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Brazil Raises $14 Billion in Airport Auction for World Cup

Brazil raised 24.5 billion reais ($14 billion) through the sale of licenses to operate three of the country’s busiest airports in an auction today aimed at accelerating investments ahead of the 2014 World Cup.

A consortium led by pension funds belonging to employees of state-run companies and including a South African airport operator won the rights to operate Sao Paulo’s international hub after bidding 16.2 billion reais, or almost five times the minimum. Groups led by Sao Paulo-based construction companies Engevix Engenharia SA and TPI - Triunfo Participacoes e Investimentos gained control of airports in Brasilia and Viracopos in Campinas respectively.

Investments in Brazil’s aging airports have struggled to keep pace with air travel that has doubled in the past decade as incomes in Latin America’s biggest economy have risen. To help upgrade the airports in time for an expected influx of 500,000 visitors during the monthlong soccer tournament, President Dilma Rousseff’s Workers’ Party abandoned its opposition to private management of facilities it long considered strategic.

“Today’s auction was an important first step but still insufficient,” Robson Andrade, head of the National Industry Confederation, said in a telephone interview from Sao Paulo. “More needs to be done to stimulate private sector participation. There are many airports that require heavy investments.”

Small Margins

Shares in Triunfo fell 3.9 percent to 8.45 reais, while losing bidders including highway operator CCR SA rose, as analysts said the total paid for the three licenses -- more than four times the 5.5 billion reais minimum sought by the government -- was too high.

“The problem with these airports projects is that profit margins will be low,” Leonardo Nitta, an analyst at Banco do Brasil SA, said by phone from Sao Paulo.

The winning operators are expected to invest a total of 16.1 billion reais in the three airports, which together accounted for about a third of Brazil’s 179 million passengers last year and 57 percent of its air cargo. In the case of Guarulhos in Sao Paulo, Latin America’s busiest airport, that includes building a terminal capable of handling 7 million passengers a year. Viracopos and Brasilia will also require new terminals as well as improved runways and parking space.

Bottlenecks

Brazil’s aviation industry has grown more than any other in the world over the past decade with passenger traffic increasing 118 percent between 2003 and 2011, according to the government. Last year, the world’s fifth-biggest country by land mass trailed only the U.S. and China in volume of domestic air travel, according to data from the Montreal-based Airport Council International. About 12 percent of flights were delayed and one in 20 canceled.

Faced with pressure to put an end to crowded hallways, flight delays, and busted escalators, Rousseff, a career bureaucrat, created a government agency last year charged with opening airports to private investment. Brazil’s last major privatization drive was in the 1990s, when the government sold off roads and utilities that suffered from decades of underinvestment.

The government will maintain a role in the airport modernization drive, through a 49 percent stake in each consortium and via loans to pay improvements from state development bank BNDES.

The government “coming up with that cash is a big concern for investors,” said Eduardo Padilha, a professor specializing in infrastructure finance at the Sao Paulo-based Insper business school. “It’s one of the big problems of this auction.”

Pension Funds

Investimentos e Participacoes em Infra-Estrutura SA, which owns 90 percent of the consortium that will run Guarulhos for 20 years, belongs to employee pension funds from state-run companies including banks Banco do Brasil and Caixa Economica Federal as well as oil company Petroleo Brasileiro SA.

Invepar, as the Rio de Janeiro-based holding company is known, plans to have an initial public offering in the next 12 to 24 months to fund its infrastructure investments, Gustavo Rocha, president of the group told reporters in Sao Paulo following the auction. Johannesburg-based Airports Co. South Africa has a 10 percent share in the consortium.

Viracopos, Brasilia

Triunfo, together with partners UTC Participacoes SA and Paris-based airport operator Egis Avia, paid 3.8 billion reais for the right to manage Viracopos near Sao Paulo for 30 years.

Engevix took 25-year control of the airport in the capital, Brasilia, for 4.5 billion reais in a 50/50 venture with Corporacion America, a holding company that runs airports in Argentina. The two companies are building an airport near the northeastern city of Natal after paying 170 million reais last year to win Brazil’s first-ever airport concession auction.

Gustavo do Vale, a former central bank director who heads the Infraero airport authority, repeated today that the government won’t interfere in management of the airports. Rousseff hasn’t decided whether she will auction other travel hubs key to World Cup preparations, such as Rio de Janeiro’s international airport, said Wagner Bittencourt, head of the civil aviation secretariat.

Jerome Valcke, secretary-general of FIFA, has warned that Brazil needs to speed up work on its airports and stadiums.

“Time is flying and any day you are wasting or losing is a day you are not getting back,” Valcke said during a press conference Jan. 18 in Rio de Janeiro.

About 12 percent of flights were delayed and one in 20 canceled last year, according to Infraero.

To contact the reporters on this story: Jose Sergio Osse in Sao Paulo at josse1@bloomberg.net; Tais Fuoco in Sao Paulo at tfuoco1@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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