Brazil to auction regional airports under PPP model

In the latest round of airport auctions, Brazil will focus on a PPP model to spur investments in smaller regional facilities, but stakeholders are wary of associated risks. 

"The PPP model of airports carries different risks compared to the concession mechanism. In the case of PPPs, the major risk is centered on the capacity of local governments to meet their portion of agreed investments," Adriano Pinho, an airport sector expert at financial advisory Vallya, told BNamericas. 

The infrastructure ministry is structuring the first such PPP, including eight regional airports in Amazonas state, which include expansions and maintenance.

A total of 380mn reais (US$70mn) will be invested from 2022 in the airports of Parintins, Carauari, Coari, Eirunepé, São Gabriel da Cachoeira, Barcelos, Lábrea and Maués, the government said.

"It's the future of civil aviation," civil aviation secretary Ronei Glanzmann said in a press release. Glanzmann advocates more such PPPs in other states. 

Initiated in 2011, the government’s airport auction agenda is approaching its end. In the seventh round next year, the government will offer 16 airports in three blocs.

Among the facilities on offer are Congonhas in São Paulo and Santos Dumont in Rio de Janeiro, Brazil's second and third busiest domestic airports.

Offering small airports is challenging because of low demand and because it is difficult “to establish which is the best model for regional airports, whether it is PPPs or concessions,” says Marcel Moure, president of the Voa-SP consortium that manages the concessions of 11 regional airports in São Paulo state.

COVID-19 EFFECTS

The airline industry has also been battered by the pandemic.

"In my view, the volume of business air travel we had before the pandemic will no longer be recovered. In contrast, we tend to see, once the pandemic is over, an increase in tourism travel, especially domestic tourism," Jerome Cadier, CEO of Latam Airlines Brasil, told a webinar hosted by Fitch Ratings recently.

"Next year we likely already have a resumption to pre-pandemic levels in relation to domestic flights, but a resumption of international flights, only in 2023 or 2024," he added. 

Cadier highlighted auctions of airport concessions as positive because concessionaires are investing heavily to improve airport infrastructure.

Latin America's revenue passenger kilometers, a measure of airline passenger volume, dropped 51.8% in 2020 from 2019. This year’s contraction is projected at 29.3%, compared to 2019 figures, according to the International Air Transport Association, or IATA. 

“The magnitude of the COVID-19 crisis for airlines is enormous. Over the 2020-2022 period total losses could top US$200bn. To survive, airlines have dramatically cut costs and adapted their business to whatever opportunities were available,” IATA director general Willie Walsh, said in a press release.

He projected a loss of US$52bn for this year. “And this will further reduce to US$12bn in 2022. We are well past the deepest point of the crisis. While serious issues remain, the path to recovery is coming into view.”