Although it is currently facing harsher times than a year ago in terms of GDP, the Brazilian market remains one of the most promising in terms of investing in the development of the aviation sector.
To date, there have been successful auctions for the major gateways of Guarulhos, Brasília, Viracopos, Galeão and Confins airports, and the size of the winning bids and range of international companies involved in competing consortiums has clearly demonstrated the global appetite for the Brazilian market.
But it is not just all about the big boys, as Brazilian President, Dilma Rousseff, is determined to make the hinterland more accessible by attracting private investors to help develop hundreds of smaller, regional airports across the vast country.
And potential investors will not be short of opportunities as Brazil has an incredible 2,890 private airfields, 28 military airports and 720 public airports – about 10% of the latter being administrated by government owned, Infraero, with the rest belonging to states or municipalities.
Around 270 regional airports are provisionally being considered for public-private-partnership (PPP) development, all of which will continue to be managed by Infraero, with a possible minority stake being granted to a private operator.
The Banco do Brasil supports the management of the projects and the Brazilian Bank of Development will participate in the financing. As a result, over the next five years, $2.2 billion will be invested on improving the infrastructure of Brazil’s regional airports and a further $1 billion will be spent in incentives to encourage airlines to fly to the selected airports.
Airlines such as Tam, Avianca and Azul have already showed themselves responsive to the regionalisation of Brazil’s air transportation.
The recent adoption of a law enabling all private airports to undertake new commercial, revenue-earning activities – such as the ability to handle private jets – has suddenly made many regional gateways a much more attractive proposition for potential investors.
For although Brazil currently has eight domestic airlines, and 30 international airlines also serve the market, only 14 airports have a home base carrier, attesting a high concentration of flight activity in only a few spots, notably located within Brazil’s economic and financial heart in its south eastern region.
There is certainly room for expansion as today only 120 of Brazil’s 5,565 cities have air connections.
Rodoanel and São Roque
Business and general aviation are two of the fastest growing aviation segments in Brazil and therefore becoming of increasing interest to private investors.
Indeed, businessmen Fernando Botelho Jr and André Skaf have plans to transform Rodoanel aerodrome (Aerodromo Privado Rodoanel) in Parelheiros, in São Paulo state, into a business jet airport, which would be administrated by Harpia Logística.
The two businessmen intend to benefit from two factors: first, São Paulo’s crowded airports resulting in the necessity of a further airport in the São Paulo region and second, the growing demand for business aviation.
It would effectively become the first to benefit from the law enabling private airports to generate commercial revenues, which was passed in 2012. The airport covers an area of four million square metres and the investment for this project is expected to be $450,000.
Harpia is currently doing fundraising campaigns in order to find investors and, according to Skaf, the company is negotiating the sale of shareholdings to private equity funds of foreign provenience.
If all goes to plan, the airport would be operational in 2015 and have a helipad, an aircraft hangar and a hotel.
Last summer, the Harpia project received the Secretary of Civil Aviation’s (SAC) approval, approximately at the same time as the Brazilian construction company JHSF’s ‘Catarina’ project in São Roque.
In September last year, the Minas Gerais state government announced the launch of a 25-year PPP, structured in the form of a risk-sharing model for President Itamar Franco Airport (ARZM), in Juiz de Fora, in Brazil’s Zona Mata Region. The announced value of the contract was $85 million.
Conditions to fulfil this PPP were that the lead company had to be Brazilian and that all bidders must prove a minimal capital of $8.5 million.
The main challenges associated to this project are to ensure the connectivity to one of the two biggest clusters of Minas Gerais; to attract new airlines and develop the route network; to increase quality and comfort for the customer; and to get prepared for the World Cup and Olympic Games in terms of service offerings.
Municipal and private initiatives
At São João da Boa Vista Airport in São Paulo state, the airport’s development was initially triggered by 30 businessmen, who use the site for business trips, which between them raised $225,000 to install adequate take-off and landing equipment for night flights.
The city government then successfully attracted two aircraft manufacturing companies to the city to help create an aeronautical centre. As an incentive, the companies were granted tax exemptions for 20 years and support in the hiring of labour.
Negotiations are currently taking place with five other aeronautical companies, while work will shortly commence on a master plan that will help the gateway formulate a strategy for its future growth.
Initiatives in São Paulo state
São Paulo’s state is especially affected by high air traffic demand. Indeed, to help cope with rising traffic, the state’s airports department, Daesp, and local public services body, Artesp, recently awarded a 30-year concession for five regional general aviation airports to SAC for $22 million, subject to approval.
The six airports are Campos dos Amarais (Campinas), Comandante Rolim Adolfo Amaro (Jundiaí), Arthur Siqueira (Bragança Paulista), Gastao Madeira (Ubtauba) and Antônio Ribeiro Nogueira Jr (Itanhaém).Another six state-owned airfields focused on commercial aviation should follow soon.
Hints for a success
As examples such as São João da Boa Vista Airport show, an important step for a private company wishing to participate or succeed in any non-Infraero airport transaction is to simply take the initiative and submit a proposal to the state where the targeted airport is located.
Airport transactions trigger political discussions, so the advised investor needs to prepare well and provide convincing arguments before engaging public key decision-makers.
One also has to be mindful of the fact that most of these airports are underdeveloped and that in order to be transformed into profitable business developments, the identification of at least one possible business driver is vital.
It may also require out of the box thinking, as most of these airports cannot be developed with conventional solutions. Innovative and creative ideas are therefore required.
Finally, it is important to note that while only financially sound investors should explore such airport opportunities, there are various public funding sources in Brazil ready to foster such initiatives, for instance through loans from the Brazilian Bank of Development.
In the next 10 to 20 years, about 1,100 Brazilian airports will become available to the private sector. They will include regional airports, private-owned airstrips and greenfield projects, and such diversity will inevitably require many different business models.
And, for those making the right investment, the rewards are potentially high. In some of the examples mentioned above, for instance, experts are predicting rates of return of up to 30% within a few years.
With returns such as those, there is certainly potential for private investors to make a very profitable business in the Brazilian airport industry.