Airports Projects and Concessions

Rogério Coimbra Secretary for Civil Aviation Regulatory Policy

May, 2013 Summary

I) BRAZILIAN CIVIL AVIATION

. Overview . Main challenges

II) AIRPORT CONCESSIONS PROCESS . Main features . Past cases . Future Cases

Secretaria de Aviação Civil Overview and Main Challenges Brazilian Civil Aviation

Secretaria de Aviação Civil Major Brazilian Airports

PASSENGERS PER YEAR -2012

Secretaria de Aviação Civil Passengers - Infraero Airports

250 Average annual growth rate: 11,8% (2003-2012)

200 193 180 155 150 128 111 113 96 102 100 Million PAX Million 83 71

50

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Infraero

Secretaria de Aviação Civil Average Air Fare and Yield (2002-2012(1s))

700,00 1,00

0,90 600,00 0,80

500,00 0,70

0,60 400,00 0,50 300,00 0,40

200,00 0,30

0,20 100,00 0,10

0,00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (1s) 0,00 Tarifa Média 498,04 550,90 578,42 556,34 509,00 372,80 513,81 370,80 303,20 282,67 272,64 Yield 0,82 0,90 0,85 0,84 0,77 0,56 0,76 0,55 0,40 0,36 0,35

* 1 US$ = R$ 2,00 (apr/2013) Secretaria de Aviação Civil Average Load Factor

Source: ANAC Secretaria de Aviação Civil Routes in

Number of flights between city pairs and weekly supply of seats Demographic density in Brazil (2010) and weekly available seats in regular flights (2011).

Secretaria de Aviação Civil Brazilian Civil Aviation Main Challenges

Fast-growing air transport demand . Dynamic and competitive sector . Leading drivers: higher income and lower air ticket fares . Brazilian air transport is still expanding and all forecasts point at this direction

. 0.3 trip/inhab against 1.7 trip/inhab in developed markets (source: McKinsey&Co, 2010) . FIFA World Cup (2014) and Olympic Games (2016)

Infrastructure must be aggressively expanded . The increase in supply has not kept pace with the growth of demand . Enhance service level (population’s claim) . Meet the natural forthcoming demand (investments must triple the capacity by 2030)

To face these challenges the federal government has decided to: . Open the market to private participation (airport concessions) . Introduce competition in Brazil’s airport system

. Strengthen the Investment Program of Infraero Secretaria de Aviação Civil

Past Concessions Guarulhos, Viracopos and Brasília

Secretaria de Aviação Civil Main objectives/guidelines of Brazilian airports concessions

I. Fast addition of new capacity and increased levels of service.

II. Increased competition in the airport sector.

III. Maintenance of reasonable levels of tarifs.

IV. Strengthen Infraero as an efficient airport operator.

Secretaria de Aviação Civil Airport Concessions: latest cases

TIMELINE

RESULTS

Concession of Guarulhos (GRU), Viracopos (VCP) and Brasília (BSB) Airports

Secretaria de Aviação Civil Airports Concession Model

Illustrative

Consortium Consortium Consortium A B C

Private Shareholders shareholder Agreement Infraero

51% 49%

Main characteristics

• Concession for expansion, maintenance and operation of Concessionaire the airports

• Concession period: VCP (30 years) BSB (25 years) e GRU (20 years)

Secretaria de Aviação Civil Airport Concessions: GRU - VCP - BSB

. Build, Operate and Transfer Object . ATC is not included

INFRAERO’s . 49% share . Shareholders Agreement (pre-established)

Revenues . Aero and non-aero revenues

. Based on demand triggers and with initial investment CAPEX obligations

. An operational transition plan is set in the concession Transition rules agreement

Secretaria de Aviação Civil Airport Concessions: GRU - VCP - BSB

. Airports with a high level of CAPEX required . Meet the demand with a good service level (IATA Level C) . Competition and benchmarking in airport operation Basic concepts . Airport system financial viability  30% of passenger traffic  60% of cargo traffic  40% of Infraero’s revenues  20% of Infraero’s costs . Brazilian or foreign entities can take part alone or in a consortium . Proponents can bid for the 3 airports, but no proponent can win Participation more than one . Airport operator technical requirement: 5 MM pax/year . Minimum equity requirement: 10%

. Criteria: highest economic proposal . 1st phase: sealed-bid auction (envelopes) Bidding process . 2nd phase: open ascending price simultaneous auction . Payment divided throughout the concession length

Secretaria de Aviação Civil Economic Regulation Issues

. Boarding fee Tariffs . Connection fee (new tariff) (dom-int diff.) . Landing and Parking fees . Cargo and Storage fees . Price-cap (non-discriminatory discounts are admitted) Basic rules . Annually adjusted by IPCA (Brazilian CPI) . Adjustment rule: CPI – X – Q . Zero during the first 2 years X factor . Pre-defined formula from the 3rd to the 5th year (-2.06% to +0%) . After the 5th year the regulator may review the methodology . One-off basis (non-cumulative effects) Q factor . Range: -7,5% to +2% . Measured through objective parameters and satisfaction survey . Do not change the tariff (non cost-based model) Ordinary . Five-yearly public consultation process review . Definition of X and Q factors methodology for the next 5 years

. Fixed fee (result of the bidding process) Concession fees . Percentage fee: share of the gross revenue annually paid Secretaria de Aviação Civil Future Concessions Galeão and Confins

Secretaria de Aviação Civil Airport Concessions: next cases

Concession of Galeão (GIG) and Confins (CFN)

Secretaria de Aviação Civil Major South American Airports

Source: ACI; 2010 data Secretaria de Aviação Civil Same Concession Model

Illustrative

Consortium Consortium Consortium A B C

Private Shareholders shareholder Agreement Infraero

51% 49%

Main characteristics

• Concession for expansion, maintenance and operation of Concessionaire the airports

Secretaria de Aviação Civil Timeline

jan- abr mai jun jul ago set 2013

Secretaria de Aviação Civil International Airport (Galeão) - GIG

• The 2nd busiest Brazilian airport and the 2nd international gateway of Brazil • The airport is located in the state of Rio de Janeiro, the 3rd most populated state of Brazil and the 2nd highest GDP of the country. • The airport is 20km far from Rio de Janeiro’s Central Business District . • Important hub for domestic flights and for tourism

Secretaria de Aviação Civil Airports figures

Galeão Airport (GIG) Airport site: 17.881.696,63 m² Apron area: 712.895 m2 Total Passenger (millions) - Galeão Boarding bridges: 20,00 18,00 - Terminal 1 – 19 2011-2012: 17% 17,49 16,00 - Terminal 2 – 19 14,95 14,00 Aircraft parking: 12,00 12,15 11,83 12,28 11,14 - T1: 19 boarding bridge positions + 10,00 9,01 12 remote positions 8,00 - T2: 19 boarding bridge positions + 6,00 12 remote positions 4,00 CAGR = 15,8% - 15 cargo aircraft positions 2,00 0,00 Runways: (i) 4.000m x 45m 2006 2007 2008 2009 2010 2011 2012 (ii) 3.180m x 47m Galeão Passenger Terminals: Passenger profile 2012 (thousand) T1- 325.550m² T2- 340.845m² Dom 13.201.049 Parking: 4.310 parking slots Cargo Terminal: 46.724 m² Int 4.294.688 Cargo Movement: 114.097 ton Secretaria de 0 5.000.000 10.000.000 15.000.000 Employees: 1011 Aviação Civil Key financial figures

Exchange rate PTAX (April, 2013) Galeão Airport (GIG) R$ 2,00 =1,00 US$

Revenues (R$) EBITDA (R$) Total Revenues: R$ 403 Millions 89 MM 403 MM 160 MM Non-Aero Rev./Pax : R$ 10,6 84 MM EBITDA 159 MM (% Net Revenue ) 22,2 %

Total Revenue Non Aeronautical Storage Aeronautical Revenues EBITDA/Pax Operating Costs

Personnel Operating Costs: R$ 5,95 R$ 313 Millions 19% 43% Contractual services EBITDA/Employee (third party) 38% Non Personnel R$ 87.944,66

Secretaria de Aviação Civil Galeão – Demand Forecast

Pax/year 2012 2022 2032 2042

Galeão 17.495.737 31.750.849 49.725.180 68.978.123

80

69,0

60

49,7

40 Millions 31,8

20 17,5

0 2012 2022 2032 2042 Secretaria de Source: SAC-PR Aviação Civil International Airport (Confins) - CNF

• Confins International Airport is the 5th busiest Brazilian airport.

• The airport is located in the state of , the 2nd most populated state of Brazil and the 3rd highest GDP of the country.

• The airport is 40km far from the city of Belo Horizonte, the capital of Minas Gerais.

Secretaria de Aviação Civil Airports figures

Confins Airport (CNF) Airport site: 15.010.000,00m² Total Passenger (millions) - Confins Apron area: 211.437 m2 12,00 Boarding bridges: 09 2011-2012: 9% 10,00 10,39 9,53 Aircraft parking:

8,00 7,24 - Parking 1: 09 boarding bridge positions 6,00 + 09 remote positions 5,55 4,85 4,00 4,25 - Parking 2: 07 general aviation positions 3,60 CAGR = 20% + 1 helipad 2,00 - Parking 3: 03 cargo aircraft positions 0,00 2006 2007 2008 2009 2010 2011 2012 Runway: 3.000m x 45m Confins Passenger Terminal: Passenger profile 2012(thousand) T1 - 53.949,70m²

Dom 9.952.684 Parking: 2005 parking slots Cargo Terminal: 7.212 m² Int 445.612 Cargo Movement: 24.253 ton Secretaria de Aviação Civil 0 2.000.000 4.000.000 6.000.000 8.000.000 10.000.00012.000.000 Employees: 299 Key financial figures

Exchange rate PTAX (April, 2013) Confins Airport (CNF) R$ 2,00 =1,00 US$

Revenues (R$) EBITDA (R$) Total Revenues: R$ 139 Millions 52 MM 139 MM 53 MM Non-Aero Rev./Pax: R$ 5,6 17 MM EBITDA 69 MM (% Net Revenue ) 37,2%

Total Revenue Non Aeronautical Storage Aeronautical Revenues EBITDA/Pax Operating Costs R$ 5,43 Personnel Operating Costs: 12% R$ 87 Millions 50% Contractual services EBITDA/Employee (third party) 38% Non Personnel R$ 173.913,04

Secretaria de 1- Source: INFRAERO, 2011 Aviação Civil Confins: Demand Forecast

Pax/year 2012 2022 2032 2042 Confins 10.398.296 20.910.421 33.618.650 47.484.943

50 47,5

40

33,6

30 Millions 20 20,9

10 10,4

0 2012 2022 2032 2042

Source: SAC-PR Secretaria de Aviação Civil Future Concessions: Characteristics

• Technical Requirements: • Airport operator technical requirement: 35 MM pax/year • Operator must hold at least 25% shareholding in the consortium • Infraero’s share : 49% • Auction Criteria: highest economic proposal (fixed fee to be paid annually) • Percentage fee: share of the gross revenue annually paid to the Government • More details soon in the draft documents: • www.aviacaocivil.gov.br • www.anac.gov.br

Secretaria de Aviação Civil

Questions?

Thank You!

Rogério Coimbra [email protected]

Secretaria de Aviação Civil