Brazil’s airports fight macro turbulences

Compressions in the sector could jeopardise the government's plans to privatise four hubs in the coming months.

Brazilian airports may be in for a rough ride as macroeconomic pressures and political instability erode the resilience of their home country, according to Fitch Ratings. 

In a report released this week, the agency points to lower real incomes, foreign exchange devaluation and lack of credit availability as possible factors to the anticipated slowdown. 

Fitch cites recent findings by Agencia Nacional de Aviancao Civil indicating a decline in air travel demand by 1.1 percent over the past six months, “with November 2015 being the fourth consecutive month of domestic demand contraction”. 

During that same period, international and domestic air traffic in Brazil shrunk by a respective 2.3 percent and 2.2 percent at the privately owned Guarulhos and Galeao airports. These together represent approximately 85 percent of Brazil's total international air traffic. 

The agency predicts economic contraction of 2.5 percent for the 2016 calendar year, which would put even more pressure on air traffic revenues. Fitch said this would have long-term implications on the business models of airport operators who rely on those revenues to meet debt service obligations and concession fee payment requirements. These include BRL 1 billion ($250 million; €230 million) per year for Sao Paulo's Guarulhos and BRL 160 million per year for the city of Campinas' Viracopos, with an assumption of 0 percent growth through 2016 on the part of the agency. 

Along with the Brasilia Airport, which serves the country's capital city, both Guarulhos and Viracopos were part of a record-breaking BRL 24.5 billion airport privatisation auction in February 2012 that drew five times more than the minimum price of BRL 5.5 billion the government was ready to accept.

In a subsequent privatisation announced in November 2013, the government pocketed BRL 20.84 billion from the sale of 51 percent stakes in Rio de Janeiro-based Antonio Carlos Jobim Airport – also known as Galeao – and Bole Horizonte-based International Airport of Confins.

Fitch posits that compressions in the airport sector could put a stick in the spokes of government plans announced last summer to privatise four more airports in the coming months, as part of the national Plano de Investimento em Logistica II.

“Air traffic [at the four airports] has been mixed,” the report said. “Florianopolis rose by 3.1 percent and Porto Alegre fell by just 1.6 percent while Fortaleza's traffic fell by 6.2 percent and Salvador's dropped by 10.7 percent, indicating varying results in 2015.” 

The agency expects lowered traffic expectations to effect bid prices for the airports, which already face compression due to “less strategic locations, more prohibitive concession frameworks (25 percent of their concession fee payments are due up front) and less government ownership”. What's more, the report indicates, the airports will need roughly 8.5 billion in terminal and runway expansions to meet government expectations. 

The government hopes to raise BRL3 billion in concession fees from the upcoming privatisation of the four airports.