China's struggling regional airport sector could be set for a turnaround in its fortunes, led by a wave of private investor interest.

The Asian Development Bank (ADB) is making its first foray into the airport sector in China, with the proposed Central and Western Airports Development Project. It will involve a USD50 million equity investment in HNA Airport Holding (Group) Co Ltd, a private company primarily investing in airports and airport operations.

ADB stated, "private sector participation accompanied by funding and experience is clearly needed in the development of the airport sector in the country, especially in the Central and Western regions."

Attracting a high profile investor in ADB is a further breakthrough for HNA Airport Group. ADB will invest alongside funds managed by ARC Capital Holdings Ltd and Pacific Alliance Asia Opportunity Fund Ltd in China's airports. Both funds announced their participation last year. HNA hopes to attract more international investors, as it aims to take a leadership role in China's airport sector.

The loan component of the project consists of two tranches. The first is a CNY1.2 billion loan from ADB, which will have risk participation from international commercial banks that will cover roughly half the loan amount. The second tranche of the loan component consists of a USD200 million B-loan.

The project will support HNA Airport Group's expansion and capital expenditure plan to privatise, rehabilitate, expand, upgrade and operate small- and medium-sized airports in the less developed Central and Western regions of China.

The project is in line with the government's Western Region Development Strategy, which seeks to promote economic development and reduce poverty in the central and western regions of the country. It also alleviates the funding burden on local governments, which typically provide subsidies for smaller airports under their control.

Meanwhile, Changi Airports International (CAI), the foreign investment unit of Singapore's airport operator, last week announced plans to acquire stakes in as many as 15 airports, with around half likely to be in China, according to CEO, Chow Kok Fong.

CAI aims to manage USD700 million of airport assets in the next three years and recently secured its first direct investment in China last month, acquiring a 29% stake in Nanjing Lukou International Airport for USD96 million.

While declining to identify specific targets, Chow added, "a lot of the growth that we expect in China will come from the Central and Western region. So, we will be spending a lot of our efforts in that region."

CAI has consultancy contracts for various airports in the country, including Chengdu and Qingdao, and last year signed a strategic partnership agreement with Shenzhen Airport Group to jointly identify and invest in medium-size Chinese airports with strong growth fundamentals.

The Chinese Government's 11th Five-Year Plan (2006-2010) requires the construction and expansion of some 60 airports, mostly in the western region. Some USD17.7 billion in capital expenditure is needed for civil airports under the 11th Five-Year Plan. Increasingly, the private sector looks likely to be a key contributor.