Airport Investment Boot Camp

Transcription

1 November 2018 bringing a world of experience to the airport industry Authors: Frode Skulbru Curtis Grad Khair Mirza

2 1. Dynamics of Airport Profitability Why are Airports Attractive Investments? Key Elements in Granting of Rights Private Airport Ownership Models 2

3 Why are Airports Attractive Investments? 1. Low competition risk 2. Steady, predictable, diversified revenues 3. Attractive long-term growth rates 4. Mature secondary market 3

4 Key Elements in Granting of Rights Indispensability No grant, no project! Grantor Relevant/authorized gov t agency/body Grantee The selected concessionaire based on competitive bid or direct negotiation Object Purpose or key drivers of grant (capital, know-how, risk transfer, etc.) Exclusivity By geography/distance, traffic type (passenger, cargo, low-cost), etc. Source: Business Mirror, Alberto Agra 4

5 Key Elements in Granting of Rights Period Form Duration of concession, renewal/extension options, etc. Management agreement, concession, lease, freehold, etc. Consideration Upfront key payment, concession fee: gross-revenue, pax-based, Work Load Unit based, etc. Regulatory Environment Economic (fees & charges), safety, operational, environment, etc. Source: Business Mirror, Alberto Agra 5

6 Private Airport Ownership Models Model Description Examples Private company 100% privately developed/owned LCY, NRN Publicly traded co. Traded company ADP, FRA Private and government Trade sale of shares in airport co NCE, LYS Concession Long term lease and use SCL, LIM Management Agreement Private management without change of ownership Airport Authority Self governed airport organisations YVR, YYZ Corporation From gov. entity to corporation SIN NAS 6

7 Private Airport Ownership Models 41% of global pax traffic handled by private airports Source: ACI 2016 Economic Survey Concession contracts are the most common contracting method at private airports 7

8 Private Airport Ownership Models 75% 1% 13% 45% 11% 60% Source: ACI brief 2017/01 Percentage of Passengers 8

9 2. Investment & Finance Availability of Funds vs Targets Pricing Comparables Competing Interests 9

10 Availability of Funds vs Targets More funds available than quality assets (particularly in the OECD) Sources Developers and contractors Operators Financial (funds) Institutional (insurance/pension) Lenders Key Aspects Affecting Value Airport maturity Potential for yield improvements Regulatory environment Capacity constraints Catchment area Airport traffic and airline mix Airlines Involved or consulted depending on jurisdiction and country Often excluded from owning airports Short vs. Long-term Active Asset Management ( Macquarie Approach ) Lead transaction (generate fees) Initial leverage (generate fees/returns) Improve operations (generate fees) Re-leverage (generate fees /returns) Exit transaction (generate fees /returns) 10

11 Availability of Funds vs Targets Key aspects affecting value Airport Maturity More predictable cash flows from larger airports Potential for bigger impact at smaller airports Potential for Yield Improvements Low commercial activities creates opportunity for increased yields Capacity Constraints Limits immediate growth Requires investments Planning and regulatory approval Catchment Area Solid home-market ensures traffic base Penetration impacts growth potential Regulatory Environment Risk/reward at regulated vs un-regulated airports Predictable regulations Airport Traffic & Airline Mix Dom. vs. Int l / short vs. long haul / business vs. leisure impact revenues Diversified vs. dependency on single carrier 11

12 Pricing Comparables: (EBITDA Multiples) Trophy Asset Feeding Frenzy!? Average 15.9% ( Source: Modalis database, Light blue = minority transaction 12

13 Competing Interests Investors Focus on performance against the Investor s FM Reluctant to provide additional cash injection Generally at bottom cashflow priority Sponsors Project champion - gov t, airlines, benefactors Local industry, local interests Owners/Grantors Keen to receive concession/upfront payments Expect immediate visible improvements Contractors Take their profit out early through the build Try to wear two hats but build takes priority Operators Generally in for long-haul patient returns Countered with perating or technical service fees Financiers Focus on performance against the Lender s FM Priority on cashflow COMPETING INTERESTS 13

14 Competing Interests The traditional divide between operator, developer, investor and contractor is disappearing 14

15 3. Revenues Traffic Aeronautical Revenue Non-aeronautical Revenue 15

16 Traffic Key driver of airport revenues and value Projections Top down (econometric) Bottom up (routes and seats) High and low trend scenarios Constrained vs. unconstrained Airlines Carrier mix (FC vs. LCC) Number of airlines (diversity) Available seats (supply) Airline contracts (commitment) Passenger Market Catchment area (O&D vs. E&D) Competition (other airports/modes) Demand can be (partially) managed Investor action can impact growth Facilities Airside (runway, apron) Terminal ATC 16

17 Traffic Traffic correlates with GDP growth with pro-cyclical tendencies Source: ICAO 17

18 Traffic ICAO: Resilience and properly managed long-term contracts pays off Since 2012, annual growth was 5%, 6%, 7% and 8% respectively in Worldwide, 4.0 billion passengers in 2017 Source: ICAO 18

19 Traffic Airbus 2014: 85% growth since 9/11 Source: Airbus 19

20 Traffic: Top 30 countries World CAGR: 4.3% ( ) 2.3% CAGR Data based on airline domiciles and therefore somewhat skewed, i.e. Ireland is #3 with 154m pax (population of 4.8m) 13.9% CAGR Source: World Bank Database 20

21 Traffic: High Growth Regions Contribution to growth of global pax traffic ( ) Top ten fastest growing airports Three countries contributed 1/3 of growth City Country % growth Istanbul Turkey 23.5% Bangkok Thailand 23.1% Surabaya Indonesia 19.2% Zhengzhou China 17.1% Ha Noi Vietnam 14.1% Chongqing China 14.1% Xi'An China 13.9% Sanaya China 13.8% Denpasar Bali Indonesia 13.6% Ho Chi Minh City Vietnam 13.3% % 18.9% 7.7% 5.5% Source: ACI 21

22 Traffic: Growth Factors Global & National Environment Airport Management Airport Capacity Airline Strategy GDP growth Regulations Regulated fees and charges Airline deregulation Bilateral agreements Revenue optimization Operational efficiencies Competitive financing structure Available and potential Runway and taxiway Terminals ATC congestion Timely development program Marketing Route dev. Hub dev. Alliances LCCs Airline bankruptcies 22

23 Aeronautical Revenues Multiple revenue sources and regulatory approaches Regulatory Schemes RoR vs. Price Cap vs. no regulations Hybrids (sliding scale) Cap at larger airports Airlines want share in upside Airlines Airline negotiations and agreements Revenue Sources Passenger fees Aircraft movement related fees Management Negotiations and strategies based on regulatory schemes Secure predictable regulations Airline relationships 23

24 Aeronautical Revenues Regulatory Schemes: 1. Rate of Return (RoR): Allows a rate on return on a set asset base (single till) 2. Price Cap - Pure: Linked to broader historical cost base / RPI (or CPI) +/- X formulae, where X can be positive or negative and is usually linked to a productivity target (single or dual till) 3. Price Cap - Hybrid: Based on forward looking regulatory cost base (RPI +/- X as above, single or dual till) 4. Sliding Scale: Variations within the above. Fee increases change with traffic growth 5. No regulation: Airline and user negotiations only Source: Evaluation of Directive EC / IATA study 24

25 Aeronautical Revenues: RoR/Hybrid Example Would this have been built under a simple price cap or no regulatory regime? 110m 94 metres 2,000 tonnes Airport WACC Price cap Fee/pax Period Heathrow 5.35% RPI - 1.5% Q6 Gatwick 5.70% RPI - 1.6% Q6 Stansted (removed from regulation) LCC airport Neg. w/airline Source: Gatwick Airport / CAPA / UK CAA (2014 decision/ Q6 is Gatwick International Airport 25

26 Aeronautical Revenues Traditionally multiple fees LCCs are driving simpler structures (often limited to a single fee per pax) Source: ACI 2014 Economic Study 26

27 Non-aeronautical Revenues Paramount for financial performance, service levels and pax choice of airport Revenue Sources Retail, F&B, services Parking, car rental Real estate related (improved use of available land) Airlines Airline offerings on-board Carry-on policies Competition for auxillary revenues Sub-concessions & Lease Sub-concessions to specialized operators Concession fees vs. lease payments Business partner vs. landlord Management Demand for a variety of skill sets Aviation to commercial to real estate Regulated aviation to shopping mall 27

28 Non-aeronautical Revenues Multiple revenue sources Often 50%+ of total revenues Active management drives revenue growth/divesification Retail component is similar to shopping mall but fundamental difference (selection, weight limitations, pax profile etc.) Pax are captive audience Airport as a destination Parking can be single most important revenue source Real estate developments Source: ACI 2014 Economic Study 28

29 Non-aeronautical Revenues Latest trends? Impact of Uber, Lyft, Grab, ride-hailing services Opportunities from online purchases of both goods (e.g. duty-free) and services 14 Megawatt solar plant 60,000 panels Weeze International Airport, Germany 29

30 4. Operating Cost & Capex Unit Cost Behavior Global Capex Profile Traffic-Capex Relationship 30

31 Unit Cost Behavior Expenses per pax similar independent of total pax (from 1m+ pax) Sweet Spot Source: ACI 2014 Economic Study 31

32 Traffic-Capex Relationship Weak direct relationship to (medium) changes in traffic Correlation to facility size Source: ACI 2014 Economic Study 32

33 Traffic-Capex Relationship Airports traffic and facilites are expanding more quickly than ever before More than USD1 trillion is being spent on new airports and expansion programs Although majority of airports worldwide are still publicly-owned and government-controlled, various means and forms of private-sector participation have been tapped to help fund this growth 23% No Pvt participation With Pvt participation 77% 0% 50% 100% Greenfield airports Expansion programs Global Asia-Pacific Sources: ACI 2017 Policy Brief; CAPA from trade press 33

34 Capex & Planning Airports are capital intense and never completed Master & Land Use Planning Long term view Land use limitations Innovative, non-airport related use Airlines Like predictable cost base (fees) Like capacity for growth but not keen to pay fair share of it Capacity vs. Service vs. Costs IATA level of service ACI ASQ Tradeoffs white elephant vs. cabin in the woods Management Use of technology to decrease space requirements Security requirements Juggle facility size vs. demand vs. service levels vs. impact on commercial revenues and opex 34

35 Bringing a world of experience to the airport industry Modalis Infrastructure Partners Inc. Suite Canada Place Vancouver, British Columbia, Canada V6C 3E2 info@modalis.ca modalis.ca Regional/Project Offices: Tokyo, Japan Santiago, Chile Panama City, Panama Kuala Lumpur, Malaysia