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AIRPORT PROFILES Last modified on September 30, 2011

Double impact

Bob Moser and Joe Bates report on Brazil’s ambitious development plans for its airport system in preparation for hosting the world’s two largest sporting events.

Brazil’s airports are about to undergo the biggest shake-up in their history as South America’s largest country upgrades its aviation system ahead of hosting football’s World Cup finals in 2014 and the 2016 Olympic Games in Rio de Janeiro.

The transformation will be bankrolled by private investment and lead to the privatisation of at least six gateways in the next couple of years.

The status of becoming Brazil’s first privatised airport technically belongs to São Gonçalo do Amarante Airport, which is being built in the Natal city region of Rio Grande do Norte state.

On August 22, Inframérica – a consortium comprising Brazil’s Grupo Engevix and Argentina’s Corporacíon America – was awarded the 25-year concession to operate the gateway in return for completing its construction, which started in 2004.

The single 3,000-metre runway and taxiways are all but complete, but the 40,000sqm passenger terminal and all other key infrastructure have yet to be built and, according to sector analysts, could cost upwards of $400 million.

The group – which beat ATP-Contratec, Aeroportos Brasil and Aeroleste Potiguar with its auction-winning bid of $106 million – has three years to complete construction of the 5mppa capacity airport.

State-owned airport operator, Infraero, will hold a 49% stake in the gateway when it opens in late 2013.

Talking recently to Airport Investor Monthly, Fabio Falkenburger, a partner at São Paulo-based law firm Machado Meyer, noted: “São Gonçalo is the first privatisation project and it is the easiest because it is a green field project. It will test investor appetite for Brazil’s airport sector. But the question for the other concessions is whether or not investors will want to be partners with Infraero.”

Next on the agenda are plans to privatise three of the Brazil’s biggest airports (São Paulo–Guarulhos, Brasilia and Viracopos–Campinas), with the concessions due to be awarded to private-sector led consortiums in 2012.

They are expected to be followed by Confins International Airport in Belo Horizonte in Minas Gerais state and Rio de Janerio’s Galeão International Airport, as the government simply does not have the funds to carry out the $4 billion worth of investments it believes are required to modernise Brazil’s five biggest international gateways.

Brazilian companies Camargo Correa, Andrade Gutierrez and Odebrecht are expected to compete with international firms for the contracts.

Elsewhere, new terminals will also be built at a host of regional gateways as part of the Brazilian government’s $3.3 billion commitment to improving the country’s airport system.

Infraero itself will be streamlined in anticipation of undergoing an IPO within the next few years.

Infraero currently owns and operates 66 airports that handle 97% of all civilian aircraft movements in Brazil and over 110 million passengers yearly.

Some of the smaller gateways set to gain new or improved passenger terminals include Vitória–Eurico de Aguiar Salles (Espírito Santo), Fortaleza (Ceará), Hercílio Luz in Florianópolis (Santa Catarina) and Manaus–Eduardo Gomes in Amazonas state, in the north of the country.

Although the sporting events are without doubt the catalyst for the state-driven transformation of the country’s gateways, it would be wrong to assume that the nationwide airport facelift is for them alone, as passenger traffic in Brazil has been on the rise for nearly a decade.

Brazil’s airline industry has grown roughly 12% per year since 2003, and analysts predict that such levels of growth will remain steady through 2015 at least, as millions of Brazilians climb out of poverty.

Indeed, such has been the upturn in demand since the turn of the century that nine of Brazil’s 16 largest airports are now handling more passengers than they were designed to accommodate.

In fact, Brazil needs more airport capacity, and it needs it fast, because according to a 2010 McKinsey & Company study of the country’s air transport sector, it has to more than double the capacity of its main airports by 2030 to keep pace with demand.

The report, funded by Brazil’s National Economic and Social Development Bank (BNDES), states: “Of Brazil’s 20 largest domestic airports, a total of 13 have bottlenecks in their passenger terminals, something that has caused a reduction in the level of service provided to airport users.

“The magnitude of the challenge that must be overcome can be envisaged if we consider the expected increase in demand over the next 10 years (average of 5% per year in the base case scenario or up to 7% in a more optimistic scenario), the fact that the country’s airports already show limitations, and Infraero’s historical difficulty to execute capacity expansions.

“Given the growth projections, over the medium and long-terms (through 2030), Brazil must invest to increase its current capacity 2.4 fold, going from 130 million to 310 million passengers per year. This required expansion is equivalent to nine Guarulhos-sized airports.”

Executive decision

In March, Brazilian President, Dilma Rousseff, created a new Secretary of Civil Aviation, known as SAC, and gave it ministry status to oversee Infraero and the country’s aviation regulator, ANAC, and effectively spearhead the privatisation process.

The government’s initial plan was to partially privatise the gateways, paving the way for private investors to build and operate key new facilities such as new passenger and cargo terminals while leaving Infraero in daily control of the airports.

However, the size of the investments required and the realisation that private investors wouldn’t fund such massive development projects for a minority shareholding, forced a rethink and the government now recognises that the time has come to hand over the management of most of the country’s key gateways to the private sector.

While the decision has spooked some in the industry, those in any doubt over the benefits privatisation can bring need look no further than the successful de-nationalisation of Brazil’s electricity, sanitation and telecommunications industries over the past 20 years.

“Privatisation in Brazil is still considered by many to be a bad word, even though it has worked wonders in saving other government-run sectors that were in horrible shape in the past,” comments Ricardo Pagliari Levy, a specialist in aviation and public law and partner with São Paulo-based law firm, Pinheiro Neto Advogados.

Strategic choices

Of the three existing airports chosen to kick off the first phase of the privatisation process, two are main international gateways that are now operating far above capacity, and the third is an airport officials say could become Brazil’s largest in a few decades.

São Paulo’s Guarulhos International Airport handled 26.8 million passengers (+23%) last year and the upward trend continued in the first six months of 2011 when the gateway registered a 16% rise in passenger traffic on the same period a year ago.

Indeed, if estimates are to be believed, some 31.5 million passengers will pass through Guarulhos this year, despite the airport only technically being equipped to handle 26mppa.

Meanwhile the capital city’s gateway, Brasilia–Juscelino Kubitschek International Airport, is already operating at almost 50% above capacity today.

In marked contrast to Guarulhos and Brasilia, Viracopos–Campinas is currently only handling about seven million passengers per annum, although SAC believes that the gateway located around 100 kilometres north of São Paulo has the land and accessibility to eventually handle up to 80mppa.

The total is nearly four times what São Paulo–Guarulhos, Brazil’s busiest airport by some considerable margin, handles today.

“Viracopos can be the future,” enthuses Wagner Bittencourt, the newly appointed minister of SAC, who notes that passenger traffic at the gateway soared by nearly 50% in 2010.

“There’s a lot of space to grow there. If we ever get a train connecting Rio de Janeiro, São Paulo and Campinas in the future, we can create the logistical structure necessary to focus growth at Viracopos.”

And that might not be as far fetched as it sounds, as both state and federal governments believe that the political and commercial will is there to boost the profile of Viracopos-Campinas as a major international airport.

A high-speed train link between Rio de Janeiro and Campinas has actually been talked about for years, although the latest tender to build it failed to attract any domestic or international bidders.

Terms and conditions

Although nothing appears to be set in stone, the Brazilian government has drawn up a timetable for potential bidders for the three international airports currently up for grabs and outlined some basic terms and conditions.

Bittencourt’s belief in “healthy competition” ensures that the winner of the São Paulo–Guarulhos concession won’t be allowed to bid for the contract to operate nearby Viracopos–Campinas.

International companies will have the chance to enter bids for Guarulhos, Brasilia and Viracopos-Campinas airports from November through to December 22, with the winners possibly taking over the management of the gateway as early as February 2012.

At the moment, the plan is to award the winners a controlling 51% stake in each gateway, with Infraero holding a 49% interest, partially because it wants to remain in Brazil’s key growth markets to maximise its value ahead of the planned IPO, which some predict could happen as soon as 2014.

The move to hold onto a major shareholding at all of its airports ahead of an IPO is an interesting one as the Spanish government recently decided that it would get the best price for state-owned Aena Aeropuertos by selling off its prize assets of Madrid-Barajas and Barcelona–El Prat before making a 49% stake available in the company.

It will be interesting to see which strategy proves the most successful from both a financial and operational perspective in the years ahead.

Samba, futebol, cerveja and a passion for the moment are common but fair clichés that steer Brazilians, and have led to a cultural acceptance of projects finishing late and over-budget.

That may have worked in the past when only locals were watching, but Brazil has invited millions of foreigners to disembark here in 2014 and 2016. When you throw that type of house party, greeting guests properly at the door can make all the difference.

Aiport World 2011 -  Issue 4

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