Are Brazilian airports ready to meet air passenger demand in next World Cup?

Airports in Brazil have been a bottle neck for some time. In 2007, the country saw its first “apagao aereo”, an air blackout of gigantic proportions.  With the Olympic games in 2012 and the World Cup in 2014, airports become even more important for the economy. But the sector is controlled by the state and private investors are constrained by a shy privatization program. Should we expect a happy ending? Here are some food for thought on this matter.

Caos in Brazilian airports. Revista Veja March 2007

Public sector invests less in infrastructure

Infrastructure went from almost 4% of GDP in the 70s to approximately 1% of GDP recently. In a sense, the deficiencies we talk mundanely about on an everyday basis are found in insufficient investment in this item (highways, airports, ports, bridges, hospitals, etc.).

Privatization “a la Lula”

In 2008, the federal government initiated a program to privatize Brazilian airports.

The model óf airports concession to private companies was supposed to be ready in 2009. Among the first in the list to be privatized was the Viracopos airport, in Campinas, in the state of São Paulo. It would help unload the heavy air traffic of the other state airports; Congonhas and Guarulhos. Also on the list was  Galeão in Rio de Janeiro, preparing for the World Cup in 2014.

Early this year, Nelson Jobim, Minister of Defense announced that the program would be postponed for next year, after the presidential elections.

What is the solution?

With delay in the schedule of works for the 2014 World Cup, the government decided to authorize the hiring Infraero engineering services in an emergency without having to comply with the 8666 law requiring bidding. Altogether, the 12 World Cup host cities, will be spending almost $ 5 billion in reforms of terminals. The bulk will go to Guarulhos, in São Paulo.

International perspective

The Centre for Asia Pacific Aviation comments on Brazilian airport infrastructure.

“Brazil is struggling to find the USD 19 billion investment identified in a recent report by management consultants McKinsey that is required to meet the country’s passenger traffic demand up to 2030 and in anticipation of the 2014 World Cup and 2016 Olympic Games.

Brazil is in fact a microcosm of what is happening elsewhere in the world as governments attempt to match funding requirements with the traffic demand they assume must return as the global economy improves. While some areas are still lagging in this respect (e.g. Europe), others like Asia are reporting big passenger traffic and cargo increases – although others still were not unduly affected by the crisis, such as the Middle East. The US is a case in point. Despite long established antipathy towards privatisation of public transport facilities there, there is a tangible shift in opinion among opinion formers in favour of a leasing option for airports, as identified by think tanks such as the Reason Foundation. This opinion shift has in fact resulted in there being potentially far more applications for a slot in the Airport Privatization Pilot Programme (which has been in existence since 1996 but virtually ignored until 2008) than there are slots available, while 2009 saw the opening of the first private green field airport (in Missouri), which operates entirely outside of the FAA’s remit, apart from safety and security regulation.”

Planning is not Lula’s strong suit.

When it comes reforms that will impact the Brazilian economy in the coming years,the PT administration often prefers to make the easiest decision. This lack of long-term perspective is possibly one of the most important constrains to Brazilian growth. Specially in the sectors under public influence, such as airports.

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About Hildete Vodopives

Hildete de Moraes Vodopives is founder of Brazil Global and of the Harvard Strategists Bureau. She is a member of the Brazilian Investment Analysts Association (APIMEC-Rio) where she served as Corporate Relations Director and later, on the board. Hildete advises companies doing business in Brazil. She lives between Paris and Rio and is a member of the Harvard Club of Paris and of the Mercosur Women’s Forum.
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