Brazil Tests Airport Privatizations

One afternoon last month, a group of young Catholics sang and played instruments at Brasilia’s airport to welcome fellow Christians who were arriving to witness the visit to Brazil of Pope Francis.

The good news for Brazil is that its economy is booming and it will be hosting the World Cup in 2014. The bad news is its airports are too small to handle the increased traffic. WSJ’s Paulo Trevisani reports on its efforts to fix this.

They had to crank up the volume a bit to overcome the noise of drills, saws and hammers. A massive upgrade is under way at Juscelino Kubitschek International Airport, along with other airports in Brazil, to accommodate the hundreds of thousands of visitors expected for a streak of major events that include the World Cup soccer tournament next year and the Summer Olympics in 2016.

But increasingly, the work isn’t being managed by Infraero, the government corporation formed in 1973 to oversee the country’s airports. Rather, Brasilia’s airport was one of the first to be turned over to the private sector in an airport privatization program that the country has launched to accelerate some $19 billion in investment needed to cope with projected passenger growth.

Reuters

Construction work at the Guarulhos International Airport in São Paulo

“We have extremely aggressive deadlines,” said José Antunes Sobrinho, chairman of Inframerica, a joint venture between Brazil engineering company Grupo Engevix and Argentine holding company Corporación América that last year made the winning bid for Brasilia’s airport. “We will do in 18 months what would take up to three years at regular speed.”

The companies are hoping to make money by leasing gates to airlines, terminal space to retailers, and sites in the surrounding areas to developers of office buildings, hotels and warehouses. The Brasilia project, for example, includes over 60,000 square feet of retail and restaurant space, with a “mini soccer stadium” that will double as a restaurant and bar. Inframerica soon plans to lease a site near the airport for its first attached hotel.

Brazil’s move to begin turning over ownership of airports to the private sector is the latest twist in a debate in the aviation world that dates back to 1987, when Margaret Thatcher’s government in the U.K. privatized the former British Airports Authority. Since then, people have been arguing over whether businesses or governments have been better suited at running airports.

On the plus side, privatizations give governments a revenue boost and funnel private investment and business efficiencies into airport development. But critics point to a range of potential problems, including the loss of government control over airport wages and environmental impacts.

Numerous countries in Europe, Asia, Australia and Latin America have privatized airports. Today, more than 30 of the world’s 100-largest airports are either fully or partially owned by investors, according to the Reason Foundation, a libertarian think tank.

But in some countries, such as the U.S., the trend hasn’t taken off. A report last year sponsored by the Federal Aviation Administration noted that in the U.S. “there has been little appetite for the long-term lease or sale of U.S. airports” because of such factors as the desire of governments to retain control, agreements with unions and “the influence of airlines, particularly those that carry the majority of an airport’s traffic.”

Brazil was one of the most-recent countries to adopt an airport privatization plan. Three of Brazil’s largest airports, including Brasilia’s, were handed over to private operators last year, and a fourth one will be the country’s first to be built from scratch by a private operator. Two others are to be auctioned later this year, including Rio de Janeiro’s airport, which is named after Antonio Carlos Jobim, the storied musician who was one of the founders of the bossa-nova style.

Airport privatization comes as Brazil’s new prosperity propels the country and its burgeoning middle class into the aviation age.

In 2007, when Brazil was chosen to host the 2014 World Cup, the country’s airports were choked, and the government couldn’t keep up with all the necessary updates.

“Everything was too outdated,” said Carlos Ebner, head of the Brazilian unit for airlines trade group IATA. “Airports couldn’t keep up with the industry’s development.”

Brazil’s privatization effort underscores the enormous risks at play in privatization efforts. The winning bidders for the four airports already privatized agreed to pay annual rent and make enormous investments. In the case of São Paulo’s Guarulhos International Airport, Brazil’s Investimentos e Participações em Infraestrutura SA, or Invepar, and South Africa’s ACSA, agreed to pay 16.2 billion reais ($7.04 billion) over 20 years and to make an investment of 4.6 billion reais.

Some of the world’s biggest airport owners, including Germany’s Fraport AG

and Singapore’s Changi Airports International, have expressed interest in making bids in the second round. “We are interested in the upcoming Rio de Janeiro and Belo Horizonte airport privatization,” said a spokesman for Fraport.

To be sure, there is no guarantee that the projected increase in air traffic will materialize to justify the financial commitments being made by the winning bidders. After a dismal 0.9% gross-domestic-product growth in 2012, Brazil is expected to expand no more than 3% this year and maybe a bit more in 2014.

Attendance at the World Cup and Olympics could be hurt if the political unrest that erupted in June continues or intensifies. “We hope that such civil disturbances are resolved peacefully as, if prolonged, it may color the investment sentiments negatively,” said Goh Choon Chiang, a senior consultant for Changi Airports.

Still, there is much money to be made. For example, Heathrow Ltd., the British airport operator formerly known as BAA, last month reported revenue of £1.15 billion ($1.77 billion) in the first half of 2013, up 9.2% from 2012.

A version of this article appeared August 6, 2013, on page C10 in the U.S. edition of The Wall Street Journal, with the headline: Brazil Tests Airport Privatizations.

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