Brazil will host two of the world’s biggest sporting events in the next three years – Ron Kuhlmann reports on progress being made on airport privatisation and upgrades.
Brazil is a big place: in terms of land area, it is the world’s fourth largest country (excluding Antarctica) and ranks fifth in terms of population. São Paulo, its largest city, ranks in the top 10 global metro areas and is the most populous in South America. The country is also home to one of aviation’s most famous pioneers, Alberto Santos-Dumont, and its first airline, Varig, began operations just weeks after the establishment of Pan American.
Like many large nations, aviation should be the ideal way to connect cities, with forbidding terrain and huge distances making surface transport slow and arduous. Yet despite the long history of aviation in the country, and the obvious need for a robust industry, Brazil’s airports handle only a fraction of the traffic seen in other, similarly sized cities. This is clear from São Paulo’s main international airport, Guarulhos (GRU), being ranked 43rd in terms of traffic in 2012, according to Airports Council International (ACI), with Rio’s international gateway, Galeao (GIG), not even making the top 50.
Both major gateways also have reputations for overcrowding and poor service, and, according to Infraero, the Brazilian airport operator, overcrowding in Brazilian airports is endemic. Infraero says that only three of the nation’s 40 busiest airports are operating at or below their planned capacity. GRU operates at 126% of its design capacity, which looks good compared with the airport at Vitoria (number 13), which is 550% over capacity.
Despite being one of the largest countries in the world, none of Brazil’s airports are yet certified to handle either the B747-8 or the A380 – a milestone that GRU hopes to reach by May 2014 for the upcoming World Cup. Guarulhos is also presently capped at 45 operations per hour, far below what will be required for the expected influx of tourists for next year’s World Cup and the Summer Olympics in 2016.
All eyes on Brazil
Once Brazil was named host of the two global sporting events, it became immediately evident that massive infrastructure investment would be required, especially at airports, which are the first points of contact for most visitors. With the deadlines clearly established, the government instituted a plan in 2011 to privatise some of its airports, with gateways in São Paulo (GRU) and Brasilia (BSB) being the first major facilities offered.
In 2012, Infrastructure and Investment Holdings SA, a consortium formed by Brazilian firm Invepar (90%) and ACSA (Airports Company South Africa) (10%), won the São Paulo Campinas Viracopos concession with an eye-popping bid of US$7.2 billion – well ahead of the number two offer, and 374% above the minimum acceptable bid. For that, the consortium got a 20-year, 51% controlling stake, with the remaining 49% continuing to be held by Infraero.
Also privatised, albeit for far less money, but still in excess of the minimum bid, has been São Paulo’s other international airport at Viracopos and Brasilia’s airport. Each winning bidder has been a separate entity, with all of them involving different pairings of investors. Later in 2013, bids will be accepted for the next two airports destined to be privatised, Galeão in Rio de Janeiro and Belo Horizonte’s Confins International Airport. In each case, Infraero will retain a 49% share in each airport.
This arrangement applies only to the major national airports. According to an ICAO report: “Secondary airports operated by states and cities can be privatised without need to refer to any federal law, regulation or policy. For example, some airports in the States of Bahia, São Paulo, and Rio Grande do Sul have already been commercialised through private concessions or privatisation.”
In pushing for privatisation, the government hopes the new investment partners will bring new energy and opportunities that will both expand and modernise the facilities, and boost revenue earning opportunities. In recent years, non-aviation revenues have been roughly a third of total revenues at Brazilian airports, and the goal is to up this to 40%. The plan is to achieve this by expanding and modernising passenger amenities, with a focus on retail, and food and beverage.
Industry doubts
Despite the government’s efforts, it has been criticised by observers, including the Latin American and Caribbean Air Transport Association (ALTA), which has slammed the selecting of consortia only by price and has advocated a solution like Chile’s where airport awards were based on proposals to lower user costs. The president of Brazilian civil aviation authority ANAC, Marcelo Guaranys, has dismissed such concerns.
Nonetheless, the high purchase prices are creating some unease among airlines serving the airports. Carriers question how the investment will be recouped without a substantial increase in fees and charges. São Paulo already charges airlines considerably more than other airports, with the cost of an A330 turnaround being double that of cities like Miami and Madrid. In 2012, IATA’s director general and CEO Tony Tyler warned Brazil that such a move was “a short sighted policy” with the end being “gouging money from the airline industry when [governments] should be seeing them as important engines of growth”.
The clock is also ticking onward to Brazil’s major events, and many projects have already suffered delays. The new Terminal 3 at GRU is forecast to be completed in May of 2014, with the Fifa World Cup kicking off just one month later in June. Similarly, Rio will host the tournament’s final, with tens of thousands of supporters and VIPs travelling there.
At GIG, both existing terminals are being renovated and airside improvements are also in progress. Given the fact that privatisation contracts will not be awarded until late 2013, many doubt that the new management will have sufficient time to influence the process and even already-planned Infraero projects may well come down to the wire.
There is also some infrastructure that won’t be completed in time for the football finals. Plans for a rail link between São Paulo and Guarulhos will not be ready for the Fifa tournament, but it is hoped it will be completed by the 2016 Olympic Games.
While privatisation is ongoing, Infraero remains the main driver for expansion ahead of the World Cup and Olympics. In the second half of 2011, the agency released a statement that its goal was to see increased capacity at all host city airports by late 2013 and that, by the opening of the World Cup, Brazil’s airports would have increased capacity by 85%, to a capacity of 118 million passengers a year. This will be achieved through an investment of US$3.76 billion at the 13 airports involved. In the near term, those bidding for the available 51% are locked in to the plans that Infraero has established. However, while the implementation of the renovations will fall to the owners, it will be financed through the National Development Bank (BDNES).
Some also question the privatisation programme taking place just ahead of the World Cup. While, in the case of São Paulo and Brasilia, there was an almost two-year window for new external investment, the Rio and Belo Horizonte contracts will come into force with only nine months for the new operators to get the lie of the land. Given that the impetus for privatisation was the need to ramp up infrastructure for the two events, the lag time is puzzling. Admittedly, the cash generated by the sales will fill the government coffers, but that is no guarantee of an enhanced passenger experience.
Public backlash
While much of the money is already committed to projects that are already under way, there has recently been a public backlash against spending on the World Cup, which resulted in massive demonstrations in some major cities. One of the demonstrators’ complaints was that ‘special events projects’ are being specially funded, while some other national infrastructure remains in a poor state. However, since many Brazilians who travel are also critical of the nation’s aviation infrastructure, these airport projects may be seen as central to the public good.
It is universally accepted that a thriving aviation sector is key to economic growth, and the global events should be a catalyst to upgrade important airport infrastructure. And with three years to go until the Olympics, improved facilities should be operational by the event. However, with the World Cup only months away and new ownership still pending in the second round of bidding, it is unclear as to just how ready the nation’s airports will be to deal with international arrivals estimated by the Brazilian Ministry of Sports to be as many as 600,000. This is in addition to the estimated three million Brazilians that are expected to travel during the tournament.
While airport privatisation globally continues to move ahead at a rather glacial pace, nowhere will the expectations and results be more scrutinised than in Brazil – where millions will render a verdict.
This article was reproduced and edited from an original story that appeared on our sister publication Routes News. The latest bumper World Routes edition of the official air service development magazine is available in your delegate bags or can be read online by clicking here.
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