Fraport Looks at Brazil Entry as Airport Rivalries Grow

Fraport AG, the operator of Europe’s third-busiest airport, is looking at entering Brazil as competition intensifies with financial investors and construction companies running global aviation hubs.

The owner of Frankfurt airport is seeking assets in emerging economies, including locations in Africa, that may boost earnings faster than growth from units in developed nations, said Alexander Zinell, the head of Fraport’s global investments. The company is also considering additional projects in Turkey, potentially increasing competition there with Aeroports de Paris.

“We have a strong interest in emerging markets, as our value-added there is highest,” Zinell said in an interview at Frankfurt airport. “There is currently enormous demand from financial investors for airport assets,” while only a few industry operators such as Fraport can commit the capital and time needed to develop business in those markets, he said.

Fraport was outbid by 600 million euros ($796 million) in December by Vinci SA for state-owned ANA-Aeroportos de Portugal SA as the Paris-based builder, Europe’s largest, expanded airport operations beyond its home market and Cambodia. The acquisition was the second-biggest in the industry after Ferrovial SA’s purchase in 2006 of the company running the U.K.’s main airports including London Heathrow, data compiled by Bloomberg show.

Frankfurt airport, the main hub for Deutsche Lufthansa AG, ranks third in Europe by annual passenger numbers, with Heathrow the biggest in the region and Aeroports de Paris’s Charles de Gaulle placing second.

Brazil’s Contracts

Brazil’s government announced plans in December to auction a majority stake in Rio de Janeiro’s international airport to upgrade aging terminals in time for a traffic boost from the World Cup soccer tournament the country is hosting next year.

After a 24 billion-real ($12.1 billion) sale a year ago of operating licenses for three airports, including Sao Paulo’s Guarulhos, to smaller operators, authorities are restricting suitors for the Rio de Janeiro contract to companies with experience handling at least 35 million passengers a year and able to pledge a minimum 25 percent stake.

Aeroports de Paris, Munich operator Flughafen Muenchen GmbH and Fraport were among companies that Brazilian officials visited to explain the project. The South American country’s airports are suffering from capacity and efficiency constraints, though an airport concession there may not require Fraport to spend large amounts of money, Zinell said.

Fraport has no fixed budget for investments, he said, declining to comment on strategy for the Brazilian tender.

Assets Abroad

Majority-owned operations outside Germany include airports in Lima, the Bulgarian Black Sea cities of Burgas and Varna, and Antalya on Turkey’s Mediterranean coast. Fraport also has operating contracts or minority stakes at the main hubs serving Cairo; New Delhi; Jeddah, Saudi Arabia; and Xi’an, China.

Aeroports de Paris bought a 38 percent holding last year in TAV Havalimanlari Holding AS, Turkey’s biggest airport operator, whose assets include Istanbul’s main commercial aviation base.

Turkey is seeking bids to run a new airport in Istanbul that would be the busiest in the country, with initial capacity for 90 million passengers a year and eventual annual traffic of 150 million travelers. Zinell, who used to manage Fraport’s Antalya operation, declined to comment on the German company’s stance on the Istanbul project.

Delhi Disposal

Fraport has encountered some obstacles in its push abroad. The company is in arbitration to seek $425 million in compensation from the Philippines over a Manila airport terminal project, which the government scrapped in 2002. Robert Payne, a Fraport spokesman, declined today to comment on the case.

The German company outlined in June the possible sale of its 10 percent stake in the New Delhi site, which it entered in 2006, to partner GMR Infrastructure Ltd.

Zinell said Fraport closed a marketing office in India because of a lack of prospective contracts. It has held onto the stake in New Delhi airport, which is generating “good” traffic growth, he said.

China is “difficult” for foreign investors seeking management control of airports as the government restricts their holdings to a one-quarter stake, Zinell said. Fraport would like to expand in China beyond its 24.5 percent participation at Xi’an, he said.

Hochtief AG, Germany’s largest builder, said on Feb. 28 that it’s still evaluating the sale of airport operations. Hochtief scrapped the disposal a year ago after failing to get the price it wanted. Bidders at the time included Vinci and China’s HNA Group, and Fraport said in August 2011 that it had made an offer with a partner for Hochtief’s non-German airports. Spokesman Payne declined to comment.

Before it's here, it's on the Bloomberg Terminal.