Bloomberg News

Brazil to Auction Rio Airport Amid World Cup Build-Out Rush

December 20, 2012

Brazilian President Dilma Rousseff’s government announced plans to auction control of Rio de Janeiro’s international airport as it rushes to upgrade aging terminals in time for the 2014 World Cup.

By ceding management of Rio’s Antonio Carlos Jobim airport, the country’s second busiest, and Confins airport in Belo Horizonte, the government aims to attract 11.4 billion reais ($5.5 billion) in investment, Wagner Bittencourt, the civil aviation minister, said at an event today in Brasilia.

Investments in Brazil’s aging airports have struggled to keep pace with air travel that has doubled in the past decade as incomes in Latin America’s biggest economy have risen. Last year, as the world’s fifth-biggest country by land mass trailed only the U.S. and China in volume of domestic air travel, 1 of 20 flights were canceled compared with 1 in 50 in the U.S.

Rousseff, in a bid to speed up airport investments, went against her Workers’ Party’s decades-old resistance to privatization and sold control in February of three airports accounting for a third of Brazil’s 179 million passengers last year. Still, the auction failed to attract the world’s biggest airport operators, as the government insisted on maintaining a 49 percent stake in each consortium and lax auction rules drew investors with less experience, pushing up bidding prices.

“We learned a lot” from the previous bidding round, Rousseff said at the event today. “We believe it’s extremely important to have a partnership between Brazilian investors and operators of major international airports.”

Stricter Rules

In recent months, government officials have visited companies including Fraport AG, Flughafen Munchen GmbH and Aeroports de Paris to explain the new investment plans. They include a requirement that companies with experience managing at least 35 million passengers a year retain a minimum 25 percent stake in the winning consortium.

In February, Brazil’s government sold operating licenses for Guarulhos airport outside Sao Paulo, the country’s busiest, and two others in Brasilia and Campinas for 24 billion reais.

Argentina’s Corporacion America, Paris-based Egis Avia and Johannesburg-based Airports Co. South Africa, the winners of the previous auction, wouldn’t qualify for the new licenses because they lack the experience required under the new bidding rules.

The auction of Jobim airport, named for Brazil’s legendary bossa nova composer, and Confins will take place in September, said Bittencourt. The state-run airport management company known as Infraero will keep a 49 percent stake in the consortiums.

‘Prosperous’ 2013

Rousseff today said that the airport auction plan is part of the government’s yearlong drive to remove bottlenecks in the economy and boost competitiveness, an effort that should bear fruit in 2013.

“2013 will be a very prosperous year,” she said.

Inadequate roadways, rail transport and airport infrastructure has limited Brazil’s growth potential as the country prepares to host the World Cup soccer tournament and the 2016 Olympic Games.

Economists surveyed by the central bank forecast gross domestic product will expand 1 percent this year, less than the U.S. and all other major emerging markets. Even though consumer demand in Brazil remains robust, underpinned by near-record low unemployment, investment in the third quarter fell for the fifth straight period.

The government also plans to invest 7.3 billion reais for the expansion of hundreds of regional and private airports with money raised from the auctions, Bittencourt said.

To contact the reporter on this story: Carla Simoes in Brasilia Newsroom at csimoes1@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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