Spain Hires RBS to Privatize Airports

The Spanish government said Monday that it selected Royal Bank of Scotland PLC to coordinate the privatization of the country's airports, in the latest step to shed state-owned assets and cut spending to narrow Spain's hefty budget gap.

Socialist Prime Minister José Luis Rodríguez Zapatero announced a plan last year to privatize Madrid's Barajas and Barcelona's El Prat airports and sell a stake in AENA Aeropuertos, the world's largest airport group by passenger traffic. He also planned to sell off part of the publicly owned National Lottery. Spain expects to sell 30% of Loterias later in 2011 to raise some €7.5 billion ($10.73 billion).

The privatizations are a key component of Spain's plan to cut its budget deficit to 6% of gross domestic product this year and to 4.4% in 2012. The figure was 9.2% last year.

Investors are monitoring Spain's finances closely as the euro-zone sovereign-debt crisis rolls on. Greece, Ireland and Portugal have been forced to accept financial aid packages from the European Union and the International Monetary Fund after investors lost faith in the countries' ability to pay back fast-rising government debt.

Mr. Zapatero's government has pushed through reforms, cut public-sector wages and moved to shore up confidence in the country's banking industry, which suffered huge losses in the collapse of a decade-long real estate boom.

After its expansion in 2006 with an investment of €6.2 billion, Madrid's airport has some of the strongest growth prospects in Europe, particularly as a hub for connecting flights between Europe and Latin America with ample room for expansion.

Juan Ignacio Lema, AENA's president, said in a recent interview that after a recent expansion the Barajas airport has the capacity to increase its air traffic by nearly 30% and substantially boost its restaurant and other retail offerings, such as duty-free shops.

He added that neither Madrid's nor Barcelona's airports will require big infrastructure investment for at least 15 years. Spain invested some €1.2 billion to expand Barcelona's airport in 2009.

By letting the private sector take over the airports, the Spanish government is hoping to expand the revenue that the assets generate, which currently is far below what London's Heathrow airport, Europe's busiest, brings in, Mr. Lema said.

Mr. Lema says that airport fees in the major European countries are five times greater on average than those in Spain. "There's space to raise revenue, while maintaining competitiveness with the main European airports," he said.

But charging more for using Spain's airports could be hazardous at a time when low-cost airlines provide 40% of Spain's air traffic. The streamlined carriers typically demand lower airport fees while avoiding more expensive airports. Low-cost airline Ryanair Holdings Ltd. currently carries more passengers than Spain's flagship airline Iberia, now a partner of British Airways in the recently created International Consolidated Airlines.

Various Spanish infrastructure operators have said they would want to participate in the privatization of Madrid and Barcelona airports. They include Ferrovial SA, which controls BAA Ltd., the owner of Heathrow and other British airports. Abertis Infraestructuras SA, which operates London's Luton airport and is a partner of AENA in operating several airports in Latin America, has also expressed interest. Construction company Fomento de Construcciones y Contratas SA may also jump in, according to company executives.

These infrastructure operators may seek support from venture-capital funds or other investors seeking to provide funding for bids.

The government expects to award the licenses for Spain's two largest airports, in its two largest cities, by December. The plan as it stands now involves awarding the licenses for Madrid and Barcelona to two separate and competing companies.

Aside from handing over control of Madrid's and Barcelona's airports, Spain is seeking to sell a minority stake in AENA itself. Mr. Zapatero last December said the privatization would include offloading up to 49% of AENA, but the government has since scaled back its ambitions. Early in 2012 the government may sell 5% to 15% of AENA, Mr. Lema said.

The airport operator could go public sometime next year. Mr. Lema said that based on its operating profits, AENA could be valued at about €20 billion. The company has a debt load of €12 billion.

Many analysts doubt AENA could attract much investor interest for a non-controlling share, particularly after the airport manager no longer operates in Madrid and Barcelona. AENA has been registering losses since 2007 and says it will begin turning a profit again in 2012. Nevertheless, Mr. Lema said sovereign-wealth funds and other investment funds have already expressed interest in acquiring a stake, although he declined to provide specific details.

 

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