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A $2.6 billion airports auction this week will test Brazil’s ability to attract major operators and revamp infrastructure before the 2014 World Cup and 2016 Olympics after a first sale drew criticism for failing to do so.
President Dilma Rousseff seeks the expertise and innovation of the world’s biggest airport managers in the Nov. 22 bidding. In 2012, companies from Brazil, Argentina and South Africa won rights to run three airports. Now potential suitors for the new concessions include Spain’s Ferrovial SA, overseer of London’s Heathrow airport, and Fraport AG, which directs Frankfurt’s hub.
“When the results from the first auction came out, the government was worried because of the lack of experience in the players that won,” Victor Mizusaki, an analyst with UBS AG in Sao Paulo, said in a telephone interview. “For this next round, the preference was for more experience.”
The auction for Rio de Janeiro’s Galeao and Minas Gerais’ Confins airports is part of Rousseff’s $92 billion privatization initiative to revamp aging infrastructure including ports, railroads and highways. Twelve Brazilian cities will host World Cup matches next year, while Rio de Janeiro will be the site for the Olympic games in 2016.
“For the great challenge of renovating and modernizing infrastructure in the country, there is the new possibility that with international operators — operators with great experience — we can encourage a cultural change in our airports,” Civil Aviation Secretary Moreira Franco said in a phone interview.
Last year’s sale of licenses to three airports reaped 24.5 billion reais ($10.8 billion). A group including pension funds belonging to employees of state-run companies and Airports Co. South Africa, which manages hubs in Mumbai and Johannesburg, won the rights to Sao Paulo’s Guarulhos airport. A consortium including construction company Engevix Engenharia SA gained control of an airport in Brasilia.
The opening of a new terminal at Guarulhos is on track for its May deadline, and the hub will benefit from Airports Co. South Africa’s experience at the 2010 World Cup, which was held in that country, Fernando Sellos, commercial director at the airport, said in an interview last week.
A representative for Sao Paulo-based Engevix said construction is on time and will be completed before the World Cup.
Last year, Brazil required that any bidders already be managing a terminal handling a minimum of 5 million passengers a year. For the current go-round, the threshold is 22 million for suitors for Galeao and 12 million for Confins.
Fraport, the Frankfurt airport operator, “will do everything” to win the auction, Chief Executive Officer Stefan Schulte said in an interview this month. Frankfurt, the main hub for Deutsche Lufthansa AG, ranks third in Europe by annual passenger numbers, trailing Heathrow and Aeroports de Paris’s Charles de Gaulle, according to the airports’ traffic reports.
“Brazil is a very attractive hotspot for aviation,” Schulte said. Galeao and Confins offer “a lot of opportunity to have even better processes, to have additional income and revenues to grow in network traffic.”
Spain’s state-owned Aena Aeropuertos SA, which said earlier this month it would bid for both airports, pulled out last week, citing rules that would limit the participation of its partner, Engevix, to 15 percent. The government is limiting the presence of companies which have stakes in operating the airports that were auctioned last year.
A representative for Madrid-based Ferrovial said the company was studying making a proposal and declined to comment further.
Successful bidders will work with Brazil’s state-run airport management company Infraero, which will keep a 49 percent stake in the venture.
Besides the minimum bid of 4.83 billion reais ($1.89 billion) for Galeao and 1.01 billion reais for Confins, the winner is also required to pledge 5 percent of annual revenue to a fund that supports the country’s other airports.
The government faced challenges in attracting investors for its tollway licenses this year and had to sweeten the guaranteed rate of return to 7.2 percent after a 5.5 percent offer got no interest.
“The Brazilian government is living in a situation of disorientation,” Adriano Pires, head of the Brazilian Center for Infrastructure in Rio de Janeiro, said by phone. “The investor perceives the government’s indecision, and that the government wants to change but doesn’t know how. That type of divergence within the government, that type of chopping and changing, causes a regulatory uncertainty that winds up hurting the auctions.”
A representative for the government’s press office declined to comment.
With assistance from Richard Weiss in Frankfurt. Editors: James Callan, Ed Dufner. To contact the reporter on this story: Anna Edgerton in Brasilia at firstname.lastname@example.org. To contact the editor responsible for this story: Ed Dufner at email@example.com