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Feb. 6 (Bloomberg) -- A consortium backed by pension funds belonging to Brazilian state-run companies won the license to operate Sao Paulo’s international airport in an auction that raised 24.5 billion reais ($14 billion) for three of the country’s busiest travel hubs.
The consortium led by Investimentos e Participacoes em Infra-Estrutura SA, which also has Airports Co. South Africa as a member, bid 16.2 billion reais for the rights to operate the airport in Guarulhos for 20 years, or almost five times the 3.4 billion reais minimum.
Sao Paulo-based construction company Triunfo Participacoes e Investimentos SA led a group that won the Viracopos airport in Campinas with a 3.8 billion reais bid, and a consortium led by another Sao Paulo-based builder, Engevix Engenharia SA, took the airport in the capital, Brasilia, for 4.5 billion reais. In total, the government raised more than four times the 5.5 billion reais it had been seeking from the licensing of the three airports.
The winning operators are expected to invest a total of 16.1 billion reais in the three airports, which together accounted for about a third of Brazil’s 179 million passengers last year and 57 percent of its air cargo. In the case of Guarulhos, Latin America’s busiest airport, that includes building a terminal capable of handling 7 million passengers a year. Viracopos and Brasilia will also require new terminals as well as improved runways and parking space.
Previ, the pension fund belonging to state-run Banco do Brasil SA employees, and construction company OAS Engenharia e Participacoes Ltda are the two largest shareholders of Invepar, as the Rio de Janeiro-based holding company that will operate Guarulhos is known. The pension funds of state-run Petroleo Brasileiro SA and Caixa Economica Federal also own stakes.
Booming Travel Market
Air travel in Latin America’s biggest economy has doubled in the past decade as rising incomes have swelled the middle class. With many of the country’s aging airports operating at full capacity, officials at soccer’s governing body FIFA have said they’re concerned Brazil will not be ready to handle the 500,000 visitors expected to attend the month-long tournament.
The auction marks an about-face for President Dilma Rousseff’s Workers’ Party, which has long opposed private management of the facilities and other industries it considers strategic. Recent public works projects, such as the Belo Monte dam in the Amazon, drew little interest from private investors.
“This breaks a paradigm,” Paulo Godoy, head of ABDIB, the association representing companies investing in infrastructure, said by telephone from Sao Paulo. “New frontiers will surge for air transport, and aviation will contribute as much to Brazil’s development as the railway did for the U.S.”
Brazil’s aviation industry has grown more than any other in the world over the past decade with passenger traffic increasing 118 percent between 2003 and 2011, according to the government. Last year, the world’s fifth-biggest country by land mass trailed only the U.S. and China in volume of domestic air travel, according to data from the Montreal-based Airport Council International.
Faced with growing pressure to put an end to crowded hallways, flight delays, and busted escalators, Rousseff, a career bureaucrat, created a government agency last year tasked with opening airports to private investment. Brazil’s last major privatization drive was in the 1990s, when the government sold off roads and utilities that suffered from decades of underinvestment.
World Cup Pressure
“It took longer with airports because it was considered a strategic, military asset,” Eduardo Padilha, a professor specializing in infrastructure finance at the Sao Paulo-based Insper business school, said by phone. “The World Cup increased the pressure.”
Jerome Valcke, secretary-general of FIFA, has warned that Brazil needs to speed up work on its airports and stadiums.
“Time is flying and any day you are wasting or losing is a day you are not getting back,” Valcke said during a press conference Jan. 18 in Rio de Janeiro.
About 12 percent of flights were delayed and one in 20 canceled last year, according to Infraero, the state-owned company that currently manages Brazil’s airports.
JetBlue Airways Corp. founder David Neeleman tapped into the fast-growing market in 2008 when he founded Azul Linhas Aereas Brasileiras SA. The Barueri, Sao Paulo-based airline has garnered a market share of nearly 10 percent. Sao Paulo-based carriers TAM SA and Gol Linhas Aereas Inteligentes SA divided 76 percent of the market in December, down from 81 percent a year earlier.
Brazil has had a mixed track record in public-private partnerships, and the World Bank ranked it No. 126 out of 183 countries in its 2012 competitiveness study. State development bank BNDES offered to finance the 19 billion reais construction of the Belo Monte dam after several construction firms pulled out of the auction process in 2010, leaving only two bidding groups, both of them led by state-run utility Centrais Eletricas Brasileiras SA.
The winning consortiums will have a 51 percent stake in the license while Infraero will maintain a 49 percent share in the management of the three airports, as well as the power to veto major decisions by the joint-ventures. As a minority investor, it’ll also be responsible for funding part of the investments.
“Coming up with that cash is a big concern for investors,” said Padilha. “It’s one of the big problems of this auction.”
--With assistance from Raymond Colitt in Brasilia . Editor: Joshua Goodman
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