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Brazil awards $9 billion of airport deals, prepping Rio for Olympics

Aircrafts are pictured at Galeao airport in Rio de Janeiro

(Reuters) – Brazil opened two of its busiest airports to private investors on Friday, awarding $9 billion worth of contracts in a hotly contested auction as the country overhauls crowded terminals ahead of the 2014 World Cup and 2016 Olympics.

The concessions, in Rio de Janeiro and Belo Horizonte, mean private operators will be running the international airports in both World Cup host cities next year, but there will be little time for their investments ahead of the tournament in June.

Local contractors and foreign airport operators won the two concessions for a combined 20.8 billion reais ($9 billion), paying a premium of more than 250 percent over minimum bids as they hope to cash in on a recent boom in Brazilian air travel.

It was a welcome victory for President Dilma Rousseff, who has struggled to restore credibility with the private sector as economic growth slumps and investors complain of a heavy-handed approach to concessions in the power industry and elsewhere.

“The result of the auction was exceptional. It proves the country is on steady footing and it’s attracting great interest from foreign investors,” said Wellington Moreira Franco, Rousseff’s civil aviation secretary.

Brazilian conglomerate Odebrecht and Singapore’s Changi Airport Group will have two years to expand Rio’s Galeão airport before the city hosts the 2016 Olympics, sprucing up an underwhelming international gateway to Brazil’s postcard city.

Brazil’s CCR SA (CCRO3.SA) and the operators of airports in Zurich and Munich edged out builder Queiroz Galvão and Spain’s Ferrovial (FER.MC) for rights to Confins airport in Belo Horizonte in bidding that lifted their offer 30 percent.

Airports have been the most appealing aspect of Rousseff’s plan to privatize some 200 billion reais of infrastructure projects, including expansion of Brazil’s notoriously clogged roads and seaports.

Rousseff pitched her program last year as a shot in the arm for an ailing economy, but some investors have balked at what they call unrealistic projections and intimidating red tape. The government had to call off auctions for highways and high-speed trains this year because of weak private-sector interest.

After promising a dozen rail concessions by February 2014, the government is now aiming for just three in the first half of next year, according to political analyst Jefferson Finch of Eurasia Group. Government officials have been silent on the auction of four public ports expected this year, he added.

Interest in Brazil’s airports highlights the appetite for profitable projects if investors are convinced of a fair deal, but that demand has not yet rubbed off on other auctions.

If anything, the fat premium for Rio’s airport paid by Odebrecht – a major player in Brazilian infrastructure – could reduce its firepower for the four highway concessions up for bidding in the next five weeks.

“The two winning groups will evaluate if they have resources to participate in the upcoming auctions, but the losers will certainly stay in the running,” Gleisi Hoffmann, Rousseff’s chief of staff, said in an interview last week.

Subway and toll road operator CCR has already said it plans to bid for two of the pending highway concessions.

AIR TRAVEL BOOM

Demand for airport concessions has been robust as companies clamor for part of an air travel market that doubled in less than a decade as some 40 million Brazilians joined the middle class and took to the skies.

The latest concessions follow an auction in February 2012 that awarded rights to major airports in Sao Paulo and Brasilia for 24.5 billion reais – more than four times the minimum bids.

Domestic air traffic may edge down this year for the first time in a decade, but the need for new terminals remains acute.

Three years ago, 14 of Brazil’s 20 biggest airports were already running well in excess of capacity, according to data from state airport operator Infraero, which retains a 49 percent stake in the privatized airports. Passenger traffic has surged more than 25 percent since that 2010 study.

Both airports in Friday’s auction are pushing capacity, according to Brazil’s civil aviation authority, ANAC.

Odebrecht and Changi, which paid 19 billion reais for rights to Rio’s Galeão airport, plan about 5.7 billion reais of investments over the next 25 years.

They will add 26 new gates and expand cargo storage at Galeão, Brazil’s No. 2 airport, which is officially named after Antonio Carlos Jobim, the late bossa nova musician and composer.

About 360 kilometers (220 miles) to the north, in the mineral-rich Brazilian heartland, CCR and partners Flughafen Zuerich AG (FHZN.S) and Flughafen Munchen won rights to Belo Horizonte’s airport, the country’s fifth-busiest, for 1.82 billion reais.

The group is also on the hook for about 3.5 billion reais of investments over the next 30 years, adding a new terminal and landing strip at Confins airport, on the outskirts of Belo Horizonte, Brazil’s third-biggest metropolitan area.

Visitors to both host cities for the World Cup will have to rely on state-run construction at the airports in recent years aimed at accommodating the crush of foreign fans.

($1 = 2.31 Brazilian reais)

(Writing and additional reporting by Brad Haynes; Editing by Todd Benson and Phil Berlowitz)

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