3 4 VON HEEREMAN PPT

Information about 3 4 VON HEEREMAN PPT

Published on March 18, 2008

Author: Sarah

Source: authorstream.com

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Slide1:  Welcome PPP Models to Build Airport Infrastructure Matching the Demand in Central Europe 8th CEI Summit Economic Forum Agenda:  Agenda Need to Build Up Airport Infrastructure in Central Europe Private Sector Involvement in the Airport Industry Public Private Partnerships Case Study: PPP-Structures as Means for Successful Airport Development Agenda:  Agenda Need to Build Up Airport Infrastructure in Central Europe Private Sector Involvement in the Airport Industry Public Private Partnerships Case Study: PPP-Structures as Means for Successful Airport Development 1 Central Europe is in terms of traffic volume one of the smallest world’s markets but with strong growth potential:  Central Europe is in terms of traffic volume one of the smallest world’s markets but with strong growth potential Central Europe is a growing air traffic market and according to industry forecasts this will continue. The 10 biggest national air transport markets in the continent account for 75% of the air passengers and 80% of the air freight The relatively stabile level of demand is attributed to fast growing GDPs in the region However, growth is limited by lacking competition and insufficient airport infrastructure and competition with railroad network and other modes of ground transportation Source: Airport Information 2004 Key Points 1 The CEI countries have been witnessing growing passenger and cargo volumes until 2003…..:  The CEI countries have been witnessing growing passenger and cargo volumes until 2003….. Source: IATA, Lufthansa Consulting 1 Passenger Volumes CEI countries (Number of Pax) Cargo Volumes CEI countries (tonnes) …but, without Italy and Austria, CE countries showed only growths in passenger traffic but none in air cargo:  …but, without Italy and Austria, CE countries showed only growths in passenger traffic but none in air cargo Source: IATA, Lufthansa Consulting 1 Passenger Volumes CEI countries (Number of Pax) Cargo Volumes CEI countries (tonnes) But for the next years GDP and passenger forecasts are above world average underpinning development potentials:  But for the next years GDP and passenger forecasts are above world average underpinning development potentials GDP Development 2005-2005 CEI countries vs World Average Passenger Forecast 2005-2008 CEI countries vs. World Average Source: IATA, Global Insight, Lufthansa Consulting 1 Increasing importance for aviation as main transport mode in international traffic flows :  Increasing importance for aviation as main transport mode in international traffic flows Rapidly developing transportation markets Growing interests of the Low Cost Carriers, and market stimulation effect Integration into EU Market Participation of national carriers in Alliances (e.g. LOT – Star Alliance) Seating capacity on international flights continually increasing But: No domestic air transport markets in most of the Central European countries (except Italy and Poland) Source: ACI, Albatross, Lufthansa Consulting; Sample of 49 Central European Countries Passenger Traffic at Central European Airports 2004 Key Points 1 => high growth potential Country Passengers tsd % 80.345 Total There is a great potential for air cargo development:  There is a great potential for air cargo development Central European air cargo traffic accounts only for less than 3% of the world‘s air cargo market Real intra-continent cargo flows does not exist yet. 80 % of inter-continental cargo traffic is related to trade with Asia and less than 10% to trade with Middle East countries. Huge transit potential, but poor cargo infrastructure at the most of the Central European airports Air imports are dominated by IT goods, pharmaceuticals, electronic, machinery parts and textiles goods Source: ACI, Albatross, Lufthansa Consulting; Sample of 49 Central European Countries Air Cargo Traffic at Central Europen Airports 2004 Key Points 1 Country Cargo % Total Capital expenditures in Central Europe airports increased in the last 5 years:  Capital expenditures in Central Europe airports increased in the last 5 years Major Airport Developments in Central Europe (> 500 mill. USD) 1 :Rome-Fiumicino staged terminal expansion until 2005 US$ 2.9 billion Lublin/Poland, completely new airport planned in eastern Poland US$ 2.3 billion Vienna, new Terminal 3, apron, tower, office park US$ 880 million Zagreb, Master Plan projects US$ 600 million Prague, major terminal expansion, new runway US$ 585 million Source: ACI Airport Economics Survey 2004 Airport Capital Expenditure by Region (in mill. USD) Barriers have to be removed to continue with infrastructure improvements allowing for sustained expansion:  Barriers have to be removed to continue with infrastructure improvements allowing for sustained expansion Bourgas and Varna Copenhagen Airports emerged as the winner of the tender and was ready to invest in the expansion and modernization of the facilities. Fraport AG/BM Star consortium and the Frenche Vinci groups attacked this deciscion. Supreme Administrative Court demanded reopening of negotiations with the both airports Bourgas and Varna are now pressing hard to find measures of coping with the lack of terminal capacity to serve the increasing volumes of passengers Example Bulgaria Budapest Ferihegy Airport Originally 10 consortiums were interested in Budapest Ferihegy Airport The initial tender was declared invalid by an employment court A single-round closed tender was launched then and opened to the five parties shortlisted in the original tender Copenhagen Airports was also participating in the process, but announced its decision to pull out Also Australian Macquarie Airports dropped its bid Three bidders only went forth as the tender closed for the majority stake Example Hungary Source: local and international press 1 Agenda:  Agenda Need to Build Up Airport Infrastructure in Central Europe Private Sector Involvement in the Airport Industry Public Private Partnerships Case Study: PPP-Structures as Means for Successful Airport Development 2 Some privatisation trends... :  Some privatisation trends... The privatisation run of the 1990s slowed down after 2000; the privatisation wave is on a recovery path in Europe and North America, where we see the highest level of activity – in line with anticipated worldwide traffic increases Still only 4% of the world’s airports can be considered being privatised Projects embrace all types of concessions and models and a wide range of financial instruments; in developing countries (Asia in particular) Public-Private-Partnerships are increasing Investor groups are diversifying and expanding their business scopes; IPOs and green-field developments are increasing (with mixed success) Central Europe is still largely bypassed by infrastructure privatisation (due to lack of market opportunities and capital, investment climate, etc.) – Total investments have been declining 2 Airport Privatisation activity is increasing after a period of standstill:  Airport Privatisation activity is increasing after a period of standstill Examples Agenda:  Agenda Need to Build Up Airport Infrastructure in Central Europe Private Sector Involvement in the Airport Industry Public Private Partnerships Case Study: PPP-Structures as Means for Successful Airport Development 3 What is a public-private-partnership (PPP)? :  What is a public-private-partnership (PPP)? A PPP is broadly defined as “ a cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.” 3 Understanding the motivation of the public and private sector as well as the lenders‘ one is key for any PPP:  Understanding the motivation of the public and private sector as well as the lenders‘ one is key for any PPP 3 Private Sector participation trend in airport infrastructure: Which model option meets the interest of all parties?:  Private Sector participation trend in airport infrastructure: Which model option meets the interest of all parties? Roles Option 1 Option 2 Option 3 Ownership Investment Management/ Operation Policy Options/ Roles Option 1 Option 2 Option 3 Ownership Investment Management/ Operation PPP Options Service Concessions Management Contracts Multiple Concessions 3 State Private Sector Private Sector Private Sector Private Sector Private Sector BOT, BOOT, BTO etc. Long Term Leases Master Concessions Multiple Concessions Trade Sales Capital Markets Successful PPPs are based on attractive assets, clearly defined concessions, and a sound business plan :  Successful PPPs are based on attractive assets, clearly defined concessions, and a sound business plan 2 The regulatory environment and the qualifications of the project partners are prerequisites for goal achievement:  The regulatory environment and the qualifications of the project partners are prerequisites for goal achievement 2 Certain risk factors in the Central European airport market need to be addressed and managed :  Certain risk factors in the Central European airport market need to be addressed and managed RISK! 3 The project’s funding life cycle is driven by the partners’ objectives, by the nature of the business and by associated risks:  The project’s funding life cycle is driven by the partners’ objectives, by the nature of the business and by associated risks 3 Traffic growth Airport concept Air transport market potential analysis Institutional Investors Public Market Securitization Banks / Loans Financial Institutions ABLs Customers Trade Lease Mezzanine Finance Government Suppliers Strategic Partners Early Stage Equity Funds Mezzanine Finance Private Funds Angels Micro-financing Sources of Financing Maturity Full Operations Revenue Growth Capital Sourcing for Expansion Expansion Free Cash-Flow generation Positive Income (fuel growth) Growth Revenue Generation Start-up Validation of Concept Market Confirmation Seed Start-up Capital (for Feasibility Studies, Market Testing, business formation) Investment Phases Facility and process improvement Exploitation of market potential New route development Start of operation Company formation (SPV) Airport development concept/masterplan Operations concept Route development and airport marketing concept Airport Company Activity (Conces-sionaire) GROWTH PHASE START- UP PHASE PROFIT LOSS Agenda:  Agenda Need to Build Up Airport Infrastructure in Central Europe Private Sector Involvement in the Airport Industry Public Private Partnerships Case Study: PPP-Structures as Means for Successful Airport Development 4 The capital’s new airport project presents elements of three separate transactions:  The capital’s new airport project presents elements of three separate transactions 4 The air transport market has distinct features:  The air transport market has distinct features In 2002, the country had approx. 230.000 air passengers, of which 90% have been handled at the capital‘s airport Regional traffic flows: Europe 31%, West Africa 34%, Other African countries 24%, and 11% to other regions Passenger structure: 89% scheduled passengers 7% charter passengers and 4% non-commercial traffic Today, Air Cargo exports are largely based on perishables (vegetables and fresh fruits); this dominance will decrease until 2027 Compared to exports, Air Cargo imports have played a minor role since 1981. Source: Lufthansa Consulting Passenger Traffic 2003 - 2027 Key Points Air Cargo Traffic 2003 - 2027 4 The development of airport capacity to meet future demand requires investments of approx. 200 – 250 mill. Euros:  The development of airport capacity to meet future demand requires investments of approx. 200 – 250 mill. Euros 4 2006 2010 Phase 2 Expansion 2015 Operation Project A: “Infrastructure development” Responsibility: Government Investment: Government Project B: “Construction of airport” Responsibility: Concessionaire, (Government) Investment: Concessionaire, private investors Project C “Land commercialisation” Responsibility: Government Investment: t.b.d. after valuation Development of existing airport/ Access to the new airport Land Commercialisation Phase 1 Construction A Special Purpose Vehicle (SPV) as operating company of the airport is composed of a combination of private investors :  A Special Purpose Vehicle (SPV) as operating company of the airport is composed of a combination of private investors The composition of investors is driven by Government interests, investor interests and availability of local, regional and international capital The Government will take an appropriate capital share Foreign investors / operators of the new airport will take a majority share The split of shares in any PPP needs to in line with the risks and rewards associated with the investment. 4 Potential Split of Shares in the SPV Government participation in the transaction is indispensable:  Government participation in the transaction is indispensable Revenues from the low passenger (2004: 240.000) and cargo volumes (2004: 4.800 t) do not justify the investment and do not present an attractive investment opportunity. Revenues at the airport TTL investment is unlikely to be sourced from the local and regional investment community alone; alternative ways of financing need to be found. Magnitude of the investment Government Participation in the privatization Privatization Model PPP; 25-year concession + renewal option The Government will have to subsidize the project with at least 45% of Phase I of the project Phase 2 can be financed from internal sources 4 The privatisation strategy is based on a number of financial criteria for the SPV as the operating concessionaire:  The privatisation strategy is based on a number of financial criteria for the SPV as the operating concessionaire 4 Government contribution of a substantial part of the investments in Phase 1 Start-up equity of the SPV usually should be at 50%, depending on the composition, i.e. cash vs. assets provided by construction firms According to similar projects, the long-term debt/equity-Ratio as based on a realistic business plan shall not be lower than 70 : 30 during the term of the concession Internal Rate of return (IRR) of at least 12% for SPV to reflect various risk dimensions properly Positive cash-flow during the term of the concession Payments of concession fees to the Government Dividend payments to the shareholders of the SPV Tax holiday for the operating company Debt Service ability of the SPV under various scenarios and loan structures To enhance the feasibility of the project to investors, all revenue sources will have to be transferred to SPV :  To enhance the feasibility of the project to investors, all revenue sources will have to be transferred to SPV 4 SPV Pax and A/C Handling Services Landside Service Concessions ... Airside Service Concessions Cargo Handling Concessions ... Concession Revenue Concession Revenue Conclusions:  Conclusions There is a huge need for infrastructure developments at many airports in Central Europe, but limited public budgets are available. PPPs are not a panacea for government inability to fund necessary airport infrastructure projects but can provide a solution when the resources of private and public partners are bundled where conventional privatisations are not possible. To be considered as investment opportunity by the private sector traffic has to be above certain thresholds - but only few air transport markets in Central Europe have sufficient traffic yet. PPPs with a fair allocation of risks and rewards provide a means to raise necessary funds and know-how on the basis of a realistic business case. Risk mitigation strategies have to be developed to protect the public and private partners, including e.g. re-definition of the airport value chain, tax advantages, direct subsidies, etc. The uniqueness of each airport development requires always a tailored approach structuring a PPP. 4 For further contact::  For further contact: Dr. Raphael von Heereman Executive Director Lufthansa Consulting GmbH Von-Gablenz-Str. 2 – 6 50679 Cologne Germany Tel.: +49 (0)221 88 99 6 - 56 Fax: +49 (0)221 88 99 6 - 60 e-mail: [email protected] www.lhconsulting.com Slide33:  Thank you for your attention

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