"Loosening central control"

September 22, 2000

Loosening central control
Latin America is painting a private airport landscape
By Günter Endres
Jane's Airport Review


SINCE THE HIGHLY-PUBLICISED privatisation of 33 of Argentina's biggest
airports in February 1998, the bandwagon has rolled on, gaining momentum
with each passing year. Mexico completed its part-privatisation programme
(with the exception of the Mexico City airports) earlier this year, and
international airport operators are now waiting for the big prize, the
expected privatisation of Infraero, the Brazilian government agency
responsible for 67 airports, 76 air navigation facilities, and the Alcantara
space centre.

The Brazilian government's need to reduce public sector borrowing has pushed
the possible privatisation of Infraero forward, although like many states in
Latin America, the agency's position remains firmly that a public/private
partnership is preferable to outright privatisation.

Empresa Brasileira de Infra-Estrutura Aeroportuária (Infraero),
headquartered in Brasilia, is organised into seven business centres,
established at the international airports of Porto Alegre, Sao Paulo, Rio de
Janeiro, Brasília, Recife, Belém and Manaus, and relies on a work force of
about 10,000 direct employees, in addition to 13,000 employed on outsourced
activities. Infraero airports handle 97% of regular air transport in Brazil,
representing, in 1999, 2.06 million commercial aircraft movements, 62.8
million passengers, and 1.24 million tonnes of cargo.

The operation is financed in part by aviation-related income from landing
charges, passenger handling and air traffic control services, which together
account for some 40% of total revenues in excess of US$1b. Additional funds
come from commercial activities, such as the lease of facilities and
equipment, rentals and service concessions. Infraero also makes available
digital telecommunications facilities to concessionaires at 21 of its
airports, which provides another revenue stream.

Infraero has set itself significant goals over the next few years. In
addition to developing a strong commercial sector, its US$1.5b, 5-year
investment plan for the expansion and modernisation of its airport network,
funded from its own resources backed up by the Brazilian State and municipal
governments, is in full swing. Works already completed or in progress
include the construction of further passenger terminals at Belém, Fortaleza,
Natal, Rio de Janeiro and Porto Alegre; improvements at Sao Paulo-Guarulhos,
Campo Grande, Petrolina, Recife and Salvador airports; and new airports at
Rio Branco and Palmas. In 1999 alone, Infraero invested nearly US$200m.


The focus is on providing facilities to serve the varied group of users at
different airports, based on data collected from surveys, opinion polls, and
a mix of specialised studies. Additionally, its quality-based approach has
resulted in 17 airports conforming to ISO 9001 standards, and a full
environmental survey in 1999 at all airports under its jurisdiction is
forming the key element in its environmental management plan, designed to
develop initiatives for environmental recovery and protection.

Spanish conquest

One of the largest airport operators in Europe, Spain's Aeropuertos
Espanoles y Navegación Aérea (Aena), has been circumspect in its moves into
the international arena, but since its recent success in Mexico, expansion
into airport management abroad, facilitated under the Aena Desarrollo
Internacional umbrella, has taken on a new dimension.

With the strong historic connections between Spain and Latin America, Aena's
thrust has not surprisingly been directed at the growing opportunities on
that continent. Apart from already being involved in 12 airports in Mexico,
three in Colombia and one in Cuba, it is also bidding for Uruguay's Carrasco
International Airport in Montevideo, and the five Peruvian airports expected
to be next on the privatisation merry-go-round.

In its home country, Aena is responsible for 43 airports, five area air
traffic control centres and four flight information regions which, together
with its foreign airports, contributed to revenues of Ptas208,722m
(US$1,128m), an increase of 11.7% over the previous year. Net income rose
even more sharply to Ptas23,242m (US$125m).

The number of passengers passing through its airports last year totalled 147
million, of which 18 million were accounted for by its airports in Mexico
and Colombia. Cargo handled amounted to close on 600,000 tonnes, and
aircraft movements 2,244,200.

So far, winning Mexico's Pacific Group of 12 airports in July 1999 has been
the main prize for Aena. Headed by Guadalajara, Tijuana and Puerto Vallarta,
the airport group handled a total of more than 16 million passengers,
representing some 30% of the total Mexican market. As part of a consortium,
also including Grupo Dragados, Unión Fenosa and Mexican company Angeles,
Aena acquired a share of the 15% stake that was on offer, together with a
15-year concession for the management and operation of the 12 airports.

But, together with Copenhagen Airports, which won the Southeast Group in
April 1998 and Aéroports de Paris (ADP), victor for the North Central Group
in June, Aena is facing a tough challenge to reverse years of benign neglect
by the Mexican government, which has left much of the infrastructure barely
able to cope with modern demands.

While Aena will not have full economic data on the airports until
mid-November, the total revenues generated amounted to around US$140m,
although no figures have been given for the expected overall losses. The
consortium has committed itself to making total investments of at least
US$72m over the 2000-2004 period, with nearly half to be expended at the two
busiest airports at Guadalajara and Tijuana.

None of the three consortia are excluded from bidding for Mexico City, which
is by far the busiest airport in Latin America, handling 20.4 million
passengers in 1999. No date has been set by the Mexican Government, but
before then, the remaining shares for the three airport groups will be made
available in an international public offering (IPO).

Aena's incursion into Colombia began in March 1997 when it contributed 40%
of the capital, or US$7.3m, of Aeropuertos del Caribe SA (ACSA), which won a
15-year concession to manage and operate Barranquilla's Ernesto Cortissoz
International Airport. In spite of a fall in passenger numbers to under one
million, revenues at the airport increased from US$3.95m in 1997 to US$4.94m
last year. A similar 15-year concession and a 40% participation in
Aeroportuario de la Costa SA (SACSA) followed in August 1998 for Rafael
Nunez International Airport at Cartagena de Indias, which had a passenger
count of just over one million and revenues of US$4.3m in 1999.

Aena won a third concession in Colombia in May this year, for Alfonso
Bonilla Aragón Airport in Cali, which will be activated this month
(September). The 20-year concession will be administered by Aerocali SA, in
which Aena is participating with 33.4% of the capital. Cali handled 1.99
million passengers in 1999.

Aena estimates that the total investment in the first three years in its
Colombian airports will amount to at least US$27m, including new terminal
and runway facilities. Also in May 2000, Aena signed a firm 6-year contract
for the management of Cuba's new Jardines del Rey Airport being built at
Cayo Coco. The US$40m airport is planned to go into operation in the second
half of 2001.

The part-privatisation of the five main Peruvian airports - Lima's Jorge
Chavez International, Cuzco's Velazco Astete, Arequipa's Rodriquez Ballon,
Iquitos' Coronel Francisco Secada Vignetta, and Trujillo's Capitan C M de
Pinillos Huanchaco - is being hampered by political indecision and turmoil,
but Aena will bid when a date is finally set. The country's main gateway,
which serves the capital Lima and the city of Callao, alone requires an
investment of around US$500m to meet immediate demands.

Aena also still has high hopes of winning the build-operate-transfer (BOT)
concession for Montevideo's Carrasco International, although Vancouver
Airport Services, part of the MVD consortium, is believed to have put in the
highest offer of US$170m. A decision is awaited from the Uruguay government.

Canada catches up

Almost stealthily, Vancouver Airport Services (YVRAS) has exported its
management expertise to 12 airports across the world, and has given notice
to the more illustrious European airport operators of its intention to
compete vigorously in the international market (see separate feature on page
17 this issue). Among its successes are five airports in Latin America, and
it is also the frontrunner for the yet to be awarded contract at Montevideo.
Another airport in the region under YVRAS management is Providenciales
International Airport in the Turks & Caicos Islands in the Caribbean.

The concession for the Arturo Merino Benitez International Airport in
Santiago, Chile, was awarded in 1997 to the SCL consortium, which included
YVRAS as the airport operator. The consortium commenced construction of
various works in mid-1998 and assumed operational responsibility of the
terminal in January 1999. The first phase of construction included a new
control tower, the addition of six gates, a new aircraft apron, an expansion
of the terminal, public parking improvements and additional roadways as well
as a new cargo terminal and customs building.

YVRAS is currently working on the second phase, which is to be completed by
June 2001. This includes a total of 90,000m2 of terminal area and 17 gates.
It also provides for the construction of a 96-room hotel for domestic and
international passengers and the expansion of the only runway, which will
permit carriers to increase passenger and cargo yields.

The overall estimated amount to be invested in this airport is approximately
US$250m over three years. Among the many enhancements passengers will enjoy
at the airport are a new computerised baggage screening and distribution
system, and barrier-free access for the handicapped traveller. To reflect a
"sense of place", the interior design reflects Chile's diverse landscape
through pieces of art and the local materials used throughout the airport
terminal.

YVRAS was also awarded a 20-year concession to develop and operate four
airports in the Dominican Republic. The airports - Las Américas in Santo
Domingo, Gregorio Luperón in Puerto Plata, Arroyo Barril in Samaná and Maria
Montéz in Barahona - handle about 4 million passengers annually and are
experiencing strong growth due to their strategic location as a popular
tourist destination. YVRAS officially started operating on 1 April 2000 and
construction of capital works are currently underway.

The consortium will invest approximately US$203m in the first phase of the
concession and US$106m in the second phase over a period of approximately
2.5 to 3 years. There is also ongoing major maintenance estimated to cost
US$23m, plus an additional investment of US$85m for tourism promotion to
fuel this sector and through it, the economic growth of the Dominican
Republic.

Peru next

Election of the new president Fujimori in July means the stalled plans to
privatise Lima's Jorge Chavez International Airport may be revived, and with
it plans to develop the airport infrastructure. The president's inaugural
speech emphasised the importance of tourism, and the new economics minister
is a strong supporter of privatisation.

This is promising not only for the airport, but also for the eight bidders
who qualified for the concession to develop the airport to IATA category B
status, first published in October 1999. Peru's aviation authority CORPAC
has received bids from BAA, Aéroports de Paris, Flughafen Frankfurt Main,
YVRAS, Aéroports de Montreal and Flughafen Wien. The investment bank is
Deutsche Morgan Grenfell.


Lima's general manager, Francisco Noriega Zegarra, knows there is much to be
done. "We have a number of alternative plans for expanding and improving the
facilities and infrastructure," he says, "but until the privatisation and
financing issues are settled we are strictly limited as to what we can do.
With the expected growth in tourist and business traffic, not to mention
cargo, we see a prosperous future for the airport once we can go ahead with
our plans".

Noriega Zegarra expects to handle close to 1 million passengers this year,
and says terminal capacity is the factor limiting higher throughput.
Development plans include the installation of boarding bridges, along with
improved ground transport links to and from Lima. The airport also plans to
raise landing capability from Category I to II approval. Some 80% of the
airport's income comes from landing fees, with 20% from commercial sources.
The airport is equipped with new crash/rescue vehicles from US supplier
Emergency One following CORPAC's US$10m investment in 26 units last year to
upgrade airports across the country.

More to come

There remains hardly a nation in Latin America that has not expressed an
interest in privatising its airports, although the step from interest to
implementation is often slow. Nevertheless, the combination of government
pressure on the public purse, a shortage of management and operational
expertise to make full use of facilities, and a willingness by foreign
(largely European) airport operators to invest, will move the process along.
It is expected that within five years, all major airports in the region will
at least partially be in private hands.

Honduras, Panama, Ecuador and Venezuela have taken the first steps in
appointing consultants to advise on the methods most suitable for their
particular airports, and Guatemala is also considering a privatisation
programme to facilitate the expansion and modernisation of its gateway at
Guatemala City.

For international investors, the price to be paid will be low, but with only
two airports (Sao Paulo-Guarulhos and Mexico City) in the world's top 100,
it may be difficult to boost traffic at these airport sufficiently to
generate an adequate return.

Number of airports
Countries 			ADP Aena CPH TBI (AGI) SEA YVR
Argentina         					33
Bolivia Bolivia        			  3
Chile           						    1
Colombia  				3
Cuba   				1
Dominican Republic          				    4
Mexico Southeast     		    9
Mexico Pacific   		     12
Mexico North Central 	13
Uruguay           					    1
Source: Jane's Airport Review

Airport 	Passengers 		Revenues  		Minimum investment
        				US$m 			2000-2003

Guadalajara 5,144,960 		49.175 		18.180
Tijuana 	3,544,389 		24.128 		13.418
Puerto Vallarta 2,105,195 	180.901 		8.646
San Jose del Cabo 1,250,920 	10.205 		9.267
Others (8) 4,013,180 		38.439 		22.876
Total 16,058,644 			140,847 		72,388

Attached Photo's:
Guadalajara, Mexico, is the largest airport in the Pacific Group, acquired
by a consortium led by Aena in July 1999.

Infraero graph detailing investment plans

The central hall in Las Americas International Airport, Santo Domingo,
Dominican Republic, operated by YVRAS.

Barranquillas Ernesto Cortissoz International Airport, Colombia is operated
by the ACSA consortium.

Limas Jorge Chavez International Airport in Peru handles more than 600,000
tourists each year.

Francisco Noriega Zegarra, general manager of Jorge Chavez International
Airport, Peru.

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