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The outlook for airport privatisation and financing, Part 2: CAPA now tracking 475 airport investors

26-Sep-2013

In Part 1 of this report into the global outlook for airport privatisation and financing, we reviewed the evidence of private placements, bonds and debt funding, as well as some of the leading airport privatisation activities in Europe. In this concluding part, we review activity in the rest of the world.

The report coincides with the release by CAPA of its new Global Airport Investors Database, which is now available as an interactive online database at the CAPA website. It currently lists over 475 active, recently inactive and potential investors in airports, infrastructure and estate, located in all corners of the globe and is part of the comprehensive new CAPA Airports Data Suite, available as a premium add-on to the CAPA Membership service.

USA – airport privatisation slots up; applications down

In the United States, the number of ‘slots’ open to airport owners to lease their facilities under the auspices of the 1996 Pilot Privatisation Program was raised from six to ten. But the future of this activity in the US still rested on the progress of the Puerto Rico and Chicago Midway transactions.

The former came to a successful conclusion in 2012, with a consortium (‘Aerostar’) of Mexico’s ASUR and Highstar Capital (US) being the winning bidder to operate San Juan Luis Munoz Marin Airport on a 40-year lease, compensating the Puerto Rico Airports Authority with USD615 million upon closing of the transaction and annual lease payments over the life of the lease.

That deal could have been scuppered by the Governor-elect whose administration is more averse to public-private partnerships leasing government assets than was its predecessor, even if he seemed to be committed to honouring a signed contract.

The privatisation was approved by the FAA and the Department of Transportation on two successive days in late Feb-2013.

While it is true to say that US bankers and industry officials are broadly keen to import a business model that is widely used in Europe and Asia there is still outright suspicion amongst a swathe of public officials at all levels and amongst the general public.

Chicago Midway has not succeeded after two tries

That is partly the case at Chicago but it was lack of financing that ended the last attempt to source a private sector concessionaire. The Chicago Midway lease deal was put on hold in 2009 when the successful consortium admitted it could not raise the necessary finance. Since then the FAA bent over backwards to keep it alive, successively extending the deadline date. Newly elected Mayor Rahm Emanuel distanced himself from it during his election campaign but seemed since to have changed tack and to be preparing to put the airport on the market again, but with a shorter lease (the original was for 99 years) and more restrictions, which investors won't like.

Chicago (2008/9) and Puerto Rico (2012/13) deals compared

With airport pricing still suppressed and USD200 million more debt added in 2011, it will be much harder to shore up the city’s pension fund, which was part of the original intention. Nevertheless there would be another request for proposals that would test the market's appetite for leasing Midway under different terms that include ownership continuing to remain with taxpayers.

But Rahm Emanuel couldn't afford to wait because the city had only until 31-Dec-2012 to move ahead or give up its FAA waiver to privatise the airport. Chicago could reapply for the waiver later, but not if another city lodged an application first because only one of the 29 large hub airports in the US can be privatised under current federal law.

In the last week of Dec-2012 Mayor Emanuel decided to revive the city's effort to reap cash by leasing Midway International Airport to a private operator, although under sharply different terms than those proposed by former Mayor Richard M. Daley, including a sharply reduced lease period of “less than” 40 years; just about the minimum length of a lease that offers the opportunity to invest in revenue-generating improvements that will pay off over time.

The other major structural change from the previous Midway deal is that Mayor Emanuel wants enough cash up front to pay off Midway's approximate USD1.4 billion of debt.

As with all such leases the City will continue to have ownership of the airport and will receive a percentage annual fee that will grow over time.

The City took the step of delivering a preliminary application, timetable and draft request for qualification (RFQ) to the FAA pursuant to the FAA’s Airport Privatisation Pilot Programme. This step preserved Midway’s slot in the FAA pilot programme and allowed City officials to gain a better understanding of market conditions and revenue generation possibilities for the potential lease of the airport.

The RFQ was additionally met with support from the airline industry, specifically from Southwest Airlines, which also supported the 2008/9 application, partly because it locked in preferential fees. Southwest believes the potential for a deal like this could have positive implications on service expansion and pricing of travel.

The RFQ was released in Jan-2013 and closed on 22-Feb. A review of the potential bidders was undertaken with a view to completion by the end of 2013. There were 16 of them, and they were narrowed down to seven that were considered to have both the operational and financial capabilities sought in the RFQ. The city identified them as:

Macquarie Infrastructure funds were involved in the original 2008/9 bidding as was Vancouver Airport Services (now Vantage Airports Group), which expressed interest but did not proceed further.

The Great Lakes and IFM/MAG JVs were the final two bidding groups for the USD2 billion lease contract for the airport.

But then, in a surprise move in Sep-2013, Mayor Emanuel terminated the bid procedure after the IMF/MAG party withdrew over valuation issues. He did not believe a ‘competitive bid’ procedure could continue with only one bidder. This is the second time it has come to an end and one has to wonder if there will be a third time.

Illinois also has Gary and the South Suburban Airport

Meanwhile, just down the road from Chicago, Gary (Indiana) Regional Airport announced the Gary/Chicago International Airport Authority had authorised the airport to seek public-private partnership with private investors for USD100 million for airport development. RfPs were submitted from eight sources. But lurking in the wings is the resurrected proposal to seek a PPP for the development, construction and operation of the proposed South Suburban Airport, the third airport in Chicago.

The State of Illinois has invested approximately USD40 million to date on land acquisition. The Fiscal Year 2014 budget also includes the remaining USD71 million needed to complete land acquisition for the inaugural footprint. An Airport Master Plan for the South Suburban Airport that is now under review by the FAA.

New York La Guardia is looking for private investment for its upgrade

In New York, the Port Authority of New York and New Jersey surprised the airport investment world by saying, in May-2012, that it was seeking USD3.6 billion in privately sourced funding for La Guardia Airport’s renovation project.

Construction is expected to begin in 2014 and may take eight years. TAV Construction/AdP was amongst the first organisations to express interest in a consortium also involving Tutor Perini, Goldman Sachs, Suffolk Construction,STV, Arup and Kohn Pedersen Fox. (The LGC Central Terminal Consortium).

The others are:

  • Aerostar New York Holdings, a group that includes Highstar Capital, Aeropuerto de Cancun, Hunt Architects, Fentress Architects, VRH Construction and RBC Capital Markets;
  • LGAlliance,pairing Macquarie Lend Lease, Turner, Hochtief, Parsons and Gensler;
  • La Guardia Gateway Partners, a partnership of Vantage Airport Group, Skanska, Meridiam Infrastructure, Tishman Construction, Parsons Brinckerhoff, Morgan Stanley, Citigroup and Wells Fargo.

The US is still a relative latecomer to the airport privatisation trend but despite the public concerns referred to earlier it can at least take advantage of lessons learned over the past 25 years or so in other countries, as well as benefitting from the capital amassed by scores of global infrastructure investment funds and the development of world-class airport companies as potential bidders. It is really a question of politicians removing the scales from their eyes. (continued below)

CAPA introduces new Global Airport Investors Database, part of the unique CAPA Airport Data Suite

This report coincides with the release of CAPA's Global Airport Investors Database, which is now available as an interactive online database at the CAPA website. It currently lists over 475 active, recently inactive and potential investors in airports, infrastructure and estate, located in all corners of the globe.

A work in progress since 2010, the newly available database is updated frequently and is conveniently divided into sections that cover:

  • Company data (country location; address, telephone and email; senior level contacts, website URL);
  • Type of enterprise (operator/financier/fund etc);
  • Investments and contracts;
  • Previous investments, failed and withdrawn bids;
  • Potential future investments and sales;
  • Financial results where known, in some cases with four years of historical record;
  • Ranking by size of turnover (airport operators).

The database enables subscribers to learn exactly who the investors are, their preferences, and whether they are increasing or decreasing their presence in the airport sector.

Sample of the CAPA Global Investors Database

In addition, data is presented in a variety of graphical formats, permitting comparison of investment between countries and regions. Inbuilt links permit subscribers to view details of invested airports in depth.

The database, part of the new CAPA Airports Data Suite, will be of interest to single and group airport operators; national, regional or local government or private organisations seeking investors in their airport(s); investment banks; pension funds; venture capitalists; private equity funds; hedge funds; sovereign wealth funds; financial intermediaries/brokers/deal arrangers; legal firms active in the aviation sector; architectural firms active in the aviation sector; airlines considering investing in airports; other transport sector firms considering investing in airports; and the full spectrum of aviation industry suppliers.

The Outlook for Airport Privatisation and Financing: Part 2 (cont)

Next (second) round of Brazilian transactions reviewed

In Latin America the process of privatising some of Brazil’s airports in preparation for the 2014 FIFA World Cup (now less than a year away) and the 2016 Olympic Games, got underway at last in 2012 but then began to stall. Urgency is of the essence. Rio de Janeiro Galeão International Airport’s upgrade works are five months behind schedule and were not ready for the FIFA Confederations Cup in Jun-2013 nor for the World Youth Day in Jul-2013, prompting questions about the World Cup.

Indeed in Aug-2013 it was reported that airport works in preparation for the World Cup in 2014 continue to face problems with 50% either behind schedule or not even started. 10 of the projects have not reached 30% completion.

The first round of transactions, completed in Feb-2012, saw airports in Sao Paulo and Brasilia leased out following a ‘trial run’ on a BOT project in Natal, the São Gonçalo do Amarante Airport. Foreign investors and operators such as ACSA (South Africa) EGIS (France) and Corporación America SA (Argentina) joined local Brazilian organisations, some of which were pension funds, to offer amounts that hugely exceeded the minimum prices demanded, in one case by 673%, ensuring the raising of USD14 billion in funds for the Brazilian government, but allegedly without the imposition of safeguards to ensure the new owners could recover their investment through efficiency gains and traffic growth rather than by increasing non-aeronautical fees.

The procedure came in for criticism while the government vacillated about the next round, which will see the main airports in Rio de Janeiro and Belo Horizonte leased out, again probably on 25 to 30-year concessions (the first round concessions varied from 20 to 30 years). The second round could feature prior assessment of bidders and there could be sequential rather than simultaneous auctions.

It remains to be seen if the investors will retain the same degree of appetite and there are further complications in the form of a new-found zeal in the government to build or modernise hundreds of new airports in smaller cities. The potential still remains, though. While passenger growth is currently running at 12% per annum there are still only 0.3 air trips per inhabitant annually versus 1.7 in the ‘developed world.’

It looked as if decisions about the second round would not take place until April or May 2013. But then the Brazilian government announced, on 20-Dec-2012, the opening of bidding for concessions to operate Rio’s Galeao and Belo Horizonte’s Tancredo Neves (aka Confins) airports. Controversially, the bidding would reportedly be restricted to airport operators with experience of managing airports that serve least 35 million passengers per annum, and depending on investor interest, that could serve as the basis for concessions to operate Salvador Deputado Luís Eduardo Magalhães International Airport and Recife Guararapes International Airport in 2013 or 2014 as well. Infraero will maintain a 49% stake in the privately-operated airports. The figure of 35 million ppa is close to twice what ACSA, a successful bidder earlier in 2012, hosts in a year and would disenfranchise some of the groups, headed by Brazilian firms that are not in the business, that were put together for the purpose of bidding for these concessions.

Companies reported to be pursuing the second round schedule include Spain's national airport operator AENA (which has enough issues of its own at home), possibly in partnership with a Brazilian firm and Brazil’s Invepar, which recently secured the São Paulo Guarulhos International Airport concession. Triunfo, UTC Participações and Infravix are believed to be on the operator's short-list of possible partners. In addition, Argentina’s Corporación América, Vantage Airports, ACSA and France’s Egis Avia are also interested in participating. Ferrovial, Schiphol and Aeroports de Paris previously expressed interest in participating.

In tandem, the government will expand regional aviation through a USD1.1 billion infrastructure investment plan, with the goal of having 96% of the population living within 100km of an airport. 270 airports will be expanded and investment will be financed from proceeds from the operation of São Paulo’s Guarulhos airport, Brasilia airport and Campinas Viracopos airport, in which the state-owned operator retained a 49% stake following their partial privatisations. Having been neglected for so long Brazil’s airports have suddenly become the most critical issue facing the government. As an aside it hopes to attract BRL11.4 billion (USD5.4 billion) in investment from the granting of concessions to operate the Rio and Belo Horizonte airports.

The auction for the concessions would likely now be in Oct-2013. The results of ongoing technical studies will be forwarded to Civil Aviation Agency ANAC and then be subject to a 30-day period of public consultations, after which they will be referred to the Court of Audit for evaluation. The notice of the concessions is then expected to be published two months prior to the expected granting of the concessions. A decision has yet to be made regarding the eligibility of the winners of the previous round of concessions to participate in the coming round.

A number of key changes were made to the privatisation procedure in early Aug-2013. Firstly, the previous airport privatisation ‘winners’ at São Paulo GRU airport as it is now known, Brasilia Airport and Campinas Airport can bid again but will face additional restrictions should they participate in the upcoming second round privatisations, where they will not be able to nominate directors to the board. Past winners will also not be able to hold stakes larger than 15% in any consortium, after a revision to the restriction which banned their participation altogether as a measure to ensure competition in the process. 

The Government also amended stipulations in the concession agreements for the privatisations following recommendations received during public hearings on the draft concession contracts. Amendments include:

  • Minimum bids:
    • Galeão: Increase from BRL4.65 billion (USD2.03 billion) to BRL4.72 billion (USD2.06 billion);
    • Tancredo Neves: Decrease from BRL1.56 billion (USD684 million) to BRL994 million (USD435 million);
  • Minimum investment in upgrades:
    • Galeão: Increase from BRL5.2 billion (USD2.2 billion) to BRL5.8 billion (USD2.5 billion), including tax benefits;
    • Tancredo Neves: Increase from BRL5 billion (USD1.53 billion) to BRL 3.6 billion (USD1.57 billion), including tax benefits;
  • The requirement to construct a third runway at Galeão by 2021 is dropped; instead the third runway construction will be triggered by demand once the airport reaches 265,000 movements p/a. 

The changes are now due to go before Federal auditors for final approval before the final concession contracts can be published, with approval expected within 45 days.

The concession agreements may include clauses relating to links with a future high-speed rail line linking Campinas, São Paulo and Rio de Janeiro, according to the Secretariat of Civil Aviation regulation and competition bureau, which did not rule out further changes before the final concession notices are published in Sep-2013 and the auction held in Oct-2013.

As for further stages of privatisation, studies on taking Infraero public could begin in 2014, with the IPO to follow in 2017. In the interim the National Treasury will inject BRL1.7 billion into Infraero in the coming months", as the operator increases investments by 40% in 2013.

All these plans are now influenced by the peoples’ movement that was evident before and during the Confederations Cup, which was prompted partly by perceived lavish expenditure on sporting facilities (rather than airports specifically) and the tepid performance of the country’s economy during the last two years, once the cornerstone of the ‘BRIC’ countries. One credit analyst, Standard and Poor’s says it foresees three years of weak growth, based on modest exports, declining private-sector investment, and the possibility of lower household spending. The new scenario is undermining Brazil’s sovereign credit rating.

Colombia’s National Agency of Infrastructure launched a consultancy tender for a feasibility study to grant concessions to five regional airports in the country. The COP1.55 billion (USD850,000) contract for the 16-month project was to be awarded on 21-Dec-2012. The airports involved in the concession process are Barranquilla Ernesto Cortissoz International Airport, Cartago Airport, Armenia El Eden Airport, Neive La Marquita Airport and Popayan Airport.

The National Infrastructure Agency launched, in Jul-2013, the pre-qualification process for bidders in the privatisation of Barranquilla Ernesto Cortissoz Airport, the fifth-busiest in the country. The winning bidder will have one year to take over operation of the facility under a 15-20 year concession agreement, which envisions COP257 billion (USD135 million) in investment, COP120 billion (USD63 million) of which is to be invested in the first five years.

Bolivia seems to be heading in the opposite direction. Early in 2012, Sabsa, the operating company responsible for airports in La Paz, Santa Cruz and Cochabamba was nationalised by the Morales government for, amongst other reasons, “failure to invest”. This action might be regarded as the beginning of Abertis’ exit from airport management.

Switzerland’s Flughafen Zürich was, in Jun-2012, awarded the concession for extension and operation of Iquique Cavancha in Chile through the A-Port Chile joint venture. Since the handover in Jan-2013, A-Port Chile is responsible for the extension and operation of the airport for a period of four years.

Then, in Mar-2013, the Chilean government issued a prequalification call to international investors interested in participating in operating and developing Santiago’s Arturo Merino Benitez International Airport. The current concession concludes at the end of 2015. The successful consortium will be expected, among other things, to construct a new international terminal in return for a 15-year concession. Chile’s Ministry of Public Works said the upgrade will cost USD700 million and triple the airport’s capacity to 29 million passengers per annum by 2030. The pre-qualification process for the tender began 19-Feb-2013 and bidding is expected to commence in 2H2013. The project is reputed to have attracted at least 25 parties, including some that are new to the industry.

Peru claims to have attracted (unnamed) Chinese companies in the concession to construct and operate Chinchero-Cusco International Airport, which is on the tourist run close to Machu Picchu. The Peruvian investment promotion agency Proinversión will unveil an amended concession agreement for the airport which will allow for 24-hour operations, and foresees an expansion project to become necessary by 2025 or 2027 to boost its initially projected 3.5 million passengers per annum capacity upon the airport's completion in 2019. Apart from the Chinese companies other parties including Aeropuertos Andinos de Peru, Korea Airports Corporation, Aéroports de Paris, Schiphol Group, and Flughafen München as well as unnamed public-private companies from Thailand and India are reputed to be in the frame. The concession is expected to be awarded on 23-Dec-2013. If Schiphol Group is involved (as it may also be at Istanbul) it would mark a welcome return of the Dutch operator, which has been dormant in foreign markets since 2010.

Paraguay’s new President, Horacio Cartes, is hoping to attract new private investment in infrastructure and airports, totalling up to USD2.7 billion.

Honduras has been trying to arrange a concession on Palmerola Airport without success. Now the concession will go to public auction in 2013, after negotiations between the Government and the concessionaire Airports of Honduras failed. Construction of the new airport is expected to cost USD150 million, and President Porfirio Lobo is thought to be seeking construction of the airport to begin before he leaves office in Jan-2014.

Australian and New Zealand investors now focus abroad

In Australia and New Zealand there has been little privatisation activity other than the seemingly endless discussion about where to locate a second Sydney Airport, who might build it, and whether or not there should be one at all. That discussion talk a new twist in Jul-2013 when an announcement by Australia's then Deputy Prime Minister and longstanding Transport Minister Anthony Albanese suggested that the 40+ year saga to find a location for Sydney’s much-needed second airport may be moving towards a final phase. He said the government is aiming to commence construction of a second airport for Sydney in "the next three years."

The newly elected Liberal Minister Truss has since indicated that this outcome remains likely under the new administration.

But as mentioned earlier, these two countries are responsible for a glut of investors which are targeting airport M&A transactions and particularly in Europe. Numbered amongst them are (with the appropriate airports they bid on in 2012):

  • Industry Funds Management (Australia): London Stansted and ANA Portugal
  • Infratil [HRL Morrison] (New Zealand): London Stansted
  • New Zealand Superannuation Fund: London Stansted
  • Retail Employees Superannuation Trust (Australia): London Stansted

Japan prepares for its first large airport infrastructure deal while Korea backs off

In Japan, a process has begun to privatise the already corporatised New Kansai International Airport Company via a scheme that would see foreign and domestic investors managing the two airports (Kansai and Osaka Itami) for 40-50 years from 2015. It is the first large airport infrastructure deal in Japan. The company aims to raise USD7 billion to USD15 billion in the privatisation process. This could be the first of 29 airport privatisations in Japan, with other regional airports to follow to a grand total of 94. Other, non-airport infrastructure such as toll roads are expected to be included in the process as Japan struggles to reign in debt.

In contrast, South Korea’s government, having been committed for some time to selling 49% of the shares in Seoul Incheon International Airport to a strategic airport management firm (whilst retaining control of it), as part of its overall plan to enhance public sector efficiency and customer service, suddenly decided in Aug-2012 not to press ahead with that plan. It may, however, revise related laws to make the sale possible, although it faces considerable opposition. Earlier in the year the Ministry of Strategy and Finance and Ministry of Transportation stated the Government had sold the operational rights of Cheongju International Airport to a private consortium for KRW25.5 billion (USD22.6 million). The consortium, named the Cheongju Airport Group, was comprised of Korea Aviation Consulting Group, Heungkuk Life Insurance and HAS & ADC.

Meanwhile, China is still building and opening airports at a rapid pace (work began on 14 new airports in 2012 and will commence on another 12 in 2013) but there has been more emphasis on funding that is generated internally by the state in recent years, at the expense of the few foreign companies that had previously been tempted to invest time and money there (and which has included Fraport, Schiphol Group, Aeroports de Paris, Vinci, Copenhagen Airports and Changi Airport International).

That may be about to change again though. The China Civil Airport Association was quoted as saying that China needs to ensure it can raise sufficient funds before it accelerates the nation’s airport construction projects further, adding, “the construction of airports calls for big investments but the repayment is slow”. 33 of China’s 180 registered airports were operating at a loss at the end of 2011, at an average of CNY16 million per airport. The reason given by the Civil Airport Management Ordinance as to why airports continue to be built despite so many of them losing money is that airports are considered public good infrastructure projects, so it’s more important that they open more routes and more flight times than turn a profit.

But, of course, ‘slow repayment’ on investment is even less attractive to the private sector than it is to China’s regional governments. The acid test will be whether or not China concludes that it can build the New Beijing Airport at Daxing entirely without private sector support. That airport, to handle a little matter of 130 million ppa, and similar in size to the new Istanbul airport, is scheduled to be open by the end of 2017.

The way to go for the Philippines governmentwas to achieve its target of eight public-private partnership (PPP) projects in 2012. Philippine Airlines (PAL) plans to construct a USD6 billion airport serving Manila which could handle four times as many flights per hour as the existing Manila Ninoy Aquino International Airport (NAIA) featuring at least two and possibly four runways, a shopping mall and an elevated access road. The airport would be constructed by 2015 and discussions with potential investors have been underway since Aug-2012. Philippine Airlines would contribute USD500 million to the project. The location of the proposed airport was not disclosed, but it would be closer to Manila than is the Clark International Airport. A plan for the airport was to be presented to the Philippines government in early 2013 but was put on hold indefinitely owing to “unclear” government policy. Meanwhile the San Miguel Corporation, a food, beverage and packaging company, entered into talks with the LT Group for the possible construction of a new airport which would support PAL services.

The Mactan Cebu International Airport is also to be operated under a PPP. The Ayala Corporation and Aboitiz Equity Ventures signed an MoU in Dec-2012 with HAS & ADC Airports Corporation to form a consortium to bid for the contract to build the new passenger terminal there, also rehabilitation of the existing terminal and management of both facilities. As of Aug-2013 there were seven bidding consortia. The company now hopes to award the concession for the airport's PHP17.5 billion (USD403 million) terminal construction and operation project by early 2014.

Indonesia is similarly committed to the airport sector. 10 new airports will be constructed in 2013 and 15 in 2014 at a cost of USD3.3 billion. A second airport serving Jakarta may be built on reclaimed land in Jakarta Bay.

The projects are part of the Transport Ministry’s 2030 Airport Master Plan, which covers the construction of 46 airports. The government has already said that it invites prospective private sector participants with open arms.

Vietnam’s Civil Aviation Authority proposed in May-2013 opening Vietnam's airports to international investment. Under the proposal, airports categorised as having significant international traffic or an important role in national security, including those at Hanoi, Da Nang, Ho Chi Minh City, Long Thanh and Nha Trang Cam Ranh, would continue to be primarily funded and managed by the government, while other airports would be opened to foreign investment and management.

In Myanmar the tender for operating rights to Yangon Airport attracted a wide swathe of bidders from across the world including US private equity firms and Japan’s New Kansai Airport, all keen to participate in the fledgling new democracy.

India issues tenders for six airports on PPP basis, more to follow

The cornerstone of India's airport modernisation programme was the award of brownfield PPP concessions for the two largest gateways, Delhi and Mumbai in 2006 and the opening of greenfield PPP airports at Bangalore and Hyderabad in 2008. As a result Delhi, Bangalore and Hyderabad now have world class airports, and Mumbai will by the end of 2013, although charges to airlines have also increased sharply.

The government plans to extend the use of the public-private partnership route in the airport sector as it cannot fund by itself the investment of around INR175 billion (USD14 billion) which it estimates will be required in airports over the next five years.

In Sep-2013 the second round of privatisation got under way with the tender process commencing for the award of six PPP concessions for Chennai, Kolkata, Ahmedabad, Guwahati, Jaipur and Lucknow airports, to be followed by a further nine airports. 

Under the timetable announced by the government for the first six airports, bids are due in Dec-13 with the awards to be announced in Jan-14. This is an aggressive schedule and based on past experience there may be some slippage, however the government appears committed to fast-tracking the process to the extent possible. 

The state-owned Airports Authority of India (AAI) recently completed the modernisation of Chennai and Kolkata, its two largest and most profitable airports. It was previously expected that the AAI would invite airport operators to bid for a management contract at both airports, however this was subsequently changed to the offer of a long-term lease on a PPP basis. 

The government has also announced plans to fast‐track the development of at least 50 (some statements have indicated up to 100) greenfield low cost airports to encourage regional connectivity. In the first phase concessions are expected to be awarded for 12‐15 airports primarily in the states of Andhra Pradesh, Karnataka, Rajasthan and Uttar Pradesh. Further direction on these plans is expected shortly.

However the tender processes for the construction of a second airport in Goa at Mopa, and the second Mumbai airport continue to be delayed. Navi Mumbai is facing challenges with respect to land acquisition with costs spiralling to a level that is impacting the viability of the proposed airport. The Central and State governments have identified Navi Mumbai Airport as one of the national priority infrastructure projects and will seek a solution to this situation, however with traffic growth returning to the market the current Mumbai airport is expected to reach saturation before the second airport is ready. India's commercial and financial capital cannot afford to have extended delays to the project.

Privatisation is patchy in Africa

As is often the case there has been little in the way of airport privatisation activity in Africa. 11 of 33 bidders were pre-qualified for the second phase of bidding for the build-operate-transfer contract for the new Bugesera International Airport development in Rwanda, in Jan-2012. Bidding closed in Mar-2012 and work on the new airport was expected to commence at the end of 2012 or early 2013.

In South Africa, where there is a small number of privately operated airports in addition to those of ACSA, Lanseria Airport in northern Johannesburg was sold to a group of private investors, including Harith, Nozala and Public Investment Corporation in Nov-2012, subject to regulatory approval. The airport was owned and operated by a private consortium since 1991.

In mid 2013 state airports operator ACSA, which has interests in foreign airports at Mumbai in India and Sao Paulo in Brazil, announced it was in discussions with several countries in Africa as part of plans to expand its investments in the region. The company plans to submit a strategy in "the next few months" for the acquisition of stakes in African airports with the aim of increasing revenue and improving African airport infrastructure, in a manner similar to the company's involvement in India and Brazil.

There is much interest in what is happening in Ghana. The Ghana Airports Company is seeking USD738 million in funding for public-private partnership upgrade projects at five airports, The projects include USD402 million to develop Accra Kotoka Airport as a regional hub, USD173.2 million for rehabilitation and expansion of domestic terminals at Kumasi Airport, USD64 million for projects at Tamale Airport, USD35.5 million for Sunyani Airport and USD63.5 million for Takoradi Airport. Passenger traffic in the country is expected to increase from 1.8 million in 2011 to six million by 2015.

Throughout Africa, as in India, the PPP is the key to improving airport infrastructure.

No sudden upsurge in deals forecast for 2013 but new markets are emerging

So what will happen in the remainder of 2013 and into 2014? There is no evidence of a sudden upsurge in deals as economies throughout Europe continue to be repressed, often leading to knock-on effects globally. There are still significant deals, and they cover the spectrum of activity, such as Hochtief (the completed on-sale of an entire corporate division with airport interests in Europe and Australia); Greece (concession agreements on ‘specified’ regional airports); and Istanbul (a BOT transaction) as well as the forthcoming second round in Brazil and whatever ultimately happens to AENA.

But in the main transactions are reduced in number from previous years and apart from odd examples like the regional airports in England, Antwerp and Ostend in Belgium, Palermo and Catania in Italy and Kazanlak in Bulgaria, the smaller secondary level airports are noticeable by their absence. In the current climate, if you are not established, with sufficient volume of movements and passengers (and preferably not all ‘low cost’) and even more so if you are lodged at start-up level, you are going to have great difficulty attracting investors unless you have, for example, a vast airport non-aeronautical estate that can be given over to solar panel farms.

But on the other hand forecasts emanating from industry bodies remain upbeat.

Airport Council International (ACI)’s forecasts for 2012-2016 assume the emerging economies of Asia Pacific, Latin America and the Middle East will see the strongest passenger growth in the period led by routes within or connected to China, where airports are sprouting up across the country (but now largely financed out-with the private sector). ACI projects 1423 million passengers overall and 660 million in Asia, which means that Asia will provide 46% of the additional passengers between 2011 and 2016. It is no surprise that countries such as the Philippines, Indonesia and Vietnam are in the vanguard of those seeking private sector airport investments. These projections are supported by very similar ones from airline trade body IATA.

ACI traffic forecast 2012-2016 - total passenger growth, by region (%)

Region/year

2012

2013

2014

2015

2016

Average

Rank

Africa

 4.8 4.8 6.2 5.7 5.5 5.4 4

Asia Pacific

7.0 7.7 7.6 7.3 7.1 7.34 1

Europe

2.0 3.6 4.2 3.7 3.4 3.38 5

Latin Am/Caribbean

5.3 6.8 6.4 6.0 5.5 6 3

Middle East

7.0 7.3 6.3 5.7 5.3 6.32 2

North America

2.8  2.8  2.9 2.5 2.3 2.66

6

WORLD

4.1 5.1 5.2 4.8 4.8 4.8  

Through to 2016, the US will continue to be the largest single market for both domestic and international passengers. Ageing (occasionally chronically ageing) infrastructure and tight restraints on available government funding (even despite the country having stepped back from the ‘fiscal cliff’) mean that municipal airport owners will again have to consider whether leasing them out is the best way forward.

Five of the 10 fastest growing markets for international passenger traffic are among the Commonwealth of Independent States or were part of the former Soviet Union with the others in Latin America, Africa and the Asia Pacific region. The CIS, as well as Russia itself, will need private sector help to cope with this upsurge in passengers. Latin America has always been a hotbed of privatisation but does not have a good track record of deal transparency.

Africa is Africa. While some countries are progressive and outward looking, others are most certainly not. But Africa, the ‘last great frontier’ in aviation, is on the cusp of an LCC revolution that could impact significantly on how airports are financed. Much will depend on how well FastJet, the first genuinely ‘European-style’ LCC in Africa, fares, and how quickly it expands, as it has for example into South Africa.

Even in Europe there is some hope for investors. Some European companies, including Vinci, expect further opportunities to acquire airport concessions in the next two years compared with the situation two years ago on the basis that a certain number of European countries will have to accelerate their privatisation programmes. Amongst them are Portugal – where the process is already concluded; Greece; and Spain, where, as mentioned earlier, the government has begun to review the breakup of AENA again in 2H2013. Infrastructure funds may additionally sell all or part of their airport assets in Europe, as has been the case with Macquarie Group, GIP and Highstar Capital.

Who are the movers and shakers, and who is new to airport privatisation and investment?

There have traditionally been organisations wedded to airport privatisations, whose names frequently appear on most lists of accredited bidders for airport deals. Equally there are the aggressive newcomers, many of them from the mysterious world of international finance; be they infrastructure, pension or sovereign wealth funds; private equity firms or investment banks.

The following table lists some of those organisations to watch out for, with reasons, and whether or not they fit the category ‘Old School’ or ‘New Wave’. The table is representative of the information to be found in the GAID, in a reduced format. Those in bold are regarded as serious and long-term players while those in italics are less certain to play a significant role, as explained in the text.

Organisation name

Country

Type

Category

Brief rationale for inclusion

Fraport

Germany

Operator/investor

OS

Probably the world’s leading operator/investor, active in several continents and with a good track record. Turns up at just about every major transaction and remains committed to international expansion especially while growth prospects at Frankfurt are hampered by legislation.

Global Infrastructure Partners

UK

Infrastructure funds

OS

Investor at two London airports and in Edinburgh. Has run out of options in the UK but is committed to further expansion, employing a second dedicated and paid up fund. Was shortlisted (first stage) for Chicago Midway. Was unsuccessful in respect of Hochtief’s airport portfolio.

Incheon Airport

Korea

Operator/investor

NW

Aggressive relative newcomer that has operational expertise and is willing to invest in small and large airports and groups. Currently has only a small stake in a Russian airport but has bid in the UK and UK. Its own privatisation is suspended.

Vinci Concessions

France

Operator/investor

OS

Once a major operator in countries including Mexico and China, then went quiet, now back with a bang as successful bidder for Portuguese airports. Looking to build on that success with further acquisitions on either side of the Atlantic. Operates nine airports in France and awaiting further privatisation opportunities there.

Ferrovial

Spain

Operator/investor

OS

Investment in BAA (now London Heathrow Holdings) has been scaled down to 34%. With three airports in its UK portfolio gone (Gatwick, Stansted, Edinburgh), and with debt reduced, Ferrovial is better suited, under a new CEO, to consider new opportunities both in Spain and worldwide, as the CEO says he wishes to do.

Flughafen Zurich

Switzerland

Operator/investor

OS

Very much one of the old guard, Zurich Airport has invested widely, with a focus on Latin America. Still very much active and showing interest in India, Philippines and Greece.

Corporacion America (AA2000)

Argentina

Operator/investor

OS

Operator of close to 50 airports in Argentina and other South American countries, and Europe. Has latterly become ambitious on a global scale with bids in Brazil, Chile and the US.

Industry Funds Management

Australia

Funds Manager

NW

A big investment manager that entered the airport sector through a deal with Manchester Airports Group that won Stansted Airport, taking a 35% stake in the enlarged MAG at the same time. Was actively pursuing Chicago Midway airport with MAG ‘in tow’ as an operating consultant. IFM seems to be the partner that wears the trousers in this relationship.

TAV (and AdP, 38% shareholder)

Turkey/France

Operator/investor

OS

Represented widely across Turkey, the Middle East, CIS, North Africa and now in Southeast Europe, although it did not win the big job to build and operate the new Istanbul airport. Will benefit from the input of AdP’s experience with its management and infrastructure divisions. Like Fraport, expansion at AdP’s home base in Paris is restricted. AdP, like AENA and Flughafen Zurich, has a history in the sector going back many years.

ACSA

South Africa

Operator/investor

OS

South African state operator now with minor equity and some operating responsibility both in India and Brazil, where it may bid again if permitted to. Unlikely to be privatised itself but is increasingly committed to ‘aid’ the growing African airports business beyond its own boundaries.

HAS & ADC

US

Investor, Developer and Operator

OS

Houston-based company with experience of transactions in North and South America, now expanding into Southeast Asia, Europe, and possibly India, and seemingly with a global brief.

Infratil/HR Morrison

New Zealand

Investment Fund

OS

Operator of Wellington Airport, it has or is in the process of off-loading unprofitable secondary level airports in Europe. Has up-scaled its ambitions (bid for London Stansted). If it stays in the business (main interests are energy and surface transport) could turn up again.

AENA Internacional

Spain

Operator/investor

OS

An established operator of airports mainly in Spanish-speaking countries of Central and South America, AENA Internacional has been distracted by its problems at home but if and when it is privatised could well return to the fold, with interests in the same continent and particularly Brazil.

Infraero

Brazil

Operator/investor

NW

The Brazilian state operator, which still has over 60 airports in its portfolio (more than AENA but less valuable) began looking at foreign investment opportunities when its domestic monopoly came to an end but has made little progress thus far.

Schiphol Group

Netherlands

Operator/investor

OS

Active in the US and Australia as well as in the Netherlands, and having once coveted airports in both the UK and China, Schiphol Group backed off from foreign investment and operations in 2011 but has recently been linked with transactions in Turkey (Istanbul), Peru and Brazil (Rio de Janeiro).

ALL the organisations featured in both parts of this analysis report are described in detail in the Global Airport Investors Database.

About the CAPA Airports Data Suite

The Global Airport Investors Database is one component of the new CAPA Airports Data Suite.
The Investor Database is a production of CAPA – Centre for Aviation, researched by David Bentley, who has previously researched CAPA's management reports on Global Airport Privatisation, and on Low Cost Airports & Terminals.

The Global Airport Investors Database, one of eight components of the comprehensive new CAPA Airports Data Suite, available as a premium add-on to the CAPA Membership service.

The CAPA Airports Data Suite contains a unique goldmine of airport information:


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