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CAPA Airport Finance & Privatisation Review 2015/2016. The day has come for PPPs

CAPA's 170-page "Global Airport Finance and Privatisation review 2016 – the day has come for the PPP" is is the fourth in a series of CAPA reports on airport privatisation and investment published since Jan-2015.

During that time a number of deals have been concluded and announced across the world though their volume remains below the levels prior to 2008. One of the key trends is an identifiable increase in activity in public-private partnerships (PPPs) globally.

In a world where obtaining a viable return on investment remains a difficult task it is evident that investor sentiment once again favours long term transport infrastructure. Airports are among the well tested models for investment.

The inexorable rise of the Airport Investment Funds

In 2016 the picture is quite different from where it was two years ago. Many of the entities listed in the Airport Investor Database are funds of one kind or another – general investment, pension, hedge, private equity, sovereign wealth and so on (even though hedge funds typically chase more liquid assets). ey have constituted the fastest- growing segment for several years and continue to do so.

At the time of writing there are no fewer than 102 of them (14.9% of the total) that are known to CAPA; in many cases they are competing head-on with the investment banks, whose modus operandi is to invest in a project and then issue the related project bonds in the secondary capital markets. (One competitive advantage for the banks does remain, in the form of the prevailing low interest rate). 

Investor sentiment for transport infrastructure

Investor sentiment is once again favouring long term transport infrastructure, even while most of the world’s airports continue to lose money. There is a widening gulf between the large hubs and medium sized gateways on one hand and the smaller secondary level airports that are heavily reliant on low cost carriers on the other.

Smaller airports are most in need of investment but conversely they find it harder to attract it. Many of them are no longer considered to be ‘long term’ by investors even though the market share of budget airlines (seats) is still over 25% worldwide (Jan to Aug-2016).

Chinese funds are active

 
Despite a decline in foreign airport investment within some emerging economies that is not the case with China, from where numerous funds and organisations have been targeting Europe in particular. But decisions can easily be influenced by a turn of events in another sector. In sharp contrast, China’s own airport funding remains largely an internal affair.

PPPs are on the rise

 
There has been an identifiable increase in activity in public-private partnerships (PPPs) globally and it is fast becoming the most acceptable way for the two sectors to work together in order to finance airport projects. In fact the PPP is the only existing method of ‘privatising’ an airport that is finding favour in the US, with at 10 deals completed or in progress.
There are numerous benefits to PPPs for both airports and the private sector - but there are pitfalls too.

Brazil is nearing completion of its privatisations

 
Against a much changed (for the worse) economic background Brazil’s third tranche of airport concessions is nearing; one that involves four second tier airports and which marginalises Infraero even more.
Following that there may be what is known there as a ‘steak and bone’ transaction where another two important (and profitable) airports are auctioned along with others which are not.
Outside this process there are numerous local state airport concessions at the secondary level.

Despite its strong economy, India's erratic policies are deterring investors

 
The Indian aviation scene is looking robust presently the continuous reassessment of which model of privatisation is best suited to the government erodes the confidence of foreign investors. Their best hope for the immediate future is the raft of low cost airport conversions that are planned. But investment amounts will be low, along with anticipated returns.

And Greece is embarking on another 23 concessions

 
The second tranche of Greek regional airports to be concessioned out numbers 23, following those taken on by Fraport Greece earlier this year. Along with the sale of the government’s stake in Athens Airport these transactions must take place but they are influenced still by the parlous state of the Greek economy. And as a group they are unlikely to be as attractive as the first 14.
 

These are just a few of the matters covered in CAPA's 170-page report "Global Airport Finance and Privatisation review 2016 – the day has come for the PPP".

For information and to purchase a copy, please connect to CAPA Airport Privatisation 2016 170pp

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