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CNBC Transcript: Liew Mun Leong, Chairman, Changi Airport Group

Below is the transcript of a CNBC Exclusive interview with Liew Mun Leong, Chairman, Changi Airport Group. The interview will play out in CNBC's latest episode of Managing Asia on 20 March 2020, 5.30PM SG/HK (in APAC). If you choose to use anything, please attribute to CNBC and Christine Tan.

Christine Tan (CT): Mr Liew, as Chairman of Changi Airport Group, the gateway to Singapore, how did you first respond to the outbreak of the coronavirus here in Singapore?

Liew Mun Leong (LML): We have experienced before, when SARS happened in 2003. So, we are always aware of emergency situations in the airport. The airport is a very public place and all sort of events can happen. So, we have already prepared a crisis management system for anything, whether it's a volcano in Iceland or COVID-19. So, we have a system to cater for this: plan, resource and train.

CT: In this particular case, what were some of the immediate steps you took to deal with infected travelers and quarantine situations?

LML: Many people don't know that the airport is a heavily trafficked base. Every day, an average of about 180,000 people pass through our four terminals. So, comparing the traffic volume and comparing the severity of contagions, it's actually worse than a hospital because we have international travelers from all over the world, and they may be carriers of all sort of things. So, we know that we have to prepare for that situation, in terms of screening, preventive measures and anti-contagion measures.

CT: What health measures have you put in place to safeguard your staff working at the airport?

LML: Well, we already have temperature screening for both passengers and every user of the airport. Even our own staff, when you come in, we have already taken your temperature. We also segregate them. We also allow working from home. My manager is on the other side. I don't see him except for the TV monitor. So, we take all sort of measures to prevent contact and mass gatherings. For big meetings, we cancel them.

CT: The outbreak of the coronavirus has impacted business in a big way in Singapore. Changi Airport Group itself has seen a sharp drop when it comes to travel and tourist arrivals. As Chairman of Changi Airport Group, how are you steering the Group during this very difficult time?

LML: Well, we have to accept that this is a contagion that we have to fight and prevent. We have to make sure that we can carry through, as in the case of SARS. In the case of a virus fight, we think that we will carry through it in a matter of months or we wait for a situation when a vaccine is developed. In the meantime, we just have to brace ourselves for it. Spend your time gainfully. I always say, never waste a crisis. We go through training. Instead of flying, I spend my time seeing my staff batch by batch at Surbana Jurong. I just ran through one whole week of meetings. You'll discover a lot of things.

CT: Like any crisis, people often worry about their jobs as companies try to manage costs. What are you telling your staff at Changi Airport? Are their jobs safe?

LML: It is exactly what I did at CapitaLand. At CapitaLand, as I said, there was no retrenchment. We cut costs to save jobs and we took voluntary cuts. From three percent, up to my level, 20 percent so that we could conserve. Actually, it's not so much the money, it is morale boosting that jobs are assured, that they're not being laid off in bad times. So, I think the psychological effect of assuring the staff is more important than the dollars and cents. How much do I save? $10 million? But the impact of a morale drop is much more serious. I take the point that you must keep the morale high in a crisis, just as in a battle.

CT: A lot of people are comparing this crisis to the SARS crisis back in 2003. How does this health crisis feel to you? Is the impact bigger? Will the recovery take longer?

LML: For SARS, at the beginning first few months, we felt more than a 50 percent drop. But as we recovered, the loss was about 15 percent. In this case, the first few months was 33 percent, at its worst it was 40 percent. But we forecast that at year end, we would probably be at 20 percent in terms of losses.

CT: So, it feels a lot worse to you?

LML: It sounds worse to me, certainly. It mutates. It's more transmissible.

CT: Whether it's building real estate or airports, you've always seen opportunities in times of crisis. What are you eyeing right now in terms of business opportunities for Changi Airport Group?

LML: (Laughs) It's slightly different from real estate. In real estate, there will be distressed companies, assets that you can bottom-fish. So, you can capture them if you have dry powder. In this case, we do have dry powder. But it's not so much about bringing airlines in, because that's beyond your control, but internationally, we can start to look at countries that want more airline development, "Hey, I can come and fly to you now. Now that we are both suffering, do you want to encourage us to be connected?". So, those sort of opportunities, we can talk to countries who previously were, "We don't like you to come." Now, they would say, "Maybe you should come." In terms of connectivity, you can increase opportunity. The other thing is CAI, Changi Airport International, there will be a lot more airports that may need us, not just for investment but operational and management improvements: how do you handle the crisis. It has been reported that we have handled the crisis very well, Singapore as a whole. But the airport in particular, we are quite proud that we have managed it very, very well. So, we can export the system of crisis management to airports. These are the opportunities.

CT: Let's talk more about your international airport business, what big projects are you eyeing?

LML: Well, when you say big projects, it depends what you mean. Our international airport investment strategy: it's difficult to talk about national airports or capital airports. By definition, they would not invite investors into a national airport. Although, to be frank, many airports are privatized - Sydney is privatized, Bangkok is privatized. So, many other airports are thinking of privatizing, so there are opportunities that you can eye. But in very gateway cities, there are probably not so many opportunities, but others like Europe, Eastern Europe, plenty of opportunities.

CT: How difficult is it to bid for airport business in foreign markets? I mean, your international unit already has business activities with some 40 airports around the world, in Brazil, Russia, India and China.

LML: There are very few competitors in the first place, to be very frank. In the case of international airport business, very few. Very few players. But at same time, I must say that because Changi is so well-known, frankly, we've won over 600 Best Airport Awards in the world. Everyone who talks about coming to Changi is happy with us. So, anyone who wants to improve airport operation and their reputation will knock on our doors. In fact, we have customers calling us rather than us marketing to them. So, it is a matter of how selective we want to be to be involved in the airport. It's not difficult. It's whether you want to get involved because it is profitable? We are just not chasing profitability. We are chasing other things like goodwill if you want to use that word. Like learning from them or learning the aviation industry's competitiveness. Those are one of the few factors that we'll be happy to look at. But not just profits.

CT: As you said, Changi Airport has been named repeatedly one of the best airports in terms of service around the world. Why get involved in helping other people build their airports? Why help your rivals?

LML: (Laughs) That's a question, that's a question that many people ask.

CT: Aren't you afraid of losing your competitive edge?

LML: There are three good reasons why we go for international airport business. Number one, I think you can't run an airport in the country and think that you are the only airport in the world. You need to know airport and aviation intelligence: what is happening and what is happening to other countries' airports. So, it is not just your airport that you must safeguard. You must know what is happening around the world. So, by going international, you really understand the dynamics of what is affecting the aviation industry. That's point number one. Number two, it gives us a ground to rotate our staff in different airport environments. So, in a way, we expose our staff to globalization. If they know that there are 10 or 12 airports where they can go, whether it's in a developing country or Japan or India, it's really a stage that they can look forward to, towards the next career if you want to use the word. It's a very good way of globalizing our managers. The third one is, if I may say so, very good for neighborhood, good political goodwill. If I do a good airport for our neighbor and help them, I'm sure there will be some goodwill generated.

CT: So, Mr Liew, how much work went into building this massive Jewel project?

LML: Before we started building - the engineering, the planning, the concept, the concept of having a shopping mall with capacity for passengers and crew, and at the same time, the gardens - the concept itself is a big thing. Then, it was translated into engineering. You'd notice that it's column-free. The plants are growing very well. You feel comfortable because there has been a sustainability study: how you can bring the lights in and at the same time, balance the heat transfer. Underneath, there are water pipes to cool it down, so there's a lot of engineering.

CT: How difficult was it to build it? How would you rate the difficulty?

LML:  Moshe Safdie, who is my architect and one of the most world-renowned architects, said to me that this was one of his most difficult jobs. Of course, architecturally, you can plan. But in engineering, there are 6000 nodes that has to be done, and each node is unique.

CT: So, it was done on time?

LML: It was done on time, within budget.

CT: Within budget?

LML: Yes, I am very pleased with it. When I first came here, I sent a note to Moshe. I said, "Moshe, this is better than your design." He was so surprised. In other words, the reality is better than the design.

CT: It is a $1.7 billion partnership venture between Changi Airport Group and CapitaLand. It has given you new revenue streams as a result or what you called non-aeronautical revenues. What are the returns like for Jewel?

LML: Well, I can only tell you that it has passed our hurdle rate (Laughs).

CT: What is your hurdle rate?

LML: Don't ask me, "What is a hurdle rate?" The hurdle rate is the Government's hurdle rate or investment capital rate. It's the same hurdle rate as we use in CapitaLand. If I say, I want to put money in and I want an internal rate of return of seven to eight percent. At present, we're going towards that. I can tell you that it is already worth much more now.

CT: How quickly do you think you can recoup your development costs?

LML: Well, we are talking a number of years: six to seven years, eight years, ten years. If there's no COVID-19, maybe faster.

CT: Let's talk about your next big project, Terminal 5, Changi East. That's going to be a biggest expansion to date, covering an area of 1,080 hectares. That's equivalent to 667 football fields. That's huge. Singapore has already 4 terminals, do we need another one so soon?

LML: Well, you say it's small, but it is big. But airports around the world are much bigger. We are really sandwiched between two thousand hectares, two airports. Think about it. Actually, T5 and what we call Changi East is another airport by its own right. So, we're combining two airports within the area. So, you're right, it takes up space. We cannot be caught as an air hub without enough capacity. The last thing you want is business is coming, but you don't have terminal capacity or runway capacity. We will need another 50 million passengers in eight to 10 years' time.

CT: So, you are building ahead of demand?

LML: Well, I believe that supply drives demand, unconventionally. Conventionally, people say demand drives supply.

CT: That is against conventional wisdom though?

LML: Yes, but our experience has been that supply will drive demand.

CT: And you are confident that in this case, supply will drive demand for Changi Airport?

LML: In our case, I will show you. When we first started with Paya Labar to Changi, we had 8 million passengers and we planned 30. Many government quarters said we were crazy. 30 million passengers? That's six times or seven times of operation. But guess what? Today, we have double of the 30. We are at 68, doubled what we planned. So, our enthusiasm is not overstated, because the moment you can supply, people will come. Air hub is a very important economic contributor for us. It's very important. It's not just a number, but for the overall economy itself.

CT: The aviation industry we know is unpredictable, subject to economic conditions and disruptions. Is there room in your strategy to make some adjustments to avoid the problem of over-investment in case your projections don't go according to plan?

LML: Well, we plan say for example 50 million passengers. But we always plan a modular system of expansion. In other words, if there are disruptions like the present, there will be opportunity for us to either delay it or develop it in stages. The plan is to build modularly, so you can stop somewhere. That's always in our plan.

CT: So, there is room to make some adjustments?

LML: Well, yes, yes. Yes, we can complete in 10 years for sure.

CT: Just how much will the entire Changi East project cost?

LML: That is always the question. I can tell you it is in the billions of dollars. In capacity, it's 50 million passengers' movement. It's Terminal 1, 2, 3 combined. So, if you add up the cost of Terminal 1, 2 and 3, you know it's in the billions of dollars. But I'm not about to disclose how much.

CT: So, when you look at the projected cost of the entire development, Changi East development, how much should be borne by the Government and how much should be borne by Changi Airport Group and how much by users?

LML: You're just telling me to break down the budget. (Both laugh) I can't tell you, but the Government's investment in this infrastructure, to us, is a grant. We will use our balance sheet. So, it's not entirely the grant. We will use our balance sheet with some soft loans from various agencies. We will take some small loans from the financial markets, so that we don't depend on the financial market.

CT: So, you are going to the capital markets in a small way?

LML: In some small way, we will do it because this is a big leverage program. So, we have grants, we have soft loans, we have our own balance sheet. We have a big sum of good reserve. And then we will look at the financial market in terms of leverage, but not significant.

CT: So, with the completion of Terminal 5, where does that put Changi Airport in terms of scale and size compared to the rest of the airports around the world?

LML: I think we will be in the top few in terms of capacity, but we still cannot rival Beijing or Dubai or some of these airports.

CT: Do you want to be the largest?

LML: It's not the largest we are aiming for. It's not the largest. It's the best air hub we are looking for. I'm not crazy about size, but I'm crazy about being the best air hub, serving the passengers so that people will come here.

CT: Let's go back in your journey as a civil servant. One of your first project in the public sector was to actually build the runways.

LML: First runway.

CT: First runway at Changi Airport 1 and 2. Life has come full circle for you. Now, you sit as Chairman of Changi Airport Group, you've been in this position for the last 10 years. You love the airport business? Can't get enough of it?

LML: There are two loves in my life. One is airports, the other one is real estate. So, I think I will still put airports ahead of real estate, because both are challenging. As an engineer, you don't get to build airports every time. So, technical challenges are very satisfying. It's very meaningful that when you fly, you can say that this is what I've done. This building where I am sitting is developed by me. I am going to land on a runway that I built. So, that's the sort of effect you get - that you are the one who built this that's everlasting.

CT: What excites you the most when it comes to building an airport?

LML: Well, airfields are quite technical. We want efficiency from the runway, the taxi way. So, airfields, I wouldn't say, are very exciting. Although airport selection itself is a very interesting subject. A lot of airports are built in a wrong location. So, airport selection is very interesting. I think terminal building is very interesting because terminal building is not just air transport, it's actually air transport plus real estate - shopping, leisure, entertainment. And you have to have all sorts of creative ideas that nobody can stop you.

CT: I read somewhere that you called the Terminals in your airport, your children.

LML: (Laughs)

CT: Is it true?

LML: Yes, you know, I built it in 1975, the first runway. So, it's like my grandchildren and children. I'd like to say that when I come back, even in the twilight years, you still see them as your children.

CT: Well, you are planning for another one, the fifth one. You're excited about that?

LML: Yes, of course. It's my favorite because it is going to be the largest single project in Singapore. It's sort of out of proportion in terms of scale even, if you want to call it. But you have to plan it efficiently. So, a lot of detailed thinking has to go into it. How do you separate the space? How do you manage the departure and arrival? It is so huge that you need to make sure that people-mover system is okay. Imagine you have 1, 2, 3, 4 on one side of the runway, Terminal 5 on the other side, how do you connect them? We have tunnels below. Tunnels below are below the runway. So, you are building a big tunnel for passengers, baggage and all that under the runway. So, from the standpoint of engineering thinking, a lot to think about.

CT: You have been in this business for a long time. You are 73 years old. You studied engineering just to make your father happy. You spent 22 years in government service in the public sector. 26 years in a private sector. Are you a bureaucrat or a businessman?

LML: (Laughs) I started off as a bureaucrat, but I have transformed myself to be a businessperson. No big deal. Actually, you can transform. To me, you can just transmit and transform, provided you can adopt the flexibility, your value system and your pragmatism. It's considered a big jump but it's the same.

CT: So, what did you learn in the public sector that helped shape your instincts as a businessman?

LML: Well, there's a very, very good thing about public sector: it trains you to be of high integrity, honesty. So, when you recruit a civil servant, you say, "Ah, we know that he is very honest." You have a prize on his head. So, in terms of integrity, no doubt. But you'd also, because of bureaucracy, also learn about administration and governance. You don't learn so much governance in the private sector, frankly. But you learn a lot about governance in the public sector. You've got to do things according to what we call the IM instruction manner. But there is a process, there's a procedure and there's a hierarchy and there's a reporting relationship. So, it's very organizationally systematic that you can then move to the private sector and say, hey, we can do it even operationally better this way. We can be more honest, higher integrity, emphasis on governance and core value. I think those are the good things they can bring across.

CT: You've kept yourself busy. You are Chairman of the Changi Airport Group. You are also Chairman of Surbana Jurong. And you sit on several boards. You've worked hard for the last 50 years. You have seven grandchildren. Why not take some time off and relax?

LML: But why do you want to stop? You can still look after your grandchildren. But why do you want to stop enjoying what you are doing?

CT: But why not take it easy?

LML: But if you are enjoying it, you're not taking it hard. If you are enjoying your work and you're doing well, why stop doing it? Why do you want to say because I reach this age, I'm not going to do what I'm doing, I am going to stop thinking and fall the cliff intelligently, I think it's a senseless idea. Let yourself say that I would continue to do what I do and enjoy doing, may not be the same thing, don't block people, the younger blood wants to come up. Good. Do something that they cannot do but you can do.

CT: So, you will continue to work for the rest of your life?

LML: I told you long ago I will die like a Chinese businessman or a Chinese general -- on the death bed. I would stop at the death bed. As long as I'm physically fit and intelligent, I will continue.

CT: And finally, when you do a reflection of what you have accomplished in your life, what's the most important impact you want to make?

LML: I don't look so much as calculating the impact. What I say I'm doing will continue to contribute to society at large, I will be happy at that.

CT: You just want to be useful?

LML: I want to be productive, I want to be useful. I don't want to stop people along the way.

CT: Mr Liew, thank you so much for talking to me.

LML: My pleasure.


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