The Berlin Brandenburg Airport (BER) – will it ever open? [1]
Introduction
“Willy Brandt Airport, Berlin Brandenburg (BER) often simply
referred to as Berlin Brandenburg
Airport (BER) is an international airport under construction near the
capital of Germany, Berlin. Named after Willy Brandt (Chancellor 1969–1974), it
is adjacent to Berlin Schönefeld Airport in Schönefeld, 18 kilometer
(11 mi) south of the city center. It was originally intended to replace
both Schönefeld and Berlin Tegel Airport and become the single commercial
airport serving Berlin and the surrounding State of Brandenburg, an area with a
combined 6 million inhabitants. However, it is now planned that it will replace
only Tegel, with Schönefeld Airport currently being expanded due to rising
passenger numbers. With annual passenger numbers of around 34 million (in 2018),
Berlin Brandenburg Airport would become the third busiest airport in Germany.
This would surpass Düsseldorf Airport and make it one of the fifteen busiest in
Europe. Lufthansa, Eurowings and EasyJet are expected to become the leading
carriers at Berlin Brandenburg Airport. After almost 15 years of planning,
construction began in 2006. Originally planned to open in October 2011, the
airport has encountered a series of delays and cost overruns. These were due to
poor construction planning, execution, management, as well as corruption.
Autumn 2020 became the new target for the official opening date as 2019 became
too improbable. A TÜV (technical inspection association) report published in
November 2017 suggested that the opening could even be delayed until 2021.”
(source:
https://en.wikipedia.org/wiki/Berlin_Brandenburg_Airport)
Obviously, a delay of about 10 years must have some serious financial consequences for the owner of this huge project: the Flughafen Berlin Brandenburg GmbH (FBB) in Schönefeld. We will investigate how the persistent failure of this project influenced the economic situation of the FBB from 2006 to 2018, and we will make simulation-based forecasts for the future (until 2040). Will the airport ever open? Or, will FBB go bankrupt before or maybe even after the grand opening?
According to the number of passengers, the FBB is the third largest airport firm in Germany in 2018 with over 34 million passengers (note that these passengers are currently travelling from the other two airports owned by FBB: Berlin Schönefeld Airport in Schönefeld and Berlin Tegel Airport, since BER has not opened yet). The evolution over time of the number of passengers, together with important financial data is presented in Table 1. A growing number of passengers should lead to growing sales figures. The FBB is indeed the leader in Germany when it comes to sales growth. FBB reached this remarkable result with the two comparatively old airports in Tegel and Schönefeld. Given this scenario, we should expect that FBB shows a very good development of its income statement…
Table 1: Actual data from FBB
| Year | Passenger rate of FBB (passengers/year) | Tangible Assets of FBB | Liabilities of FBB | Accumulated Profit of FBB |
| 2006 | 18400000 | € 706,000,000 | € 288,300,000 | € (10,900,000) |
| 2007 | 20000000 | € 811,900,000 | € 323,400,000 | € 5,700,000 |
| 2008 | 21400000 | € 1,077,500,000 | € 313,600,000 | € 30,800,000 |
| 2009 | 20900000 | € 1,520,900,000 | € 790,100,000 | € 31,700,000 |
| 2010 | 22300000 | € 2,055,700,000 | € 978,200,000 | € 35,700,000 |
| 2011 | 24000000 | € 2,629,000,000 | € 1,640,000,000 | € (38,800,000) |
| 2012 | 25200000 | € 3,160,000,000 | € 2,312,000,000 | € (224,000,000) |
| 2013 | 26300000 | € 3,453,000,000 | € 2,518,000,000 | € (421,000,000) |
| 2014 | 28000000 | € 3,554,000,000 | € 2,508,000,000 | € (592,400,000) |
| 2015 | 29500000 | € 3,778,000,000 | € 2,725,000,000 | € (729,800,000) |
| 2016 | 32900000 | € 3,975,000,000 | € 3,115,000,000 | € (813,300,000) |
| 2017 | 33300000 | € 4,241,000,000 | € 3,206,000,000 | € (915,000,000) |
| 2018 | 34700000 | € 4,534,000,000 | € 3,588,000,000 | € (992,100,000) |
| Numbers between brackets are negative, which means that there is a deficit instead of a profit! |
An optimistic editorial statement of the chief executives of FBB in the annual report of 2018 backs a positive expectation:
„The air traffic location of the capital city region is continuing to develop very dynamically. Therefore, the Airport Company can look back at a successful fiscal year 2018 with substantial growth in the core business. The operative results (EBITDA) of the Berlin airports achieved a new record value in 2018.”
However, the figures of the income statements of the FBB tell us a completely different story. EBITDA means Earnings Before Interests, Taxes, Depreciation, and Amortization. So, this is basically, the sales revenues minus operating expenses. However, when we include all expenses and accumulate them over the years, we get substantial losses (see Table 1 “accumulated profit of FBB”):
- In the first project period 2006 to 2011 the deficit accumulates to almost 40 million.
- In the period after 2011, when it was clear that the deadline of 2011 would not be met, the deficit accumulated to almost 1 billion.
In the balance sheet, these figures correspond to the accumulated deficit of 992 million euros (page 79 of the 2018 annual report).
Thus, the statement that a positive result with record value was reached in 2018, is a misleading statement about the real situation of the FBB in 2018. It does not consider the huge accumulated deficit, and it simply ignores that the operations should cover depreciation of assets and interests, because the operations are not possible without the infrastructures.
In order to finance the huge cost overruns of the BER, the FBB took substantial new loans. This increased the interest expenses by a factor 500 from 2006 to 2011 (see Table 1 “Liabilities of FBB”). In the early years interest expenses were about 12 million euro, rising to 140 million in 2018[2] (an increase of a factor 1200 from 2006 to 2018!!).
Deprecations on assets also increased enormously. Starting around 21 million euro in 2006, rising to over 80 million in 2011, to over 130 million in 2018.[3]
Until the new airport opens, the sales revenues per passenger (or per flight) have to remain low (11.4 euro per passenger). The reason for the low sales revenues per passenger are the regulations in Germany that link the fees that airports may get to the cost that they have to cover. Berlin-Tegel and Schönefeld are comparatively old airports that offer a modest service quality, and the overheads are much lower because the assets have been written off, and the interests were low. It is expected that when the new airport opens, these sales revenues can rise to upto 25 euro per passenger (but only if the new airport is 100% finished). Assuming that the operational expenses will remain stable at 10.35 euro per passenger over the years (the new airport will be much more efficient than the older ones), the new airport may increase EBITDA considerably in the future.
FBB has some other sales revenues from freight transport as well. But this is only a minor part compared to the sales revenues coming from passengers. It will be really difficult to increase freight transport because night flights are not allowed at the new airport. In addition, new infrastructures on the airport and for the traffic to the airport would be needed. As such, we will assume that revenues from freight transport will be constant over the entire simulation at a value of 43 million euro/year.
Based on the description of the FBB presented above (and more data that will be presented on the next pages), you need to develop a simulation model that will run from 2006 to 2040. This model will therefore include the entire development project of the new airport and presumably, its use in the future. The economic situation of the FBB will be simulated and evaluated. Furthermore, some different future scenarios will be tested and evaluated. These future scenarios are (among others):
- Opening the airport in 2020, means that the airport will open while not everything is finished yet. More precisely, the airport will be around 85% finished. So, even though opening leads to an increase of sales revenues per passenger, the revenues will only be 85% of 25 euro per passenger. What happens if the opening is delayed even further to make sure that a higher percentage of the airport is finished before opening which means a higher sales revenue per passenger?
- All future scenarios assume a growth rate of the number of passengers. However, already in 2019 many passengers are considering alternative transport for environmental reasons. What happens when more passengers “go green” in the future? How will this loss of passengers influence the future of FBB?
Please answer the questions below in the right order and read all the tips and hints in the questions carefully. Answering the questions in the right order will finally help you evaluate the economic situation of FBB and provide some recommendations for the future.
Question 1: Make a causal loop diagram (total 15 points)
Question 1a – Make a causal loop diagram of the airport development project. Show the diagram in your term paper and explain/describe your loops (max 10 points).
Hint: only use the words written in italic in your causal loop diagram
Developing a huge airport like the BER is usually divided into several building blocks. We will call these building blocks “modules”. From the start of the development project until the end, these modules go through four consecutive stages: modules waiting for development, modules in development, modules in test, modules completed.
On the first day of the project, people will not immediately start working on all modules at the same time. The so-called start rate is a gradual process and it depends on both the number of modules waiting for development, the average start time (0.2 years), the number of modules in development, and the so-called followup percentage (50%). This percentage protects the development project from being overloaded. It means that the start rate can never be higher than 50% of the number of modules that are already in development. In addition, the start rate can never be higher than the remaining modules waiting for development divided by the average start time.
The development rate depends on the number of modules in development and the average development time. (It takes on average 3.5 years to develop one module.) Next, the modules are tested. Testing takes on average 0.5 years (average testing time). Testing can have two outcomes: either the modules are approved (approval rate) which means that they are completed, or they are disapproved (disapproval rate) which means that they have to be reworked and go back to stage of modules in development. Whether modules are approved or disapproved depends on the approval percentage.
The percentage finished is the number of modules that is completed divided by the total number of modules of the new airport (which is 750 modules). When the percentage finished is higher than or equal to the percentage that needs to be finished before opening, it is time to open the airport (airport opening time).
Question 1b – Extend your causal loop diagram with the impact of the airport development project on the economic situation of FBB. Show the new and extended causal loop diagram in your term paper. Explain/describe your loop(s) (max 5 points).
Hint: only use the words written in italic in your causal loop diagram
As soon as the airport is opened, the sales revenues per passenger can be increased. This will have a positive effect on the rate of sales revenues and consequently on the accumulated profit. (Note that when the accumulated is negative, FBB will actually have a deficit.)
But the development project also requires money and therefore FBB needs to take up loans that lead to interest costs. Furthermore, as soon as modules are approved, they are part of the tangible assets, which are subject to depreciation costs. So, the approval rate has a positive effect on the tangible assets. The higher the level of tangible assets, the higher the depreciation rate will be, leading to more expenses.
Both the approval and disapproval rate will determine how many loans FBB needs to take up. The higher the loans (liabilities), the higher the interest that needs to be paid, which also adds to the expenses. Loans can be repaid (repayment rate) when the accumulated profit is high enough.
Question 2: Make a system dynamics model (total 35 points)
To get you started with the simulation model, a “starter kit” is already made for you, which models the economic situation of FBB with three stocks and their flows. You can find this starter kit on It’s Learning. You have to build the rest of the model around these stocks and flows and make connections to and from the parts that you will be adding and these existing parts. On top of this starter kit you will see many green variables. These are the constants that you need for question 2a and 2b. All other exogenous variables (constants) used for the economic situation are also shown in green. You will also notice some red words. These are “comments”. These are meant to give you a hint about how to connect the new parts in the model (the parts you will be making in question 2a and 2b) with the parts in the starter kit. For example, you need to model the “percentage finished” yourself and then connect it to the variable “airport opening time”. When you have done this, you can delete the red comment “percentage finished”.
Question 2a: Model the airport development project in Vensim (15 points)
In question 1a you developed a causal loop diagram of the airport development project. Use all the variables that were written in italic to develop a stocks and flows diagram in the starter kit-model that is provided. Show the stocks and flows as a figure in your term paper. Provide a list of the equations that you defined to make the model work.
Question 2b: Model travelers and passengers in Vensim (15 points)
An airport cannot function without passengers, so we need to model the FBB passengers per year. FBB passengers per year is determined by the number of travelers using FBB (as opposed to other airport or other means of transportation) and the average number of flights per FBB traveler. To figure out the number of travelers using FBB you can use the Bass Diffusion Model as inspiration. Here, the potential adopters are the travelers, and the adopters are the travelers using FBB. The various constants (advertising effectiveness, adoption fraction, etc.) are given in the starter kit.
The difference between the normal Bass Diffusion Model and the model that you are making, is that the population of travelers (“potential adopters”) is expected to grow each year with a growth percentage of 11% per year. Show the stocks and flows as a figure in your term paper. Provide a list of the equations that you defined to make the model work.
Question 2c: Run the base case (5 points)
Once you have modeled the development project, the travelers and connected the right variables to the stocks and flows describing the economic situation of FBB, you will be able to run the model from 2006 to 2040. (Hint: if you made the model correctly, your base case simulation should be similar to the actual numbers presented in Table 1, see also the appendix for a comparison of actual and simulated numbers.)
Show the graph of the accumulated profit of FBB in your term paper.
Show the graph of the liabilities in your term paper.
Explain why the liabilities keep increasing for a number of years even though the accumulated profit is also increasing.
Question 3: Use the base case scenario to answer the following questions (total 15 points)
Question 3a: When will the airport open? (max 5 points)
Show the graph or table that you used to answer this question in your term paper.
Question 3b: Is the quote from the annual report of 2018 a lie? (max 5 points)
In the beginning of this term paper the following quote from the annual report of 2018 was presented: “The operative results (EBITDA) of the Berlin airports achieved a new record value in 2018.” Is this a lie? You have to use the model to figure this out, but you need to include new variables.
Question 3c: How many modules will be reworked from 2006 to 2040? (max 5 points)
The main reason for all the delays in the airport development project is the rework (modules that are disapproved and need to go back to the development phase). What is the total number of modules that are expected to be reworked from 2006 to 2040? (Modules that need to be reworked three times will count for three.) You have to use the model to figure this out, but you need to include new variables.
Question 4: Test of scenarios: Opening sooner or later (total 10 points)
Although it is practically impossible to open the airport earlier than in 2019, with the model we can simulate what would have happened with the economic situation of FBB had they opened earlier than 2019. Also it would be interesting to figure out what could happen when they postpone the opening again with a couple of years. As you recall, in the base case we assumed that 85% of all modules need to be completed before opening. Now, you need to model two extra scenarios: one in which only 80% of all modules needs to be completed before opening, and one in which 90% needs to be completed.
Compare the opening times of these three scenarios.
Compare the accumulated profit of FBB in these three scenarios.
Compare the liabilities of FBB in these three scenarios.
Compare the tangible assets of FBB in these three scenarios.
Based on the simulation results, what is your recommendation with respect to the opening time?
Question 5: Model the green trend (total 15 points)
As you probably noticed, the base case assumes that the number of travelers of FBB keeps increasing over the years. This may not be a realistic assumption, considering the green trend that is currently getting stronger and stronger. This trend may cause travelers in general and FBB travelers to reconsider their travel plans and choose alternative ways of transport. (When travelers go green, they leave our system/model.)
Let’s assume that the percentage of travelers (both in general and the FBB travelers) that “goes green” starts to increase with 1% each year from 2020 to 2040. You can model this by using the following equation:
go green percentage = RAMP(0.01, 2020, 2040)
You need to change the model to include this percentage in the right place. Simulate this green scenario.
Compare the FBB passengers per year in the green scenario with the base case.
Compare the accumulated profit of FBB in the green scenario with the base case.
Compare the liabilities of FBB in the green scenario with the base case.
What is your conclusion based on the simulation results?
Question 6: Find other options for FBB (total 10 points)
Assuming this green trend becomes the
new norm, the situation does not look very positive for FBB. Can you think of other
options that may influence the economic situation of the FBB in a positive way?
For example, is there something that can be done with the values of the
exogenous variables that have a positive impact on the accumulated profit?
Model two improvements, describe their influence on the accumulated profit and
describe why/how they may work in reality (in other words: the improvements
that you suggest have to be realistic, at least for the next 10 years).
Appendix: Actual
vs simulated numbers (base case) from 2006-2018
[1] I would like to thank the idea for this case and providing me with all the numbers required to build the model. I have used his working paper “The Impact of the BER Project on the Flughafen Berlin-Brandenburg GmbH (FBB)” to develop this term paper assignment. I had to make many simplifications though, so it is fair to say that the assignment is inspired by actual events, but all forecasts made by the model have to be treated with a great deal of caution.
[2] Here I assumed a constant interest percentage of Liabilities of 4%.
[3] Here I assumed a constant depreciation percentage of Tangible Assets of 3%.
