Myanmar is set to become Asia’s next big aviation market since Aung San Suu Kyi’s National League for Democracy won landmark by-elections, which have led to easing of economic sanctions by the West. The economy is rapidly transforming, and investment across a number of industries has been significant. Myanmar is experiencing significant changes and law-makers have set about reforming the country’s dated legislation to create a better environment for inbound investment. As the number of existing international carriers looking to enter the market increases, and with the emergence of new domestic carriers, this article considers what the future holds for Myanmar’s up and coming civil aviation sector and the challenges investors and stakeholders may face.

Market conditions

Statistics from January 2013 suggest that Myanmar’s international passenger market consists of about 81,000 seats a week. In April 2012, the international passenger market consisted of only about 49,000 weekly seats. Most commentators agree that Myanmar is the most under-served market in the Association of South East Asian Nations (ASEAN). For example, Myanmar has a population of 48 million, whilst fellow ASEAN state Malaysia has a population of 28 million, yet figures from April 2012 suggest that in passenger numbers Malaysia’s aviation market is nearly 20 times larger (in April 2012 Malaysia had 830,825 seats per week).

Myanmar has 49 airports, 3 international and 46 domestic. The two largest international airports are at Yangon and Mandalay. A third international airport has been built in the new capital, Naypyitaw, and whilst it has started to handle international traffic it is not yet fully operational. A further international airport is also planned for Hanthawaddy (about 80 kilometres from Yangon). Domestic airports do, however, lack basic infrastructure and most are unable to accommodate jet aircraft. In light of this, the Myanmar government has appealed to the private sector for assistance and is in the process of awarding contracts to privatise some of the country’s airports.

Opportunities

Opportunities exist for all types of carriers – local and foreign, domestic and international, low cost and full-service. Tourism to Myanmar has seen significant growth in light of the increased political stability and as the levels of wealth across Asia continue to increase, tourists will likely be the driving factor behind the predicted 20% per annum growth in passenger numbers. Business travel will also become increasingly important as foreign investment in the country continues. The Myanmar government has also recently extended the granting of visa-on-arrival at Mandalay International Airport for visitors from 22 more countries, which will make it easier for tourist and business travellers alike to visit the country.

Air cargo will also likely see significant growth as both Myanmar’s import and export industries continue to boom. The European Union is also set to reintroduce duty and quota free access to the European market in line with its Generalized System for Preferences for least-developed countries. The duty and quota free access should have been available to Myanmar, but has been suspended since 1997 due to allegations of forced labour. The proposal to reinstate preferences follows reports that this has largely ceased. The European Commission estimates the restoration could help increase Myanmar’s exports by 30%.

Legal developments

The legal framework behind investment in Myanmar is also undergoing significant change and is needed to allow international investments. In January 2013, the Directorate of Investment and Company Administration of the Ministry of National Planning and Economic Development published the Foreign Investment Rules and the classification of Types of Economic Activities Notification pursuant to Myanmar’s new Foreign Investment Law. The aim of the new laws and rules is to provide investors with security of tenure, protection against State expropriation and also a means to enforce the terms of agreements with local partners. These areas have all been significant areas of concern for international investors in the past.

A further recent demonstration of the country’s commitment to attracting foreign businesses was the 6 March 2013 decision by the Myanmar parliament to sign the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention). Foreign companies negotiating contracts with Myanmar counterparties can now proceed on the basis that arbitration agreements referring disputes to international arbitration outside Myanmar and foreign awards should soon be enforceable.

In terms of aviation law, Myanmar still needs to take steps to modernise. The main legislation is the Myanmar Aircraft Act 1934 and the Union of Myanmar Carriage by Air Act 1934. Both require significant revisions to reflect the changes that have occurred in aviation since the 1930s. Myanmar is yet to sign and ratify the Convention for the Unification of Certain Rules for International Carriage by Air 1999 (the Montreal Convention), although there have been suggestions that this is being considered.

Challenges

Airport infrastructure is potentially the biggest barrier to continued growth. This was highlighted by the December 2012 crash of a Fokker 100 operated by a domestic carrier, which led to two fatalities and at least 11 injuries. The aircraft crashed on approach to Heho airport during poor weather. The airport only has a non-directional beacon approach rather than the more modern instrument landing system, even though it is the country’s largest domestic airport; this was considered to be a major factor which contributed to the crash. Improvements are clearly required at all airports and whilst the current government seems committed to the project, this could change in a country where the political situation is still far from stable.

The future

Whilst there will almost certainly be significant challenges for the emerging aviation industry in Myanmar, there are significant opportunities. As international carriers continue to add flights and domestic carriers increase in size, this should lead to increased investment opportunities throughout the aviation sector as MROs, FBOs and other airport and ground handling services will all be needed.