Volume 6, Number 1, Page 6

The Opening of the Mexican Airport System to Private and Foreign Investment

by Eugenia González Rivas

Over the past four years, the legal framework of airport operation in Mexico has undergone substantial changes, allowing for the participation of private and foreign capital. The purpose of this article is to explain the process through which such investment will take place.

The Airport Law was published on December 22, 1995. According to the law, concessions may be granted for the administration, operation and construction of airports. Such concessions may last up to 50 years, and will be renewable for up to 50 additional years. Foreign investors may hold up to 49 percent of the capital of companies to which such concessions are granted (although the Foreign Investment Commission may authorize a higher percentage).

The Commission for the Granting of Concessions and Permits Contemplated in the Airport Law was created in 1996. This Commission is in charge of granting permits and concessions for the operation, administration and construction of airports.To this date 35 airports have been considered for the participation of private capital and divided into four groups:

1. The Mexico City airport is considered as one group;

2. The North-Central Group, formed by 13 airports, including Monterrey and Acapulco;

3. The Pacific Group, formed by 12 airports;

4. The Southeast Group, formed by 9 airports, including Cancun.

There are 23 more airports located within Mexico, which will continue to be operated by Aeropuertos y Servicios Auxiliares, a government-owned entity.

The Federal Government will create four “Airport-Controlling Companies”, one for each group of airports: the Government will be the main stockholder of these entities, which in turn will own the shares of The “Concession Companies.” For each airport, a “Company” will be created, in which the main stockholder will be the Federal Government. The concession for operation of the airport will be granted to this Concession Company.

For each group of airports, a “Strategic Partner of the Controlling Company will be selected. The Strategic partner is the company which provides the know-how for the operation of airports. It must be a Mexican company whose shareholders have substantial experience in the field of airport operation, administration and, where possible, construction.

Each Strategic Partner will be selected through a public bid, the rules of which must first be published in the Federal Official Gazzette. Prospective Strategic Partners must register and obtain authorization to participate in the bid, showing proof of their technical financial capability. They must also fulfill all requirements specified in the rules of the bid. Several companies may participate jointly in the bid, forming a group which will be considered as a single bidder throughout the progress. The winner of one bid will not be permitted to participate in the bids for other groups of airports.

The Strategic Partner must purchase 10 percent of the shares of the Controlling Company and may acquire up to 5 percent more of such shares. It will have the option to acquire shares representing an additional 5 percent of the corporate capital, which may be exercised five years after the purchase of the first package of shares. The Strategic Partner may not hold more than 15 percent of the corporate capital. In other words, if the option to purchase an additional 5 percent is exercised, such shares must then be sold immediately. This partner will only have voting rights for up to 10 percent of the corporate capital. The Strategic Partner will also participate in the operation and administration of the Controlling Company.

Once the Mexican Department of Transportation considers that the controlling companies have sufficient experience, and that the market conditions are adequate, several consecutive sales of shares of these companies will take place, reducing the participation of the Government in the corporate capital of these entities. It is intended that such shares will be sold to the public by means of the stock exchange.

The first public bid, corresponding to the Southeast group of airports took place in 1998 and the winner, a group formed by French, Danish and Mexican investors, has already been announced. It is expected that the next bid, taking place in 1999 will be for a group including important airports such as Guadalajara, Puerto Vallarta and San Jose del Cabo.

Eugenia González Rivas is an attorney with GOODRICH, RIQUELME Y ASOCIADOS in Mexico City.