COVID-HQ: Impact on Brazilian Airports

André Soutelino

Sao Paulo

March 20, 2020

Guarulhos International Airport Sao Paulo Brazil Terminal 1 Wing A


The COVID-19 crisis represents a “house cleaning” in aviation markets. With this pandemic, the aviation landscape will change with mergers, bailouts and new entrants on airport and airline markets. On the other hand, it is a time to take a short reflection about pandemics and aviation. As highlighted in this graphic from the Visual Capitalist, we have a real and recent history of significant pandemic events over the past 20 years. Since 2002, pandemics have been buffeting the aviation sector roughly every five years and this average is compressing to a three-year cycle since 2010. The world is feverishly responding to current COVID-19 outbreak, but the burning question is: when will the next pandemic come?  In 2023, 2030 … 18 months from now, who knows?  Unfortunately, pandemic is a reality that will impact the entire tourism activity chain (including aviation) in an incredibly short period of time.  Even with pandemics, the aviation industry reacts and the traffic recovered as seen in this info graphic visual Visual Capitalist.

At the first glance, the ICAO graphic below shows that economic/financial crises can affect the aviation sector more profoundly than pandemics. At time, pandemics are used as an excuse to “clean the house” in aviation and other economic sectors.On the other hand, privatized airports can see long-term impacts with the constant pandemic events. It means that granting contract needs to be improved to protect airport investors from pandemics and other unforeseen “natural” disasters. If the demand falls because a pandemic, volcano eruption, etc. the contract should protect investors with a “stop loss” and/or “stop investments” clause. In Brazil, the COVID-19 pandemic could prove to be quite harmful for GRU and GIG because the airlines which operate in Brazil represent roughly 70% of capacity/demand. Also, these airports serve as the main Brazilian gateways for international flights. The concessionaires are paying annual concession fee that represents more than 50% from airport revenue.  For instance, GRU took a loan from BRL249m (USD49.8m) to pay the annual concession fee. Due to the large drop in demand on international flights, and even domestic ones, the COVID-19 pandemic is likely to “clean house” in Brazilian airport privatization market, as well. Notoriously, the first three rounds are littered with struggling or failing concessions, due to aggressive (arguably irrational) bidding in the heady pre-Lavo-Jato era. The government has since enacted a law to permit concessionaires to hand the concession back to the government and received reimbursement the investments make at the airport. Despite its best intentions, the government’s efforts to protect/salvage the system may be in vain, as many of the Brazilian airports concessions were already a ticking time bomb … COVID has simply sped up the timer. With five rounds completed, the Brazil concession granting process has matured and evolved, although the regulator could be more flexible on investments structuring. Investments based on triggers is one such area for potential improvement, to attract more players and increase competitive interest/participation. On the other hand, the COVID-19 crisis will most certainly have a bearing on the sixth (and possibly seventh) rounds, as foreign investors leverage high Euro/Dollar rates. At the moment, one U.S. dollar gets us five BRL (Euro 5.59 BRL). So, these airports could be a bargain. At last, the COVID-19 pandemic is an opportunity for the regulator to improve the concession contract. It is time for the regulator to think “out of the box” not “by the book”!