“Subang will always remain what it is. We are not going to stop it. The idea is to complement what we have here at KLIA Aeropolis.”

He adds: “We have about 60 acres left to be developed in Subang, which are already taken up. So, once we prepare the fundamentals [for KLIA Aeropolis], which would take about two years, and with Subang fully occupied [by then], the next flow of development will come from KLIA.”

Over the next five-year horizon, MAHB has identified five areas of prioritised developments at KLIA Aeropolis. One of it is the second phase of Mitsui Outlet Park KLIA, which will be completed in 2018. Apart from that, there is a 115-acre aerospace park, an 80-acre logistics park and two aeronautical support zones that have a combined area of 310 acres.

The westernmost area of KLIA Aeropolis, which is categorised under the MICE and leisure cluster, does not have any committed investment yet. It was previously reported that the development will include a golf course, theme park and themed hotels.

But Badlisham says this cluster can wait. MAHB will prioritise airport-synergistic development at KLIA Aeropolis, such as those that relate to air cargo logistics and aerospace engineering services.

“Do we need a theme park? No, we don’t. If it doesn’t fit the profile, we won’t do it. I could have taken it, but no, we want something that is more significant, that adds value to the development (KLIA Aeropolis).

“We are not here just to lease the land but to develop and add value to it. Otherwise, we could have just leased the land [surrounding KLIA] and made money without risk but the earnings will be low,” he says, referring to some land in Subang that was previously leased out to companies that have failed to carry out any aerospace activity until today.

Some have called it an ambitious plan but according to an economic impact analysis conducted by PricewaterhouseCoopers on KLIA Aeropolis, excluding airport terminal operations and expansion, its total estimated impact over 15 years would be a gross domestic product contribution of about RM30 billion and the creation of 48,000 jobs by 2030.

“Having invested in the necessary airport capacity or infrastructure, putting us ahead of the curve in terms of a three independent runway system and terminal capacity of up to 75 million passengers per year, KLIA Aeropolis is poised to leverage this position and capture the growing demand from the air cargo and logistics, as well as aerospace industry trends.

“Leading airport operators that have developed diverse and captive activities to monetise their land area include Amsterdam’s Schiphol (7,000 acres), South Korea’s Incheon (34,000 acres), Frankfurt’s Fraport (5,000 acres) and Paris’ ADP (3,200 acres),” remarks Badlisham.

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