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Did Private Companies Pay Too Much For Brasil's Privitized Airports?
Brazilian airport bids raise airlines’ fears
By Joe Leahy in São Paulo
Concern is mounting in the airline industry over the high prices paid in the privatisation last month of three Brazilian airports, particularly that of São Paulo, South America’s principal international gateway.
The privatisations, the first of their kind under the government of President Dilma Rousseff, are possible models for other much-needed infrastructure projects around the country as Brazil seeks to lay the foundations for continued fast economic growth.
Airlines worry that successful bidders will struggle to turn a profit without overcharging customers – the winning consortium in São Paulo paid nearly five times the minimum bid while that for Brasília paid nearly eight times.
“It looks like the numbers don’t add up and that can be very dangerous,” said Germán Efromovich, head of Avianca, one of Latin America’s biggest airlines. “Not for [the project] not happening but for who is going to pay the bill at the end of the day.”
The privatisation of Brazil’s main airports, most of which are running at chronic overcapacity after years of passenger traffic growth and under-investment, is one of the biggest initiatives by President Rousseff since she took office in January last year. The move was regarded as an important show of pragmatism by a centre-left government traditionally opposed to privatisation.
Increasing the capacity of Brazil’s airports will be crucial to the success of the country’s plans to host the football World Cup final in 2014 and the Olympics two years later.
The country has plans to invest about $562bn between 2011 and 2014 as part of a scheme known as the “Accelerated Growth Programme”, with between 30 per cent and 40 per cent of this total earmarked for the private sector.
“Brazil must resolve its infrastructure deficit before 2014,” Standard & Poor’s analysts Pablo Lutereau and Candela Macchi said in a report. They said airline passenger traffic in Brazil rose to nearly 180m by 2011 from over 71m in 2003 on the back of Brazil’s economic growth and cheaper fares.
Under the airport privatisation, the government awarded concessions to manage and expand the international airport of São Paulo, and those of nearby Campinas and the capital Brasília.
A consortium led by Brazilian companies Invepar and OAS and South African airport operator ACSA won the most important concession, São Paulo’s Guarulhos international airport, with a bid of R$16.2bn ($8.9bn).
Invepar declined to comment on Tuesday, saying it was still awaiting formal regulatory approval of the deal.
But its bid was not only higher than the official minimum bid of R$3.4bn, it was reportedly R$4bn higher than the nearest offer. The concessionaires will also be required to make total investments of R$4.6bn, increasing the pressure on potential returns.
“Nobody can figure out how they are going to have any return with the price they put on the table,” said an investor from a rival consortium. He said even at the price of the next bid of R$12bn, the expected rate of return was only 5 per cent.
Tony Tyler, chief executive officer of the International Air Transport Association, the global airline industry trade body, said Brazil was following a policy he had seen in India and other countries of seeking to maximise government revenue from airport concessions at the expense of airlines and, ultimately, passengers.
São Paulo’s turnround charges for an A330 were already among the highest in the world at around double that of Miami and more than double Madrid’s, Iata said.
“It’s a short-sighted policy by governments simply to see airports as a convenient way of gouging money from the airline industry when they should be seeing them as important engines of growth,” Mr Tyler said.
However, Standard & Poor’s Mr Lutereau said the use of public-private partnerships to develop Brazil’s airports was positive and the concessions would mostly be financed by affordable loans from Brazil’s development bank, easing the pressure on the winning consortiums.
“Funding alternatives for these airport projects are attractive,” he said. But he warned that this system of privatisation lacked a “track record” and it was too soon to say if it would be “creditor friendly”.
Brazil’s secretary of aviation was unavailable for comment.