From Peru to the world

Posted: 3 April 2007 | Jaime Daly Arbulú, General Manager, Lima Airport Partners | No comments yet

More than a decade ago, Latin American governments opted for exploring various European privatisation and concession models as a mechanism to promote private investment in the development of public services. The main goal was to look for other financing sources, no longer from public resources, to ensure that the entire population had access to quality services.

More than a decade ago, Latin American governments opted for exploring various European privatisation and concession models as a mechanism to promote private investment in the development of public services. The main goal was to look for other financing sources, no longer from public resources, to ensure that the entire population had access to quality services.

One single word could be used to describe most Latin American public companies: inefficient. This directly affected the population and its right to have quality public services. Such inefficiency affected the capacity to invest in the expansion and improvement of the public service network.

Despite the remarkable improvement made in Peru, even today, there is an infrastructure investment deficit of almost US$ 23 billion. This is the amount this South American country would need to invest to have infrastructure levels that are comparable to its neighbor Chile. The investment amount needed solely in infrastructure for airports is approximately US$ 143.2 million.

As a result, the idea of concessions was introduced (and continues today) as a viable solution to attract investors with a sound financial standing and international experience, that could turn old and inefficient public companies into efficient private organisations. In turn, they would pay governments for using their resources.

Towards a private airport

Let’s focus on Peru. Corporación Peruana de Aeropuertos y Aviación Comercial (CORPAC) was the state-owned corporation specifically created by the Peruvian government to run the airports and aerodromes in Peru. The Jorge Chavez International Airport is located in the city of Lima, on the central coast of Peru, at sea level, and in the middle of South America. It was the main airport not only due to its location, but to the fact that it received four million passengers a year and operated as a domestic hub. The second most important airport was the one in the city of Cuzco, which received approximately one million travellers a year.

The operations of the Jorge Chavez International Airport subsidised those of the other airports within the CORPAC network. Such “liability” put off the modernisation needs of the Lima airport.

To change that situation and to leverage the comparative advantage that the location of the Jorge Chavez International Airport offered Peru, the Peruvian government opted for choosing a private administrator to be responsible for operating, building, improving and using the Lima airport. This would be done through a 30-year concession, extendable for 10 additional years. The investor would assume the risks and cost of turning the Jorge Chavez International Airport into one of the most modern airports in the region.

On Feb. 14, 2001, Lima Airport Partners (LAP), a concessionaire created by German airport operator Fraport AG Frankfurt Airport Services Worldwide and Alterra Partners (a consortium integrated by Bechtel Enterprises and Singapore Changi Airport Enterprise), signed a concession agreement with the Peruvian government for the construction, improvement and operation of the Jorge Chavez International Airport. From that date forward, LAP took up the challenge of turning the Lima airport into one of the most modern airports in the region. This goal coincided with the goal Peru had as a nation: that the airport infrastructure development would help boost tourism and foreign trade.

LAP committed to pay 46.511 percent of its gross income to the Peruvian State on a quarterly basis. On the other hand, CORPAC would receive 50 percent of the landing and take-off income and 20 percent of the airport fee for international departure passengers, also on a quarterly basis. The regulatory entity would additionally receive 1 percent of LAP’s gross income. In short, the Peruvian State would receive 52 percent of LAP’s gross income, including taxes.

LAP also had to meet a number of investment milestones in the first three years of operation, which ranged from US$ 1.3 million for the first 180 days of the concession (LAP invested US$ 3.5 million) to US$ 110 million by February 2005 (LAP invested US$ 135 million).

From ugly duckling to swan

LAP received an airport from the ’60s and had to turn it into a 21st century airport in a very short period of time. The task became more difficult due to the 9/11 events, which affected the initial development proposal and investment schedules: it was basically necessary to redesign the entire project a second time.

LAP managed to build a new airport without interrupting or obstructing ongoing Operations. The Jorge Chavez International Airport never stopped operating while we were building the new facilities. In the platform area alone, we built an additional 1,076,390 square feet (100,000m2), and the terminal’s built area grew from 215,278 square feet (20,000m2) to 699,654 square feet (65,000m2).

First, we prepared the existing infrastructure to support the infrastructure that would be built on top of it. Then, we changed all the electrical, sanitary, security and telecommunications installations that had not had maintenance services in the more than 30 years of operation of the Jorge Chavez International Airport. We performed general maintenance to the runway, in addition to the respective rubber cleaning, to ensure safe operations.

Later on, the most radical transformation took place. We included a new terminal for domestic and international operations; a new shopping area, not only for passengers but also for the general public, named Peru Plaza; seven jet bridges; top-quality baggage inspection, information, security and fire systems; and air conditioning, among other benefits that the Jorge Chavez International Airport had never had before.

This represents an investment of more than US$ 196 million to date since we obtained the concession.

The new Jorge Chavez International Airport is now at the level of the best airports in the world and its totally new facilities are a reason for Peruvians to be proud. Passengers themselves voted on the quality of its services and facilities. In a survey conducted by consulting company Skytrax Research for the World Airport Awards, passengers voted the Lima airport best airport in South America in 2005 and second best airport in 2006.

Currently, more than 6 million passengers walk through its modern facilities and we record more than 77,000 aircraft arrivals and departures a year. The Jorge Chavez International Airport is considered the fastest-growing airport in Latin America.

According to figures provided by the Airports Council International (ACI), after six years of operations, Lima ranks eighth in passenger traffic, seventh in cargo traffic and sixth in aircraft traffic.

The Lima airport has a runway that is 2.18 miles (3,507.5 meters) long and has almost 100 percent visibility, since it is at sea level. It transports an average of 20,000 passengers a day, as well as approximately 200,000 tons of cargo a year. It currently serves approximately twenty international airlines, seven domestic airlines and fifteen cargo airlines, reaching at least 25 destinations worldwide.

Airports are also businesses

Besides the obvious benefits described above, the concession model ensured the Peruvian State more than sufficient resources to continue subsidising airports in the provinces, in addition to increasing its tax revenue. From 2001 to 2006, Lima Airport Partners transferred an additional US$ 300 million on top of the US$ 200 million used for infrastructure improvements to the Peruvian State.

With regards to attracting more airlines, LAP has been implementing a route development program for the last three years. The purpose is to foster connectivity to and from Lima by convincing airlines to include Lima in their operation plans. In addition to marketing and communication tasks, we have created incentive programs offering attractive discounts for airport services. For example, the Nuevos Destinos (“New Destinations”) promotion offers 100 percent discounts on landing and take-off rates, as well as a free 30-minute extension of the aircraft parking period, for those airlines that include a new direct flight. Another LAP promotion consists of stabilizing landing and take-off rates for six months for those airlines that serve their fixed frequency regular routes with larger-capacity aircraft.

As a result of this route development program, two new direct flights opened in 2006: the Lima – San Salvador route, operated by TACA, and direct flights to Amsterdam, by KLM. Likewise, the new Brazilian low-cost carrier, GOL, started operations, and we are close to finalising new interests from U.S. air carriers.

This is an important step in strengthening Lima’s position as a regional hub. We now have direct, non-stop flights to the Jorge Chavez International Airport from 16 domestic and 23 international cities.

What lies ahead

2007 starts with more projects for LAP: a 130-room four-star hotel will open in June, and the next construction stage to continue the airport’s expansion will begin in the second half of the year.

We will expand terminals by more than 150 linear meters, install 12 additional jet bridges, and build more platform area. Also, additional commercial spaces will allow for the expansion of existing commercial activities.

Furthermore, a cargo center which will enable transfer to storage terminals will open soon. In May, we will award the space to install a refrigerated cargo storage terminal which shall commence operations in August of this year.

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