12-Nov-2014 4:39 PM

Latin America airport construction and investment activity continues - but Brazil slows

Analysis

Latin America continues to provide new infrastructure to cope with the projected growth, but while there the continent accounts for 14% of the world's airport projects, that translates to only 4% of the investment dollars, according to CAPA's Airport Construction & CAPEX database.

Brazil was the centre of much attention in 2012-2014, with high cost airport privatisations, failure to complete some construction projects for the World Cup and latterly the re-election of the incumbent left-leaning President, Dilma Rousseff. But, in response to a public backlash against the spending, this may well signal a delay to the privatisation progress there for now until a review into the structure of Infraero is completed.

But the airport construction and investment activity elsewhere across the Latin American continent is attracting worldwide attention.

The following report measures the scale and nature of development and describes individual construction jobs and transactions.

Summary

Latin America accounts for 14% of the world's airport projects but only 4% of the investment dollars.
Brazil's airport privatisation progress may be delayed due to a review into the structure of Infraero.
Latin America is expected to grow passenger numbers by 4.7% and serve a total of 605 million passengers.
International airfreight volumes in Latin America are expected to grow at a compound annual growth rate of 3.8% over the next five years.
Latin America has the lowest investment in airport construction projects compared to other regions.
Major airport construction projects are taking place in Santiago, Bogota, Cancun, Mexico City, Lima, Panama City, San Salvador, Punta Cana, Asuncion, Barquisimeto, Chiclayo, and Piura.

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Latin America occupies a middling position for future passenger and cargo growth rates compared to other regions

In its most recent report (02-Oct-2014 for Aug-2014) IATA reported Latin American passenger traffic up 8.2%; the second highest among the world's regions. Capacity rose by 6.4% and load factor rose 1.4 percentage points to 82.2%. Economies such as Colombia, Peru, and Chile continue to expand robustly, while growth in the Brazilian economy remains fundamentally weak and regional trade volumes have made no progress this year compared to the highs reached at the end of 2013.

Also in Oct-2014 IATA released its first 20-year passenger growth forecast, projecting that passenger numbers are expected to reach 7.3 billion by 2034, growth of 4.1% per annum, and more than double the 3.3 billion passengers expected to travel in 2014. Within that broad framework, in terms of country-pairs, Asian and South American destinations will see the fastest growth, reflecting economic and demographic growth in those markets.

Latin America is expected to grow passenger numbers by 4.7%, serving a total of 605 million passengers, an additional 363 million passengers per annum. The growth percentage is at par with all other world regions except North America and Europe, where growth will be smaller. (During this period Brazil will increase passenger numbers by 170 million to 272 million, rising from 10th to 5^th place globally).

While growth in domestic passenger markets will be dominated by Asia Pacific countries both Brazil and Mexico will make the top ten in that category.

As for freight, IATA expects international airfreight volumes to increase at a compound annual growth rate (CAGR) of 4.1% over the next five years as part of its 2014 to 2018 industry forecast. Latin America will grow at 3.8%, 0.9 percentage points behind the leading region, the Middle East. No Latin American country will make the top ten largest international freight markets. However, routes between North and South America are expected to witness slightly higher growth rates at 3.9%.

The region scores low for airport project investment but higher for the number of construction projects

Latin America remains at the bottom of the global table for total airport construction projects as the following chart demonstrates. The chart shows global airport construction projects known to CAPA as of Oct-2014, as measured by investment in USD, with Latin America trailing last at USD34.2 billion.

Global airport construction - investment

However, the picture changes somewhat when activity is measured instead by the number of projects, as in the chart below.

Global airport construction - projects

In this case Latin America registers 318 known projects compared with 492 in North America (the live CAPA charts provide this detail in real time). Put another way that is 13.6% of all known projects.

Global share of investment

But this compares to just 6.3% of investment.

Global share of projects

The inference is that construction projects in Latin America tend not to be on the size and scale of many of their counterparts in the other continents.

If we break these construction projects down into new airports (green and brown field), at the time of writing there are 298 of them known to us across the world. This accounts for a little less than 13% of the global activity being in Latin America, as measured by the number of projects.

New airports projects share

Looking at the main individual projects and their location, as can be seen in the table below, they are well spread across the continent and embrace a wide range of airport types and sizes.

Table 1 - Selected major airport construction projects at existing Latin American airports (ex-Brazil)

City/country	Project(s)	Estimated cost if known (USD)	Current pax capacity (m)	Future pax capacity (m)	Anticipated completion date
Santiago/Chile	Terminal expansion/New terminal/Renovation of existing facilities/parking garage	700 million	9.5	29/50	31-Dec-2018
Bogota/Colombia	New terminals/control tower/(Possible new airport)	1.26 billion	14	20	28-Apr-2016
Cancun/Mexico	Terminal expansion and construction/Hotel	750 million	15	25	01-Jan-2016
Mexico City/Mexico	(Juarez Int Airport). Unspecified expansion of existing facility/mixed mode runway operation off extended runways. (Not connected to the new USD9 billion airport development there)	321 million	32	n/k	31-Dec-2018
Lima/Peru	New terminal/second runway	1 billion	10	n/k	31-Dec-2030
Panama City/Panama	Airport city/New terminal	840 million	9	18	31-Dec-2026
San Salvador/El Salvador	General modernisation and expansion	490 million	1.6	6.6	01-Jan-2032
Punta Cana/Dominican Rep	New terminal	100 million	5	10	31-Dec-2015
Asuncion Silvio Pettirossi Airport/Paraguay	Aerobridges/New terminal	264 million	1.2	2	31-Dec-2017
Barquisimeto Airport/Venezuela	Expansion project/auxiliary terminal/hangars/new taxiways	413 million	n/a	n/a	31-Dec-2015
Chiclayo Cornel Ruiz Airport/Peru	Runway improvement /new terminal	128 million	n/a	n/a	31-Dec-2015
Piura Airport/Peru	Runway rehabilitation/terminal expansion	231 million	n/a	n/a	31-Dec-2023

Santiago Airport to treble capacity by 2030

One of the most significant construction and investment projects, and a public-private-partnership deal when it is finalised (in line with a growing trend) is at Santiago, Chile.

Proposals from the private sector for a 20-year, USD700 million concession to double the Santiago airport's capacity are now due on 30-Nov-2014, to give bidders more time to prepare their proposals. Santiago Airport is expected to commence the review process on 18-Dec-2014.

At least five teams are expected to submit final bids to build a new 200,000 sq m international terminal and to upgrade the domestic terminal. The two projects are intended to almost treble passenger capacity to 29 million by 2030 and then on to 50 million by 2045. The winner will be the team that offers the government the largest share of net airport revenue. Bidders were required to have experience operating airports of at least 15 million passengers per annum.

As recently as 22-Oct the country's Ministry of Public Works revealed it had shortlisted 12 companies interested in the expansion tender, including Ferrovial, AENA, OHL and Sacyr; all of them Spanish.

Others known to be, or to have been, in the frame include Argentina's Corporación América, Mexico's Grupo Aeroportuario del Pacifico (GAP), and Colombia's OPAIN.

The interest from Spain and from Spanish-speaking countries is to be expected of course, and in the case of many of them they already have 'form' where investment in Latin America is concerned. Corporación América, through its subsidiary Aeropuertos Argentina 2000 (AA2000), controls 33 airports in neighbouring Argentina as well as others in Latin America and Europe (51 in total) and is an active bidder on both continents. In Apr-2014 it was awarded the construction and 40-year concession on the Cusco Chinchero Airport in Peru as part of the Kuntur consortium. GAP is fundamentally concerned with its 12-airport group in Mexico, anchored on Guadalajara, but has previously dabbled in Brazil, while OPAIN operates the El Dorado International Airport at Bogota, Colombia in conjunction with Flughafen Zurich.

Shedding its Heathrow skin, Ferrovial seeks fresh acquisitions

Of the Spanish operators and investors Ferrovial is clearly intent on entering new territory across the world as it begins to disengage from Heathrow Airport Holdings in the UK, where its shareholding is down to 25%. Ferrovial is still tied to Europe as it has taken a stake in three other British airports that HAH is disposing of, along with Macquarie, and is one of three bidders given a small slice of AENA, which now seems set to complete its partial privatisation process before the end of 2014. Ferrovial is neither new to nor unfamiliar with Chile. Until Sep-2011 it had a management contract at the country's Antofagasta Airport. It has often had a peculiar mix of small, medium, large and very large airport holdings that have given little clue to its future strategic direction.

Ferrovial is in a consortium with OHL and Sacyr for the Chile project. OHL, an offshoot of Spain's Obrascon Huarte Lain, which only operates one airport - Toluca near Mexico City - though another offshoot did take part in the Brazilian airport concession process, has also flirted with the Middle East. Sacyr, a large Spanish construction company, was much more active in the airport sector five or six years ago than it is now and its consortium was ejected from the Murcia International Airport construction and operation concession in Spain in Sep-2013 on the basis it had been "unable to perform the opening of the airport." Latterly it has been looking at construction projects in Colombia.

It would require a report in its own right to detail exactly what is happening at the giant Spanish state operator AENA right now. Very briefly, its forthcoming partial privatisation, involving three 'core' investors and a public share float has not held back its own 'Internacional' division from taking majority control of London Luton Airport in the UK. But it is in Latin America where it is, and has been, notably powerful, especially in Mexico and Colombia. The commitment to bid at Santiago Airport should come as no surprise.

Both Aeroports de Paris and Fraport have been very active in Latin America over two decades, and they still are. AdP's pitches for the Rio de Janeiro and Belo Horizonte airports in Brazil seem to have played second fiddle to the attractions of Santiago. Vinci has regained its status as one of the world's hungriest investors after taking off a gap year that lasted nearer to five years and has submitted a bid for the expansion tender at Santiago together with AdP as 'the Nuevo Pudahuel consortium'.

AdP is enthusiastic about Santiago's potential, COO Patrick Jeantet saying, "Santiago will be a regional hub... It's an access door to Latin America from Europe, the United States and Asia in the future. We can make Santiago play a key role once the project is finalised."

Fraport is already well established on the continent at Lima Airport in Peru, where it has 70% of the 30-year concession that is approaching the halfway stage there. While it is also involved in processes in Europe (Greece, Serbia, Slovenia etc), also Japan it has the size and scope to be able to handle multiple bids.

So there is plenty of experience within both foreign and Latin American companies for this concession. In fact, as the table below makes quite clear, there are even more potential Latin American based investors/operators alone out there, well beyond the 12 consortiums that made the Santiago shortlist. A number of them are construction companies and while there are well-established firms in the sector among them there are newcomers, too.

Table 2 - Latin American airport investors (does not include Brazilian consortia or unsuccessful bidders in prior transactions)

Company	Country	Main deals associated with
Aeris Holdings (ex Alterra Partners)	Costa Rica	Juan Santamaria International Airport
Corporacion America (AA2000)	Argentina	33 airports in Argentina, others in Latin America and Europe, almost 50 in total
Aeropuertos Andinos del Peru	Peru	Domestic airports in Peru
Aeropuertos del Peru	Peru	Regional airports in Peru
Aerostar Holdings	Puerto Rico	JV of ASUR and Highstar Capital that manages San Juan Luis Munoz Marin Airport in Puerto Rico
Airplan	Colombia	Domestic airports in Colombia
Agunsa SA	Chile	Santiago Airport
Andino Investment Holdings	Peru	Domestic airports in Peru
Andrade Gutierrez	Brazil	Belo Horizonte Airport
A-Port SA	Brazil	Curacao Airport
ASUR	Mexico	Nine airports in Mexico; San Juan Luis Munoz Marin Airport
CAISA	Uruguay	Punta del Este Airport
Cancun Airport	Mexico	Santiago Airport (bidder)
Camargo Correa	Brazil	Nine airports in Latin America
CCR (Companhia de Concessoes Rodoviarias)	Brazil	Belo Horizonte Airport
Corporacion Quito	Ecuador	New Quito International Airport
Engerb Construções e Incorporações	Brazil	São Jose Do Rio Preto Airport
Engenharia e Participações,	Brazil	Campinas Viracopos Airport
GAP	Mexico	12 airports in Mexico
Grupo Claro Vicuña Valenzuela	Chile	Santiago Airport (bidder)
Grupo Ultramar	Peru	Santiago Airport (bidder)
Grupo Vidanta	Mexico	Mar de Cortes International Airport
(Gestión e Ingeniería) IDC-Concesiones SA	Chile	Puerto Montt, La Serena La Florida and Calama airports
Infravix Ventures SA ( ENGEVIX Group)	Brazil	Natal Aluzio Alves International Airport
Interairports	Honduras	Four airports in Honduras
Interventoría Aeropuertos 2014	Colombia	Six airports in Colombia
Kuntur Wasi (Consortium)	Peru	Cusco Chinchero Airport
Lima Airport Partners	Peru	Jorge Chavez International Airport
London Supply	Argentina	Trelew Airport
Odebrecht	Brazil	Rio de Janeiro Galeao Airport
Odinsa	Colombia	Santiago Airport (bidder)
OHL Concesiones Mexico	Mexico	Toluca Airport, Mexico City
OMA	Mexico	13 airports in Mexico
OPAIN	Colombia	Bogota El Dorado Airport
Puerta del Sur SA	Uruguay	Airport International Carrasco, Montevideo
(Grupo) Puntacana	Dominican Republic	Punta Cana International Airport
Servicios Aeroportuarios Integrados SA	Honduras	Palmerola Airport
TAGSA	Ecuador	(The new) Guayaquil Airport
Triunfo Participações e Investimentos	Brazil	Campinos Viracopos Airport

There are two other projects that stand out in the Table 1 above, for their size: over USD1 billion. While this is still quite small by global standards (the CAPA database has example to USD20 billion and beyond), they are impressive all the same.

Bogotá's El Dorado, the region's second busiest airport, urgently needs more capacity

A new international terminal (2) at Bogotá's El Dorado Airport, which opened in Oct-2012, only partially satisfied demand. The airport is the second busiest in Latin America with 25 million passengers in 2013 (+32% since 2010), some way ahead of third place Sao Paulo Congonhas (17.1 million) though it trails Sao Paulo's Guarulhos airport by 10 million passengers.

Table 3 - South America's top 20 busiest airports (passenger numbers) in 2013

Rank	Country	Airport	City	Passengers (million)	Change 2010-2013 %
1	Brazil	Sao Paulo Guarulhos	Sao Paulo	35.96	+33.9
2	*Colombia*	*El Dorado International*	*Bogota*	25	*+32.1*
3	Brazil	Congonhas	Sao Paulo	17.1	+10.6
4	Brazil	Galaeo	Rio de Janeiro	17.1	+40
5	Brazil	Brasilia International	Brasilia	16.49	+14.8
6	*Chile*	*Arturo Merino Benitez Int*	*Santiago*	*15.29*	*38.2*
7	*Peru*	*Jorge Chavez*	*Lima*	*15.27*	*48.2*
8	Venezuela	Simon Bolivar Int	Caracas	11.95	+35.3
9	Brazil	Tancredo Neves	Belo Horizonte	10.3	+42
10	Argentina	Jorge Newberry	Buenos Aires	9.5	+26.4
11	Brazil	Santos Dumont	Rio de Janeiro	9.2	+17.9
12	Brazil	Viracopos International	Campinas	8.85	n/k
13	Brazil	Luis Eduardo Magalhaes Int	Salvador	8.59	+13.9
14	Argentina	Minsitro Pistrani Int	Buenos Aires	8.53	-2.9
15	Brazil	Salgado Filho Int	Port Alegre	7.99	+19.7
16	Brazil	Gilberto Freyre Int	Recife	6.84	n/k
17	Brazil	Afonso Pena Int	Curitiba	6.74	n/k
18	Brazil	Pinto Marins Int	Fortaleza	5.95	n/k
19	Ecuador	Mariscal Sucre Int	Quito	5.8	n/k
20	Colombia	Jose Maria Cordova Int	Medellin	5.07	n/k
Average percentage growth 2010-2013 (14 airports)					+26.43

A prior redesign at Bogotá was based on an estimated 14 million annual passengers in 2014! Not only that: El Dorado is ranked first in Latin America for cargo volume with 622,145 metric tons in 2013 and second for air traffic movements; impressive statistics.

The Colombian government had realised a 'new' airport was required, whether it was built on the same site or elsewhere and the process began with the creation of the new terminal, for international passengers, leaving T1 for domestic ones. Subsequently, a new, USD900 million domestic terminal commenced operations on 25-Oct-2013, a 65,208sqm facility with 60 check-in counters, seven baggage carousels and over 100 shops and restaurants. The addition of the new domestic terminal expanded the airport to 180,000sqm.

Also in 2013 the Aerocivil (Aeronáutica Civil's) director Santiago Castro declared that the airport required a further USD2.5 billion in expansion works. One option considered was the conversion of the Catam Air Force Base into two passenger terminals, connected to the rest of the airport via an underground tunnel. At the same time Aerocivil began studying alternative sites for a new private and non-commercial airport to relieve pressure on El Dorado Airport. Private and non-commercial aviation reportedly accounts for up to 30% of El Dorado's operations.

Ideally it would be no more than 60km away, or 60 minutes travel from the city.

Bogota - The true hub of Latin America?

The following month it was revealed that the Government planned to relocate military and general aviation from El Dorado Airport to the town of Madrid, 30km from Bogota, in the next five years (to mid-2018). The move would allow for the further expansion of El Dorado Airport and in particular a 900m expansion of the north runway, and allow for the eventual construction of a new terminal once airport traffic exceeds 30 million passengers per annum. This would satisfy a Presidential desire that the airport and city can become "the true hub of Latin America."

In the longer term the aim is to shift commercial operations to Madrid, where a new passenger terminal and two runways will be built by 2024, once El Dorado is saturated. The Concessionaire, OPAIN, supports the acceleration of plans for an alternate facility in the Colombia capital due to increasing competition from regional airports. Aerocivil now estimates El Dorado will need replacing by 2027, once the OPAIN concession expires, with potential sites around to city within a 30-minute road or rail journey to be considered apart from Madrid township although that remains the favourite. Land purchases may begin in 2015 and a new facility may be operational by 2018 to help relived the congested Colombian capital.

In the meantime OPAIN has submitted a proposal to Colombia's National Infrastructure Agency (ANI) for a further COP400 billion (USD216 million) expansion to the facility to help meet projected demand of 69 million passengers per annum by 2041. The plan envisages linking the new international terminal with the older Puente Aéreo building and adding a further eight domestic aerobridges. The plan would allow Avianca to shift all its domestic operations away from the Puente Aéreo building to make room for LCCs. While there is hardly a seismic shift towards budget airlines in the country that segment's market share on international services is increasing again, from a low of 4.1% in 2011 to 6.6% in the period Jan to Aug-2014.

Fraport-led consortium drives terminal and runway projects at Lima

The other stand out project is in Lima, Peru; the Jorge Chavez International Airport, which, as mentioned earlier, is operated on a 30-year concession from 01-Feb-2001. Lima Airport Partners (LAP), the limited liability company operating it, is comprised of Fraport (70.1%); International Finance Corporation (19.99%); and the Fund for Investment in Infrastructure, Public Services and Natural Resources (10%).

Jorge Chavez Airport's second terminal, with a capacity of 35 million ppa, is set to be complete by 2016, and represents the first phase of the airport's expansion. The progressive delivery of the land required for the construction of a second runway to LAP commenced at the end of Feb-2013 and was completed in Aug-2014. The second runway is expected to be complete by 2018, and the airport's full expansion will be finalised by 2030. Like so many airports in this part of the world Jorge Chavez is operating over its designed 10 million passengers per annum capacity after the rapid growth in passengers. The new terminal, runway and a control tower are costed at USD950 million.

There are other developments on the fringe here. Last year the government sought investment from the UAE's DP World to develop a joint air-and-sea logistics hub linking Lima's Port of Callao and Jorge Chavez airport, which is located adjacent to the Pacific coast. DP World already operates the port. The theory is that as Lima is one of the busiest hubs in South America, so the potential is there to integrate both services: air cargo and shipping cargo.

Slow uptake of airport city developments but there is potential at selected places across the continent

A development such as the one purported for Lima raises the question, what is the potential for the establishment of one of more airport cities in the region? Such developments can originate out of clusters of economic activity that arise in and around both ports and airports, and several examples in emerging markets combine both.

In truth there are few airport cities or aerotropolises so far identified in Latin America by the experts in the field, in fact only two; at Tocumen in Panama and around Belo Horizonte's Tancredo Neves airport (BHTN) in Brazil. That compares with seven in Africa and the Middle East (3/4); 17 in Asia Pacific; 19 in Europe and 38 in North America.

The Tocumen initiative, known as Panatropolis, is intended to leverage Panama's strategic location between North and South America and its rapidly expanding and modernising hub airport to drive commercial development on airport property and its surrounding areas.

Panama is best known for its canal connecting the Atlantic and Pacific Oceans. Around 14,000 ships carrying 12 million containers and 300 million tons of cargo traverse the Panama Canal each year, accounting for 5% of world trade. When the USD5.25 billion canal expansion is completed in 2016, cargo flows will substantially increase and might double.

The other part of the equation is Tocumen International Airport which serves as the hub of one of the world's fastest growing and most successful airlines, Copa, whose aircraft widely connect Panama to North, South, and Central America as well as the Caribbean. Copa's international route structure is the most extensive in the region. It is also the location of the second largest free trade zone in the world.

Promotional video for Panatropolis:

Belo Horizonte's new airport saved by concerted government and private sector strategic decisions

While this report is not specifically concerned with Brazil, the Belo Horizonte aerotropolis merits examination. The Belo Horizonte (BHTN) airport city project is a little less ambitious in scale than Panama's and was formulated out of a growing need to boost traffic to what was a new airport development 30 years ago that failed to attract passenger traffic. One of the problems was that, at 38 km, it was much further out of the city than was its predecessor, the popular but severely capacity constrained Pampulha. (Other airports have suffered a similar fate of course, including the notorious example of Mirabel, at Montreal, Canada.

In order to popularise the BHTN airport, poor road connections were massively improved from 2005. Within three years, travel time from downtown to the airport was cut nearly in half. This alone attracted industry and commerce.

In Mar-2005 legislation was enacted to restrict Pampulha Airport to aircraft carrying no more than 50 passengers.

As these strategic decisions were being implemented, other strategic decisions were taken to attract industry, foster business development, and create jobs at, and outward from, BHTN. These included Minas Gerais province's government officials working with the Federal Ministry of Finance, Brazil Customs, and Infraero to establish special economic zones at BHTN making it Brazil's first airport to activate the country's new industrial airport policies. Firms locating in these special economic zones receive tax relief, customs facilitation, and other business advantages.

At the same time, virtually all state government jobs were relocated to an Administrative City along the new road to the airport. Close to 20,000 people are currently employed there, with further commercial development evolving around it. The Administrative City is part of a broader Belo Horizonte Aerotropolis plan that covers a radius of 20km around BHTN. Aerospace is a major target with an expansive aerospace training and technology centre being developed.

A high-tech aerotropolis corridor is also in the works, and this will constitute the spine for microelectronics, biotechnology, and time-critical industries that benefit from airport access.

It is widely acknowledged that most of this development would not have taken place without the strategic vision and bold actions of Minas Gerais State government officials in partnership with others to make BHTN far better connected by surface and by air.

So while the number of airport city projects is low these two examples provide a benchmark that can be adapted and copied by others.

Some investors have suffered culture shock

Although there are investors, including some from Europe and the northern hemisphere generally that have been associated with Latin America for decades, it is also the case that some western investors found it difficult to adapt to the culture of Latin America, others were put off by suggestions of corruption within deal agreements while all of them have had to adjust to fluctuating economies across the continent, not to mention concerns about unpredictable actions by governments such as Venezuela's withholding of foreign currency transactions, trapping cash within that country.

As a consequence interest in the region declined for a while in favour of others but it has been fired up again by the World Cup and forthcoming Olympic Games in Brazil, where most of the activity has been during the last three years. The difference on this occasion is that home based investors as well as constructors are playing a significant role, either alone or in consortia.

Indeed it seemed as if every construction and mining company in Brazil was seeking an investment partner a few years ago as they attempted to clamber aboard the airport privatisation and construction bandwagon.