UPDATE 3-Brazil opens two main airports to private investors

Thu Dec 20, 2012 2:27pm EST

Related Topics

* Rio, Belo Horizonte concessions to be auctioned in Sept.

* $5 billion private investment sought to upgrade airports

* Rousseff launches plan to expand domestic air travel (Adds details on Rio airport, steps to foster regional air travel)

By Leonardo Goy

BRASILIA, Dec 20 (Reuters) - Brazil opened two of its international airports to private investors and launched a plan to expand domestic air travel on Thursday as it rushes to accommodate surging air traffic in time for the 2014 soccer World Cup and the 2016 Olympic Games.

The plan to modernize Rio de Janeiro's Galeao airport, the country's second-largest, and Belo Horizonte's Confins airport should attract 11.4 billion reais ($5.48 billion) in bids from private companies, the civil aviation authority said.

Rio de Janeiro, whose creaking Galeao airport struggles to serve rising numbers of tourists and business visitors, is one of 12 Brazilian cities fielding World Cup matches in 2014 and will host the Summer Olympics two years later. Its capacity will be more than doubled from 15 million passengers a year at present to 44 million before the World Cup under the new plan.

Air traffic has boomed in Brazil in the last decade of rapid economic growth and rising middle class incomes, overcrowding its aging airports, which have long been starved of investment.

Private companies that win operating licenses to be auctioned in September will have control over the two airports, and state airport management company Infraero will have a minority 49 percent stake, the same formula used in concessions auctioned in February for the airports of Brasilia, Campinas and Sao Paulo's Guarulhos, Brazil's largest.

Seeking to draw more experienced airport operators, the Brazilian government is requiring that bidders for the two new concessions have experience managing airports with at least 35 million passengers a year, far more than the 5 million in the earlier auction. The operator must also take a minimum 25 percent stake in the winning consortium.

The government also said it would invest 7.3 billion reais to upgrade smaller regional airports and build 17 new terminals to increase access to air travel in the interior of Brazil.

The plan is part of President Dilma Rousseff's push to attract private investment to help upgrade a deficient transport infrastructure, from roads and railways to airports and seaports, that has made Brazil a costly place to do business.

Rousseff rebuffed criticism that Brazil, where economic growth has stalled, is no longer a good place to invest. "We are improving the business environment in Brazil, triggering a huge advance in investment in productivity," she said after the airport announcement.

Brazil's economy grew just 0.6 percent in the third quarter. Rousseff pointed to lower interest rates, a weaker currency and her goal of lowering the country's tax burden as factors that will bring about a solid recovery in 2013.

LINKS TO FAR-FLUNG REGIONS

Rousseff said a country the size of Brazil needs better internal air travel facilities and that improving these links would require public-private partnerships.

"With the initiatives we are taking, we will enable regional aviation in our country that otherwise would not be viable," she said. Her plan is that 96 percent of Brazilians should live within 100 kms (65 miles) of an airport served by regular commercial flights.

Brazil is larger than the 48 contiguous U.S. states. Some communities, including many in the Amazon region, can only be reached by plane, for all practical purposes.

Besides upgrading small airports, Brazil will foster more regional flights by exempting airlines from paying airport fees at airports with less than one million passengers a year, a step that will help airlines like Azul that cater to small airports.

The government will subsidize travel on some regional routes and will allow private airports to receive commercial flights.

Passenger traffic more than doubled in the last 10 years, according to government figures, making Brazil one of the most promising aviation markets in the world. Some analysts say the volume of airline passengers could double again by 2030.

PRIVATE CAPITAL WANTED

While increasing air traffic fueled heady growth for a crop of ambitious new airlines such as Gol and Azul, many carriers now complain more growth is not possible without significant airport expansion.

Delays at roads, ports, factories, as well as airports, have also raised production and distribution costs and contributed to the drag that poor infrastructure has had on the once-booming Brazilian economy.

Rousseff's decision to tackle the problem with private investment is a reversal of the long-standing policy of her Workers' Party and of her predecessor and mentor, Luiz InĂ¡cio Lula da Silva. Lula opposed efforts during his two terms to allow private partners to manage Brazilian airports.

The government earlier this month launched a $26 billion public-private drive to modernize sea ports. In August it announced a plan to lure up to $133 billion reais in private investment for road and rail projects.

Rousseff's courting of private capital comes as some investors have begun to criticize the government's growing role in the economy.

A senior analyst for Fitch Ratings warned in September that Brazil's aggressive negotiation of energy rate cuts could spook foreign investors, for example, sapping appetite for concessions in other sectors.

Changes to the country's electricity concession contracts have caused the shares of many utilities to plunge.

Rousseff, however, brushed off the criticism on Thursday.

"I find it very weird when people say we're changing the rules of the game," she said in a speech following the investment announcement. "This is not true, because we want an environment of stable contracts."

($1 = 2.08 Brazilian reais) (Additional reporting by Silvio Cascione and Jeb Blount; Writing by Caroline Stauffer; Editing by Anthony Boadle, Leslie Adler, Gary Hill)

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