The lingering effects of the credit crunch on aviation investment are well documented. Now the Bank for International Settlements is warning that the European sovereign debt crisis could be a repeat of the US subprime mortgage debt crisis, pointing to a global loss of investor confidence that has impacted on market volatility over the past three months. But despite the deterioration in market sentiment and the rapid spread of difficulties from one area to another, the airport sector continues to attract investment, as a new CAPA-sponsored report highlights.
While airport deals have been thin on the ground during the last year or so, there have been some critical ones: London Gatwick, St Petersburg and Pristina being examples of large, medium and small airports where transactions have taken place recently; the Chicago Midway lease may yet re-emerge this year (15 US airports have now expressed an interest in privatisation by lease) and at least one sizeable deal occurred last month in the UK, with more to follow if the new coalition government decides to break up BAA once and for all.
Other deals have been suspended in anticipation of better times, for example at Prague, while the Asia Pacific region awaits the strategic investor sale – cum – IPO transaction at Seoul’s Incheon Airport that it is anticipated will be concluded this year. A successful transaction there could encourage planned-for IPOs elsewhere (there have been none since 2006) in Saudi Arabia, Iran, India, China, possibly even in Greece (Athens).
Brazil needs to find USD19 billion to meet air passenger demand
In other countries and regions lease/concession agreements, BOTs and PPPs are well established and growing (e.g. India, Latin America) or about to be introduced (e.g. Russia and Brazil, where the first concessioned airport deal will be tendered shortly in the Rio Grande do Norte state, in anticipation of further deals affecting the main Rio de Janeiro and Sao Paulo airports. Brazil is struggling to find the USD19 billion investment identified in a recent report by management consultants McKinsey that is required to meet the country’s passenger traffic demand up to 2030 and in anticipation of the 2014 World Cup and 2016 Olympic Games.
Brazil is in fact a microcosm of what is happening elsewhere in the world as governments attempt to match funding requirements with the traffic demand they assume must return as the global economy improves. While some areas are still lagging in this respect (e.g. Europe), others like Asia are reporting big passenger traffic and cargo increases - although others still were not unduly affected by the crisis, such as the Middle East. The US is a case in point. Despite long established antipathy towards privatisation of public transport facilities there, there is a tangible shift in opinion among opinion formers in favour of a leasing option for airports, as identified by think tanks such as the Reason Foundation. This opinion shift has in fact resulted in there being potentially far more applications for a slot in the Airport Privatisation Pilot Programme (which has been in existence since 1996 but virtually ignored until 2008) than there are slots available, while 2009 saw the opening of the first private green field airport (in Missouri), which operates entirely outside of the FAA’s remit, apart from safety and security regulation.
And as Brazil’s preparedness (or lack of it) for the World Cup and Olympic Games makes clear, there will always be events taking place, the preparation for which will need private sector intervention to aid in the financing. The South African World Cup Finals are still under way, but in Poland and the Ukraine preparations are already well under way for their joint hosting of the European Soccer Championships in 2012. It is of little surprise that Polish State Airports Enterprise appears to be gearing itself towards some form of privatisation this year before that event takes place; having already corporatised some of its airports, or that there is a lot of deal making going in the Ukraine right now.
Raising airport charges is a costly alternative
Of course, the intervention of the private sector to fund airport expansion for such events and afterwards is not absolutely essential, but the alternatives can be controversial. South Africa’s ACSA, for example, managed to fund much needed enhancements at many of its airports in anticipation of the current World Cup Finals without recourse to the private sector, and even built an entirely new one at Durban. But it came at the cost of a huge hike in airport charges. ACSA has gained approval for a 40.7% increase in charges in 2010/11, the regulator having rejected a request for an eye watering 241% increase that has caused uproar in the airline community. Private sector investors/operators typically want to increase charges as well of course, but they are usually more proficient at finding alternative revenue streams as well. Effective and transparent regulation also provides predictability for all concerned.
Although the majority of the world’s airports remain government owned and operated despite the many privatisations that have taken place during the last two decades, governments - local, regional and national - are increasingly concluding that airports might better be operated, entirely or partially, by the private sector.
The main goals of privatisation, include (in emerging markets) to tap domestic and foreign capital markets; to provide independent financing of large scale projects; to reduce the financing requirement of central government; (in existing markets) the avoidance of additional debt; transfer of responsibility or risk; introduction of efficiencies and consequential improvement of financial performance.
But the sellers and lessors need to know who the buyers and lessees are in an industry where they are coming and going frequently. The buyers and lessees need to know who their competitors are. And investors, lawyers, architects and suppliers need to understand how all parties work together.
This need has been met with the publication of a new, comprehensive and highly detailed database report of global airport investors – the Global Airport Investors Database. The spreadsheet-based report is equally appropriate to single or multiple 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/deal arrangers; legal firms active in aviation; architectural firms active in aviation; airlines considering investing in airports; other transport sector firms considering investing in airports; and aviation industry suppliers.
The Global Airport Investors Database is an essential tool, listing – in seven columns and almost 300 lines - every significant organisation actively involved in airport financing at this time, together with those that have been, or are dormant presently but expected to return. The column contents are: Company/Country Headquarters; High level contact; Current investments/management contracts; Previous investments/failed or lapsed bids; Future/potential investments/sales; Recent financial results 2009/2010 where available; Website. It is extensively cross-referenced throughout and most of the major deals that have taken place within the last two decades are referred to.
The Global Airport Investors Database is the most comprehensive and powerful tool ever published for those involved with airport financing, easily and rapidly enabling the user to learn exactly:
- who the investors are;
- their investment preferences/profiles; and,
- whether they are increasing or decreasing their presence in the airport sector.
The Global Airport Investors Database is published by the Centre for Asia Pacific Aviation and continues a series of reports in this area including Global Airport Privatisation (2004/7) researched and written by CAPA’s UK Associate, and Director of Big Pond Aviation, David Bentley.
The database is NOW AVAILABLE from CAPA. If you would like to view a concise sample of the database before making a purchase decision, please contact us directly: email us today, or call +612-9241-3200.
“David Bentley continues to raise the bar higher each time he writes about airport privatisation” - Paul Behnke, airport industry expert and author
“Overall, this report is a great resource, one that I will keep on my shelf and refer to frequently” - Robert Poole, Director of Transportation, the Reason Foundation, USA
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