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ANALYSIS: Brazil airport concessions face financial crunch

When Brazil awarded its first three airport concessions in 2012, private investors bid sky-high amounts for the deals that promised to pay off in spades as the country's air traffic continued to boom.

The winning concessionaires of Brasilia, Sao Paulo Guarulhos and Viracopos Campinas airports bid a collective R24.5 billion ($7.48 billion) for the airports, nearly five times the R5.4 billion minimum set by the Brazilian government.

There was a good reason for the impressively high bids. Air traffic in Brazil was booming, having grown more than 170% to 87.9 million passengers in 2011 from a low of 32.4 million passengers in 2003, World Bank data shows.

"The airport infrastructure we have today is basically the same as 10, 20 years ago," Eduardo Sanovicz, president of the Brazilian Association of Airline Companies (ABEAR), told FlightGlobal in 2013. "However, the number of passengers has increased a lot, almost tripled, since then."

The concessionaires put the pedal to the metal on infrastructure investments. New terminals opened at Brasilia, Sao Paulo Guaurlhos and Viracopos airports in 2014, increasing capacity to meet what was forecast to be continued growth.

Aeroportos Brasil Viracopos, the concessionaire of Viracopos airport, built a new terminal with capacity for 22 million passengers annually, more than double that of the previous facility.

“We really would like to be a hub for Sao Paulo state," Aluizio Margarido, commercial director of Aeroportos Brasil Viracopos, told FlightGlobal in 2014. "Guarulhos, the international airport for Sao Paulo, is very saturated. We have a demand for more flights."

But the boom, as with all good things, came to an end. The country faced a dual economic recession and political crisis beginning in early 2015.

Passenger traffic peaked at 102 million in 2015 before falling 7.7% to 94.1 million in 2016, the World Bank shows.

The drop was even greater at the recently privatised airports. In 2016, passenger traffic fell at Brasilia 9.46%, Sao Paulo Guarulhos 6.13% and Viracopos 9.69% year-over-year, airport data shows.

Viracopos with its large new terminal – and the capital investment associated with it – only handled 9.33 million passengers in 2016, airport data shows, far below its 22 million capacity.

Debt service on the capital investments at the privatised airports and concession fees to the Brazilian aviation regulator, ANAC, did not decline with passenger traffic. This resulted in "financial imbalances" at the concessionaires, as Moody's Investors Service has put it in several reports on the sector.

"Brazil’s economic recession over the last two years stemmed [from] lower than anticipated passenger volumes and higher than expected financial expenses for GRU Airport, which negatively affected the concessionaire's ability to make the timely payment of elevated annual concession fees to the government," says Moody's in a September report.

ANAC has agreed to restructure payments for the Brasilia and Sao Paulo Guarulhos concessions, while the investors in Viracopos airport voted to return the airport to the regulator in July after sustaining significant financial losses.

PASSENGERS STILL BENEFIT

Brazil's airport concessions, despite their financial imbalances, have been a success when it comes to infrastructure development. Brasilia, Sao Paulo Guarulhos and Viracopos all have new terminals, as will the six more airports that have been tendered to private concessionaires in the years since.

"GRU Airport… has inaugurated a new terminal for international flights that is on a par with the world's major terminals," LATAM Airlines Brazil, the country's largest international carrier, tells FlightGlobal. "In Brasilia, the investment made in the airside passengers' experience exceeded expectations."

The Oneworld alliance carrier operates hubs from both airports and, despite the economic downturn, has increased capacity by 4.2% at Guarulhos from 2012 to 2017, FlightGlobal schedule data shows.

LATAM operates from terminal 3 at Guarulhos, which the concessionaire GRU Airport opened in 2014. The facility, as the airline points out, was a significant improvement – especially for passengers – over the aged terminals 1 and 2, offering more shopping and dining options, as well as larger gate hold rooms and other amenities.

Gol, the largest domestic carrier in Brazil, says it views the concessions favourably, citing the capacity and infrastructure improvements.

The airline plans to set up a joint hub with Air France-KLM in Fortaleza – an airport concession that was awarded to Fraport earlier in 2017 – in May 2018. The airport on Brazil's northeast coast will act as a connecting point between Europe and domestic points in the country.

Celso Ferrer, vice-president of planning at Gol, told FlightGlobal in October that the airline is working closely with the new private operator on improving the terminal facilities to facilitate efficient connections.

Fraport must invest at least R1.4 billion in Fortaleza airport over the 30-year term of the concession. Works will include a terminal expansion that includes 12 new contact gates, and a runway extension.

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