Argentina: Interview with Eduardo Eurnekian
Former President Of Aeropuertos Argentina 2000 (N/A)
Q-1: Mr. Eurnekian, AA 2000 is a consortium controlled by the Corporación America Sudamericana, which you own. Other companies, such as SEA SpA, Ogden Corporativo, Simest SpA y Riva Construcciones are also part of this holding. ¿Could you please offer us an overview of the first days of Aeropuertos Argentina 2000 back in 1997?
A-1: In 1997, the argentine government decided to privatize the whole system of airport-networks. This is a unique case worldwide because Argentina did not privatize one airport at a time but the country's airport system as a whole. By doing this, the government demonstrated its desire to openly join the capitalistic world. At that time, Argentina did not have the critical mass needed to make the privatization of one single airport interesting enough to appeal international investors. We do believe that the privatization process was a success because we had top tier international participants from Canada, Germany and the USA competing as equals. We participated together with an Italian group, SEA, American-based Ogden, and our own group. During first stage of the privatization process we had a tie, after which our offer became selected.
Q-2: Aeropuertos Argentina 2000 agreed to invest u$s 2.2 billion during the 30-year concession contract. ¿What is the concession's profile?
A-2: The concession is very rigid in legal terms as, in a way, it clearly establishes the place and time for investments to be made on each of the 33 airports that are part of the network. The concessionaire does not have any flexibility in that regard. The fact is that those u$s2.2 billion were part of the budget plan put together by UBS Warburg, the bank that served as intermediary on this process, and, obviously, were part of the government's original plan.
Q-3: I read some reports that made estimates that Aeropuertos Argentina 2000 should had invested u$s550 million by the end of 2001. Is it true that up-to-date you have invested only half of that amount? Is this information accurate?
A-3: The contract clearly estates that, regarding investments, the time frame is measured in fiscal years. As it is probably said on the paragraphs of the contract, the fiscal year begins in January 1, 1999. We began to operate the airport system in June 1998. Because of that, we had one year to take control over all of the airports. Certainly, between the time we took over, until the first half last year, our investments reached u$s287 million. That is why, we estimate that for this year our investments will total u$s500 million. The government's supervising organism does not approve our investment plans as quickly as we would like it to. It is a very complex mechanism because the Air Force also intervenes by making feasibility studies for each construction plan. All this generates a bureaucracy that delays the times frame the concessionaire has to confront the situation. On the other hand within the same contract's rigidity, some realities that were not considered on the UBS Warburg proposal began to appear. The air traffic stipulated for the next 30 years is not in line with what currently happens. Traffic to and from the capital city of Cordoba, as an example, had an unusual growth compared to that of other regions where growth rates definitively began to fall. This implies that investment plans should de re-adequated. Cordoba's new airport does not resist the possibility of further expansions. We are building a new airport, which was not included on the original proposal. This new expansion strategy has also to be approved by the government’s supervising organism and the Air Force, The truth is that these mechanism are fulfilled but also alter the previously-defined outlook. This is a fact.
Q-4: Your total sales figures for the commercial services offered in the period 1999-2000 show an increase of around 20%, although expectations on air traffic growth were around 6% and actually turned out to be just 0,7%.
A-4: We expected an increase of between 6% to 10% and we based them on the plans outlined by the controlling organism, although, in fact, air traffic has decreased around 18% in the first two months of this year. Last year it remained stable. Airport-related income comes from two different sources. The first includes the airplane tax, which is the one paid by the airlines, and the tax paid by each passenger. The second comes from the commercial inflows. Although there has been a decrease in the tax paid by the passengers, there has been an increase of commercial inflows that compensated for the later loss. These commercial gains have to do with all the commercial sites that operate within the airport. Last year these two results were more balanced, but this year recession has taken its toll, generating additional problems to most companies.
Q-5: According to different reports, the consortium has to pay around u$s171 millions per year, in two installments of u$s85.5 million each. The government, through the controlling organism ORSNA, claims that u$s100 million are still owed to it. On its behalf, AA 2000 claims that the government has not fulfilled requirements previously agreed upon. What is the current situation?
A-5: I would prefer not to discuss this issue with a foreign magazine. They are issues we discuss with the Argentine government. And not because our claims do not have a solid foundation. I could tell you that the government has unfulfilled commitments for u$s140 million. Besides, it has increased airport taxes by an additional u$s10 per international passenger. These two reasons explain part of income decrease. It was made intentionally and distorts the basis of our concession contract. Now the government has to decide the negotiating venues. The versions that reach the press are totally partial because, obviously, reflect the reasons given by the government, which are certainly confusing. The private sector tends to be more reserved. If we had confronted deeper problems, we would have appealed to the Justice to resolve it. If no one goes to the Justice is simple because we are in part right.
Q-6: If we approach this subject, it is because our readers are international investors as well.
A-6: When foreign investors see our balance sheet, they become aware of our situation and confirm that the companies have investments plans fully guaranteed by external credit. Simply, we have placed debt for u$s150 million which have been fully covered.
Q-7: The government also counts on Aeropuertos Argentina 2000 fulfilling its obligations.
A-7: The government does what it can to meet its own interests, and we do exactly the same. We are part of a fully civilized society. Anyone can go to the Justice to resolve any kind of dispute. The government uses its policies and reasons to make concessionaires meet their obligations. And that seems fair to me, although commitments go in one hand and government claims in other. No one would invest in a company that has to sue the government to fulfill its obligations.
Q-8: Aeropuertos Argentina 2000 began to operate under the administration of former president Carlos Menem. The open-skies agreement was signed at that time, but it was later cancelled by President Fernando de la Rua's administration. What is your opinion regarding this agreement.
A-8: I have mixed feelings regarding the agreement because, as an argentine citizen who understands the issues involved, I believe we have missed an extraordinary opportunity by privatizing Aerolineas Argentinas. Its privatization turned out to be a big failure. Aerolineas Argentinas is an effort of our nation, of its people. When the company was privatized, the buyer received a chance to enjoy a period of leadership and monopoly. But the company also required, nonetheless, capitalization and investment. They bought a prestigious airline, with a relevant international market share and global routes that came as a result of the efforts of the Argentine people, which supported it for 30 or 40 years. We gave the privilege of 10 years of absolute monopoly, in order for them to be able to face a competitive international market. This time should had been used to capitalize the company, so, when it reached November 2000, it would had been ready to open itself to global competition. Who was in charge of this did not take advantage of the opportunity, and by doing so, damaged our national airline. This is something that has to be demanded to the Spanish government. Aerolineas Argentinas was sold to a company of international level, to Iberia. That airline is blossoming and ours goes bankrupt. After that, we had to open our skies. It hurts me that Argentina wasted the opportunity to open itself to additional competition and receive a higher tourist inflow. Other privatization offered the same privileges and took advantage of them in a different manner. This is the case of the telecommunications sector. Telecommunication companies were also granted ten years of leadership and the chance to operate in a closed and captive market. But, differently of what happened with the airlines, they tripled the number of available phone lines, the mobile telephone system competes as an equal with the world's best, and they certainly did increase the quality of the service. And that's how you justify ten years of leadership. If a had to make a sacrifice, I would be happy to do it in order to revitalize once again a company like Aerolineas Argentinas.