Solange Galante

The Brazilian federal government's airport concession round will be auctioned on August 18 in São Paulo. This is one of the most anticipated rounds by the local aviation industry, especially business aviation, because two important airports in the state capital of São Paulo will be on the auction block. One of them is Congonhas Airport, considered the “crown jewel” of Infraero, the Brazilian airport infrastructure and management company.
Infraero was created in 1972 and has managed Congonhas, the central airport of São Paulo, since 1981. The state-owned company has simultaneously managed 66 airports throughout Brazil but with concessions that the current and previous governments have made, Infraero had to give up managing many airports, including São Paulo International in Guarulhos and Rio de Janeiro International. Despite these and other large facilities, most of the 66 airports managed by Infraero were not profitable. Congonhas stood apart, however, for what it represents for Brazilian domestic air traffic.
In 2019, just before the Covid-19 pandemic, Congonhas handled almost 22.3 million passengers. Last year, that number dropped to 9.4 million. But as it is one of the two ends of the “Ponte Aérea” (bridge) route connecting the two most important economic centers of the country—São Paulo and Rio de Janeiro. Thus, Congonhas is a strategic and valuable airport and, though limited in space to grow, it could expand to handle 30 million passengers per year in a few years.
Even though Congonhas is considered a “jewel,” it is included in the block called colloquially “filet with bones,” meaning that whoever ends up with Congonhas will also have to manage 10 other less profitable airports: Campo Grande, Corumbá, and Ponta Porã, in the state of Mato Grosso do Sul; Santarém, Marabá, Parauapebas, and Altamira in the state of Pará; and Uberlândia, Uberaba, and Montes Claros in the state of Minas Gerais. This block is called SP-MS-PA-MG (the initials of each of the four states, including São Paulo).
The other two blocks of the seventh round are North Block II, which includes the airports of Belém in Pará state and Macapá in the state of Amapá. This block is called Norte II because the North Block I auction took place last year.
But the third block is of great interest to business aviation. This&nbsp;General Aviation Block is formed by <a href="https://www.ainonline.com/aviation-news/business-aviation/2022-08-08/auction-set-campo-de-marte-airport" target="_blank">Campo de Marte Airport</a> in São Paulo and Jacarepaguá in Rio de Janeiro.
The block containing Congonhas Airport is, naturally, the most valuable and has a minimum bid of R$740.1 million ($144 million). The estimated value for the entire contract is R$11.6 billion. Naturally, the federal government expects to raise much more than these amounts.
However, the value in Brazilian Reais on August 18, the day of the auction, may be less attractive than the election results on October 2, especially if voters don't also have to wait for October&nbsp;30. These are, respectively, the days of the first and second rounds of Brazilian elections, including the choice of a new president or the reelection of the current president, Jair Bolsonaro. Therefore, as his government’s last auction in this current term, the sale of the Congonhas jewel could help Bolsonaro keep his crown, as it represents one of the most important steps in his privatization policy.
<h2>Every Jewel Has a Price</h2>
One problem that could harm the interest in Congonhas is the economic crisis that Brazil is going through and the bad&nbsp;reputation of the country&nbsp;in several areas. The country was barely starting to recover from a crisis before the Covid-19 pandemic, with the investment rate already at low levels, and the projections for this year are that it will still be below the rate of 82 percent of other countries. The survey was carried out by the Brazilian Institute of Economics of Fundação Getúlio Vargas.
According to the recently published study&nbsp;by researcher Juliana Trece, 139 of a total of 170 countries will show a higher level of investment in proportion to GDP&nbsp;than Brazil this year. This is worse than 2021, when 132 countries, or 77 percent, performed better than Brazil. The study was based on the latest projections of the International Monetary Fund for the global economy and on the estimates of the GDP Monitor-FGV for the first quarter of this year.
Cláudio Frischtak, former economist at the World Bank and director of Inter B Consultoria, said, “A very important reason for the absence of investors is the destruction of Brazil’s reputation by the government itself.” He added that the ideal would be to have between three and four competitors vying for Congonhas.
But behind-the-scenes conversations in Brasília, a few days before the auction, claim that only one group, CCR, had expressed&nbsp;interest in participating in the auction. CCR is a Brazilian company that has already won bids not only for other airports and federal highways&nbsp;in previous rounds.&nbsp;In other words, international groups that have already won airport bids in Brazil, or at least have already competed in other rounds, might not participate. This could mean the closing of the block for the minimum amount or with a small premium.
However, not all analysts are so pessimistic. For Volney Gouveia—coordinator of Aeronautical and Economic Sciences at the Municipal University of São Caetano do Sul, a city in metropolitan São Paulo—the Congonhas airport concession, despite the doubts and uncertainties promoted by the environment of economic and political fragility in the country, is in a position to achieve complete success.
“This is because it is an aerodrome that handles more than 20 million passengers per year,” he said, “and that generates, just to give an example, something close to R$1 billion a year just in boarding fees.” According to Gouveia, the history of concessions in Brazil has already shown that significant premiums are invariably paid by concessionaires, an average premium of 300 percent in the Dilma Rousseff government and 373 percent in the Michel Temer government.
“Congonhas airport will be no different,” he said. "The stuttering manifestation of the possible candidates so far seems to be just a smoke screen to reduce the interest of other concessionaires, other competitors.”
Contrary to those who think that the premium will be timid, the professor predicts that the block will become the third most important, after the South Blocks, whose auction took place last year, and Northeast, which was granted in 2019. The amounts paid by concessionaires CCR and AENA were, respectively, R$2.13 billion and R$1.9 billion.
Despite rumors that the government could postpone the auction if on August 15 the deadline for receiving the envelopes with the proposals, the premium, and competition prove to be less than desired, the analyst does not believe that will happen.
"On the contrary,” he said. "The proximity of the elections even accelerates the government's plans to grant the airports. This is because, if the predictions of defeat in the elections come true, advancing this agenda becomes a priority.”
<h2>Delaying the Auction</h2>
There are those who want to postpone or change the auction, including Brazilian business aviation group ABAG. The association&nbsp;has filed a new request with the federal audit court,&nbsp;TCU,&nbsp;to suspend the auction of Block SP-MS-PA-MG. The first request, which was refused, had been filed in April and asked for Congonhas to be withdrawn and for a review of the studies that designed the proposal for the block.
The association's claim is that Congonhas Airport be granted separately or that airports described as having a deficit be granted on a regional basis and under a public-private partnership regime. ABAG also fears that the way the block will be offered—the “bone-in filet”—will alienate potentially interested parties and reduce the attractiveness of the auction.
“If Congonhas is going to have to sustain a deficient structure, the first impact comes for the airport users, and general aviation may be neglected, orienting the airport towards regular aviation,” explained ABAG president Flávio Pires. The petition presented by ABAG to the TCU draws attention to the fact that Congonhas would be the only airport with a surplus in the block, which could increase the cost for users of the São Paulo terminal to finance the deficits of the other airports.
Volney shares the same fear.&nbsp;“Executive aviation tends to lose ground in the case of the Congonhas Airport concession for a few reasons: this [segment of] aviation does not operate a significant number of flights compared to commercial companies, which ends up reducing the concessionaire's ability to generate revenue. In addition, the airport's historical capacity limitation tends to discourage executive operations, whose services—in the context of a concession—must become more expensive to compensate for the limitations imposed on commercial operations.”
An airport slot for an Airbus narrowbody, for example, moves 150 passengers, generating more revenue compared with 10 passengers in a Beechcraft King Air turboprop twin.&nbsp;Pires acknowledged that in previous concessions there were improvements made to passenger terminals, which is good for commercial aviation. “But for general aviation, [costs] went up with no counterpart [increase] in services.”
On August 5, a judge swatted down an attempt by a group of eight neighborhood associations for a restraining order to block the auction of Congonhas on August 18. The associations claimed that the air traffic increase of up to 40 percent proposed in the auction would increase noise and environmental damage. The judge denied the motion, noting that in 2021 environmental impact studies were presented and public comment periods held.

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