Joseph Sims/MIAMI
Air Transport infrastructure experts say that the economic turmoil which has spread from Asia to Latin America will slow down the pace of airport privatisation in the region - perhaps by as much as 18 months. But officials at US company Ogden, in charge of the world's most extensive airport privatisation effort so far, remain upbeat about the potential for profit to be made in Latin America.
"There has been a hiccup in Brazil, but overall, Latin America is the region where airport investment needs to occur," says Rudy Vercelli, Ogden's director for airport infrastructure with the Aeroportos Argentina 2000 consortium.
The consortium, led by New York-based Ogden, won a bid this year to modernise Argentina's 33 national airports and to operate them for 30 years. Other partners are SEA, the Italian company that operates Linate and Malpensa airports in Milan, and Corporacion America, the Buenos Aires cable television and newspaper conglomerate owned by Argentinian multimillionaire Eduardo Elniquen.
The consortium will collect and retain all airport revenues, including those from aircraft landing fees, ground handling, cargo operations, in-flight catering, parking, advertising, retail and passenger departure fees. In return, Ogden and its partners will pay the Argentinian Government $171 million annually. The US company expects revenues over the 30-year period to approach $20 billion.
The Argentinian air force, however, will continue to be in charge of maintaining and operating the country's air traffic control system and the navigation and landing aids.
Ogden is already present at 22 airports in Latin America, providing specific services such as ground handling, fuelling and catering. Vercelli says, however, that sustained political and economic stability are a must if the company and other investors are to help governments to modernise and expand their airports. Brazil and Mexico are also considering privatising their airports - both with the potential for bigger deals and greater profits than in Argentina.
Experts warn, however, that Latin America's bout of "Asian flu" is already slowing down infrastructure investment. Banco Santander infrastructure expert Juan Ellis says: "I don't think the current financial crisis will stop the privatisation process, but it will certainly slow it."
NO DOUBTS
If there are doubts about airport privatisation in Brazil and Mexico, Ogden seems to have no doubts about Argentina.
The company recently drafted a master plan for the modernisation and improvement of Buenos Aires' Ezeiza Airport, the country's main international gateway. The overall plan, which calls for an eventual investment throughout Argentina of $2.1 billion, includes the closing down of Buenos Aires' smaller airport, Jorge Newberry Aeroparque, during the seventh year of private operation. The bulk of the planned investment would be used to consolidate the two airports in Buenos Aires.
"We want to consolidate Aeroparque into Ezeiza and make it a Mercosur hub," says Vercelli. (Mercosur is the South American trading bloc, which includes Argentina and Brazil.)
He says that Aeroparque handles about 5 million passengers a year, and that consolidating it with Ezeiza would provide services for about 12 million passengers in the first year. This would grow to 25-30 million passengers a year by 2025, he adds.
Ezeiza has three runways to Aeroparque's one, but one of Ezeiza's runways has been abandoned for 20 years. Under the master plan, the abandoned runway would be turned into a taxiway, and a new runway would be built parallel to the main one. New terminals would be located between the two runways.
Experts have long thought that Mexico would be the next Latin American country to privatise its airports, although it is following a different path to that of Argentina. That route, however, makes it more likely that the current economic problems will have a greater negative impact on Mexico than on countries using the Argentinian approach.
"Mexico has been getting ready for privatisation for three or four years," says Adolfo Rufatt, a Chilean who is the principal infrastructure specialist of the Inter-American Development Bank (IDB) in Washington DC.
"But the country faces formidable financial problems. They will have to do what everyone else is doing: make sure that the financing banks and the sponsors have a reasonable risk profile, compatible with the financial structure of the project," he says.
More than 50 companies have shown interest in bidding on the privatisation of the Mexican airport system, including Ogden, US company Airport Group International, UK-based BAA, German's Flughafen Frankfurt, Italy's SEA and the Netherlands' Amsterdam Schiphol Airport.
Mexico is seeking to privatise 35 airports, including Benito Juarez International in Mexico City. Santander's Ellis says that one main difference in the approaches taken by Argentina and Mexico is that the former relies on bond markets for financing, while the latter plans to depend on equity markets. The Mexican approach is modelled on the European privatisation model. A private sector corporation is created to operate the airports, but the government maintains full ownership. Financing comes from a public equity offering.
"This is an excellent model under normal market conditions," Ellis says. "Argentina, though, chose the emerging markets model, which grants a long-term concession to an existing company or consortium which then commits to expand and upgrade a country's airports in exchange for the right to collect all airport fees. This model is more simple to implement and it is more simple to look for financing in debt markets," he explains.
Ellis says that he expects those bond markets to come back in the first or second quarter of 1999, while recovery in equity markets could take as long as 12-18 months, he believes.
Ogden's Aviation Group has had a good 1998, so far. For the second quarter, the group reported increased revenues of $118.2 million, against $94.1 million a year ago, while total income increased to $26.6 million from $11 million for the same period a year ago. With this kind of performance, Vercelli says that Ogden so far has found no difficulty in tapping credit markets for its Argentinian operations.
"Our financing is coming from all over the world. Worldwide financing is definitely changing with the economic crisis, but this is not our driving concern. We are aggressively looking at Latin American opportunities, and that includes Mexico and Brazil," Vercelli concludes.
Source: Flight International