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OTHER ARTICLES Last modified on April 23, 2018

The buying game

Modalis chief executive, Curtis Grad, takes a look at the prominent airport deals of 2017 and contemplates what could be in store this year as we face a growing capacity crunch and seismic shifts in the global geopolitical landscape.

The buying game can be likened to chess, with the various global players deploying their strategies and resources to take advantage of opportunities through gambits, breaks, liquidation, etc.

In 2017, we saw all of these moves and more with aggressive players expanding their holdings and influence, while others cashed out and recapitalised.

Europe

The shifting political tides in Europe, led by Brexit and the rise of right-wing nationalist movements, had industry and commerce on edge throughout 2017, although the region played host to several primary transactions despite the jitters.

These included the award of the Belgrade Airport concession in Serbia to VINCI Airports; China’s HNA Group (parent of Hainan Airlines) acquiring a controlling 82.5% stake in Frankfurt-Hahn (HNN) in Germany; and the GMR/GEK-Terna consortium securing ‘preferred bidder status’ for the Crete-Kasteli greenfield project and is reportedly close to signing a concession agreement.

On the other hand, the delay-plagued Sofia Airport (Bulgaria) process will apparently be relaunched in Q1 2018, while concessions for Lithuania’s three main airports of Vilnius, Kaunas and Palanga are seemingly dead in the water following a change of government in late 2016.

As for the secondary market, shares in Birmingham and Bristol airports in the UK traded and Edinburgh was pulled off the market due, ostensibly, to Brexit fears, while Belfast City’s (BHD) ownership, multi-national private equity and venture capital firm 3i Group, initiated a consolidation of assets including BHD.

Athens International Airport’s ownership group, which includes AviAlliance, also did some consolidating of sorts, securing a 20-year extension of the ATH concession, however, the deal is not yet inked as the EU’s competition bureau has weighed in on the matter.

Perhaps lost in the din of the Brexit debate, the perennial quest for solutions to the London-Heathrow (LHR) expansion paradox clamour on. At the same time, a growing chorus of voices are calling for investment in underutilised regional UK airports, including Manchester, Birmingham and Bristol, to relieve the ever-building LHR capacity crunch.

Asia and Oceania

Despite a huge demand for additional airport capacity and a large volume of favourable press on private airport investment initiatives/ambitions, this region has very little to show in the way of actual deals.

What once served as an architype for the region, the highly successful Philippine PPP framework seems to be all but abandoned as the Duterte government has opted to entertain unsolicited offers instead.

However, in the case of Clark International Airport, after receiving several unsolicited bids, they opted to build the infrastructure themselves and tender operations and maintenance, which was awarded to GMR-Megawide.

Indonesia and Thailand have made their desires known vis-à-vis attracting private capital, however, until they have credible PPP policy frameworks in place (as India came to realise), we are unlikely to see much action on either front.

A notable bright spot, Japan continues to forge ahead with their systematic programme to concession the country’s vast network of airports. Also, after years of political wrangling, India has advanced the long-anticipated Navi-Mumbai and Mopa-Goa greenfield projects with awards to GVK and GMR respectively.

Cambodia has also awarded rights for development and operation of the new Siem Reap airport to Chinese stated-owned Yunnan Investment Holdings. The South Pacific island nation of Palau meanwhile reached a deal with Japan’s Sojitz, Japan Airport Terminal Co Ltd and Haneda Airport to invest in and operate the country’s main airport.

Finally, what seemed impossible up until a few years ago, Myanmar opened the Hanthawaddy greenfield project up to private investment, awarding rights to Incheon and its Japanese partners – subject to financing – to develop and operate the new airport.

Latin America and the Caribbean

Primary transactions were few and far between in Latin America last year, other than the long-awaited third round of Brazilian concessions – Fraport secured Fortaleza and Porto Alegre, while VINCI picked up Salvador and Zurich took Florianopolis.

Market interest was muted – only Fraport, VINCI and Zurich responded – due largely to the ‘lavo jato’ scandal. Many potential bidders were also turned-off by what was viewed as unrealistic concession terms set by the government. We shall see what the fourth round has in store, with 10+ regional airports potentially up for grabs including Goiânia, Recife, Vitória and Campina Grande.

The Caribbean enjoyed some success with the sealing of a deal for the redevelopment of Bermuda’s LF Wade International Airport – the Canadian Commercial Corporation (CCC) and the Aecon Group will deliver a new terminal after signing a contract with the Bermudan government – while Jamaica’s second attempt at a concession of Kingston is still in process, with award anticipated by mid-2018.

The region saw fairly brisk trade in the secondary market, including San Juan, Puerto Rico, where Oaktree Capital sold its 50% stake in the venture to fellow shareholders ASUR and PSP-AviAlliance.

Around the same time, ASUR also negotiated the purchase of a majority shareholding in Colombian private airport operators Aeropuertos Oriente and Airplan.

Meanwhile, embattled Odebrecht moved to offload its 60% stake in Brazil’s Rio de Janeiro-Galeão International Airport. The Viracopos (VCP) investors also decided to throw in the towel, citing a sluggish growth in the wake of Brazil’s protracted political and economic crisis.

According to VCP’s traffic forecast, the airport was expected to be handling close to 18 million passengers per year by now but has been struggling to achieve half this volume.

Canada and the United States

Some would say it’s been “much ado about nothing” in Canada, however, the informed word has it that this one still has some spark. The Trudeau government floated a trial balloon back in 2016 to gauge industry/public reaction and, predictably, airlines and labour voiced opposition to any form of airport privatisation.

Many of the not-for-profit authorities, the quasi-commercial entities running Canada’s main airports, weighed in against the plan as well. Toronto was the notable exception, perhaps seeing privatisation as the best chance to realise its global mega-hub ambitions and most viable route for financing its regional multi-modal transport objectives.

By contrast, the United States finally seems to be coming out of the woods to embrace the PPP model as a viable means to fund airport terminal and ground transportation infrastructure. Full airport privatisation in the US, however, is still a long way off.

That said, the highly touted Trump infrastructure plan relies heavily on OPM (Other Peoples’ Money), so could we see some warming to a more UK-style approach?

Anyway, with the LaGuardia PPP project for the new Central Terminal B well underway; Denver following in its footsteps for its Jeppesen Terminal revamp; and the LAX People Mover project forging ahead; others including St Louis, Kansas City, San Antonio and Nashville are starting to put their toes in the water.

As for the hotly debated Westchester project, it remains to be seen whether this deal will make it across the finish line, given the polarised local politics at play.

At the same time, smaller projects such as Austin-Bergstrom, Seattle’s Paine Field and the San Diego–Tijuana Cross Border Xpress have quietly plotted separate paths to success with varied models of private sector participation.

Commonwealth of Independent State (CIS) and the Middle East

Saudi Arabia has been the hotspot for airport privatisation in the region driven by the Kingdom’s ‘Vision 2030’ strategy. In the first wave, concession rights for Jeddah were awarded to Changi Airports International (subsequently terminated in February 2018 for reasons yet unknown) with Ta’if going to the Munich-Airport led CCC consortium, while TAV secured Qassem, Hail and Yanbu. Ultimately, Saudi Arabia aims to concession all of its 27 airports by end of 2018.

Iran also announced its ambitious plans for concession of Mehrabad, Imam Khomeini, Tabriz, Mashhad, Isfahan, Kerman and Shiraz airports. VINCI Airports is leading the charge, having already signed MOUs for Mashhad and Isfahan, back in 2016.

Changi – through subsidiary Changi Airports International – and a group of local Russian investors reached a deal in late 2016 to buy a controlling stake in Vladivostok Airport from Sheremetyevo Airport. Upon clearing regulatory hurdles in February 2017, the group acquired control of 100% of the terminal operating company and 52.16% of the airport operating company.

Africa

The African continent show some encouraging signs with Rwanda signing a concession agreement for the development and operation of the new Kigali airport, while Liberia moved forward with a plan to concession for Roberts International Airport.

Nigeria, on the other hand, remains mired in a heated debate with labour unions and other fierce opponents to the government’s planned concession of Lagos, Abuja, Port Harcourt and Kano airports.

The final word

So, to sum it up, the buying game saw many players making moves across the board in 2017 – however, much like the year before, it was by no means a record-breaker for primary or secondary transactions.

That said, there is ample cash and ambition in the market, so the year ahead promises to be an exciting one despite – or as some may argue, thanks to – a highly dynamic and unpredictable milieu of geopolitics and social change.

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