BRAZIL’S POLITICAL TURMOIL STALLS AUCTIONS FOR FOUR AIRPORTS

By MAURICIO FERNANDES, in São PauloIn less than a year, Brazil had three different civil aviation ministers, and Brazil’s ambitious airport development plans have been harmed. One of the trio - Mauro Lopes - is a member of the Chamber of Deputies that voted for the motion to impeach President Dilma Rousseff over allegations she warped government accounts. This former minister is a supporter of current Vice President Michel Temer, who is more business friendly than the left-wing President Rousseff, and who could take over the presidency if Rousseff is actually impeached. But Temer too has a poor reputation with 58% of Brazilians wanting him impeached soon over corruption allegations. With such political chaos ongoing, it is little surprise that new auctions for selling off four government-owned airports has been delayed. The initiative was released in June 2015, with the aim of completing the sale within three months. When Jane’s Airport Review went to press, the auctions had yet to happen. But is seems the wheels of Brazilian government are continuing to turn, albeit slowly, and concessions for Salvador, Fortaleza, Florianopolis and Porto Alegre airports may actually happen before the Rio de Janeiro Olympic Games – indeed some reports have been suggesting they might be staged in May. A government accountability watchdog, the Tribunal de Contas da União, on April 20 approved studies for their operation under private ownership on. If no legal challenges are filed, the sale of the four airports could finally happen. Of the four, Salvador-Deputado Luís Eduardo Magalhães International Airport, is most vulnerable to delaying court action because its privatisation plan includes building a second runway, which could damage a forest near this north-eastern Brazil facility. Another problem impeding progress in these auctions is that Brazil’s government has not just been facing a political crisis, it has been struggling with major budget deficits, forcing it to cut spending programmes. Planned investment in modernising local airports has been one victim. In March (2016) alone, Brazil’s Civil Aviation Secretariat (SAC) lost 42% of its budget, much of these reductions being to money earmarked for airport renovations nationwide. The trim was so sharp that the Brazilian treasury had to step in provide insurance to planned investments. Last January (2015), President Rousseff has said she expected to invest USD450 million on state-run Infraero. Government figures to December (2015) show that not even half of that money was supplied, with investments falling after the 2014 football World Cup was finished. These games involved supporters and players being flown to regional centres around Brazil. Pinto Martins – Fortaleza International Airport, in Brazil’s north-east, part of the planned upcoming auction, was expected to receive USD30 million in public money for renovations. A senior official at the airport told Jane’s Airport Review “about 20% of that money actually came.” Meanwhile, at Florianópolis-Hercílio Luz International Airport, in southern Brazil, around half of expected public investments of USD28 million have been received, said an airport manager. However, former aviation minister Eliseu Padilha, an influential voice in the industry, insisted that investments should be mainly private in any case, and that Infraero will be split in three if his ally Temer becomes president. Should these sell-offs proceed, however, they would signal a significant shift in Brazilian airport policy, however. The privatisations envisage a smaller role for the state-run airport corporation Infraero (Empresa Brasileira de Infraestrutura Aeroportuária) than in earlier sell-offs. Under the projected terms of these sales, Infraero will hold only 15% of shares. In the previous wave of privatisations in the sector, Infraero chose to keep 49% of the ownership. But with the ongoing turmoil even that is not a sure thing: no one knows whether those new rules will still be in place or not. Rousseff supporters, including those in unions, have promised to block every initiative in a Temer administration, should he seize the reins of power during and after the upcoming impeachment process. He is a member of the centrist Brazilian Democratic Movement Party (PMDB - Partido do Movimento Democrático Brasileiro), as opposed to Rouseff’s Workers Party, a socialist group. More than 10 groups of investors have mentioned interest in the auction of the four Brazilian airports. Among them are Zurich airport operator Flughafen Zürich AG; Essen, Germany-based airport management company AviAlliance; Frankfurt airport operator Fraport; Spanish construction firm Ferrovial; Spain airport operator Aena; Aéroports de Paris (ADP); France construction giant VINCI; Brazil’s Pátria Investimentos; another investment firm Argentina’s Corporación América; USA-based global airport operator ADC & HAS; Guernsey-based Da Vinci Capital Management Ltd; and Brazilian constructors Barbosa Melo e Construcap. Brazil’s current political quagmire deterred them from talking to Jane’s Airport Review about their hopes and plans for these soon-to-be privatised airports. Adriano Pires, the head of think-tank Brazilian Center of Instrastructure (CBIE - Centro Brasileiro de Infra Estrutura), commented: “This is a moment of paralysis. And the next moment will be to recheck the rules. So far, the government was more worried about how much money investors could make, not much with the quality of the investment already made. No one knows what the auction will be like," he said. “We won’t know much about the auctions until the political situation is clear,” Pires said. “We need a wave of good news. That will depend on right choices being made quickly.” So far the main difficulty for foreign companies is to find healthy local partners to bid, which could not be harder in Brazil than during the country’s current recession. The country’s GDP dipped almost 4% in 2015 and is expected to do just as badly this year, central bank (Banco Central do Brasil) projections suggest. These financial woes also affect publicly-owned state banks, which have become much more conservative and are now avoiding risky loans. Moreover, Brazil’s state investment bank BNDES has been accused by lawmakers as a source of corruption and Congress probes on its business have frightened deal makers nationwide. According to Jose Carlos Martins, president of the Brazilian Construction Industry Chamber (Câmara Brasileira da Indústria da Construcção - CBIC), the first semester is already lost for the broad economy. But if these planned airport auctions are staged, that will point to a better 2017 - in the aviation sector at least. “Today we have a total incapacity of management in the Brazilian government. We have a void in political power and that makes it very difficult for companies to project investments. No one will do it until this is solved,” Martins said. Global risk and consulting form Eurasia estimates that there is a 90% likelihood that President Rousseff will not finishing her current term of office, which ends in 2019. And it says there is a 35% chances that Temer would not survive until the next scheduled presidential election either, should be take over. RIO OLYMPICS INVESTMENTS CONTINUE, DESPITE POLITICAL PARALYSIS The Rio de Janeiro summer Olympic Games from August 5 to 21 should bring more than 1 million people to Brazilian airports, including athletes of 206 countries, according to government projections. More than 4.7 million pieces of luggage will be processed in the city’s two airports: Tom Jobim International Airport, named after the composer of the famous ‘Girl from Ipanema’ song, and regional Santos Dumont Airport, named after Brazilian aviation pioneer Alberto Santos-Dumont. More than USD600 million have been invested in both airports ahead of the sports extravaganza, with the pressure of the Olympics cutting through political complications delaying other airport developments in the country. State-run Infraero invested USD25 million in renovating Santos Dumont Airport, mostly on security facilities. Its 75,300 square metre apron now has a new drainage system and more resistant pavement. The airport has rebuilt retail stores, added a hotel and opened a new lounge. A new tram system has been built to take Olympic visitors to the city centre and its Olympic facilities area. There will be operational challenges during the games for Santos Dumont, however. Flights will cease during 11 Olympic afternoons, from August 8-18 when helicopters broadcasting sailing competitions in nearby Guanabara Bay will have flight privileges. Only smaller executive jets will be able to land and depart 24 hours-a-day during this time. The Tom Jobim airport, run by a private group Concessionária Aeroporto Rio de Janeiro SA (owned by Odebrecht TransPort, Changi Airports International and Infraero) since August 2014, has benefited from even more investment: USD450 million in building a new pier of 100,000 square metres with 26 new gates, plus more bathrooms, stores, elevators, escalators and VIP areas. In terminal 2, new x-ray machines, lifts and escalators have been built. The airport hopes that by the opening ceremony, an additional 30,000 square metres of retail floorspace will have been added within the new pier and terminal 2. “We are sure that our operation will be ready for the Olympic Games with a quality that is compatible with airports worldwide,” said Luiz Rocha, chairman of the airport group. ENDS