Spanish Privatisation Failure

The new Spanish conservative government recently suspended plans to privatise Spain's two main airports, Madrid's Barajas and Barcelona's El Prat, which will remain in public hands.

The new Spanish conservative government recently suspended plans to privatise Spain's two main airports, Madrid's Barajas and Barcelona's El Prat, which will remain in public hands.

The new Spanish conservative government recently suspended plans to privatise Spain’s two main airports, Madrid’s Barajas and Barcelona’s El Prat, which will remain in public hands.
Early in 2010, AENA Aeropuertos, the Spanish Airport Authority, which is the world’s largest airport group by passenger traffic and manages a network of more than 40 airports, announced a plan to privatise both airports and even sell a stake in the company.
The previous, socialist government expected to raise around €5 billion (US$6.6bn) from the process to ease the country’s debt, but it surprisingly forgot AENA’s own burden of €13bn ($17bn).  AENA has been registering losses since 2007, mainly due to the major expansion and construction of new airports, most of them without enough activity to collect taxes/fees to cope with development costs.
However, Madrid and Barcelona have not experienced this problem.  After its expansion in 2006 with an investment of €6.2bn ($8.1bn), Madrid’s airport has some of the strongest growth prospects in Europe, particularly as a hub for connecting flights between Europe and Latin America.  On the other hand, AENA invested around €1.2bn ($1.6bn) to expand Barcelona’s airport in 2009, creating a potential hub for connecting flights between Europe, United States and Middle East.
Since the beginning, many analysts have doubted AENA could attract much interest from investors.  Airport bidders were also skeptical about the valuations and conditions set by the government and faced increased difficulties in raising funds for the bids (about €3.7bn [$4.9bn] for Madrid’s Barajas Airport and €1.6bn [$2.1bn] for Barcelona’s El Prat).  In addition to the purchase price for the two airports, the government had sought annual payments, representing 20% of total estimated airport revenue, amounting to at least €150m ($198m) for Barajas in 2012 and €80m ($105m) for El Prat.  Twenty-year operating licences were also offered.
Apart from handing over control of Madrid and Barcelona airports, the socialist government was seeking to sell a minority stake in AENA itself and initial plans expected that early in 2012, it might sell from 5% to 15% of AENA.  But without explanation it extended the deadline for bids from October 2011 (a month prior to the national elections) to the end of January 2012, knowing that the most probable winner of the elections, the Conservative party, would suspend the plans.
German airport operator Fraport AG pulled out of the bidding.  Another group, formed by Spain’s Fomento de Construcciones y Contratas SA, as well as Singapore’s Changi Airport International and Siemens AG, was also considering whether to pull out.
Other bidders were Spain’s Ferrovial SA, which controls BAA Ltd, the owner of London Heathrow and other British airports, and Abertis Infraestructuras SA, which operates London’s Luton Airport and is a partner of AENA in operating several airports in Latin America.  Others like Aèroports de Paris and India’s GMR Infrastructure Ltd were waiting to see whether the new government might change terms of the privatisation programme.
The new Conservative government objected to the plan on the grounds that the Spanish airports network would be broken and that the calculated amount for the bid was below its real value.
“The decline in value could not be recovered,” said Public Works Minister Ana Pastor, at a recent news conference to announce the official suspension of the plans.  She also said that the government will prepare a new plan to raise funds from private sources and that potential alternatives could include the sale of a stake in Spain’s entire airport system, rather than privatising separate airports.
Finally, the Spanish public is critical of the fact that the socialist government selected a number of banks, companies and law advisors to analyse the bids and to coordinate the privatisation process with a total cost of €7m ($9.2m).  This is now a total loss as the plan has been cancelled.