Avialliance looks well outside its European comfort zone for its next investment

19 November, 2017

German airport operator and investor Avialliance - still probably better known as Hochtief Airport even if its name changed four years ago - has expressed interest in forming a public private partnership (PPP) with Bangladesh's Government to jointly finance, design, develop and operate Bangabandhu Sheikh Mujib International Airport. The airport development project will require an investment of USD4 billion.

This is an unusual step for a conservative organisation that has so far limited itself mainly to investments within Europe. Its present investments are detailed below.

TABLE -Avialliance's investments are focused on EuropeSource: CAPA - Centre for Aviation Airport Investors Database and Avialliance website

The wide variety of privatisation arrangements within which Avialliance operates is evident from the table, from concession via PPPs to outright privatisation and as both a majority and minority partner.

It is also noticeable that Avialliance (or Hochtief as it was) has only made one investment since 2007, and that was the 2017 entry into the existing Puerto Rico airport concession deal. However, in recent years Avialliance exited partial ownership of Tirana (Rinas) International Airport in Albania and entered the bidding procedure for the Toulouse Airport concession in France as well as for the deal to build and operate the new USD2.4 billion main terminal at New York LaGuardia Airport so it has not been inactive or complacent.

That Puerto Rico deal took shape after Hochtief AirPort became a subsidiary of the Public Sector Pension Investment Board (PSP Investments) in Canada. Would Hochtief have bid for a slice of the 'action' in the Caribbean? Probably not.

Athens might be considered a risky earlier investment but that is as a result of events over the past three years; it wasn't when the original deal was done. So under this new ownership Avialliance looks as if it will be less conservative in the future.

But what's happening in Bangladesh!!?? According to the New Airports section of the CAPA Airport Construction Database, Bangabandhu Sheikh Mujib International Airport is a proposed large-scale airport development to serve the central region of Bangladesh. It might be similar in scope to the proposed Central Polish Airport (see 'A new Central Polish Airport: Welcome new infrastructure, but uncertain need for it').

The Bangladeshi government presented the project as the country's newest aviation hub in 2009 and has since considered various development proposals prior to selecting a three-runway facility. Japanese consulting firm Nippon Koei was appointed by the government to conduct a BDT1.2 billion (USD15.3 million) feasibility study this year so progress is being made.

The airport will occupy 8000 acres and potential sites at Char Bilashpur in Dhaka district, Char Janajat in Madaripur district and Keyain and Latobdi in Munshiganj district have been under consideration. The existing main airport, Hazrat Shahjalal International Airport, is facing constraints on expansion, forcing the government to consider constructing a new airport - potentially the country's new aviation hub.

It is named after Sheikh Mujibur Rahman, commonly known as Bangabandhu, the country's former president and leader of the Awami League. Bangabandhu Sheikh Mujib International Airport will feature three 4,420m runways and the project is expected to be complete in about 10 years at an estimated cost of BDT500 billion (USD6.4 billion).

This is a major project indeed for Bangladesh, a relatively poor country (47th poorest in the world) with a limited aviation infrastructure and one which is having to cope with a huge refugee problem on its southern border. Bangladesh, with 163 million people, has only marginally more airline seat capacity than neighbouring Myanmar, which has less than one third of its population and its in-service aircraft fleet totals just 35, with two on order.

MAP - There are only eight commercial airports in the entire countrySource: CAPA - Centre for Aviation and OAG

Bangladesh has not previously sought much in the way of external assistance to improve its airport infrastructure. The CAPA Airport Investors Database has few examples of private firms making advances towards the Bangladeshi government either. In 2006 a USD10 million proposal from Thai Airways to manage Shah Amanat International Airport in Chittagong was later rejected by the Bangladeshi government on security grounds.

Moreover, while European companies have been involved in airport development and management deals in China and India interest has fizzled out in recent years and equity shareholdings sold. Latterly, European operators are wary about stepping outside their 'comfort zone' into places like Indonesia and the Philippines, however much those countries' governments try to encourage them. Pakistan is considered a complete no-no.

But this particular project has attracted interest from the Government of Malaysia while India's GMR has shown more general interest in the country. Perhaps Avialliance is on to something. At USD6.4 billion it is certainly a big project and one that, if successful, would put that company in a very advantageous position for further deals.