Brazil airport privatisation: "Steak with bone" as the economy slowly recovers

23 August, 2017

A further round of concessions to privatise the operation of airports in Brazil is in the process of being announced. It comes just as the concessionaire of one of the first auctioned airports returns it to the government.

The optimism with which the first concession round was greeted has given way to concerns that the asking price for these 25- and 30-year deals is too high in the light of Brazil’s still uncertain economy, aggravated by continuing political unrest.

This report looks at the reasons behind the concessionaire’s decision to surrender its licence, at the (negative) economic state of Brazil, and at the slightly more positive tourism outlook and aircraft order books.

It concludes that the forthcoming fourth tranche of concessions – the precise nature of which is yet to be decided in what is a very fluid situation – could be successful, but only if a more realistic appreciation of the state of the economy is taken into account.

This latest airport concession round is coming at a bad time – while the worst recession in living memory lingers on, compounded by deep seated political distrust at many levels right up to the top that has dragged in at least one investor from the airport sector.

While there are some positive signs – for example, tourism holding up and strong aircraft order books – investors and operators alike, irrespective of their domicile, are attracted primarily by strong traffic and freight growth – as indeed Triunfo, UTP and Egis were when they bid to manage Viracopos Campinas Airport. There is no such growth to latch onto at the present time.

Secondly, they are attracted by stability - and there is little of that in evidence at present. Accordingly, these the pricing of these future concessions must take into account a more realistic assessment of the economic and political environment.