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ECONOMICS Last modified on March 10, 2016

The buying game

Curtis Grad, president and CEO of Modalis, provides a rundown of the biggest airport deals of the past year and takes a glimpse of what’s on the horizon for 2016.

Reflecting a recovering but unsettled global economy, last year’s ‘buying game’ can be best described as a mixed bag, characterised by both unbridled optimism and skittishness. 

For, although the upward trend on multiples continued for select assets, the industry showed an uncharacteristic cautiousness in certain emerging and stagnant markets. 

With an ever-increasing number of active and operating concessions, the volume of transactions in the secondary market has been picking up pace as initial investors look to cash-out and redeploy their capital into new projects. 

And we can surely expect more to come in the year ahead as private equity, sovereign wealth and pension funds step up and buy in to what has become an increasingly attractive asset class for strategic and institutional investors. 
Santiago

Hot and cold 

Santiago in Chile certainly falls into the exuberant category. The bid to expand Arturo Merino Benitez International Airport, under a 20-year concession, yielded an astounding 77.56% fee. 

The winning Nuevo Pudahuel consortium, which includes Aéroports de Paris (ADP), VINCI Airports and Italian contractor Astaldi, is also committed to $950m in capital investment.

New York–LaGuardia (LGA) drew an enthusiastic crowd of bidders as well, with the Skanska-Vantage consortium coming out on top. Given the nod as the preferred bidder back in May, financial close of the deal is expected in the first half of 2016. 

The finance-build-operate deal includes the $3.6 billion redevelopment of LGA’s old and overcrowded main terminal complex. 

Announced in late 2014, Fraport’s successful bid for 14 Greek regional airports has faced a series of delays in reaching a binding agreement. The 40-year, €1.2 billion upfront concession deal was finally announced in mid-December 2015. 

When in full effect, it will generate an annual fixed concession fee of €22.9 million for the cash-starved Greek state. Fraport is also obliged to invest at least €330 million into capital infrastructure by 2020.

Vietnam’s IPO for a 25% share in Airports Corporation of Vietnam – operator of 22 airports in the country – also garnered intense interest. A total of 152 investors, including 16 institutional players, were in on the action, raising $49.6 million, which the government has earmarked for the development of Long Thanh International, a new greenfield airport that will eventually replace Ho Minh City’s existing Tan Son Nhat International Airport.
Kansai
In the skittish column we have Osaka’s Kansai and Itami (KIX/ITM) airports in Japan and Norman Manley International Airport in Kingston, Jamaica. 

Despite keen interest in the early stages, only the Orix/VINCI Airports consortium pre-qualified for KIX/ITM and was subsequently named preferred bidder. 

Elsewhere in Japan, Sendai enjoyed a slightly more robust response, attracting three qualified groups, with the consortium of general contractor Maeda Corporation and railway operator Tokyu Corporation getting the nod as preferred bidder. Binding agreements are anticipated for both Japanese airport deals early in 2016. 

Kingston, however, was not so fortunate with none of the five prequalified groups ending up making a bid. The outcome means that the Jamaican government will have to go back to the drawing board.

Failure to launch

We had a few false starts last year, as well, the most notable being the Indian second-tier airports of Chennai, Jaipur, Kolkata and Ahmedabad.

An RFQ for the airports was launched in late December 2014, however, the process remains stalled and I believe that establishing a stable, transparent regulatory framework will be key to getting this one back on track.

Vigour in the secondary market

There is little doubt that Latin America and the Caribbean were the hotspots for secondary, off-market transactions last year, with Brazil leading the way.

Fuelled by the Petrobras scandal, Brazil’s ongoing political and economic crisis has triggered the off-loading of shares in several airport concession companies and significant trade sales were initiated for São Paulo–Guarulhos, Brasilia, Viracopos and Natal.  
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Quito, Ecuador, saw a major shareholder change, as well, with Canada’s Aecon Group coming to terms with Groupo Odinsa (Colombia) and CCR (Brazil) to sell its 45.5% stake in airport concessionaire, Corporación Quiport. 

Meanwhile in the Caribbean, Abertis Infrastructure disposed of its last major airport asset with the sale of its 74.5% stake in the Montego Bay concession company, MBJ Airports Limited, to Mexico’s Grupo Aeroportuario del Pacífico (GAP).

Nearing the close of 2015, Advent International followed suit, coming to terms with VINCI Airports for sale of its 100% stake in Aerodom, the operator of six airports in the Dominican Republic, including Santo Domingo and Puerto Plata. 

The deal, which is expected to be ratified in the first quarter of 2016, will mean that VINCI Airports operates 33 gateways across the globe, including Osaka’s Kansai and Itami airports.

Finally, in Canada, the terminal at Billy Bishop Toronto City Airport also changed hands early in 2015, with Porter Aviation selling to the Nieuport Aviation group made up of InstarAGF Asset Management, Kilmer Van Nostrand, Partners Group and other institutional investors.

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In the works 

In the Philippines the bidding process for Bacolod-Silay, Iloilo, Laguindingan, Davao and New Bohol (Panglao) airports is well underway. The instruction to prospective bidders was issued to five pre-qualified consortiums in June, with bid submissions and awards expected in the first quarter of 2016. 

Meanwhile, in the UK, an announcement is expected soon on the future of London City Airport, with majority shareholder Global Infrastructure Partners (GIP) looking to sell its 75% stake in the gateway for upwards of £2 billion.

Given the strong market interest shown in this premium asset, sources close to the transaction suggest that New York-based GIP should get a sale price in this region. 

Binding offers have been submitted and interest in the asset appeared to be growing as Airport World went to press.

GIP is remaining tight lipped about the bids but they are thought to have come from three different consortiums – one comprising German insurer Allianz and Canadian pension fund Borealis Infrastructure; another made up of the Canada Pension Plan Investment Board (CPPIB) and Canadian pension fund PSP; and a third contender led by Wren House Infrastructure Management, a subsidiary of Kuwait Investment Authority, and the Ontario Teachers’ Pension Plan.
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Across the channel in France, the highly anticipated trade sales of the French regional airports of Nice Côte d’Azur and Lyon-Saint-Exupery have also been set in motion. On the heels of the recent Toulouse-Blangnac deal in which Chinese state-owned group Shandong Hi-Speed and Hong Kong’s Friedmann Pacific beat out various Franco-European interests, competition for Nice and Lyon is expected to be fierce.

Sovereign wealth and pension funds, as well as the familiar cast of airport operators, are already lining up. 

The French government will be selling its 60% stakes in these regional gateways through two separate bidding processes. Nice Côte d’Azur has a reported indicative enterprise value of €1.5 billion, while Lyon is estimated at €900m.

Elsewhere in Europe, Lithuania is poised to launch a competitive bidding process for Vilnius, Kaunas and Palanga airports, with selection of advisors early in the year and kick-off of pre-qualification and call for proposals in the second quarter.

Located strategically within the Baltic region, Lithuania has the potential to play an important niche role in connecting Scandinavia, continental Europe and the near east. Key players are already actively pre-positioning to compete on this deal when it comes to market.
night flight
Next up for Brazil is a third round of airport concessions and, similar to before, Florianopolis, Fortaleza, Porto Alegre and Salvador airports will be put to market through a live auction.

However, unlike previous deals, cash-strapped state Infraero – the state operator of Brazil’s remaining government-held airports – will apparently not be taking equity stakes in the airport concession companies this time around. 

The situation is a little clearer in Asia where last June, following years of legal and political strife to secure the site, India pre-qualified four groups for the Navi Mumbai International Airport project of which only three now remain.

They are the GMR Group, a Tata Reality-MIA Infrastructure consortium and GVK-led MIAL, which operates Mumbai’s existing Chhatrapati Shivaji International Airport. India’s government rejected the security clearance of the fourth shortlisted Zurich Airport-Hiranandani Developers consortium earlier this year, although it hopes that the decision can be reversed.

GVK is considered the front-runner, as it holds a right-of-first-refusal for Navi Mumbai under the original terms of the MIAL deal, and if its bid is within 10% of the best offer, it simply has to match the highest bid to win. 
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Unlike the 60-year concessions for Delhi–Indira Gandhi International Airport and Chhatrapati Shivaji, Navi Mumbai will be an initial 30-year term with options to extend for 10 and 20 years. 

In late December 2015, the Ministry of Civil Aviation gave its approval-in-principle on the financial bids, and final submissions are due in late April with award expected by mid-year in line with the government’s desire to open the first phase of the airport by 2020.

Remaining on the Indian sub-continent, the long-awaited RFP for the new Goa-Mopa Airport greenfield project was finally issued in mid-January 2016. The four shortlisted bid groups of GMR, GVK, Essel Infra-Mumbai (partnering with Zurich Airports) and Airports Authority of India have 90 days to submit their offers. 

Deals that now arguably fall into the ‘maybe’ category for 2016 include Saint Lucia’s Hewanorra International Airport and LF Wade International Airport in Bermuda.

The government of St Lucia and the Saint Lucia Air and Sea Ports Authority (SLASPA) are looking for a private investor to operate and develop the gateway under the umbrella of a Public Private Partnership (PPP), and in line with this an RFQ was issued in July 2015 for the expansion and operation of Hewanorra Airport. 
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In late 2014, Keigan Cox, SLASPA’s general manager/CEO, told Airport World: “We are looking for private sector knowledge and know-how as well as financial investment. We believe the time is right to develop the airport to facilitate passenger growth and tourism development.”

In Bermuda, back in May 2015 local media reports suggested that the Canadian Commercial Corporation and the government were in active discussions for the proposed development of LF Wade International Airport. 

However, as Airport World went to press there had been no further news on the status of award decisions for either project.

Crystal ball

Looking to the latter half of 2016, based on the latest industry chatter, we could see some movement on privatisations in Saudi Arabia (Riyadh, Jeddah, Dammam and Ta’if), UAE, Iran and Jordan (Marka, Aqaba and a new greenfield site) in the Middle East; Serbia, Bulgaria and Ukraine in Europe; and Tanzania and Nigeria in Africa.

Industry onlookers will also be keeping a curious eye on Italy’s ambitious Europe 1 project. Led by Sīxiăng Holding and a group of private investors, this €15 billion mega-project aims to develop a 100mppa super-hub in Northern Italy, near the Brescia-Verona high-speed rail corridor on a 55 square kilometre site. Also watch out for a trading of shares in nearby Malta International Airport.
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As Indonesia and Thailand continue to ponder their respective airport development strategies, the Philippines is expected to forge ahead with Clark Airport and may, quite possibly, take another run at Manila’s Ninoy Aquino International Airport.

Elsewhere in Asia, Airports Corporation of Vietnam is said to be entertaining strategic investors to buy another 20% of its shares, Myanmar is moving forward with Hanthawaddy and Japan is likely to put a few more airports on the market over the year starting with Takamatsu and Fukuoka.

Although far from embracing the privatisation of entire airports, the United States seems to be buoyed by the progress of the LaGuardia terminal deal. Most notably, Denver has been exploring the PPP model to upgrade its Great Hall facilities, Oakland is considering the same and LAX is looking at a similar approach for its new people-mover project, dubbed the ‘Landside Access Modernization Program’ by its planning team.

So that’s a quick rundown of ‘The Buying Game’ for another year, and the only thing we know for certain, is there will be plenty of intriguing twists and turns in the year ahead!

Spain’s ghost airports
Spain’s ‘ghost airport’ of Ciudad Real still remains very much closed despite a Chinese consortium’s winning bid of €10,000 to buy the gateway in a bankruptcy auction in July 2015.

The winning and only bid for the airport that cost over €1 billion to build was made by Tzaneen International, which has tentatively suggested that it wants to make Ciudad Real a cargo entry point into Europe for Chinese companies.

Its initial €10,000 outlay buys all the land and most of the buildings, including the runway and control tower and press reports suggest that Tzaneen now wants to acquire the terminal building and the car parks and is prepared to invest up to €100m in the project, although to date, little appears to have happened on the still deserted site.

Opened in 2008 and located 235 kilometres south of Madrid, Ciudad Real was meant to be an alternative to Madrid–Barajas but never won over the airlines and closed in 2012 after going bankrupt.

Faring slightly better is former ‘ghost airport’ Castellón–Costa Azahar, which handled its first commercial flights in September 2015, four and a half years after opening, and is now served by Ryanair (Bristol and London in the UK), with Blue Air set to launch flights to Bucharest this summer.

 

About Modalis
Modalis Infrastructure Partners is a strategic investment and professional services company specialising in international transport infrastructure privatisation, investment, development and operations.

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