All change in Brazil; investment, new and re-bid concessions and a further 50 airports to be offered

A succession of announcements: additional private sector investments in the two São Paulo airports; formal retendering of Campinas Viracopos Airport; and an additional 50 small regional airports to be made available

The Brazilian airport concession procedure, which began in earnest in 2012 but which seemed to have run out of steam with the seventh tranche in 2022, never ceases to surprise.

Announcements made in the week commencing 21-Oct-2024 concern the financing of extensions and improvements at São Paulo's Congonhas Airport, which is the country's second busiest and one of the most recent to have been privatised.

Also the extension of the concession contract along with fresh investment at Guarulhos Airport, that city's international airport and the second busiest in Latin America, And the retendering of the Campinas Viracopos airport to the north of São Paulo, and the shock announcement that a further 50 airports will be offered under concession to the private sector with preference going to existing investors.

AENA Brasil to invest USD350 million into Congonhas Airport: highly constrained, but still expecting traffic to increase by one third in the coming years

Starting with Congonhas, it was one of two airports that had been held back within the concession procedures, along with Rio de Janeiro's Santos Dumont Airport. Those are two domestic operations facilities that had become the primary sources of income for the state operator Infraero since the privatisations began.

In Aug-2022 Congonhas was finally concessioned, along with 10 other much smaller airports, in what was described by one Brazilian analyst as a 'Frankenstein's Monster' of a transaction.

They went to AENA Brasil, the regional subsidiary of the giant Spanish operator that had bid 230% over the asking price - mainly for an airport that it will be very difficult to expand because of physical constraints.

That seventh round of concessions completed the transfer of 90% of national air traffic in Brazil to the private sector.

There should have been an eighth round that finally accounted for Santos Dumont, but the return of the Brazilian President Luiz Inácio Lula da Silva, more commonly known as Lula, put paid to that at least for the time being, along with the reconcessioning of Rio de Janeiro's Galeão international airport, a deal that had previously been packaged up ready for enactment in 2023.

On 23-Oct-2024 Brazil's Ministry of Ports and Airports announced that AENA Brasil was planning to invest BRL2 billion (USD351.5 million) towards the renovation and expansion of the Congonhas Airport.

Interestingly, the airport forecasts that passenger numbers will increase by 34%, from 22 million to 29.5 million passengers, in the next few years (precise date unspecified, but possibly by 2028, when the project's completion is expected).

Just how Congonhas will manage to grow passenger throughput by a third isn't clear.

While construction of a new terminal and installation of more aerobridges is expected to start in Jan-2025, in addition to expansion of the existing terminals, the restrictions it faces include: being hemmed in on all sides by residential and commercial suburbs; slot restrictions that permit a maximum of 30 operations per hour; and short runways that dictate that the largest aircraft operating there are A320 and Boeing 737 series, as well as extensive use by executive jets.

The congestion existed before the Guarulhos airport opened in 1985, and did not improve afterwards. There are no known intentions to permit international operations there.

So AENA inherited an airport with limited operations, which are unlikely to increase, on small aircraft, and with limited space in which to manipulate non-aeronautical activities.

They could be called a triple whammy, or 'Catch-33'.

You can build as many terminals as you like, but if the runway infrastructure isn't right it is merely cosmetic.

The only real benefit Congonhas offers is its conveniently short distance from downtown and from the major business areas of Paulista, Faria Lima and Luís Carlos Berrini Avenues, which still makes Congonhas a favourite of business passengers.

Traffic has grown consistently, but not by large amounts, and maxed out in the period 2017 - 2019, before the COVID-19 pandemic. An all-time high of 22 million was achieved in 2023 on two years of post-pandemic growth that was measured at 87% and 22% in 2022 and 2023 respectively, but that has since shrunk to 5% so far in 2024 (nine months).

Sao Paulo Congonhas Airport: annual traffic, passenger numbers/growth, 2009 - 9M2024

Source: CAPA - Centre for Aviation and INFRAERO.

Additional USD250 million investment at Guarulhos Airport goes hand-in-hand with a 16-month concession extension

Over at the city's Guarulhos International Airport - on 24-Oct-2024 Brazil's Federal Court of Accounts (TCU) approved a concession contract proposal which establishes investments of approximately BRL1.4 billion (USD247.11 million), and the counterpart extension of the existing concession term for additional 16 months, until 23-Nov-2033.

The approval makes possible a wide range of investments in expanding capacity, safety and comfort at the country's primary international gateway.

Among the measures defined by the agreement, the concessionaire will build a new pier for international flights and another for domestic flights, in addition to expanding the aircraft apron and taxiways.

That concession dates back to the first tranche in 2012, and was to GRU Airports (Aeroporto de Guarulhos participações SA); a consortium of the Brazilian companies Invepar; an Investments and Funds Society that operates in the transportation infrastructure segment generally; OAS; a construction firm; and also the South African state-owned airports operator ACSA.

In 2021 ACSA considered selling its 10.2% equity in GRU Airports (now known as GRUPAR), and it received an offer from Invepar, but then backtracked on that decision in 2023 when it became evident that there had been a strong post-pandemic recovery at the airport.

In reality, that recovery, at an airport more heavily influenced by international traffic, has not been quite as strong as the one at the domestic Congonhas facility, and 2023 passenger numbers were 1.7 million adrift of the all-time high of 43 million in 2019. But so far in 2024 (9M), growth is slightly in advance of that at Congonhas, at 5.6%.

GRU Airport Sao Paulo Guarulhos International Airport: annual traffic, passenger numbers/growth, 2009 - 9M2024

Source: CAPA - Centre for Aviation, INFRAERO and Sao Paulo Guarulhos International Airport.

The contract extension and the contingent requirement to invest further in infrastructure marks a notable turning point in the entire concession procedure, which became dogged by disputes from around 2017 onwards, when existing (and even aspiring) concessionaires began to doubt the accuracy of traffic forecasts in a country where the economy is up and down like a yoyo. And some began to feel that they had been overcharged for their concession rights.

Indeed, some concessions have gone on to change hands, or to come up for grabs again - such as at the Campinas Viracopos airport 100 km (62 miles) to São Paulo (see below) - and GRU Airport itself did seek a renegotiation of the payment flow of its concession fee.

Despite these teething problems, and ACSA's more recent vacillation over its holding, that consortium has held together and appears to have been rewarded by the government for doing so, even though there is an investment sting in the tail.

Campinas Viracopos Airport concession to be retendered at last

As if the announcements concerning Congonhas and Guarulhos were not enough to take in, two days later the Minister of Ports and Airports announced that the aforementioned Viracopos International Airport would finally undergo a retendering process. According to the minister, the process will begin in the coming weeks, in partnership with the Federal Court of Auditors "due to a lack of consensus in the TCU Conciliation Chamber".

Consensus has long been absent where Viracopos is concerned.

It was privatised in the first concession tranche in 2012 to the consortium Aeroportos Brasil Viracopos (ABV) (Triunfo/ Engenharia e Participações /Aeroports Egis Avia), meaning that it was the only one of the original principal airport concessions from 2012 through to 2017 that was not anchored on a major national airport operator.

By 2019 ABV had become disillusioned with its investment at that airport, partly for the reasons mentioned above, such as poor returns on investment. The then president, Jair Bolsonaro, signed a decree that allowed Campinas Viracopos to be retendered. Six parties expressed interest in it, but the COVID-19 pandemic intervened, there was a change of government, and the procedure was put on the back burner.

This "lack of consensus" that persists threatens to hold up proceedings yet again, but the ministry's expectation is that there will be a definitive solution for Viracopos by mid-2025. Meanwhile, ABV hangs on as the operator, jointly with Infraero (49%).

Some of the consortiums have been known to change their minds about surrendering concessions, but ABV evidently has not.

There is a precedent for how the rebidding process will occur - the São Gonçalo do Amarante airport, aka Aluízio Alves International Airport, at Natal, a greenfield one and the first ever to be privatised, in 2011, as a test run for the following year. It was reconcessioned from Inframérica to Flughafen Zürich in 2023.

See related report: Brazil's Natal Airport re-concession will test the continuing appeal of its airport infrastructure

The TCU, ANAC (Agência Nacional de Aviação Civil, or National Civil Aviation Agency) and the ministry collectively believe they already have the necessary expertise to rebid an airport asset, and that the market already sees this as a way to invest in "completely remodeled assets".

Furthermore, they believe that with a new bidding process opportunities open up for investors and operators who are prepared to leverage the potential of Viracopos, an airport vital for national and international logistics.

Passenger traffic rose spectacularly at Campinas Viracopos in the early 2000s, then decreased in line with Brazil's economic woes in the mid-2010s.

It recovered well from the COVID-19 pandemic and finished 2023 with 18% more passengers than in 2019, but there has been a slight reversal in its fortunes so far in 2024 (-4.7% in 8M2024).

Campinas Viracopos Airport: annual traffic, passenger numbers/growth, 2009 - 8M2024

Source: CAPA - Centre for Aviation and Campinas Viracopos Airport reports.

The concession bandwagon rolls on into an eighth tranche - really down to the dregs, but there is a tempting offer

Another aspect of these deals is that the government seems determined to keep the privatisation bandwagon rolling, even though by the time of the sixth tranche it was already trying to find concessionaires for what amount to the 'dregs' - very small regional airports, some of them in jungle regions, with no evident opportunity to expand significantly.

Concomitant with the announcements concerning Congonhas, Guarulhos and Campinas Viracopos, the government said it would auction up to 50 regional airports "among companies that already operate in the country", i.e. existing concessionaires. In reality, there are more like 100 small regional airports remaining if the government opts for a complete clear-out.

That means that GRUPAR or, for example, BH Airport (the Brazilian/Swiss consortium that operates the Belo Horizonte Tancredo Neves airport), could be invited specifically to invest (the government is looking for BRL3.5 billion, or USD615 million) in small regional airports in the interior.

The Federal Court of Auditors (TCU) approved this government proposal to increase investments in regional aviation airports without increasing public spending.

The idea is to transfer investments and operations of regional structures to the concessionaires of the country's largest terminals. In exchange, those operators would gain improved terms on their current contracts.

There is also the possibility of a discount on the current concession fee at existing properties.

Of the approximately 100 small airports managed by Infraero - a number that has grown again after losing so many of its big-hitting properties by taking on the management of some of these small airports to prepare them for potential privatisation - half are attracting market interest, according to TCU sources.

That is a surprise, because some of them, located across Brazil's states, are remote and tiny, and they would not automatically seem to be connected with the large Brazilian and international entities that have taken over management of the airports, in firstly the big cities, and then the secondary ones.

(That said, some of them are already managed by a variety of low-level concessionaires. separately from the larger procedure. It is not apparent what will happen to those concession agreements if this new procedure goes ahead. Others are managed by municipalities).

Several of them are new airports, built since Infraero's focus was forcibly shifted away from large city airports once the privatisation procedure began.

The initial 20 airports are widespread geographically, but the emphasis is on the Amazon region and the northeast

The first 20 to be identified are listed below, along with their state. They are evidently spread all over the country, with no local centralisation, unlike some of the other, latter day group concessions.

2023 traffic statistics were sought for them but only one airport yielded any statistics whatsoever, namely Paulo Afonso which had 29,000 passengers in 2014, its best year but which otherwise was down to as low as 2,500 - and that was not during the COVID-19 pandemic.

Brazil: list of 20 additional airports

São Gabriel da Cachoeira (Maranhão)	Eirunepé (Amazonas)	Guanambi (Bahia)	Piracicaba (São Paulo)
Mogi Mirim (São Paulo)	Bacabal (Maranhão)	Lençóis (Bahia)	Novo Progresso (Pará)
Guarujá (São Paulo)	Paulo Afonso (Bahia)	São Raimundo Nonato (Piauí)	Tucuruí (Pará)
Caruaru (Pernambuco)	Serra Talhada (Pernambuco)	Cascavel (Paraná)	Pato Branco (Paraná)
Oiapoque (Amapá)	Guarapauva (Paraná)	Ponta Grossa (Paraná)	Americana (São Paulo)

The Amazon region in particular is prioritised

The selection process will be carried out in different rounds.

In the first, the Ministry of Ports and Airports intends to prioritise areas of strategic importance in the Amazon, such as the airports of São Gabriel da Cachoeira and Eirunepé, and, in the northeast region, Guanambi airport in Bahia, according to the TCU.

There is a need for airport infrastructure in these areas for social purposes, but there is no commercial viability or interest at present.

The Secretary of Civil Aviation insists that the government will implement the largest investment programme in regional airport infrastructure, adding that previous plans "failed due to the lack of public resources", which appears to be a guarded reference to Infraero.

President Lula "has defended the expansion of regional aviation from the very beginning", according to the government.

But he may have been presented with a fait accompli as to how to do it.

A new agency is set up to administer the scheme - Pipar

A linchpin in the scheme is the TCU-approved public policy that creates 'Pipar' (Private Investment Programme in Regional Airports), which provides for the inclusion of deficit-ridden but strategic regional airports in the country in existing concession contracts.

For existing terminal operators, the offer is considered to be attractive, because the investments planned throughout the contract are amortised within the concession term. If the term is extended, in theory, the revenue that comes in during this additional period goes to the concessionaire.

This 'break' paves the way for operators to invest in smaller airports.

Auctions to take place in 2025 in regional blocks...

The expectation is that ANAC will prepare the notice and put the terms out for public consultation later in 2024. The plan is to hold the auctions throughout 2025 in regional blocks, with up to six terminals each (a common practice). There will be minimum investments required for each auctioned terminal.

As new obligations will be incorporated into current contracts, the winner in each case will be the one offering the shortest term in the request for extension of the contract, which seems an odd way of going about things. What about those that promise the greatest investment?

The maximum extension period varies from case to case, but will usually be capped at five years. Whoever acquires these small terminals will be responsible for modernising, adapting, maintaining the infrastructure, and overseeing flight operations.

All the concessionaires with current contracts will be able to participate in the bidding process, with the exception of those that have requested the return of their terminal, such as in the case of Campinas Viracopos and Rio de Janeiro's Galeão Airport, which are negotiating changes to their contracts. (Galeão, Rio's international airport, is another one that was scheduled for a rebid before the Lula government took charge.)

ANAC may impose restrictions, such as preventing the participation of operators that are late with payment of concession fees (another factor that has bedevilled the privatisation process).

City and state governments will have to agree to the concession if the administration is not carried out by Infraero. The government assumes that all of these airports are loss-making. Therefore, only concessionaires of already privatised airports will be able to participate in the auctions.

The concessionaires must weigh up a precise cost-benefit analysis on this proposition

The blocks prioritised for the first round involve around BRL2.1 billion (USD368) million in investments with a total of BRL3.5 billion anticipated for the full programme.

Is that too much for the existing investors to bear on deficit-ridden facilities that for the most part are not likely to see any great increase in traffic in the foreseeable future? And where those investors are denied the opportunity to cherry pick, irrespective of how current contracts might benefit from the deal?

Local Brazilian firms could insist on the right to compete

It is feasible that few would be interested to progress to a conclusion, and that, instead, new consortiums of Brazilian investors will form out of small, regional companies and challenge the prioritisation of the existing international investors, as they have previously done in the later tranches.

On the other hand, if it does attract the existing investors successfully, might that then form the basis for a new way of fulfilling the Japanese concessions programme too, one that stalled during the COVID-19 pandemic? There are more than 80 airports still to be privatised there, out of 100 promised a decade ago, and the programme does seem to have run out of steam for now.

One thing is for sure: there is a never a dull moment in Brazilian aviation.