Could Infraero become a major player again in Brazil’s airport management?
To coin an old phrase - there's never a dull moment where the Brazilian airport privatisation procedure is concerned. Now 12 years since its inception it has been running out of steam, having seen most of the main airports auctioned off, individually or in groups.
For the most part it has weathered the storm of over-optimistic assumptions about traffic growth in a country riddled with economic malaise, COVID-19, and political strife.
Then, when it was due to wrap up with the final auctions of key domestic airports in Rio de Janeiro and São Paulo, and the re-concession of the main Rio airport, in another controversial election there was the return of 'Lula' - a president who didn't exactly champion privatisation in two earlier spells in office. Lula, who claims now to be a 'globalist', immediately suspended the auctions.
Where we go from here isn't at all clear in this never ending soap opera, and the scenario changes from day to day. But one surprising outcome is the re-emergence of the shrunken state operator Infraero, as a temporary but controlling operator of the Rio Galeão airport.
That could be no more than a passing phase. Or it could signal government intent to start unravelling the whole privatisation process.
Summary
- The final round of Brazilian airport concessions, in its two main cities, has been suspended.
- The two main remaining airports were considered to be the state operator Infraero's 'crown jewels'.
- They were to be concessioned along with the re-concession of Rio de Janeiro's Galeão Airport.
- But the new government of the re-elected president 'Lula' has other ideas.
- The diminished Infraero could rise from the ashes to take at least temporary control of Galeão, casting doubt on the concession process on the other two airports.
- It could even be the start of a renationalisation drive by the 'globalist' Lula.
- But in a country where there's never a dull moment, the story changes every day.
Brazil airport privatisations put on hold
The decade-old Brazilian airport privatisation by concession programme, which has already accounted for almost all of the country's principal airports, ran into a hiccup after Oct-2022 with the re-election of the left wing Luiz Inácio Lula da Silva (known as 'Lula') as president.
And shortly thereafter the president put on hold a series of previously announced infrastructure privatisations and PPPs across various sectors, including airports.
Both the Rio de Janeiro airports of Galeão and Santos Dumont were due to be re-concessioned and auctioned, respectively, by the end of 2022, as was the projected USD1.2 billion auction of Porto de Santos, the country's largest port.
The Brazilian airport concessions were drawing to an end anyway.
The seventh round, which includes São Paulo's Congonhas Airport and only the Santos Dumont airport in Rio de Janeiro, and which had been lumped in with a re-concession of the city's Galeão Airport, are the only facilities which remained - of any consequence.
Rio and São Paulo airports regarded as 'the crown jewels'
The Rio Santos Dumont and São Paulo Congonhas airports have been regarded as the 'crown jewels' because they are the airports which give the state operator Infraero sustainability, bringing in around 30% to 40% of Infraero's revenue, subsequent to it taking a minority position at many of the privatised airports.
However, and perhaps not unexpectedly, these remaining privatisations have been put on hold by the recently elected government of former president Lula da Silva.
Lula was president from 2003 to 2010, predating the airport concession procedure by one year. That procedure began during the presidency of his successor, Dilma Rousseff, who was subsequently impeached and removed from office. Both are socialists; Ms Rousseff was also at least a trained economist.
There are no certainties about what Lula will now do about the airport concession programme.
President Lula a critic of privatisation, but he had engaged in PPPs
Before taking office Lula had been a critic of privatisation.
In his government, however, his administration created public-private partnership concessions for numerous federal roadways, which predated the airport concessions initiated by Ms Rousseff and her successor, Michel Temer.
Overestimated traffic growth, poor economic performance, COVID-19 and political uncertainty all made investments risky
There have been many complaints lodged over the years by domestic and foreign companies that chose to invest in the Brazilian airports, especially those in the early tranches.
The main criticism was directed at a perception of misleading information about the economy and unrealistic traffic growth predictions offered by the government through its agencies, such as the regulator, ANAC.
Brazil ANAC annual traffic: passenger numbers/growth from 2012 (year of first concession) to 2023 - reasonable traffic growth, but not what investors had expected
The economic traumas the country often goes through, the impact of the COVID-19 pandemic, and the political uncertainty that continues to surround the government made the entire exercise a risky one for investors - but they kept coming, nonetheless.
Investor interest (including that from abroad) has been high throughout, even with the latter concessions of small regional airports, with many of the world's biggest players involved - notably VINCI and AENA.
But equally, questions were consistently asked about the financial demands placed on the investors.
Concession financial rebalancing exercise took place in 2022
Within the past few month a 'concession rebalancing' procedure has been applied, by which five investors have received reimbursements, whereas one (in Belo Horizonte) was asked to pay more as it had not delivered a new terminal building that was part of the deal.
That exercise may have been in preparation for the 'final fling' of the auction procedure, involving concessions on the domestic airports in the two main cities, São Paulo and Rio de Janeiro, and the re-concessioning of the Galeão airport in Rio.
The intention was that the two airports in Rio de Janeiro would be auctioned to a single concessionaire in 2023.
RioGaleão took the decision to relinquish its airport several years ago, when a financial rebalancing request was declined
A decision had been made by RioGaleão, the operator of the Galeão Tom Jobim International Airport, to return the terminal concession to the federal government.
The concessionaire submitted a request to the federal authorities for a rebidding of the airport concession, as provided for in Law 13.448, of Jun-2017.
The reason for the request was the refusal of the National Civil Aviation Agency (ANAC) regarding a request for the economic-financial rebalancing of the concession contract. RioGaleão asked for a "complete" contract rebalancing, citing specifically the comprehensive effects of the pandemic.
The 25-year Galeão concession began in 2014 and extends until 2039.
The concession operation is controlled by Singapore's Changi Airport Group (CAG), with 51%, and the Brazilian state operator Infraero has the remaining 49%.
CAG took control of Galeão in 2017, when the Brazilian company Odebrecht left the venture.
RioGaleão was not one of the entities to benefit from the financial rebalancing that was announced in Nov-2022.
Infraero being touted in some quarters to be ready to make a comeback
With these two concession projects and one re-concession project suspended, what might be considered an unlikely scenario has arisen - that of the state operator Infraero becoming involved again in their operation.
Although Infraero held on to a 49% holding in most of the original concession tranches - what could be interpreted as a belt-and-braces arrangement in case the private sector sought to exit sooner than anticipated - its role has subsequently become diminished.
In Sep-2019 Brazil's Senate approved the bill which created NAV Brasil, a company to take over Infraero's responsibilities in air traffic management (ATM).
Infraero being a Brazilian government corporation created in 1970 and initially responsible for administering the 67 main Brazilian commercial airports, under the Bolsonaro government the intention had been to privatise all [44] remaining Infraero airports (i.e. those not affected by the auction process) and to build a new portfolio of services offered by Infraero, based on its almost 50 years of expertise.
The full range of airports with which Infraero was once involved
Infraero has increasingly taken on the role of consultant/mentor to small regional airports, helping them to put their house in order, assisting with operational and marketing activities and, where appropriate, preparing them for privatisation (there are regional privatisation programmes, as well as the national one).
For example, in Jul-2021 Infraero signed an MoU to support the Amazonas state Government in the development of airports in the region.
Under the terms of the agreement, Infraero assists the government in developing proposals for infrastructure projects in line with Brazil's national aviation plan.
There was also a 'janitorial' role that it took on, using its 'expertise' to repair runways, for example.
Projected to become an international investor/operator - but it never did
Five years or so ago there was also an intention that Infraero might become active in foreign airport management and investment, but that has not yet happened and seems to have been abandoned.
The reverse scenario, one of outright privatisation of Infraero in the form of a foreign firm taking it over, has always been ruled out by successive governments.
But in any case, Infraero's stock has fallen by way of the concessions, and few international companies might be interested in it. (Spain's AENA was one).
For more information see related CAPA report: Brazil: Infraero's role pruned again; key airports to be privatised
Now, according to local media reports, Infraero could be back in the running to take over the Galeão airport, albeit temporarily in the first instance.
According to CNN Brazil, Galeão has 'uncertainties' regarding its administration in early 2023.
The Minister of Ports and Airports, Márcio França said that the asset could temporarily be controlled by Infraero.
Infraero could take Galeão back temporarily; that would impact its re-concession process and the other two auctions
Local speculation has it that if Infraero takes Galeão, even temporarily, the concession of Santos Dumont will not be bid and the re-concession of Galeão will not happen in a short time either.
That theory could be extended to one that it might be the start of a renationalisation drive - but no one is openly suggesting that yet, even though it is becoming clear that this new Lula administration is against the concept of privatisation.
That is perhaps a little surprising, because in a recent speech by Lula in Washington he laid out his intention to put Brazil "back on the global stage", as former President Bolsonaro had "isolated Brazil internationally."
Of great import is the fact that you don't engage in a globalisation drive by seeking to exclude foreign companies that have been successfully operating your airports against the odds for years, which could be the president's next move.
Infraero has a strong political lobby behind it in Brasília, the capital of Brazil, that is for sure.
One that could swing the balance in its favour.
The story changes every day in this oddball soap opera
The story seems to change from day to day.
It has already been surmised that 'corruption' is somehow involved in the government's thinking, but no allegations are being made about who or what was, or is, corrupt.
Then a suggestion emerged that the government is now pressing CAG to stay with its Galeão concession rather than give it up - but that would surely go hand-in-hand with another 'financial rebalancing.'
As a local observer said, "The scenario is not clear. Every day is a new chapter".
What CAPA and others have often described as a Brazilian TV soap opera continues.
Too late to stop the Natal Aluízio Alves reconcession? If they do, that would clearly signal a 'renationalisation' philosophy
This latest debacle goes hand-in-hand with the tender, issued by Brazil's Ministry of Infrastructure on 08-Feb-2023, for the rebidding of the Natal Aluízio Alves International Airport's concession, which was the very first one 12 years ago, and the only greenfield airport concession.
The concession will be offered for a 30-year period, with an obligation to invest at least BRL308.9 million (USD59.39 million) over the period.
The deadline for bid submission is 16-May-2023, with an auction to be held on 19-May-2023.
This re-concession hasn't been stopped. Perhaps it is considered too late to do that.
If it eventually is, then that will definitely set the renationalisation alarm bells ringing.