Assessing the development of airport concession models and financing in times of a financial crisis

Abstract

The market for airport transactions presents a mixed picture. While numerous recent transactions have been cancelled, postponed or closed on terms and conditions far less favourable to concession grantors or sellers than those of previous years, other recent transactions have been successfully completed, important landmark transactions have achieved significant progress and roadblocks are being removed for investors. At the same time, investors, as well as their lenders, are taking a far more conservative approach when evaluating project and finance risks. What kind of price structures contribute to the sustainability of the project? How do mitigants against extraordinary project risks enhance bankability? What tools are available to manage financing shortfall events? How can direct agreements help? And why should a concession agreement contain fair terms and conditions that balance the interests of the parties involved in case of an early termination event? The tools to procure bankability do not need to be reinvented, but they were not always implemented during the times of an overheated market. This paper holds that the market will return as traffic picks up again, but that a more conservative investment and financing approach with more balanced concession agreements will dominate the market for the near and medium future.