New concessions
Further opportunities
Comment


In December 2013 the federal government concluded public procurement proceedings for concessions for the Galeao and Confins international airports, located in the states of Rio de Janeiro and Minas Gerais, respectively.

New concessions

The concessions for the Galeao and Confins airports were announced in late 2012 by the federal government as part of its Investment Programme in Logistics: Airports. The programme's specific goals include expanding and improving airport infrastructure and increasing the level and quality of services provided to air transportation users.

The recent round of concessions is the third such project carried out by the government in recent years. The first round, which was regarded as a test, involved a project related to a non-operational airport located in Northeast Brazil in the Sao Goncalo do Amarante region in the state of Rio Grande do Norte. The second round (held in 2012) involved the first, second and fourth busiest Brazilian airports – namely, Guarulhos and Viracopos in the state of Sao Paulo, and Brasilia in the federal district.

The Galeao and Confins airports are also important hubs for domestic logistics. The two airports are some of the busiest in Brazil – in 2012 Galaeo airport had 17.5 million passengers and Confins airport had 10.4 million passengers. The National Agency of Civil Aviation, which is responsible for the regulation and inspection of airport infrastructure, was also responsible for carrying out the process for concession of the airports, which culminated in an auction held on November 22 2013.

The third round of airport concessions was a milestone, due to the excellent financial results achieved by the federal government: the grant to be paid for Galeao by the winning bidder will be approximately $9.5 billion, representing a premium of 294% on the minimum price set by the federal government; while the grant to be paid for Confins will be approximately $91 million, with a premium of 66%. The total amount to be paid to the federal government for the two concessions is approximately $10.4 billion.

Further opportunities

Further opportunities for regional aviation are expected in 2014. The federal government has indicated that the operation of the most strategic regional airports may be granted to the private sector, by means of concessions or public-private partnerships, in an attempt to replicate the success of the federal concessions.

Many major regional airports are operated by states and municipalities, based on delegation agreements entered into by and between the federal government and such bodies. In such cases, privatisation processes may be carried out by the states and municipalities directly, provided that they receive formal approval from the Ministry of Civil Aviation and the rules for the airport infrastructure operations by the private sector are met, as set forth in Federal Decree 7,624/2011.

In order to strengthen and expand the regional airport infrastructure, the federal government plans to invest approximately $3.7 billion in the first stage of a regional aviation plan that aims to:

  • improve the quality of services provided to passengers;
  • increase the number of regional airports; and
  • increase the number of routes operated by airlines.

Announced investment includes:

  • approximately $85 million to be invested in 67 airports in the north of Brazil;
  • approximately $1 billion for 64 airports in the northeast;
  • $462 million for 31 airports in the midwest;
  • $8 million for 65 airports in the southeast; and
  • $497 million for 43 airports in the south.

After this investment has been made, it is hoped that 96% of the population will be less than 100 kilometres away from an airport with regular flights.

When analysing the relevance of regional airports, the federal government will consider passenger and cargo volumes, as well as the number of regular flights and operational results. In addition to investment in airports in small and medium-sized cities, some regional aviation incentive measures will be implemented, focusing on new low and medium traffic routes.

Public procurement proceedings for improvement work in regional airports are expected for the first half of 2014. For example, Rio de Janeiro aims to develop nine regional airports, two of which will be new airports to be built in the cities of Nova Friburgo and Volta Redonda. In both cities, expropriation proceedings for the areas in which the airports will be built have already been initiated.

All of these developments result from the restructuring of the airport sector legal framework that has been implemented since 2010.

Comment

Some controversy has arisen in relation to the model adopted by the federal government for such concessions, including the extensive restrictions on the concessionaire's right to ensure an economic equilibrium for concession contracts and the uncertainty of the calculation methodology used.

The provisions for economic/financial equilibrium of concession agreements are extremely restrictive and are feasible only when events listed in the contract occur. Other events that affect such equilibrium, even where protected by law and precedents, are excluded from the concession agreement.

However, it is hoped that the new phase to be initiated in granting the operation of regional airports to the private sector will provide an opportunity to correct the models already adopted and to incorporate feedback from the experience of those concessions that have already been granted.

For further information on this topic please contact Claudia Elena Bonelli or Carolina Caiado at TozziniFreire Advogados by telephone (+55 11 50 86 50 00), fax (+55 11 50 86 55 55) or email (cbonelli@tozzinifreire.com.br or ccaiado@tozzinifreire.com.br). The TozziniFreire Advogados website can be accessed at www.tozzinifreire.com.br.