In terms of the number or size of transactions, 2018 was far from a banner year for the industry, although it was still an active and intriguing one despite the tough operating market.
And once again VINCI Airports dominated the field with its acquisition of Florida-based Airports Worldwide (AWW) and its portfolio of airports in the US, Europe and Central America, along with separate deals for Belgrade’s Nikola Tesla Airport and, most recently, London Gatwick.
Growth of private-sector participation in south east Asian airports continues to be far out-paced by the double-digit increases in passenger traffic throughout the region, setting the stage for a potential capacity crunch fuelled by the rise of middle-class spending power.
At the same time, more established privatisation players like Japan and India saw several new airport projects and transactions working their way through the pipeline.
Elsewhere, after effectively binning the previous regime’s tried-and-tested PPP framework early in its mandate in favour of unsolicited offers, in the Philippines, the Duterte administration is starting to show some limited progress in closing new airport deals.
Most recently, just prior to Christmas, the San Miguel Corporation received the green light on its bold $14 billion development plan for Bulacan Airport. An operate and manage (O&M) agreement was also awarded to a Changi-led consortium for Clark Airport late in the year.
On the other hand, the Manila–Ninoy Aquino Airport project appears to remain in slow-motion while various unsolicited proposals for regional airport redevelopments have been stalled or rejected by the government.
In Thailand, the government is forging ahead with plans to find investors prepared to operate and develop U-Tapao Rayong Pattaya International Airport, located about 140km south east of Bangkok and an hour’s drive from Pattaya.
The process is attracting broad interest from local/regional players and a full spectrum of international airport operators. If all goes according to the government’s plan, we should see an award by mid-year.
Various other projects making headway in the region include Myanmar’s Hanthawaddy International Airport, currently being constructed by a Japanese-Singaporean consortium that includes Changi Airport Group subsidiary, Changi Airport Planners and Engineers, while Vietnam’s Sun Group recently opened Van Don International Airport.
After a series of fits and starts, the Serbian government finally concluded its concession process for the Nikola Tesla Airport in Belgrade (BEG), with VINCI Airports once again coming out on top. With a bid of just over €500m in concession fees and €732m of capital investment, VINCI secured the right to develop and operate BEG for 25 years.
Aiming to emulate the success of its Balkan neighbour to the north-west, Bulgaria rebooted the concession process for Sofia Airport (SOF) in the first quarter of 2018. The original proposal call was terminated in mid-2017 following numerous deadline extensions and various political contortions.
If the government stays the course, an award is anticipated early in the second quarter of 2019. UK airport operator, MAG, supported by Chinese construction giant, BCEG, is just one of the well-known industry names to throw its hat into the ring and declare an interest in the SOF concession.
Meanwhile the much delayed Brandenburg-Berlin project plodded forward with the latest opening date now targeting the fall of 2020, a full nine years after it was initially slated for completion.
Beset by a host of planning delays and technical problems since its conception over 25 years ago, this saga has been a huge national embarrassment for Germany and a cautionary tale of failed project planning and execution. Amid this quagmire, the project’s government sponsors have once again floated the idea of private sector involvement in the project – a very tough sell given its chequered history.
In Greece, the €1.38 billion Athens International Airport (AIA) concession extension and €480 million Kastelli greenfield project gained traction, AIA secured critical EC approvals to add 20 years to their term, while the GEK-Terna/GMR consortium finally received critical and long-awaited grantor sign-offs, as well.
With the March 2019 Brexit deadline looming, pundits have painted a very bleak picture for the United Kingdom’s aviation prospects upon cutting ties with the European Union. However, this downbeat mood clearly isn’t shared by VINCI Airports, which in the dying days of 2018 declared its resolute optimism in the UK’s future with its £2.9 billion offer for a 50.01% controlling stake in Gatwick Airport at 19 times EBIDTA.
Turkey’s new €10 billion mega hub, Istanbul Airport, opened in late 2018 and is set to become one of the world’s biggest airports.
Latin America & the Caribbean
After a false start and some solemn self-reflection, the Jamaican government relaunched a new and restructured concession process for Kingston’s Norman Manley International Airport, with Montego Bay lead investor and operator Grupo Aeroportuario del Pacífico (GAP) getting the nod.
Once again, Brazil played a prominent role in the LatAm region with the launch of the fifth round of concessions involving a dozen airports in three blocks.
Initiated in the latter half of the year, this so called “steak and bone” strategy includes Recife, the busiest of the lot at 7.7 million passengers per year, and a melange of medium-sized and smaller airports. The bid deadline is currently set for the end of Q1 2019, with concession awards set to take place shortly thereafter via Brazil’s favoured ‘auction’ process.
At the same time, several of the concessions from previous rounds continued to flounder in the aftermath of Brazil’s protracted political and economic crisis. The newly elected right-wing President, Jair Bolsonaro, has vowed to privatise the remaining 50+ Infraero-run airports.
Elsewhere, in Peru, Fraport-led Lima Airport Partners (LAP) has, at long last, received the grantor’s go-ahead for the next stage of the development including an additional runway and terminal. The works were stalled as the state struggled to secure lands required for the expansion. LAP was granted a 10-year extension to its concession to compensate for the delay.
It was also year a tough year for grand mega-projects in the region with the Mexico City greenfield airport falling victim to a change in government. Newly elected President, Andrés Manuel López Obrador or AMLO as he’s been dubbed, made good on his campaign promise to pull the plug on this highly ambitious project.
While El Dorado II in Bogota also withered in the vine, as the government opted to double-down with OPAIN SA to expand the existing El Dorado airport to meet anticipated mid-range demand. Paraguay’s Asunción Airport concession process was also axed.
United States & Canada
St Louis Lambert International Airport remained at the forefront of the US privatisation agenda, making progress but drawing considerable opposition and controversy in the process.
St Louis has revealed that it is prepared to seek and review bids from private investors willing to operate and develop the airport on a multi-year lease and, if all goes to plan, the city’s Airport Advisory Working Group is expected to review bids from companies qualified to run the airport in Q3, 2019.
Any concession would, however, need approval by the FAA as well as the city government and the airlines serving Lambert.
Elsewhere in the US, the Big Apple saw plenty of action, with the LaGuardia project marking several initial milestones in its $4 billion construction programme, while JetBlue, the operator of JFK’s Terminal 5, pressed forward with its development plans, giving Vantage the nod to lead its comprehensive multi-billion-dollar expansion programme.
Fraport USA was also brought onboard to manage and develop the T5 commercial programme including retail, food and beverage. And in a bid to keep pace with its cross-bay rivals, in mid-December authorities announced that Munich Airport subsidiary, Munich Airport International (MAI), will operate Newark Liberty’s new $2.7 billion Terminal 1.
On the west coast, the Hochtief/ACS consortium was awarded the $1.95 billion LAX automated people mover project under a 25-year PPP agreement. Construction on the privately funded Paine Field passenger terminal also forged ahead.
As for Canadian prospects they remain in limbo, however, if the ruling Liberals are re-elected in the fall of 2019, a fresh push is likely in 2020.
CIS & the Middle East
Consumed by diplomatic issues on multiple fronts, Saudi Arabia’s progress on its ‘Vision 2030’ strategy has been slow. Termination of the Jeddah concession early in the year also set back the programme. However, the General Authority of Civil Aviation (GACA) has regrouped and is expected to relaunch a new proposal call in the latter half of the year.
Saudi authorities also put the brakes on the Riyadh (RUH) process in late April, but it and several of the other 20 some odd remaining airports are expected to advance over the coming year.
Seizing on the opportunity to fortify its role as a key aviation player in the region, Turkey inaugurated its new Istanbul ‘mega-hub’, which will eventually have six runways and be capable of handling up to 200 million passengers per annum.
Kuwait, Oman and Uzbekistan, among others, have shown varying levels of interest in attracting private sector players to invest in their airport networks, while Russia saw some activity and positioning on the secondary market including Moscow’s Sheremetyevo and Vnukovo airports.
Nigeria and Kenya were the focal points in Africa, but with two very different visions for achieving their airport development objectives.
Nigeria continued its struggle to pursue a conventional airport concession model in the face of fierce union opposition, whereas Kenya is looking to Kenya Airways for operation of Nairobi’s Jomo Kenyatta International Airport. Meanwhile, Angola, Namibia, Zambia and Zimbabwe are also exploring P3 options.
Unmistakably, the key take-away from 2018 is that the airport asset class is moving into the mainstream, with growing interest from pension funds and other institutional investors.
As a result, we can expect even greater intensity/competition for quality assets and a downward pressure on returns in the year to come.
It seems that others have now discovered what we’ve known all along, that airports are a great business. I suppose we couldn’t have expected to keep our secret fishing hole off the map forever!