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OTHER ARTICLES Last modified on March 22, 2017

The buying game

Modalis chief executive, Curtis Grad, takes stock of the airport deals of 2016 and considers what might be in store for the year ahead.

Global airport privatisation or ‘the buying game’ as we’ve come to call it, saw a strong uptick in secondary and directly negotiated deals last year, as well as a healthy stream of publicly competed transactions. 

Latin America and the Caribbean led the way with more than 15 transactions inked or well underway by year-end. 

On the other hand, deals in North America, Europe, Asia and Africa flowed at a more casual pace, recording a total of only 20 transactions, or so, across the four continents. 

France and Greece completed their planned deals, as did the Port Authority of New York and New Jersey (PANYNJ) on the long-awaited LaGuardia-Gateway project. 

The year also offered a few surprises, with Japan’s first concessions moving much more swiftly than expected and Iran wasting no time in striking a deal to funnel much-needed private capital into their cash-starved airport system, following years of crippling economic sanctions. 

The stunning London City Airport re-sale, at £2.2 billion and 30+ times EBIDTA bucked the trend, as the bulk of new transactions hovered in the low-to-mid teens. At the same time, new private equity, sovereign wealth and pension fund investors continued gravitating to the sector, finding it an increasingly attractive asset class.

 

Europe 

ACI’ Europe’s spring 2016 report The Ownership of Europe’s Airports highlighted the region’s dramatic evolution over the past six years, with private sector participation nearly doubling since 2010.

ACI’s research also revealed that 41% of European airport operators (205 airports) have some form of private shareholding, up 19% from 2010, with 39% (79 airports) fully privatised and 61% (126 airports) structured as PPPs through a wide-range of public and private ownership structures. 

And the trend will undoubtedly continue as European governments with mounting fiscal pressures turn to the private sector to finance essential airport infrastructure.   

Primary European transactions in 2016 included the award of Nice Côte d’Azur and Lyon-Saint Expury in France while Fraport sealed the deal for the concession of 14 Greek regionals. 

A host of secondary deals were also executed including Tirana (Albania), Valetta (Malta), and Maastricht Aachen in the Netherlands, as well as London City in the UK.  

It also appears that Ciudad Real, Spain’s infamous ghost airport, may have found its saviour with a private investor group picking it up through a court-ordered sale for pennies on the Euro. 

Looking to the year ahead, Bulgaria’s Sofia and Plovdiv airports are due to be refloated, while Belgrade, Serbia, and Lithuania’s three main airports of Vilnius, Kaunas and Palanga are being queued up for concession later in the year.  

The new Kastelli greenfield project on the Greek island of Crete is also poised to advance, with the GEK-Terna/GMR consortium well-positioned as sole bidder on the project.

 

Africa

A relative latecomer to the scene, Africa has been showing an increased interest in airport privatisation as countries throughout the continent desperately seek airport infrastructure funding solutions to meet growing passenger and air cargo traffic demand. 

However, despite this piqued interest, deals are still rare throughout Africa and, over the past year, Kigali, Rwanda, was the only notable transaction. Portuguese construction firm, Mota Engil Engenharia e Construcao, was selected to finance, build and operate a new international airport just outside of Kigali. The first phase of works is scheduled to start mid-year.

Other potential African PPP projects include an airport city development in Accra, Ghana, as well as airport PPPs in Nacala (Mozambique) and Dar es Salaam (Tanzania). Nigeria is also considering the concession of its four busiest airports; Abuja, Lagos, Port Harcourt and Kano, however, the move is provoking strong labour and political opposition. 

 

Latin America & the Caribbean

As mentioned earlier, Latin America was a hotspot for secondary, off-market transactions over the past year, with Brazil once again topping the list. 

Adding more fuel to the ‘lava jato’ firestorm, many prominent investors in the existing Brazilian airport concessions have been swept up in the scandal. As a result, the year saw a hasty off-loading of shares in several Brazilian airport concession companies.

Latam and Caribbean secondary trading activity included Bogota (Colombia) and São Paulo-Guarulhos, Brasilia, Viracopos and Natal in Brazil as well as Quito (Ecuador) and Puerto Rico. 

Aeropuertos Dominicanos Siglo XXI (Aerodom), the operator of six airports in the Dominican Republic, including Santo Domingo and Puerto Plata, also traded hands with VINCI Airports acquiring Advent’s 100% stake in the first quarter of 2016.

The region was also host to several directly negotiated deals during the year, including Bermuda’s LF Wade airport via an innovative government-government project delivery model with the Canadian Commercial Corporation (a government crown corporation) and contractor Aecon-Canada.  

Other notable tie-ups in the region included Groupe ADP’s Havana (Cuba) project and Munich’s 30-year concession for Tegucigalpa in Honduras. 

What else is on the horizon for 2017? First up is Brazil, which late last year finally launched the bidding process for its third round of concessions in the shape of Florianopolis, Fortaleza, Porto Alegre and Salvador.

There has also been talk of a fourth round by the end of the year for Congonhas, Santos Dumont, Manaus and Curitiba, although this has yet to be officially confirmed.

Elsewhere, Paraguay’s Asunción Silvio Pettirossi International Airport is poised to transact early in the year following close of the bidding process late in 2016. The Agunsa-Sacyr consortium has emerged as the top bidder, though the government has yet to ratify any deal. 

In the Caribbean, the newly elected Jamaican government is putting Kingston’s Norman Manley International Airport back on the market, only this time under more favourable terms for potential investors following a failed attempt by the previous government to concession the airport. 

Faced with an equally disappointing outcome last time out, St Lucia is also expected to launch a new bidding process for Hewanorra International Airport later this year. 

Back in 2014 it proposed a Public-Private Partnership (PPP) transaction for the gateway and, in return for a 30-year concession, required investors to inject $118 million on a new terminal and other key infrastructure and a further $90 million on the maintenance and repair of its existing facilities.

 

Canada and the United States

The United States and Canada haven’t historically been hotbeds of airport privatisation, however, there appears to be a growing appetite for private sector participation in the airport sector on both sides of the 49th parallel. 

The LaGuardia (LGA) Terminal B deal with the Skanska-Vantage consortium, worth roughly $4 billion, was largely responsible for rekindling enthusiasm in US airport privatisation. 

Denver followed suit with a PPP project to expand the Jeppesen ‘Great Hall’ terminal. The Ferrovial-led consortium is in the driving seat as preferred bidder, with parties working to thrash out the final deal within the first quarter of 2017.

Westchester, New York, also got in on the act, late last year structuring a directly negotiated deal with Oaktree Capital under the FAA’s Airport Privatization Pilot Program (APPP). However, in an unexpected twist and bowing to local political pressure, Westchester County elected to put the opportunity out to market for competitive offers, which is anticipated mid to late 2017.

Oaktree was also active on the sell side, seeking a buyer for its
50% stake in Aerostar Airport Holdings, Puerto Rico’s Luis Muñoz Marín International Airport concession company. Structured under the APPP framework, the Puerto Rico project is one of the very few bright spots in an otherwise dismal 20-year programme history. 

Other US deals in the works or under development include a new private regional passenger terminal at Seattle’s Paine Field and private air cargo facilities in Baja, California. 

Oakland is also considering PPP options for expansion of its international terminal facilities and PANYNJ is looking to repeat its success at LGA with a $2.3 billion revitalisation for Newark’s Terminal A with private sector participation.  

Meanwhile, Canada’s new federal government has decided to revisit the country’s novel not-for-profit airport model.

Former Canadian Minister of International Trade and Vancouver Airport Authority’s first CEO, David Emerson, was asked to spearhead a government sponsored national transportation review and its findings included recommending the privatisation of Canada’s busiest airports – Toronto Pearson, Vancouver, Montréal-Trudeau, Calgary and Edmonton.  

Credit Suisse has since been engaged by the government to assess options, which range from the outright sale of lands and assets to monetising rent revenue currently payable to the federal government. 

The move is being met with stiff resistance from the non-for-profit corporations that currently operate the airports under long-term lease. 

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Middle East

Undoubtedly the region’s most intriguing transaction was VINCI Airport’s agreement with Iran to rehabilitate, expand and operate Mashhad and Isfahan airports.   

The deal, made possible by the Iran nuclear agreement and rapid thaw in international relations that followed, could open Iran up to even larger airports transactions going forward.

Still reeling from depressed oil prices, many states across the Middle East have decided to take a fresh look at various PPP models to advance their global mega-hub ambitions in the face of shrinking petrol revenues.

Undeterred by recent false starts, in 2016 the Saudi government announced plans for a comprehensive multi-modal PPP programme that includes the privatisation of all 27 Saudi airports by 2020, starting with Riyadh, Jeddah, Dammam and Ta’if.  

Surprising many, Dubai is also considering private investment for certain parts of Dubai World Central–Al Maktoum International Airport, although, details on exactly what they have in mind are still sketchy.

Encouraged by the success of the Queen Alia airport expansion project, Jordan is also thought to be eyeing similar PPP schemes for Aqaba-King Hussein, Marka (Amman) and a proposed greenfield airport.

 

India and South East Asia

Doing business in India is a daunting prospect for many international investors, but for those with fortitude and patience, the risks may be well worth the rewards as an ever expanding middle class and growing discretional incomes have had a profound impact on domestic and international air travel over the past decade.  

And according to IATA there’s much more to come, with India projected to exceed 367 million passengers per annum by 2034, a staggering 266 million above current traffic levels. 

South East Asia, especially Indonesia and the Philippines, are also seeing a dramatic rise in the propensity to travel. The latest Boeing and Airbus forecasts on expected worldwide aircraft deliveries over the next decade point at truly impressive traffic growth in the region – assuming, of course, that development of additional airport capacity can keep pace.  

So private sector investors are eagerly queuing up, right? Well, not exactly, as until governments implement the essential regulatory frameworks to foster private infrastructure investment, progress will continue to be slow and piecemeal at best. 

The Philippines and its PPP Centre, along with India’s recent regulatory reform, are encouraging steps in the right direction. But there is much more work to be done in the region to create the investment climate needed to attract the large-scale private infrastructure capital required to quench mounting consumer demand.

Other signs of progress in South East Asia include Myanmar’s new Hanthawaddy greenfield project, which is forging ahead. Other noteworthy transactions over the past year or so include GVK’s pending sale of shares in Bangalore to Fairfax Financial, although this is not a done deal yet thanks of a tangle in bureaucratic red tape.  

However, the long-awaited Mopa-Goa greenfield project has finally been awarded, with GMR emerging the victor. Elsewhere, The equally ‘suspenseful’ Navi-Mumbai project was on track for award in early 2017, but the recent withdrawal of several bidders has put a wrench in local government plans.  

It also remains to be seen what will come of the abandoned Chennai, Kolkata, Ahmedabad and Jaipur concession processes, although word has it that a few of these projects may proceed, along with Nagpur and Andhra Pradesh, in the not-too-distant future. 

Indonesia is also contemplating private sector involvement in Yogyakarta, Sepinggan and Kualanamu. Likewise, Thailand is considering private investors for Krabi, Udon, Thani, Ubon and Ratchathan airports as is Vietnam for Ho Chi Minh and An Giang and Nepal for Nijgadh.

The Philippines has been far and away the most active to date in terms of publicly disclosed, or at least publicly considered, airport privatisation projects. 

These have included a retendering and unbundling of Iloilo, Laguindingan, Davao, Bacolod-Silay and New Bohol (Panglao) aswell as potential PPP projects for Manila and Clark airports. 

 

Japan and China

The swift and successful privatisation of Osaka’s airports (Kansai and Itami) and Sendai in Miyagi Prefecture – both deals were ratified in early 2016 after being approved in late 2015 – caught many in the industry flat footed, as most assumed it would be a characteristically slow and cautious approach by the Japanese government.  

As it turned out, and perhaps as we should have expected, the government did its homework in advance and stepped into the process well prepared to ensure a quick conclusion. The new Osaka concessionaire, Kansai Airports, is spearheaded by ORIX Corporation and VINCI Airports while a Tokyu Corporation-led consortium won Sendai.

With these two transactions under its belt, Japan is now turning its attention to Fukuoka, Takamatsu and Hokkaido-Chitose airports as well as gateways in the cities of Wakkanai, Kushiro, Hakodate and Kobe. 

Finally, China offered up its own surprise with a statement in the latter half of the year that it was mulling over the idea of opening its airports up to private investment and operation. 

 

Wrap-up

So that’s what the Buying Game looked like in 2016. Not a banner year for primary transactions by any stretch, but plenty of secondary trading activity thanks to an ever-growing supply of existing private airport ventures.

The sector has come a long way since its infancy in the 1990s and there can be no mistaking the fact that it has matured into own distinct asset class, and an increasingly sought after one, drawing interest from a broader spectrum of investors than ever before.

It promises to be another exciting and unpredictable year ahead…
happy hunting!

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