A Noisy Flap Over A Silent Partner
As privatizations go, this one is epic. On Jan. 8, Argentina will award 33 of its 59 airports. Given the size of the concession--the biggest ever awarded to a single operator--you'd think foreign investors would pack the auction room. Instead, they're staying away in droves. Reason: The winner will have to do business with Alfredo Yabran, one of Argentina's least-savory entrepreneurs. Yabran has ties to President Carlos S. Menem. To many Argentines, he is also a symbol of rampant corruption. His stake in the airports has made this the most controversial sell-off since Menem began unloading state assets in 1990.
The airports rank high among those assets. Reflecting Argentina's recent dynamism, air traffic has risen 15% yearly since 1994, compared with a world average of 4%. To upgrade the 33 airports, which include those serving Buenos Aires, Cordoba, and Mendoza, the operator must invest $2.1 billion over the 30-year life of the concession. But operating income is expected to reach $440 million yearly by 2011, compared with $142 million this year, according to Union Bank of Switzerland, a project consultant. No wonder the offer initially attracted a swarm of investors.
Several European consortiums, including groups led by Spain's Aeropuertos Espanoles y Navegacion Aereo and Italian builder Impreglio, have put in bids. Also hanging in is Sociedad Macri, an Argentine holding company in a partnership with Flughafen Frankfurt, operator of the Frankfurt airport.
But most U.S. companies have walked away. These include Airport Group International, the top private airport operator; Kansas City (Mo.) builder Black & Veatch, and IRSA, a Buenos Aires developer co-owned by financier George Soros. Says an executive at one dropout: "You can't bid because of the corruption." Several cited the U.S. Foreign Corrupt Practices Act's ban on participation in illegal activities abroad.
As executives privately acknowledge, the big worry is Yabran. Although his dealings are rarely transparent, it is widely accepted that in partnership with the Air Force he holds valuable concessions for cargo warehouses at Buenos Aires airport and duty-free shops there and elsewhere. To end the contracts covering these concessions, which run to 2010, would require compensation estimated at up to $500 million. That leaves the new operator to strike an expensive deal--by all appearances with Yabran.
That's not exactly a heartening prospect. The police suspect Yabran in a murder committed earlier this year. Domingo Cavallo, a former member of the Menem Cabinet and now an opposition leader, has famously labeled Yabran "head of the mafia." Yabran has often benefited from Menem's privatizations, critics say. Menem denies all links with Yabran--and Yabran all wrongdoing. But Yabran evidently controls some 40% of the privatized postal system--partly, executives at other companies have stated publicly, by wiping out competitors, sometimes violently. When Menem put the postal system up for sale earlier this year, Yabran's apparent involvement in the deal kept U.S. companies from bidding then, too.
LEGAL FIGHT. Cavallo asserts that the privatization was "made for Yabran." But it has stirred vigorous opposition. Last April, Menem was forced to override congressional objections by using a presidential decree to launch the sell-off. A dozen opponents have won six court rulings declaring the decree unconstitutional. The Menem government has asked the Supreme Court to rule--a decision now pending--but it still plans to hand over the airports by May.
Though bidders remain enthusiastic, there are signs that the legal squabbles may be taking a toll. And some observers view them as a harbinger of headaches yet to come. "The court cases give you an indication that this is not a very transparent process," said an executive at a European company that stayed out of the deal. "I wish the winner luck, but in my not-so-nice dreams I hope my biggest competitor wins."