Brazil still plans to privatize 43 airports through 2022: minister By Reuters


© Reuters.

SAO PAULO (Reuters) – Brazil’s infrastructure minister said on Monday the country still wants to privatize 43 airports through 2022, even as the COVID-19 pandemic ravages the air transportation industry.

Minister Tarcisio Freitas also said the government’s plan to revive economic activity after the pandemic forecasts 30 billion reais ($5.5 billion) in public investment in infrastructure. Freitas spoke during a webcast hosted by Banco Santander (MC:) Brasil SA.

The licenses to operate 22 airports were initially expected to be auctioned this year, but private investors asked for a delay in the process to try to estimate future demand, he said. Now these auctions are expected for March 2021, according to the minister.

There will be a second phase with 21 airports, including some that have the highest traffic, which licenses will be auctioned in 2022.

Although current airports operators are asking for reductions in payments to the government due to the drastic drop in demand, Freitas said he expects the auctions to be successful.

Freitas also mentioned the abandoned deal between Boeing Co (N:) and Embraer SA (SA:), saying the government is considering further measures to help the air transportation sector and indirectly help Embraer. Freitas mentioned the bailout to airlines Azul SA (N:), Latam Airlines Group SA (SN:) and Gol Linhas Aereas Inteligentes (SA:).

Freitas still hopes to auction the pulp export terminals at Santos, the largest port in Latin America, expected for August. He predicted an auction to operate the Fiol railway, in the northeastern state of Bahia will take place at the end of 2020, while Rumo SA (SA:) is expected to renew its license to operate railway Malha Paulista on Wednesday.

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U.S. grants tentative OK for 15 air carriers to suspend service to 75 airports By Reuters


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© Reuters. FILE PHOTO: Delta Air Lines passenger planes parked in Birmingham

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By David Shepardson

WASHINGTON (Reuters) – The U.S. Transportation Department said late on Friday it had granted tentative approval to 15 airlines to temporarily halt service to 75 U.S. airports because of the coronavirus pandemic.

Airlines must maintain minimum service levels in order to receive government assistance but many have petitioned to stop service to airports with low passenger demand.

Both United Airlines (O:) and Delta Air Lines (N:) won tentative approval to halt flights to 11 airports, while JetBlue Airways Corp (O:), Alaska Airlines (N:) and Frontier Airlines were approved to stop flights to five airports each. The department said all airports would continue to be served by at least one air carrier.

The Transportation Department said objections to the order can be filed until May 28.

U.S. air carriers are collectively burning through more than $10 billion in cash a month as travel demand remains a fraction of prior levels, even though it has rebounded slightly in recent weeks. They have parked more than half of their planes and cut thousands of flights.

The department has previously granted airlines waivers to cancel some additional flights and denied others. On May 12, the department said it would allow carriers to halt flights to up to 5% of required destinations.

Under the tentative order, Delta can halt service to Aspen, Colorado; Bangor, Maine; Flint, Michigan; Santa Barbara, California; and Lincoln, Nebraska, among other cities, while United can halt service to airports including Chattanooga, Tennessee; Hilton Head and Myrtle Beach, South Carolina; Key West, Florida; and Lansing and Kalamazoo, Michigan.

JetBlue can halt flights to Albuquerque, New Mexico;

Palm Springs and Sacramento, California; Sarasota, Florida; and Worcester, Massachusetts.

Alaska can suspend flights to Charleston, South Carolina;

Columbus, Ohio; El Paso and San Antonio, Texas; and New Orleans.

Only half of eligible carriers have applied to cut more flights.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Centro Norte, Auckland, Vinci: Investing In Airports While There Is Blood On The Tarmac (OTCMKTS:AUKNY)


Two years ago, I presented an overview of investable airports around the world and explained the rationale for investing in this space: airports are strong businesses with a wide economic moat, whose growth is underpinned by robust macro trends. No matter how strong the trends, though, airport stocks have been beaten up of late, as they are being faced with the single biggest risk to this sector: a global pandemic.

While there’s no doubt that Covid-19 and its fallout will pose a huge challenge to airports, the current valuations look attractive for investors who take the long-term view. Such investors may want to take advantage while there is blood on the tarmac.

I will first share my outlook for the sector, and then discuss more specifically three international names I’ve been buying in recent days: Grupo Aeroportuario del Centro Norte (OMAB), Auckland International Airport (OTCPK:AUKNY), and Vinci (OTCPK:VCISF, OTCPK:VCISY).

Investable Airports

The listed airports available to investors can be seen on the map below, and for an overview of the sector, let me refer readers to my initial article from 2018: Investing In Airports: A World Of Opportunities“. Source: Grupo Aeroportuario del Sureste’s Dec 2019 presentation. Note: Macquarie was renamed Sydney Airport Holdings

Unfortunately, to my knowledge, there exists no ETF dedicated to airports, but picking a number of names from this basket can provide some geographic diversification.

The Outlook for Airports

First, let’s state the obvious: air traffic is paramount to an airport’s performance. Even if some operators exhibit significant non-aeronautical income, in reality, such diversification revenue (retail sales, rental income) is also heavily dependent on air traffic. The main drivers of traffic are freight and passenger travel, the latter consisting of three categories:

  • Leisure (tourism)
  • VFR (Visiting Friends & Relatives)
  • Business

Freight and passenger traffic in all categories are being hit severely by the current health-related restrictions. Even when confinement measures are lifted, restrictions can be expected to remain in place for a long time when it comes to air travel. This is not the first time outbreaks have disrupted the sector, but the magnitude and geographic spread of the coronavirus pandemic make a longer recovery time inevitable.

Source: IATA/Auckland International Airport’s presentation

Clearly, I do not expect a V-shaped recovery, neither in the airports sector nor in the broader market. That being said, I take the view that within the next 12 to 18 months things will normalize and the macro trends supporting air travel will gradually resume, albeit from a lower base. Going back to the air traffic drivers I mentioned above, I expect the following developments in the long run:

  • Freight: This component should move in tandem with economic growth. At some point, growth will resume and so will freight volumes.
  • Leisure: Once health-related restrictions are lifted everywhere, tourism will bounce back as the long-term drivers of a growing middle class in emerging countries and the taste for travel in general should remain intact.
  • VFR: Like tourism, the Visiting Friends & Relatives component is not going away, and should get back to normal once restrictions are lifted.
  • Business: This is the segment that I think will remain challenged. Companies that are currently curbing non-essential travel will probably continue to do so after the pandemic, realizing the savings that can be made through a wider use of video-conferencing and the likes, and also under pressure from Environmental, Social, and Governance (“ESG”) criteria. The latter had already started to make an impact on air travel in countries such as Germany, home to Fraport (OTCPK:FPRUF, OTCPK:FPRUY), even before the pandemic.

Irrespective of the pent-up demand, the airports’ fortunes will of course also depend on the fate of airlines. It looks like governments will move to avoid bankruptcies, but the failure of a major airline can have a detrimental impact on some airports. Still, airports are usually a much safer bet than airlines: while individual airlines can disappear, the airports themselves will remain in place and enjoy the comfort of their local monopoly.

I have no idea if the bottom is in when it comes to airport stocks; however, I’ve found valuations attractive enough to start buying or adding to some names during the recent panic: Mexico’s Grupo Aeroportuario del Centro Norte, New Zealand’s Auckland International Airport, and France-based Vinci which manages an international portfolio of airports.

Grupo Aeroportuario del Centro Norte (“OMA”)

OMA is one of the three listed Mexican operators, with the airports below in its scope (the main one being Monterrey) under a concession lasting until 2048:

Source: company’s website

I’ve held positions in OMA’s peers Grupo Aeroportuario del Pacifico (PAC) and Grupo Aeroportuario del Sureste (ASR) for years, as I favored their superior international exposure. However, in the current context, I appreciate OMA’s minimal exposure to tourism (12% of traffic) and domestic focus.

Source: company’s Q4 ’19 presentation

The main risk to OMA’s prospects would be the bankruptcy of one of the main local airlines, including Aeromexico (OTCPK:GRPAF), Interjet, Volaris (VLRS) and Viva Aerobus.

Source: company’s Q4 ’19 presentation

However, this has happened before with the bankruptcy of Mexicana back in 2010, and it didn’t have a lasting impact on OMA and its peers. With domestic demand rising for the foreseeable (post-pandemic) future, the prospects look robust.

Talking about robustness, the balance sheet of OMA makes me confident in the operator’s ability to weather the storm. With only $70M net debt as of end 2019, the company is well-prepared.

Source: SeekingAlpha’s Key Data Overview

Furthermore, the debt is almost entirely (99%) in Mexican Peso, removing foreign currency risk:

Source: company’s Q4 ’19 presentation

I also expect OMA to be able to delay some of the planned investments under its Master Development Plan. But of course, be prepared for more turbulence with passenger numbers likely to worsen before they get better (Mexico’s travel restrictions came into effect only recently).

Auckland International Airport (“AIA”)

AIA operates the largest airport in New Zealand, along with smaller airports in Queenstown and Wanaka:

Source: corporate presentation

I’ve always liked AIA which, in my opinion, ticks all the right boxes:

  • safe jurisdiction
  • freehold
  • attractive domestic demographics
  • strong VFR potential with a lot of New Zealanders having relatives in Australia and the Pacific Islands
  • significant tourism potential, with the country becoming a popular destination, especially among Asian visitors
  • large land package around the airport, whose development (offices, hotels, warehouses) generates growing rental revenue

The diversity of AIA’s revenue streams is reflected in the financials below. Other revenues are seen to offset a temporary reduction in airfield income and passenger services charge:

Source: company’s S1 ’20 presentation

AIA does have some debt on the balance sheet, as the company has been investing in the development of a new runway. However, with significant local government ownership and given the long-term prospects of the business, I do not expect AIA (which gets an A- credit rating from Standard and Poors) to run into trouble. Furthermore, CapEx can most likely be delayed.

Source: company’s S1 ’20 presentation

Source: company’s S1 ’20 presentation

Because of the assets’ quality, AIA usually trades at a lofty valuation, and I feel the recent sell-off in the stock provides a favorable entry point. Note: I bought my shares on the Australian stock exchange (AIA:AU), where there is more liquidity than with the OTC ticker AUKNY.

Vinci

With the uncertainty surrounding airports still running high, my third pick is a more diversified conglomerate which I’ve already discussed numerous time here on Seeking Alpha: France-based Vinci. I had sold half of my position in January, as the stock was starting to be fully valued above €100 ($110), but I took advantage of the recent sell-off to add more shares.

Source: company’s Q4 ’19 presentation

Vinci is the world’s second-largest airport operator, one that has a global footprint as seen on the map above. Vinci’s relatively recent airport division has displayed impressive growth over the years, helped by some major acquisitions culminating in a 50% stake in London Gatwick in 2019.

Source: company’s Q4 ’19 presentation

This positions Vinci very well for the long term. But what makes the company a somewhat safer stock at the moment, in my opinion, is the Highway division (Vinci Autoroutes). Of course, with confinement measures in place, Vinci’s highway network (most of them in France) is also experiencing vastly reduced traffic. But I expect the travel restrictions to be lifted much sooner for highways than for international air travel. As shown by the EBITDA numbers below, the highway division is Vinci’s cash cow, which can offset the temporary weakness in other divisions.

Source: company’s Q4 ’19 presentation

Vinci has some debt on the balance sheet as a result of the large acquisitions made in recent years, but I’m not too worried about their liquidity. As per a recent press release:

The Group has a large amount of liquidity, with available net cash of €6.5 billion at end-February (including €4.2 billion centrally managed). In addition, VINCI SA has a confirmed €8 billion credit facility not due to expire until November 2024, which is currently unused and not subject to any financial covenants.

Takeaways

There are plenty of reasons to be negative about airports right now. However, with the possible exception of Business travel, I feel that the long term prospects remain strong. In this article, I highlighted my recent purchases, but other names are also trading at a discount. As an example, Beijing International Airport (OTCPK:BJCHF) could be worth a look, as China’s domestic traffic will probably be the first to recover. Chinese stocks are not for everyone, but daring investors can listen to this podcast for more color on that airport.

In any case, a solid balance sheet and creditworthiness will be key to navigate the tough period ahead. However, the solid moat enjoyed by airports puts them in a better position than other subsectors of the travel industry such as airlines and hotels, in my opinion.

Disclosure: I am/we are long OMAB, ASR, PAC, vinci, aIA, CAAP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The opinions and views expressed in this article are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.





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Coronavirus travel ban creates chaos at U.S. airports in echo of 2017


The ban on travel to the United States by non-U.S. citizens from Europe announced at midweek by President Trump in an Oval Office address that raised more questions than it put to rest — and expanded after the fact to include the previously excluded European countries Ireland and the United Kingdom — appeared to be creating havoc late Saturday at major U.S. airports including those in Dallas, New York and Chicago.

See: Here’s why Trump said he excluded the U.K. from his Europe travel ban

Plus: ‘Symptomatic of the lack of policy coordination’: Here’s what Wall Street analysts are saying about Trump’s speech

Also read: Thousands arriving from China and Europe at U.S. airports have faced no coronavirus screening

Some firsthand and other accounts and unvetted commentary as disseminated late Saturday via social media:

In Illinois, dignitaries including the governor, J.B. Pritzker, and Chicago’s mayor, Lori Lightfoot, expressed frustration, noting that border-control procedures at O’Hare and other airports fall under federal, rather than state or municipal, jurisdiction:





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