Landing the Deal by jpo51691

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									  Landing the Deal
Vancouver Airport Services
             BY TOBY HERSCOVITCH


             What happens when an island becomes one of the world’s premier destinations
             for sun seekers? If it is the Dominican Republic, it needs modern airports – six
             of them to be exact. Enter Vancouver Airport Services (YVRAS)…




             Y
                   VRAS is the leading airport investment, management and development
                   company in North America, managing consolidated revenues of $197 million
                   in 2005, from 15 airports in five countries. These include an enviable list of
             exotic locations, from the Dominican Republic, Santiago, Chile, Jamaica and the
             Turks and Caicos Islands. Every airport is unique and every new contract presents
             its own complex challenges. Since 2005, Vancouver Airport Services has
             welcomed two new airports in Cyprus to its network and is about to start operations
             at the airport in Nassau.

             About seven years ago, YVRAS came up against its biggest international opportunity
             since its founding in 1994 – a chance to participate in a major airport concession in the
             Dominican Republic involving the construction, expansion, renovation and opera-
             tion of four existing airports and two new ones, totaling USD 286 million. The
             evolution of this deal, like that of the air travel industry since 9/11, has been turbu-
             lent and risky, but ultimately rewarding.

             Vision takes flight
             YVRAS was founded on the idea that the skills and techniques that made the Vancouver
             International Airport an award winner could be translated internationally. “The
             original company president, Frank O’Neill, saw the emergence of the trend to
             privatize international airports and had a strong vision to operate internationally,”
             says Neville Weir, Vice-President Finance and Chief Financial Officer of YVRAS.

             Within a few years, many Latin American countries started to privatize their airport
             operations, and YVRAS and its local partners won a 21-year concession (still in effect)
             from the government of Chile to operate the Santiago airport. A prolonged reces-
             sion in Chile, a weak peso and the aftermath of 9/11 led the airport to the brink of
             default. Luckily, economic conditions improved and the concession secured
             financing to put it on track again. Despite the difficulties, Santiago represented a
             breakthrough in airport concessions and financing and led the way for many more
             deals in the region.
                           Landing the Deal: Vancouver Airport Services


                                                                                                         The Dominican Republic’s Las Americas Airport in
                                                                                                         Santo Domingo, managed by Vancouver Airport Services.
Photo: courtesy of YVRAS




                                                         “The key challenge,” says Weir, “is to get the right local partners and consortium together
                                                         that you think can win the contract. This consortium is usually a blend of airport
                                                         construction, management and operating companies, and financial institutions that can
                                                         raise the vast amount of capital needed to develop and run an airport.”

                                                         With experience in Santiago and Bermuda, YVRAS was approached in 1998 by one
                                                         of the largest companies in Dominican Republic to join a consortium of local
                                                         construction, engineering and investment companies with a mandate to develop
                                                         the Dominican Republic’s airport infrastructure. Together they formed Aeropuertos
                                                         Dominicanos Siglo XXI S.A., better known as Aerodom.

                                                         “The Dominican Republic airport project has been described as one of the best con-
                                                         cessions in the industry, not just because of the size of the project but mainly because
                                                         its traffic is a blend of business, tourist and expatriate travellers, which means the air-
                                                         ports can better tolerate tourist traffic swings and changes in economic conditions,”
                                                         says Weir.

                                                         Before YVRAS takes on a bid or joins a consortium, it does a rigorous analysis of
                                                         potential returns based on assessments of country and economic risks, project
                                                         partners and air traffic patterns, among other factors.

                                                         Financing is pivotal to the success of an airport bid. “Competition has shifted from
                                                         operating-level consortiums taking the lead to financial institutions,” notes Weir.
                                                         Some of YVRAS’ major competitors are now infrastructure funds and financial insti-
                                                         tutions in Europe and abroad, working mainly with various European airports.




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Landing the Deal: Vancouver Airport Services


                                                     By 2003, the Dominican Republic was facing a banking collapse with a 300 per cent
                                                     devaluation of its currency. Four years into the airport project, the bond financing
                                                     and political risk insurance had dried up.

                                                     Give up or go on?
                                                     YVRAS and its Aerodom partners turned to the World Bank’s International Finance
                                                     Corporation (IFC), which had previously provided financing for the YVRAS Jamaica
                                                     project. Luckily, IFC could see beyond the Dominican Republic’s financial difficul-
                                                     ties to the positive commercial aspects of the deal, its strong business partners and
                                                     the rebound in tourism and other air traffic to the Dominican Republic.

                                                     But, the required financing was still high – a USD 100 million non-recourse loan. “I
                                                     suggested that IFC bring Export Development Canada (EDC) into the project. We
                                                     had worked with EDC on other deals where they had provided bonding, and EDC
                                                     had kept on tracking our progress,” says Weir. “EDC is quite creative on how they can
   YVRAS GAINS FOOTHOLD
                                                     help you.”
   IN EU WITH CYPRUS DEAL
 YVRAS, as a member of Hermes Airports               “Since YVRAS landed the Santiago job, EDC has met periodically with them to
 Limited, assumed operations this year of two        discuss their projects and see whether we could help them grow further,” says Blair
 airports in Cyprus, including Larnaca, used as      Wilson, Senior Account Manager at EDC’s Vancouver Office. With the Dominican
 a stopover for Canadian citizens fleeing the con-   Republic deal still in waiting, here was the right juncture.
 flict in Lebanon. This is YVRAS’ first operation
 beyond the Americas: “Managing airports in the      “IFC structured the loan but didn’t want to take on all the risk. There was a need for
 European Union represents a major milestone         a second lender to help underwrite a large piece of the debt,” adds EDC’s Doug Macaulay,
 for the company,”says YVRAS President               Project Finance Director. “We were pleased to have been asked by YVRAS to join the
 George Casey.                                       deal at an early enough stage to contribute to the due diligence and structuring efforts
                                                     alongside IFC.”
 The Hermes consortium had mandated four inter-
                                                     EDC was able to take on a USD 40 million loan after its own assessment of the
 national banks to arrange a Euro 612 million
                                                     project sponsors, country risk, regulatory risks, traffic projections and environmen-
 financing package to make this project possi-
                                                     tal issues. Like IFC, Export Development Canada (EDC) was impressed with the
 ble. When the lead arrangers had to syndicate
                                                     consortium management and the future of the Dominican Republic as both a tourist
 the term loan and equity bridge loan portions
                                                     and commercial destination.
 of the financing, YVRAS recommended EDC as
 one of many possible lenders. “We were one of
                                                     EDC also reviewed the deal’s benefits for Canada. Canadians are the second largest
 15 banks invited to participate (at slightly
                                                     tourist group and second largest investors in the region, from mining to hotel devel-
 under Euro 30 million each) in the financing out
                                                     opment. New and improved airports on the island are the gateway to further tourism
 of about 40 that expressed interest, given the
                                                     and business investment. In addition, the project benefits Canadian revenues
 transaction’s strong fundamentals and structure,”
                                                     and job growth, including Canadian sub-contractors and consultants who YVRAS
 says EDC’s Macaulay. This is EDC’s third airport
                                                     periodically hires to do airport design work, traffic forecasting and related jobs.
 project financing, and it joins a growing port-
 folio of airport assets with a geographic and
                                                     This year, IFC and EDC approved an additional USD 25 million loan to Aerodom,
 traffic-mix diversity that positions EDC to serve
                                                     with EDC providing USD 10 million, to increase the scope of Aerodom’s work and
 future Canadian investors and exporters in
                                                     cover additional supply costs.
 this sector.

              www.yvras.com                          “EDC doesn’t shy away from countries that some other financing institutions won’t
                                                     look at. It has the appetite for risk, and works quickly towards a solution,” says Weir.




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Landing the Deal: Vancouver Airport Services


                                          To date, the Dominican Republic project is progressing well. Of the six airports, the
                                          key destinations of Santo Domingo and Puerto Plata are in operation and are expected
                                          to account for more than 90 per cent of the traffic revenues accruing to Aerodom.
                                          This is also one of the most successful infrastructure projects in the country.

                                          A successful landing
                                          YVRAS has gained invaluable skills in working with different cultures and languages.
                                          The company also puts its own stamp or brand on each of its airports, making sure
                                          they are safe, friendly, clean, efficient and profitable, with a local sense of place. It’s
                                          all part of the YVRAS philosophy of how a great airport should look and operate
                                          to accommodate today’s global airport traffic. ■




              This article is an excerpt from ExportWise Fall 2006 (a publication produced by Export Development Canada)




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