Brazil’s would-be mega-airport grounded after crisis

. Oct 14, 2019
viracopos airport

The impasse involving the future of Viracopos International Airport, which has dragged on for over two years, is finally close to a resolution.

Brazil’s sixth-largest airport in terms of passengers and second-largest in terms of cargo—it receives 40 percent of all Brazil’s imports via air—Viracopos Airport, located in the city of Campinas, is going through a severe crisis.

</p> <p>Administered by a consortium made up of private firms and state-owned company Infraero, in May 2017, concession holder Aeroportos Brasil filed for court-supervised reorganization to restructure its debts which—at the time—amounted to BRL 2.88 billion.</p> <p>In recent months, however, Aeroportos Brasil has been involved in a dispute with the Jair Bolsonaro government, which wants the company excluded from the administration of the airport.</p> <h2>Privatization in the boom years</h2> <p>Viracopos was one of the first Brazilian airports to be handed over to the private sector when it was auctioned off in 2012 during the Dilma Rousseff government. It was acquired by a consortium made up of companies Triunfo and UTC, which offered the government BRL 3.8 billion for a 30-year concession—a premium of 159 percent on the stipulated minimum price. The companies also pledged to make investments in the order of BRL 10 billion.</p> <p>The consortium&#8217;s optimism was based on the <a href="">expectations of the government</a> at the time, which predicted Viracopos becoming the busiest airport in the country by 2025. This <a href="">growth of the Campinas airport</a> was to be boosted by the positive results expected of the Brazilian economy and its proximity with São Paulo, the country&#8217;s biggest city and home to two airports where the capacity for expansion is limited.</p> <p>The government&#8217;s plan, however, did not materialize. On the contrary, Brazil suffered the worst economic crisis of its history. One of the consequences was a <a href="">drop in passenger flow at the country&#8217;s airports</a>, resulting in decreased revenue for the concessionaires of Viracopos Airport. At the time of the auction, the estimation was that 31.2 million passengers would circulate through Viracopos in 2020. In reality, it is expected that 10.3 million will use the Campinas airport next year.</p> <p>What&#8217;s more, Triunfo and UTC ended up <a href="">involved</a> in the Operation Car Wash corruption scandal, adding to the financial difficulties of running Viracopos. As a result, works to expand the airport, foreseen in contracts, were not completed in time. The concessionaire also stopped paying the yearly installments of the billionaire premium offered to the government.</p> <p>At the beginning of 2018, the National Civil Aviation Agency, in charge of <a href="">regulating</a> the aviation market in Brazil, opened a case to revoke the Viracopos. It was at that moment that Aeroportos Brasil filed its request for court-supervised reorganization. The company&#8217;s goal was to suspend Anac&#8217;s case, avoiding losing the concession for Viracopos, and gaining time to find an alternative solution.</p> <h2>Possible outcomes</h2> <p>One option arose when the government created a program to allow the amicable return of unsuccessful concessions granted during Ms. Rousseff&#8217;s administration. Aeroportos Brasil officially expressed an interest in handing back the concession, before backtracking, and then declaring it is once again open to the idea.</p> <p>The government is in favor of a mutual agreement with Aeroportos Brasil, involving the surrendering of the Viracopos concession, but 15 days until the deadline established by the negotiations it is impossible to say whether an agreement will be reached.</p> <p>One source close to the negotiations stated that there is &#8220;<a href="">absolute uncertainty</a>&#8221; over the outcome of the Viracopos crisis.</p> <p>The Jair Bolsonaro government wants Aeroportos Brasil as far away from Viracopos as possible. On October 11, <a href="">Infrastructure Minister Tarcísio de Freitas</a>—one of the cabinet members closest to Mr. Bolsonaro—said that any solution for the airport would not include the current concession holder.</p> <p>According to the same source, the view is that the exit of Aeroportos Brasil would &#8220;clean&#8221; the concession and could ensure extra revenue for the government with a new auction. For this reason, the government has put pressure on the firm to accept the acrimonious return of the airport concession.</p> <p>However, another source, also monitoring the investigations, stated that this exit is not as simple as it seems. First, because Aeroportos Brasil still has hope of managing an agreement with the government which would allow it to remain in control of Viracopos, despite this alternative seeming all the more unlikely each day.</p> <p>According to the source, the company could accept returning the concession providing it is offered &#8220;fair&#8221; compensation for the investments it has made in Viracopos—and herein lies another sticking point. The government did not define clear criteria for calculating compensation to companies that adhere to the program of handing back concessions. Therefore, according to this second source, Aeroportos Brasil does not feel comfortable to close a deal with the government.</p> <p>If the option to return the concession is not viable, one solution would be the approval of the company&#8217;s court-supervised reorganization plan, guaranteeing Aeroportos Brasil would remain in Viracopos. This solution, however, seems unlikely as the government is the company&#8217;s main creditor and could simply vote against the plan.</p> <p>If this were to happen, the next step would be to declare the bankruptcy of the Viracopos concession. The expectation, however, is that this route would lead to a long and drawn-out legal dispute.

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