Airport Sales and Concession Opportunities
Where are the airport sales and concession opportunities in 2019 and who are the main investors?
INVESTOR INTEREST IS CURRENTLY concentrated on Brazil, Japan, France and Eastern Europe as the 'pipeline' of airport deals, mainly concessions and public-private partnerships to build and manage infrastructure, dried up a little in 2018. The nature of the business is that there is always a shock waiting side-stage, and right now it could be an announcement about London Gatwick Airport.
As for the investors themselves, there has been a hardcore of them for the last two decades and many are still very active around the world. Some are only investors in that they do not become involved in the day-to-day management of the airport, while others are fundamentally operators and bring their expertise in those activities, with the financing element a lesser part of their involvement.
This article summarises the leading operator/investors at the end of 2018 and the location of existing and anticipated deals.
- Investor interest in airport sales and concessions is focused on Brazil, Japan, France, and Eastern Europe.
- Regional airport concessions are active in Japan, with the focus on the package privatisation of seven airports on the northern island of Hokkaido.
- Brazil is offering 12 airports for concession, with the potential privatisation of state-owned Infraero.
- Government stakes in airports in France and Greece are expected to be up for sale in
Summary
- Regional airport concessions are active in Japan.
- In Brazil 12 airports are on offer, state owned Infraero could be privatised.
- Government stakes in airports in France and Greece should be up for sale in 2019.
- Indonesia, the Philippines and Vietnam have prospects for PPP developments, but there is uncertainty over government commitment.
It was a thinner time for investors into airports in 2018 with fewer major transactions under way than usual and fewer in the pipeline, too. But the continuing procedures In Japan and Brazil do underpin an improvement with some additional opportunities arising in Eastern Europe and the prospect - again - of Global Infrastructure Partners' stake in London Gatwick Airport coming to the market.
In Japan, the concessioning of a succession of regional airports is well under way with the focus now turning to the package privatisation of seven of them on the northern island of Hokkaido. Three out of four bidders were selected by the Ministry of Land, Infrastructure, Transport and Tourism (MLITT), and a priority negotiation rights holder will be selected in July 2019.
Other airports to follow include, inter alia, Kumamoto, Hiroshima, Nagasaki, Tottori and Okinawa.
Active airports for Vinci Airports (Vinci Concessions)
In Brazil, the concession procedure there has already embraced most of the main gateways and secondary city airports. The next stage is of bundled packages of 12 airports in three blocks, mainly at third-tier cities, to be offered for 30 year concessions. The previous tranches have not always been successful in that they sometimes lacked transparency, and some enormous premiums were paid to acquire operating rights.
Moreover, the concession rights at Viracopos Campinas Airport, north of São Paulo, are again up for grabs at the time of writing after the incumbent concessionaire became weary of traffic and revenue failing to meet expectations. A further factor that investors have to take into account is the uncertain future of state operator Infraero, which has been successively sidelined and which could now be privatised, possibly by an IPO or just disappear altogether.
Nevertheless, these issues have not quelled interest in the next tranche from investors as Brazil's economy improves and the country's federal accountability office has unanimously approved Phase I analysis for a further, fifth round of airport concessions.
It is too early to say what the election of a new President, the right-wing Jair Bolsonaro, will mean for the concessions process.
Elsewhere in Latin America all eyes were on the result of a public referendum launched by the incoming Mexican President Obrador, to decide whether or not the New Mexico City International Airport would continue to be built. It had all the makings of becoming a PPP project, which is what it should have been in the first place, but the referendum decision was to cancel it and instead to "improve" the existing Juarez Airport, to "reactivate" Toluca Airport (which is in private ownership) and to add two runways at a military base. Some, perhaps all, of these actions are likely to need private sector assistance. After all, the cost of the new airport (up to USD5 billion already spent will be written off) was one of the factors in the decision to scrap it.
Active airports for TAV Airports
In Europe, attention is focused on the potential for GIP's disposal of its 42% share in London Gatwick Airport as that airport languishes in no-man's land after losing the "additional runway" debate to Heathrow and ponders converting a taxiway into a short runway instead.
Across the English Channel the French government will sell its share in Groupe ADP but it cannot do that until 2019 while appropriate legislation is developed. Considerable investor interest is anticipated, from the big 'players' in the industry. Further regional airports concessions are expected at Bordeaux, Lille and Marseille.
In Eastern Europe the Belgrade Airport concession in Serbia, completed by the end of 2018, has offered hope to the Bulgarian government which put the airport back on the market, to the Slovak government which seeks for the second time a concession deal for Bratislava Ivanka Airport and to the Montenegro government which wishes to concession Tivat and Podgorica airports. Privatisation of the three main Lithuanian airports seems to have stalled.
Potential investors here must beware though of the region's history of political interference in deals and of the fact that several smaller airport deals have been withdrawn or collapsed, such as at Plovdiv in Bulgaria. It is mainly Chinese interests that covet these small Eastern European airports, mainly to act as cargo facilities because of their strategic position between Western Europe and West Asia.
In Greece, the Hellenic Republic Asset Development Fund intends to sell its 30% stake in Athens International Airport early in 2019.
In North America there has been a renewed impetus in the United States towards the benefits of privatisation but more by way of public-private-partnership (PPP) transactions, usually to build or refurbish terminals (New York La Guardia is possibly the best known example) but they can be used for car parks, people movers and other reasons, rather than full-airport lease deals.
That said, St Louis Lambert Airport is edging closer to a lease deal with one or two others in the wings. Much depends on the implementation, or lack of it, of President Trump's 'Infrastructure Plan' which was revealed early in 2018 and which envisaged greater participation from the private sector.
In Asia Pacific, there is an increasing likelihood, even though it is a relatively small project and the first option developer turned it down, that the Western Sydney Airport in Australia could be operated under a long term lease once the first stage is completed and it has been operational for a few years.
Elsewhere in that vast region, apart from Japan and North Asia generally, foreign investors are often wary of committing to PPP projects in countries like Indonesia, the Philippines and Vietnam where it is not always clear that the government is committed to such projects, even if they encourage them.
In Indonesia for example the two state airport operators, PT Angkasa Pura I and II may be privatised themselves, say they want to work with foreign companies, but keep gobbling up more airports for themselves from municipal control. The very concept of privatisation may be interpreted quite differently in these countries than it is in the west.
For those prepared to take a risk, opportunities will emerge in Manila, the Philippines, through the concession on the Clark Airport to the north of the capital, the refurbishment of the existing Manila Ninoy Aquino Airport or the proposed new airport. But again, local investors seem to be preferred.
The main investors in the industry, as measured by the number of airports they have invested in, were identified and listed in the CAPA Airport Finance and Privatisation Review, which was published in mid 2018. Apart from operators they include international funds of several different types (private equity, pension etc).
To gauge who the most active investors are right now - those that are completing deals or registering interest in forthcoming ones - it is best to start with the serial investors.
Top of the list is France's Vinci, which in 2018:
- Acquired Belgrade Airport under concession;
- Is one of the leading bidders for the seven Hokkaido airports in Japan;
- Through ANA Airports of Portugal - owned by Vinci - reached an agreement regarding the expansion of Lisbon's airport infrastructure, including the conversion of Lisbon Montijo Air Base and expansion of Lisbon Humberto Delgado Airport;
- Acquired Airports Worldwide's portfolio comprising eight airports in the US, UK, Costa Rica and Sweden;
- Plans to submit a bid to acquire a stake in Groupe ADP;
- Positioned to bid for the right to operate Lille Airport;
- Submitted a bid to operate Paraguay's Asuncion Airport under concession;
- Signed a management and development concession for Ancenis Airport;
- Acquired nine airports across the US, UK, Costa Rica and Sweden following acquisition of the portfolio held by Airports Worldwide.
Vinci is thus not only a global player; it works at both ends of the spectrum, from management contracts at small French airports to international multi-airport lease deals.
Active airports for Flughafen Zürich
TAV Airports will lose its major investment, Istanbul's Atatürk Airport, as services are progressively transferred to the new Istanbul Airport, which soft-opened on 29th October 2018 and in which it has no financial interest.
It remains active in its own country, taking a 49% stake in Antalya Airport, while earlier in 2018 it was a bidder for the short concession to operate Terminal 4 at Kuwait International at which it was unsuccessful. It also had discussions with the Montenegrin government about the possibility of PPP deals there.
TAV is taking stock of its current position and operationally is tied up with the move out of Atatürk but it has been a 'serial' global investor in the past and will undoubtedly arise again, in conjunction with 38% shareholder Groupe ADP (see later).
Flughafen Zurich, an operator/investor whose global history can be traced back several decades, continues to play an active role internationally. With extensive existing investments in Central and Latin America, including Brazil, where it is a concessionaire at Belo Horizonte and Florianópolis airports, it seems set to participate in the next tranche there as well and may bid for the proposed and aforementioned concessionaire change at Campinas Viracopos. It has also bid for the development of the green field Bhogapuram Airport in India, after stepping away from previous investments in India.
Spain's AENA Aeropuertos Internacional has been fairly quiet since AENA's partial privatisation almost four years ago but like Flughafen Zurich it has a solid history in Latin America and showed interest in 2018 in a potential merger with Brazil's Infraero. Earlier, it began to prepare for the anticipated concession process for five airports in Cuba. In Europe it is less ambitious and declined to purchase the 49% of the equity in the lease deal on London Luton Airport that it did not already own, from Ardian.
Just as AENA was tied up in 2015 with its privatisation, which included an IPO, so too now is France's Groupe ADP, operator of the Paris airports and with interests around the world as another historical bidder, as the government prepares to dispose of its share. Even so, it is a bidder - through subsidiary ADP International and along with Vinci - for the seven Hokkaido airports in Japan, and bid for the Kuwait Airport T4 concession. As a minority shareholder in TAV it is additionally bound up with whatever that entity bids for.
The private Spanish company Ferrovial appears to have stepped back from further investment in the last few years but it is committed to the USD650 million project to renovate the Jeppesen Terminal at Denver International Airport, through a PPP project. PPPs may be the future for it in this sector.
Active airports for AENA Internacional
Germany's Fraport has long been a very active contributor to global airport investment and management although it has slowed down a little where new acquisitions are concerned. It would appear its strategy is to concentrate its efforts on infrastructure at Frankfurt Airport and on its investments in Greece (14 regional airports in conjunction with the Copelouzos family though it is unlikely to bid in the next tranche of 23 much smaller ones). Also in Brazil, where it has the concession on the Fortaleza and Port Alegre airports, having been a latecomer to that market and not represented in either of the first two concession tranches.
It is an active bidder for the 35 year concession to operate Sofia Airport in Bulgaria and was a bidder for Kuwait Airport's T4 though it has also disposed of its entire 30% stake in the strongly performing Hannover Airport in Germany itself.
Avialliance, also based in Germany though now controlled by a Canadian fund, is also attracted to the green field Bhogapuram Airport project in India, and in a minority shareholding in Mumbai International Airport. The sale of Hellenic Republic Asset Development Fund's stake in Athens International Airport early in 2019 may also attract Avialliance, which is already a 40% shareholder.
A new arrival in the European foreign airport investment club is Manchester Airports Group (MAG), which has confirmed its participation in the Bulgarian Government tender process for the concession to operate Sofia Airport, supported by the Chinese company Beijing Construction and Engineering Group (BCEG), which is a key member of the consortium building the Airport City at Manchester Airport.
MAG had previously expressed interest in the proposed concession on Lithuanian Airports, a stalled procedure, and in the Belgrade Airport concession, its first foreign venture since the aborted bid to lease Chicago Midway Airport over five years ago. MAG is the only UK airport operator known to be showing any interest in investing in foreign airports at this time. It is likely that any deal it chases will be in conjunction with its 35% shareholder Industry Funds Management.
In Latin America, where numerous deals have been transacted, are pending, or have foundered in recent years, the biggest player is Corporación América and its subsidiary Aeropuertos Argentina 2000, which underwent an IPO on the New York Stock Exchange in February 2018. Locally it has acquired the concession for the administration, exploitation and operation of Buenos Aires El Palomar Airport and extended the concession period for Guayaquil Jose Joaquin de Olmedo Airport by five years, from 2024 to 2029.
In Europe, together with the Investment Corporation of Dubai, it acquired shares in Toscana Aeroporti (Airports of Tuscany) and set up Corporación América Italia, which suggests more activity in Italy.
Separately, the company has said it is seeking emerging markets to support its international expansion, highlighting Brazil and India as potential investment targets though it was not successful in the Kingston Airport concession process in Jamaica.
Another emerging power in the region is Mexico's Grupo Aeroportuario del Pacifico (GAP), which in Sep-2018 was selected as the provisional preferred bidder to operate, improve and expand Kingston Norman Manley International Airport under the terms of a 25 year concession contract. GAP already operates Jamaica's Sangster International Airport at Montego Bay.
Active airports for Fraport
Active airports for Corporación América
GAP looks set to join Grupo Aeroportuario del Sureste (ASUR), which is involved in concessions to operate several airports outside of Mexico, including Puerto Rico's San Juan Luis Munoz Marin Airport, as a significant operator/investor in the region.
Turning to the Asia Pacific region, Changi Airports International (CAI) still mainly works around management consultancy projects rather than outright investment, for example the MoU it signed in September 2018 with the Hunan Airport Management Group, and with the Maharashtra Airport Development Company for the new Pune Airport. Moreover, it is a 'technical advisor' to a 'super-consortium' bidding to redevelop and manage Manila Ninoy Aquino International Airport in the Philippines.
However, it did bid for the Kuwait T4 concession, and the seven airport Hokkaido island concession package in Japan as it did (successfully) for Fukuoka Airport in a consortium and has talked to GVK Power & Infrastructure about obtaining a minority shareholding in Mumbai International Airport.
On the downside, Saudi Arabia's GACA terminated its concession agreement with CAI and its partner Saudi Naval services at Jeddah Airport.
In India, GMR Infrastructure is still concerned mainly with developments at home, for example the aforementioned green field Bhogapuram Airport and the Nagpur Sonegaon Airport where it submitted the highest bid.
On the other hand, it may sell off part of its existing holdings in Indian airports to raise funds for an IPO.
Abroad, GMR was awarded the contract for the development and operation of New Heraklion Airport in Crete. It is understood it put forward a bid for the Sofia Airport concession. It is part of one of the two consortiums proposing to redevelop and manage Manila Ninoy Aquino International Airport and the operations and maintenance contract for the nearby Clark International Airport. Earlier in the year GMR purchased Malaysia Airports Holdings Bhd (MAHB)'s entire 23% holding in GMR Male International Airport Ltd, making it the sole owner.
GMR's great rival GVK Power & Infrastructure is yet another bidder for the new-build Bhogapuram Airport and early in 2018 expressed interest in operating the Airport Authority of India's Ahmedabad and Jaipur airports under a maintenance and operation contract.
But like GMR it is selling off existing equity, such as Mumbai International Airport. The measure is partly aimed at raising funds for the development of the USD2 billion Navi Mumbai Airport. It aims to raise up to USD1 billion and may also consider a merger of the airports subsidiary, GVK Airports, with Bangalore International Airport Development Ltd.
In Aug-2018 it was reported that Malaysia Airports was considering purchasing a minority stake in GVK Airports as part of an overall evaluation of the potential for investment in India.
Abroad, GVK is a bidder for the Clark Airport O&M contract in the Philippines.
Clearly, not all the actual and potential airport deals can be covered in this short article, nor can all the investors be listed, which it is why it has been limited to a selection of operator/investors.
For a full briefing on global airport finance and privatisation we recommend the 186 page Airport Finance and Privatisation Review 2018. There is a discount scheme for CAPA members.
Separately, the Global Airport Investors Database, part of the CAPA Airport Database Suite, currently lists 890 current, lapsed, anticipated and 'major' investing entities in this sector together with a real-time 'news' section, updated daily, on developments that concern them.