Brazil today will auction rights to operate three of its busiest airports in a deal worth 16 billion reais ($9 billion) in investments that tests the government’s ability to attract private capital ahead of the 2014 World Cup.
Air travel in Latin America’s biggest economy has doubled in the past decade as rising incomes have swelled the middle class. With many of the country’s aging airports operating at full capacity, officials at soccer’s governing body FIFA have said they’re concerned Brazil will not be ready to handle the 500,000 visitors expected to attend the month-long tournament.
The auction of an airport in Brasilia and two near Sao Paulo is an about-face for President Dilma Rousseff’s Workers’ Party, which has long opposed private management of the facilities and other industries it considers strategic. Recent public works projects, such as the Belo Monte dam in the Amazon, drew little interest from private investors.
“This breaks a paradigm,” Paulo Godoy, head of ABDIB, the association representing companies investing in infrastructure, said by telephone from Sao Paulo. “New frontiers will surge for air transport, and aviation will contribute as much to Brazil’s development as the railway did for the U.S.”
Companies that have said they’ll partake in the auction include Sao Paulo-based highway operators CCR SA (CCRO3) and EcoRodovias Infraestrutura e Logistica SA. A requirement to team up with foreign companies with management know-how has also drawn the interest ofFraport AG Frankfurt Airport Services Worldwide (FRA), Flughafen Zuerich AG (FHZN) and Aena Desarrollo Internacional SA (OHL), Spain’s state-run airport operator. To boost competition, the National Aviation Authority, known as ANAC, has not said who will bid.
Rivaling China
Brazil’s aviation industry has grown more than any other in the world over the past decade with passenger traffic increasing 118 percent between 2003 and 2011, according to ANAC. Last year, the world’s fifth-biggest country by land mass trailed only the U.S. and China in volume of domestic air travel, according to data from the Montreal-based Airport Council International.
At 10 a.m. local time (7 a.m. New York) ANAC will open the bidding to build and operate terminals in the capital Brasilia, Guarulhos near Sao Paulo, and Viracopos in the city of Campinas.
Together they accounted for a third of Brazil’s 179 million passengers last year and 57 percent of its air cargo. The consortium that offers the largest annual payment for each facility will win the license to operate it for between 20 and 30 years. No group can lease more than one airport. Minimum bids total 5.5 billion reais and the government estimates the three airports will together generate 36 billion reais in revenue over the lease period.
Bottlenecks
The three winning operators are expected to invest a total of 16.1 billion reais. In the case of Guarulhos, Latin America’s busiest airport, that includes building a terminal capable of handling 7 million passengers a year. Viracopos and Brasilia will also require new terminals as well as improved runways and parking space.
Faced with growing pressure to put an end to crowded hallways, flight delays, and busted escalators, Rousseff, a career bureaucrat, created a government agency last year tasked with opening airports to private investment. Brazil’s last major privatization drive was in the 1990s, when the government sold off roads and utilities that suffered from decades of underinvestment.
“It took longer with airports because it was considered a strategic, military asset,” Eduardo Padilha, a professor specializing in infrastructure finance at the Sao Paulo-based Insper business school, said by phone. “The World Cup increased the pressure.”
Flight Delays
Jerome Valcke, secretary-general of FIFA, has warned that Brazil needs to speed up work on its airports and stadiums.
“Time is flying and any day you are wasting or losing is a day you are not getting back,” Valcke said during a press conference Jan. 18 in Rio de Janeiro.
About 12 percent of flights were delayed and one in 20 canceled last year, according to Infraero, the state-owned company that currently manages Brazil’s airports.
JetBlue Airways Corp. (JBLU) founder David Neeleman tapped into the fast-growing market in 2008 when he founded Azul Linhas Aereas Brasileiras SA. The Barueri, Sao Paulo-based airline has garnered a market share of nearly 10 percent. Sao Paulo-based carriers TAM SA (TAMM4)and Gol Linhas Aereas Inteligentes SA divided 76 percent of the market in December, down from 81 percent a year earlier.
Mixed Record
Brazil has had a mixed track record in public-private partnerships, and the World Bank ranked it No. 126 out of 183 countries in its 2012 competitiveness study. State development bank BNDES offered to finance the 19 billion reais construction of the Belo Monte dam after several construction firms pulled out of the auction process in 2010, leaving only two bidding groups, both of them led by state-run utility Centrais Eletricas Brasileiras SA.
Infraero will maintain a 49 percent stake in the three airports, as well as the power to veto major decisions by the joint-ventures. As a minority investor, it’ll also be responsible for funding part of the investments.
“Coming up with that cash is a big concern for investors,” said Padilha. “It’s one of the big problems of this auction.”
Source: Bloomberg
