GAD – Global Airport Development Conference report Part 1


The Global Airport Development Conference took place (virtually) between 11 and 13-Nov-2020.

This report contains a summary of a selection of sessions which dealt with subjects such as how PPP models are evolving in the light of the pandemic, and how Environmental, Social, and Governance requirements have reached the point where they are now built into airport strategy, rather than being a sideshow.

Also how one airport group handled the impact of the pandemic in the part of Italy where it was particularly brutal and how that group is now planning for a ‘post-Covid operating environment, whenever that is.

It additionally the report features a short overview of prospects for the airport sector and especially privatisation activities, in Southeast Asia and Latin America.

Part 2 will cover the second day of the event.


  • The Global Airport Development conference examines the future for airports as the pandemic continues to create uncertainty
  • Public-private partnerships (PPPs or P3s) and concession models generally are here to stay in the industry but terms and conditions will undergo radical changes
  • ‘Force majeure’ clauses will take on much greater significance in the future
  • ESG may be a buzzword du temps but it is being written into boardroom strategy
  • The passenger is set to become the airport’s #1 customer, not the airline
  • There are investor opportunities in Southeast Asia but each country has its own issues confronting those investors
  • The situation in Latin America is not as bad as it seems and the scale of private airport ownership will help a return to ‘normality’.

Virtual events are the only way of bringing the industry together right now

The 2020 Global Airport Development Conference (GAD World), and GAD Americas were this year combined as a virtual online event between 11 and 13-Nov. GAD is organised by Informa Connect, a member of the Informa group, as is CAPA.

There are few real, in-person conferences and other such events taking place momentarily. A recent one was the Fort Lauderdale International Boat Show, an external Informa event, and there is some anticipation of such in-person conferences returning to Asia early in 2021.

But for now such virtual events are de rigueur, such as CAPA Live!, the regular airline industry monthly update, featuring leading industry commentators.  

There are two reports from the Global Airport Development Conference event.

This first, Part 1, overviews selected presentations from the first day, covering:

  • The evolution of PPP models in the light of the pandemic
  • Building ESG (Environmental, Social, and Governance) into an airport business
  • Investing in airports – taking the long view
  • Prospects for airport privatisation in S.E. Asia
  • Prospects for the industry in Latin America

The evolution of airport public-private partnership (PPP) models in the light of the pandemic

What have been the benefits of different private partnership models during the crisis? To what extent will concession agreements, duration, risk and revenue allocation change?

How have PPP structures played out?

The session was a panel one, featuring short presentations and subsequent commentary by representatives from Skylark, a consulting group; the International Finance Corporation (specifically the Caribbean PPP Advisory Service); McCarthy Trétrault (Canadian law firm); and financial advisory firm PJ SOLOMON.

Skylark representative:

It is too early to say. The pandemic could last years in a worst-case scenario, No operating model has yet fallen under the strain but concession waivers are taking place globally and two years of -90% traffic would see some failing for sure. Some PPPs have fixed Capex demands while others have triggers once a certain passenger throughput is achieved. Clearly the current situation favours the latter for investors. Similarly with fixed concession fees (e.g. the Indian model where the concession fee is based on a revenue share) and those that vary with volume (e.g. London Luton Airport in the UK where the concession fee is paid per work load unit [WLU]). The first model does not work well in a pandemic; in the second, one entity is not favoured over the other.

On concession length, as airports are traditionally long-term investments the short concession period for other transport modes or utilities (15 years or so) does not work with airports. In some cases that would only offer a concessionaire a handful of years to get a profit out of the investment. The pandemic has telescoped such concessions even further and emphasised the difficulty of how concession periods should end (e.g. final payments and investments) and the unsuitability of short ones where the businesses are essentially long-term.

P J SOLOMON representative:

Focusing on the U.S. (his particular experience) from that perspective, few concessions to consider. Would airports have fared better under them vs. public ownership?

The P for Partnership is key. Transfer of risk to the party best suited to manage it.

Best practices globally can be shared. That should deliver optimised customer service

Recycling of assets to support other areas of the economy (which is common in the U.S. but not encouraged by regulators) is a driver for PPP deals involving airports there

As for transfer of risk there are three parties in the U.S. that take a risk with airports:

  • Municipalities & city/county airport authorities;
  • Airlines;
  • Municipal bondholders.

The first sees a declining tax base and increasing deficit. The second has more pressing problems to deal with. The municipal bond market has served a purpose but is inflexible. So all three main entities are facing more risk than ever. Would the private sector have made a difference in the current circumstances?

It is inherently best placed to price and manage risk. Then there is the correlation between a successful airport and a successful region. Additional private investment at U.S. airports would have seen them in a stronger position than they are now. COVID has shined a light on the rationale for private investment.

McCarthy Trétrault representative:

There is more emphasis on this kind of model. The Canadian model is different of course, a not-for-profit model with little privatisation. A government study two years suggested more privatisation but did not come to pass. But federal government needs more funding now so perhaps there is an opportunity for such a proposal to be resurrected.

P J SOLOMON response:

It isn’t about deal flow rather than about who is best placed to take advantage of it. Municipalities and regional economies are the biggest beneficiaries of private airport investment as the region becomes more attractive to businesses.

Skylark response:

Interesting that the U.S. is the greatest advocate of the PPP while Europe is slowest on the uptake. But then the PPP model in Europe does cut you off from public funding; the crisis has proved that the ‘partnership’ does not extend to sharing the burden ‘in tough times’. The U.S. model does not do that. So in Europe at least, if there was to be a 90% reduction in traffic over 2-3 years it would be better off under the municipal ownership model.

IFC Representative:

(Referring to the Barbados PPP deal). An RfQ was issued in Feb-2020 then extended owing to the pandemic. 13 investors prequalified. The private sector was seen as taking a pivotal role. The issue is the unknown recovery period with a 30-year deal horizon. The private sector is considered better “to help shape the new realities”. Traffic will not come into Barbados without the infrastructure being in place to support it. A revenue-sharing concession period is preferable but within that model how do you cater for the recovery period? One proposal is for reduced concession fee during the recovery period with a step-up later.

Already talking about what happens if we have another event like this. Previous deals could not have envisaged what would happen; new ones will have to build this pandemic scenario in. There is still opportunity as shown by the degree of interest in the deal. Active dialogue with all parties over realignment of risks is paramount.

P J SOLOMON response:

The length of these deals is often questioned but even over 15 years all or most of the parties responsible for drawing them up will have changed – operator, banks, investors, airlines, politicians. That needs to be borne in mind during negotiations.

McCarthy Tétrault representative:

‘Force majeure’ will clearly take on greater importance in negotiations in the future. The potential is there for waiver of concession fees to be built in, as was rarely the case previously. But ‘force majeure’ has equally rarely included pandemics in the past so there is a need for re-evaluation and specific interpretation of what that phrase means.

In the American scenario, the PPP is typically lease-based and the obligation usually remains for the payment of rent even during force majeure.

But would a municipality want to take back an airport that is struggling when the municipality is also struggling to meet its commitments in other spheres?

Are concession extensions a solution to the challenges we now have?

Skylark response:

Yes. They avoid the need to go to the public purse. But in Europe, where state aid rules allow for the extension of concessions without retendering that seems to be a legal grey area.

PJ SOLOMON response:

Concession extensions aren’t new, often you can buy them. It may be pertinent to push out Capex requirements for example until revenues justify it. Same with revenue share. But the pandemic should not be used as a benchmark against which future issues affecting airports can be badged as ‘force majeure’ when they are not. Ultimately, when an investor chooses to take on risk they have to live with it.

Closing remarks

IFC Representative: The concession model will remain but the alignment of risk will be revisited.

McCarthy Tétrault: There will be more bespoke deals in the future, no ‘on size fits all’ philosophy.

Skylark: Economic regulation will change, the model is broken. How to set airport charges in this environment is the question.

P J SOLOMON: The model will persist but flexibility is all-important now or best business practices will not shine through.

Building ESG (Environmental, Social, and Governance) into an airport business (Globalvia/S&P)

ESG is the buzzword of the day and as this dual presentation by representatives of Globalvia, a transport infrastructure concessions manager, and credit ratings agency S&P shows, it is moving up the agenda for when a ‘post-Covid’ world actually appears. How are ESG KPIs being built into concessions and financial models, influencing business strategy and diversifying boards?

Globalvia representative:

We see the 2019 focus as having been: Ageing infrastructure/growing urban populations/climate change/technology/ESG

In 2020, and looking to ‘post Covid’ it is: teleworking/lockdown & social distancing/medical research/public recovery funds/lower economic growth/disrupted value chains

The changed focus for us then is, (in order):

  • Technology
  • Climate change
  • ESG
  • Aging infrastructure
  • Growing urban populations – people moving permanently out of city centres

Airports are not immune to structural change.

ESG factors will impact revenues & costs/EBITDA margins/Capex & assets/balance sheet depreciation/reputation/intangibles...

…with long term risk and return, impacting pension fund investments

Investors will see ESG integrated into the investment process impacting investment strategies and C-suite remuneration.

For airports, it will impact long term equity valuation and debt ratings.

The Environment

There is a potential for the ‘green-washing’ of operational KPIs.

‘E-impacts’ can be measured even if their timing can’t be predicted.

There are and will be physical risks (e.g. earthquakes), energy transition risks and liability risks.

So carbon emissions becoming important for airports (e.g. London Heathrow), size of biodiversity zones, energy produced by renewable systems, waste management and energy-efficient build.

Zurich Airport and Copenhagen Airport are notable for the issue of green bonds.

The ‘Social’ impact

This is gaining more relevance thanks to the virus.

Airports – managing local stakeholders – employees/communities/government/customers.

Equality of opportunity (not just gender-related).

Impacting on policies and commitments at board level.


Governance emanates from the above. E+S = G.

So ESG should be strategic and embedded in an airport’s strategy.

The example was given of the Children’s Fund, a large investor in AENA, forcing board level debate and an annual statement on ‘climate change’ policy.

S&P representative:

Airport ratings are down 1-2 notches vs. 8-9 notches for airlines…

…but the airport sector has become less predictable compared to utilities and ports

Severity of future risks could be higher.

ESG became important before the virus, led by energy transition risks but now social risks paramount, overtaking environmental risks

Because it provides essential services transport is regarded as low-risk by S&P with low cyclicality of revenues and profits.

But the virus changed that: collapse in EBITDA margins, 65-80% fewer passengers (actually the range 25-100%), but only 0% - 30% reduction in operating costs.

Differences in certainties of cash flow have emerged according to airport positioning (business/leisure, domestic/international/short-haul/long-haul).

Uncertainty as to the level of future aeronautical charges as financially weak airlines may not be able to handle higher charges regulators resist passing charges on to passengers.

Eco taxes may slow down traffic recovery.

Airline slot selection process/application will change in respect of ‘the most attractive’.

Travel change behaviour long-term because of Covid and climate (there was -4% in Swedish traffic in 2019 purely because of ‘flygskam’).

Opposition to major airport infrastructure projects will grow wherever there is perceived to be a climate factor (by regulators/politicians), examples given - Mexico City, London Heathrow.

Physical climate risks impacting revenues and profitability.

Governance – the key is transparency, enabling stakeholders to offer the required support.

Scenario planning needed for future pandemics – there have been four this century already.

Disaster and business continuity planning needs to be higher up the agenda.

Evolution of airport models to ensure long-term sustainability.

Balance required between short- and long-term needs but airports are long-term businesses and need investment. (Question - is too much of it being cut right now?)

Engagement with stakeholders required to send the right message to investors who have their own ESG agenda.

Diversify/innovate more digital business (e.g. click and collect at gate for FBO, Duty Free, other merchandise).

Build in resilience.

Embed sustainability in all areas as a ‘must-have’ rather than ‘nice-to-have’

Conclusion: Today most board meetings start with ‘ESG’ rather than ‘financial performance’ the tide has turned.

Investing in airports – taking the long view

A presentation was made by a representative of Ardian, the major French infrastructure investor with USD100bn asset investment across multiple sectors, by reference to the Italian market where Ardian has its airport investments. It explained how that company and its partner in the airport sector there (F2i) handled the pandemic in a country which was initially hit hard and how it regards ‘the new normal’ and ‘life after COVID’.

80% of the Italian market is concentrated in 10 airports. Rome/Milan/Venice/Naples airports are the big four cities, in that order.

The largest groups are 2i Aeroporti (F2i + Ardian with 8 airports)/Atlantia/SAVE/Toscana Aeroporti.

Reaction to the crisis:

Ardian’s first priority was the health and safety of employees, contractors and customers.

A Business Continuity Plan already existed and was activated.

Reduction of operations and closure of terminals took place (100% to 0% pax because of the hard initial effect of the virus).

Airports stayed open with as little cash used as possible.

All Capex was postponed.

Protection of the balance sheet – drawing down liquidity, increase in bonds, suspension of dividend payments.

Conservative leverage (borrowing), 2i is less than 2x leveraged.

Banks behaving “very reasonably” towards the operator.

Preparation of the ‘new normal’ for when it ends

Nothing previous to go off.

Uncertainty persists (end of second wave, possible third wave, Pfizer and other vaccines etc).

Constant dialogue with airlines, early discussion of schemes to promote re-growth,

Discussion with retailers, car park operators etc, everyone in the ‘eco system’,

Support from Italian and EU governments.

Short-term summer recovery was experienced in Italy and Spain where there is strong domestic traffic (esp. Turin, which is very domestic compared to Milan).

Philosophy: Airlines need airports and vice versa.

But, now airports have access to the passenger and that will increase. The passenger, and how transactions can occur with him, will be the preoccupation. The passenger becomes the main customer rather than the airline.

Recovery speed will depend on the nature of the airport and its airline customers.

Leisure traffic to recover sooner.

LCCs to profit from the woes of the FSCs.

‘Life after Covid’:

Businesses must be resized.

Closer collaboration than before with the rest of the aviation community.

Shifting the fixed/variable costs composition.

Adapting Capex with more flexible models.

Regulatory models and frameworks will change.

Potential for concession extensions.

What will be done differently within 2i Aeroporti?:

Greater emphasis on digitalisation (“The more IT the better”). More information being demanded all the time so enhanced information flows to passengers are needed.

Increasing move toward ‘self-processing’ both at the airport and before the commencement of the journey.

Bring forward plans for curbing Co2 emissions.

BUT. Infrastructure Capex is only suspended. It will return as soon as it can be justified.

Airport investment opportunities in SE Asia

A consultant specialising in this region from the company Modalis Infrastructure presented his views on where these might be.

Unsolicited proposal approaches have grown in SE Asia from large investors. Any opportunities arising from them? There is nothing consolidated yet in Malaysia or Indonesia, unlike the Philippines where there is a mechanism for them.


Green field opportunities. Bulacan (including an airport city)  will be suitable for equity-led investments


Secondary level opportunities, some green field operations, but interested parties need to know the laws on land ownership for PPPs.

Airlines shifting focus from volume to profit. Successful delivery chance is lower than in Malaysia and the Philippines.


PT Angkasa Pura 1 (AP1) likely to be ‘engaging the market’ – sizeable airports to be brought to the market in six months if the economy is right. Some opportunities for sure.


The ‘structure is set’ so Airports of Thailand gets the first bite, it is not easy to consummate a transaction.


A challenging environment. Potential processes were there, and airports awarded. The current feedback is that translating awards into contract deals has been a mixed bag. A difficult market but the economy is growing.

Prospects for the industry in Latin America

Another representative from the Modalis company, together with one from KPMG in Chile and another who was CEO of Aeroportos do Sudeste do Brasil (Flughafen Zurich), gave their views on prospects for the aviation business in Latin America.

Most Latin Am airlines will survive, the shock is over, restructuring is taking place.

Brazil  is “in a comfortable position”, demand is back up.

Airports looking for state aid in the region is unusual. There will be strings attached.

Airlines there are burning cash much faster than airports.

The business model will change throughout Latin Am.

Some airports have been designed as ‘monuments’ whereas scalable ones are those that are needed now, which suggests opportunities for temporary airport infrastructure manufacturers).

Most Latin Am main hubs are in private hands, only Panama, Venezuela, Colombia fall outside the norm there.

In fact, Latin Am has the biggest location of private airports on any continent – they have more flexibility to adapt.

But the uncertainty of poor governance response still detracts from private sector prospects Early

Brazilian airport concessions took place during a ‘golden age’.

Some rebalancing of concessions will be required there – of pax throughput vs. concession payments.

Part 2 of this report will be published shortly.

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