Throughout major airports in Japan and more specifically, Haneda, Airport Facilities develops crew training facilities, hangars, maintenance plants, in-flight meal factories, and multi-purpose buildings of the highest caliber.
In the last three years, we have seen huge disruptions in terms of inbound people to Japan, a big rise in oil prices, and the Shanghai lockdown. Now, we are seeing the trade decoupling between China and the US. There is a series of strong macroeconomic events currently taking place. Can you tell us the effect of COVID on your business for the past two years and what steps have you taken to adapt to it?
The impact of COVID was something we have never experienced before. The aviation industry as you know has been greatly impacted, and many flights were canceled. Airline sales depend on the number of passengers and cargo volume. However, our main business, Real Estate, is not affected that much because we have a long-term lease with customers. Our clients such as airline and aviation-related companies have been greatly impacted, so they requested to reduce their lease payment. In addition, we have also response positively, to request by our client in Haneda Airport, to reduce their charges for heating and cooling. On the cost side, the price surge for fossil fuels, especially natural gas, has also impacted us and we foresee this to continue for a while.
For the water supply and drainage business in Haneda Airport, we are also impacted by the decrease in demand / usage, restaurant, restrooms, during COVID. Now, we can see positivity, in like of the return of airport activities, to pre-COVID.
You talked about the importance of your role as a facility management expert on water supply and drainage service and heating and cooling service. I am very keen to understand your policy as it relates to climate change. The government has set carbon neutrality targets for 2050 and in the interim period, there is a goal to reach a 46% reduction compared to 2013 by 2030. You have undertaken a series of actions to help towards this endeavor. Many companies are experimenting with different options. You have been using solar power and issuing green bonds. Can you tell us more about these technologies that you are adapting and your path toward carbon neutrality?
I strongly believe that it is the responsibility of everyone on earth to tackle the global warming issue instead of just one company. Since 2013, we have installed solar panels in Narita and Mizunami Gifu Area. Along the Tokyo monorail, there is a building called Tokyo Ryutsu Center where we installed solar panels on the rooftop. Electricity generated by the installed solar panels in the domestic cargo terminal can provide a part of the electric power consumed in the area. We are progressing well towards eventually having solar installation on our leased building.
For our Area Heating and Cooling sector, the most important thing we can do within our capabilities is to update to new heating and cooling equipment to be more energy efficient and at the same time we are exploring the potential for hydrogen and other options. We are also currently collaborating with TEPCO (Tokyo Electric Power Company) for electricity and Tokyo Gas for gas and finding ways to mitigate CO2 emissions.
We are now researching optimal options that are best for us. I mentioned earlier that we installed solar panels in domestic cargo terminal. We are now contemplating whether we can develop a facility to generate hydrogen using solar panels. It is a matter of determining how much green energy we can produce and utilize.
Last year, we conducted a hydrogen-powered forklift test-ride in domestic cargo terminal. It is a very viable option for the future because it is very quiet, in addition to having a short filling time and a long operating time. However, there are several challenges to overcome, particularly cost mitigation, before we can commercialize. It is important to work with the government, our customers, the airline and forwarders, to mitigate cost incurred to achieve carbon neutrality.
You have created a unique business model that we now see today by combining real estate leasing, facility management, and construction synergistically. What is the role of domestic and international collaboration in your business model? Do you need to collaborate with others when it comes to your new technologies such as the hydrogen forklifts? If so, what type of partners are you looking for?
As you might know, Japan does not manufacture aircraft, so working together with Airbus, Boeing, and engine manufacturers like GE and Rolls-Royce is very important.
For example, leasing a hangar at Kobe Airport to Airbus led to a project in Singapore.
Successful overseas operations require finding a good partner and creating a trusting relationship with our partners.
We are not a construction company, but we have the know-how and experiences. We understand that our mission is to establish high-quality high-spec buildings according to the customer's needs. I strongly believe that finding the best partners both domestically and internationally is very important for our business.
You provide services that can be applied to many types of buildings, but you specialize in airport-related facilities. Airports, in particular, have buildings with specific functions. There are so many guidelines and regulations for the buildings as it receives a lot of people and cargo. Looking towards the future, are you looking into bringing that expertise in such a particular setting to buildings outside airports such as urban developments or other logistic areas?
We are very keen on expanding our business outside airport-related facilities and we are sure that our airport-related facility know-how and accumulated experiences apply to all different kinds of buildings. The most important elements in driving forward and expanding into new fields such as urban development are (1) being trustworthy and reliable, (2) management quality, and (3) the readiness to respond to customers' needs. Having said that, we are aware that the needs and demands for airport-related facilities and non-airport-related facilities are different. The biggest difference is that airport-related facilities execute long-term contracts with tenants, while urban office buildings tend to have relatively short contract terms and are sold after a certain period of time from purchase.
The turnover of urban office tenants is quite quick so we have to be able to promptly respond to the renovations they might require. Unfortunately, we do not have much know-how when it comes to short-term purchases and sales of buildings. If we were to operate actively outside of airport-related facilities, we have to acquire that know-how. We are aware that this takes time, so we welcomed a team that specializes in business model of purchasing office buildings in urban areas, adding value, and selling them. We acquired the team to expedite our operations. Our existing business style and the new business that we are trying to pursue are very different, but we are foreseeing a very good synergistic effect between these two.
One of the big recent changes for your business was the new listing in the Tokyo Prime Section of the Stock Exchange. With this Prime Section, you would have more exposure to international investors and have more capital and liquidity. Can you give us your expectations as President? What kind of message about your business would you want to send potential foreign investors?
Our business is mainly in Haneda Airport, so we are very confined, and our name has not been known publicly. By being listed in the Tokyo Stock Exchange Prime Market, we hope to elevate our branding. It is not a simple thing to slide into the first section of the Tokyo Stock Exchange. The Tokyo Stock Exchange has a list of criteria that has to be fulfilled including strict governance. Having been listed on the Prime Market, I hope that this boosts the motivation of our employees. Also, I hope that our company will be known globally. Although we are not a big company, we are quite a unique company with unique strengths. Until recently, our focus was centered around airport-related facilities and on stable business, but we actively stepped into markets with growth potential including outside of airport-related facilities and overseas business where there are bigger or growing demands that have to be met to expand and grow the company.
What role does your company play when it comes to social responsibilities and helping to revitalize the areas around Haneda? Haneda Airport is bringing a lot of attention to this area which is traditionally not a huge urban area. Since the Abe administration, the idea of regional revitalization is something the government has continuously pushed forward for the benefit of the country so that we do not only have big cities only Osaka and Tokyo with large populations but also rural areas. Is the idea of growing and revitalizing the areas something that interests you?
Haneda Airport is the closest urban airport to Central Tokyo. As an operator of airport-related facilities, we are taking active steps in the development of the region close to Haneda Airport. One of the projects that we are participating in is the Haneda Innovation City which is a project led by Ota Ward where is known as the mecca for small and medium-sized enterprises. Many good technologies are being nurtured in the area. There is a consortium of local companies collaborating to promote SMEs in Ota Ward. If there is a project regarding the revitalization of the local cities, we would like to consider the opportunity.
In 2013, you established the subsidiary located in Singapore. One year later, you also went to Canada with AFN properties. Why did you choose Singapore and Canada as the two strategic locations for your first overseas expansion?
Our expansion to Singapore was because of our trusted relationship with Airbus Group who introduced us to the Singaporean project where we established our subsidiary. In Singapore, we met the company called Standard Aero which is an engine MRO that introduced us to the project in Canada. This led us to enter into the Market in Canada. We do not have an extensive history of overseas operations. When we expand, we are very careful about country risks. Singapore and Canada have fewer risks so we chose these locations.
In the future, we are expecting to expand to Southeast Asian countries near Singapore where there are fewer country risks but higher demand. We are located in the Seletar Airport, which is the second major airport in Singapore, and the government is now taking the lead in gathering the aerospace-related industry in the area, so we are in a good location where we can be selected as their partner. This is a business operation we would like to pursue.
If we come back for an interview in five years, what goals would you like to have achieved by then?
I am expecting that many of my colleagues will share the same spirit as me. If we are united with that spirit, our company can further evolve and I look forward to that.