Airport concessions take off

All eyes on the seventh round of Brazil's airport concessions as the sixth round completes.

In an effort to advance President Jair Bolsonaro’s privatisation agenda, the Brazilian government has accelerated the auction of airport concessions across the country.

Despite the COVID-19 pandemic severely hitting air travel both globally and in South America, the Minister of Transport Tarcisio de Freitas said the government was focussing more on the projected investments by bid-winners rather than the value paid to the government.

This round of auctions (the sixth since 2011) included the concessions for 22 minor airports that account for 11% of air traffic in the country. Foz de Iguaçú in Paraná; Joinville, in Santa Catarina; Manaus, in the Amazon; and Sao José dos Pinhais, in the Curitiba metropolitan area were the largest concessions for auction. The Brazilian government managed to raise BRL 3.3 billion (USD 593.11 million) but concessionaires are required to invest BRL 6 billion (USD 1.1 billion) in the auctioned airports over the next 30 years.

An executive at an airport infrastructure designer with extensive experience in Latin America commented, “The airport concessions in Brazil are quite straightforward. After five other auctions over the previous decade the processes are strong, the terms are clear and political interference is minimal.”

“The airport concessions in Brazil are quite straightforward. After five other auctions over the previous decade the processes are strong, the terms are clear and political interference is minimal.”

Executive, airport infrastructure designer

The director of logistics at a major Latin American retailer agreed that there was very little political risk, “Unlike other privatisations, there is a widely held belief among all Brazilian political groups that airport concessions should be privatised. Bear in mind that it was the Workers’ Party who started these auctions due to the high cost of maintenance.”

The auction was split into three groups of which two were awarded to the Brazilian CCR group and one to Vinci, the French multinational. A senior lawyer familiar with the auction told us, “Vinci was awarded one of the recent blocs because of its experience in managing middle market airports, which was one the main requirements of the auction. Their positive track record managing the Salvador de Bahia airport undoubtedly gave and will give them more credibility. ”

The seventh auction, expected later this year, is what most people are waiting for, according to the executive of an airport operator, “The seventh [next] round will have greater appeal as it includes the Congonhas airport [in Sao Paulo] and the Santos Dumont airport [in Rio de Janeiro], both located at the heart of the cities. Not only will it be more attractive for potential bidders but it will also pose an additional level of complexity as there are capacity limitations and traffic issues to be addressed like having to combine domestic, international, cargo and private flights.”

“The seventh [next] round will have greater appeal as it includes the Congonhas airport [in Sao Paulo] and the Santos Dumont airport [in Rio de Janeiro].”

Executive, airport operator, Latin America

A director of a Brazilian airport agreed, “The Congonhas and Santos Dumont airports are the gems in the crown of the next auction. Two central airports, in the two largest cities in Brazil and, most importantly, there are rumours of both being allowed to switch their status to international airports. This would entail a major regulation change but it is worth the battle for companies interested in bidding for these infrastructures.”

International operators are increasingly interested in the Brazilian airport market and its future potential, despite the COVID-19 pandemic. Those players currently operating in the country such as Vinci, Fraport, AA200 and Zurich Airport have the tangible benefits of operating track records and process knowledge.

The Brazilian airport director believes this could change in the next round of auctions, “These airport assets are generating so much attention that investment funds may participate in future rounds which would be a major competition challenge for infrastructure companies which tend to be more cash-strapped and find it harder to guarantee future investments.”

Needless to say, Deheza is well-positioned to support any international investors with an interest in the Brazilian airport sector.

 

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