airport infrastructure conference, nairobi october 21, 2013

Presented by

Dr. Thomas FranklManaging PartnerGeneva/Switzerland

Getting it right the first time: Airport Privatization South of the Sahara

Agenda

• Who we are and what we do• Airport privatisation: the investor

perspective• A tale of two airports• Five plus one best practices for PPP’s• Alternatives to privatisation• Conclusions

Airport Development Partners SA

• Headquartered in Geneva• Managing Partner & CEO: Dr.Thomas Frankl • Chairman: Marc Brutten, founder & owner

BruttenGlobal• Members of our Board:• Bob Aaronson, former Director General ACI• Joseph In-Albon, former CEO Swissport• Hans-Peter Kohlhammer, former CEO SITA

S.C.

What we do• We support public and private airport

owners in three areas:• Assistance to public and private airport

owners in preparing for a sale / PPP concession / management contracts

• Increase of efficiency of operations • Development of new commercial income

streams / alternative use scenarios• On occasion, we also become equity

partners in PPPs

The Investor Perspective

1. Hub Airports (e.g. JNB)2. Regional hubs with large catchment

areas (e.g. NBO)3. Economically viable, non-hub

airports, incl. niche airports (e.g. JRO)4. Financially non self-sufficient,

underutilized airports 5. Economically and financially non

viable airports

A Case in Point: Ciudad Real Airport

Alternative / Supplemental AirportUtilization Concepts, I


Alternative / Supplemental AirportUtilization Concepts, II

A Case in Point: Ciudad Real Airport Supplemental AirportUtilization Concepts


• Spain, 140 km from Madrid• 4000 m x 60 m runway • Terminal infrastructure (initially) for

10 m pax• ILS CAT III• Only issue: No airlines, no pax, no

cargo • EUR 1.1 bn of public funds invested • Current valuation ?

Airport Revenues

A Tale of Two Airports

Sold to an investor at a 10 x EBIT multiple for USD 36m

• Three-year action plan:– Route development @

cost of USD 200k (3 new routes)

– Mobile terminal to accommodate new routes: cost of USD 400k

– Voluntary staff reductions by 20% : cost of USD 700k

– Increase of retail space: cost of USD 500k

Airport A (Both A and B have an EBIT of USD 3.6 M and 300 staff)

Airport B


• Three-year action plan:– Total costs: USD 2 M– Additional EBIT:– Aeronautical revenues: +USD

200k– Commercial revenues: +USD

300 k– Operational efficiencies (IT,

multi-tasking, energy savings, etc.): +USD 100k

– Additional EBIT generated from year 3: USD 0.6m

Airport A Airport B


• EBIT (2010): USD 3.6m• EBIT (2014): USD 4.2m• Sold to a private investor in

2015 at a 10 x EBIT multiple for USD 42m

• ROI of action plan at the time of airport sale: USD 6m vs. USD 2m investment = 300 % !

Airport A Airport B

Five Best Practices for PPP’s

1. Generate an ‘investment climate’ conducive to attracting investors

2. Enact appropriate PPP legislation3. There is nothing ‘warm & fuzzy’ about PPP –

be prepared for ‘commercial’ behaviour4. Build in generous contingencies (time, money,

people)5. Maintain a regular dialogue between partners

and stakeholders on all operational, financial and community aspects

The Sixth Best Practice

6. Build your own PPP capacity • The interests of governments and those of ‘PPP

consultants’ do, a priori, not match• PPP capacity enables you to manage the process efficiently, and to select the right consultants for your project• Use the United Nations

PPP Centre of Competence in Geneva – I will be happy to make the introductions !

18

Alternatives to Privatisation• Transfer of ownership to local municipality• Management contract covering all or some parts

of operations (e.g. airport terminal)• Sale of minority interest, or airport real estate

(e.g. long term lease) to finance the development of infrastructure / new revenue streams

• Issue individual concessions (fuel, FBO, retail, etc.) to reduce operational costs, drive revenues

Five Conclusions

1. Airports are strategic assets: any form of privatisation should take that into account

2. Profits are the yard stick for financial valuations, but not necessarily for economic value

3. Airports should seek to develop their revenue potential first, and privatise later

4. PPP is an effective form of privatisation for the well prepared

5. Avoid unhealthy dependencies on PPP consultants: build your own PPP capacity and…get it right the first time !

Getting it right the first time

Asante Sana - Thank You !

You can reach me at: [email protected]

+41 797 161 161

mailto:[email protected]



PPP – A ‘Public-Private Panacea’ ?The Pro’s:

Politically acceptable Investors willing to take a long-term

development view Keeps investor and government objectives

aligned Transparent process Distribution of risks between partners Predictable airport development via

mandatory phased investment programme Last-resort option to revoke concession exists

in case of contract breach

PPP – A ‘Public-Private Panacea’ ?The Con’s: Legislation needs to be ‘PPP compatible’ Long time lag between initial decision and award of

the tender – often derailed by change in governments Requires responsive and business-minded project

team involving government and airport authorities Cumbersome and slow process Quality of tender all-important (rules and conditions,

definitions, realistic time lines) Calling-off of tender (e.g. too few interested parties,

change in government, etc.) damaging Risk of renegotiation once deal signed

1. Start with the end in mind: what does the public owner-operator wish to achieve by involving private partners, and by when ?

2. Document the sales arguments (airport and economically relevant region) in an Information Memorandum: assumptions about catchment area, growth and long-term development potential should be conservative

3. Test market interest: start with investors having previous (e.g. Africa) experience

4. Build in contingencies (time, budget, people)5. Maintain a regular and intensive ‘institutionalized’

dialogue between the partners and stakeholders

Five Best Practices for a Trade Sale

Five Best Practices for Management Contracts

• ‘Off-market’: research and approach operators directly

• Future manager should already operate similarly-sized airport(s)

• Be mindful of cultural differences / language issues

• Agree early a healthy balance between base fee and success fee

• Ensure sufficient and continuous staffing and physical presence by manager (resident team)

2. Manage public expectations effectively:– Establish a communications strategy– Be (very) wary of traffic forecasts –

understand the forecast methodologies – Don’t overestimate bidder interest – Don’t raise unrealistic expectations – even if a

future government will have to deliver– Define, and communicate, what will constitute

success and failure– Have a plan B

How Avoid Future Catch-22 Situations ?

3. Re-structure or re-organize projects in response to a changing environment (e.g. higher private sector risk aversion, interest rates, etc.)– Communicate early to stakeholders and the wider

public– Consider conversion into a shorter-duration

management contract and re-issue when the environment has improved


4. ‘Grey list’ dodgy bidders– Successful non-fair play bidders can damage the

reputation of governments – and of PPP in general– ‘Grey Listed’ parties would flag warning signal, not

mean automatic exclusion– World-wide exchange of PPP practices and experience– Don’t just look at the success stories - more is often

learned from tough challenges and failures


5 . Immunize PPP projects from external political influence – Anticipate political influence for high-

value and high-profile PPPs– Communicate policies and procedures

clearly from the beginning– Refer to them and stick to them


airport infrastructure conference, nairobi october 21, 2013

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