Spain: turbulence ahead

THE PRIVATISATION OF Madrid’s Barajas and Barcelona’s El Prat airports is shaping up to be one of the biggest deals of the year, drawing significant interest from all corners of the industry. 

This level of attention is not entirely surprising. After all, Barajas is Europe’s fourth-largest airport, having carried close to 50 million passengers last year, while El Prat is the continent’s tenth-biggest, with 29 million passengers transported through its terminals in 2010. Furthermore, both airports grew their passenger numbers last year: Barajas by 3 percent and El Prat by a more robust 6.5 percent. 

So it’s little wonder that some of the biggest names in the industry are marshalling their resources and forming consortia to submit their qualifications to Spanish airports authority Aena on September 5. At
press time, Spanish developer Abertis was in talks with French investor AXA Private Equity and European private equity firm CVC Capital Partners to bid for the airports. 

A source familiar with the negotiations said the consortium was by no means finalised and that others might join it, or, conversely, one of its members might still drop out. 

But the pairing of the three firms would make sense, since they have a shared history: CVC bought a 15.55 percent stake in Abertis last year from Spanish developer ACS for €1.7 billion while AXA and Abertis are both shareholders in Sanef, a concessionaire which operates 1,757 kilometres of roads across France. 

Other rumoured contenders lining up to bid for the two airports include Spanish infrastructure group Ferrovial, the owner of UK airports operator BAA, and Global Infrastructure Partners, the operator
of London’s Gatwick Airport. 

But while the two airports are undeniably attractive, the government appears determined to make sure investors will not get these assets on the cheap due to Spain’s economic situation. 

While by no means final, the government is said to be looking to net an upfront payment of €5.3 billion for the two airports – €3.7 billion for Barajas and €1.6 billion for El Prat. However, the authorities also plan to charge at least €4.6 billion in annual payments over the course of the airports’ 20-year concession periods – 15 years plus an extendable five. That could see the government net a total of at least €10 billion from the concessions. 

The asking price, however, is raising eyebrows among prospective bidders. “There’s no doubt that the assets are very good, but the combination of a high upfront price and the proportion of annual revenues being asked by the government make this a very challenging privatisation,” one source commented, hinting that returns are “too tight” under the proposed price structure. 

What that means is that the government is likely to receive bids below its asking price, opening the door for some protracted haggling that, on the face of it, seems incompatible with its stated target of having the process finished before it holds elections on November 20 – a one-and-a-half month window from the time it receives bidder qualifications on September 5. 

This introduces other variables for interested bidders, the source explains, such as the level of support for the privatisations following the elections and what the new government’s position on the whole process will be. 

As a flight attendant might say: “Buckle-up, turbulence ahead.”