Fly in the face of danger

The damage Maria, a Category 5 hurricane, inflicted on San Juan Airport became apparent as the storm slackened. Several roofs had been stripped, peeled away by the gales like sardine can lids. The long-range radar system was also gone and remained inaccessible while repair workers armed with chainsaws continued to toil their way through miles of fallen trees to reach the dishes on a nearby mountaintop.

Hurricane Maria devastated many other part of Puerto Rico. Across the island, countless residents were made homeless, with damage to infrastructure calculated in the billions of dollars. Many would also be deprived of electricity and running water for months after the storm eventually petered out on the North Carolina coast. San Juan Airport, however, would be up and running within 24 hours of the storm’s departure from Puerto Rico. It’s an achievement that Holger Linkweiler, managing director of AviAlliance, shareholder in the airport operator Aerostar, assigns to the skill of local management.

“They managed this extremely well, and had the airport back in operation after just one day,” Linkweiler says. “In the meantime, the repair work on the damages caused by the hurricane has already been partially completed. We have now implemented new construction standards to ensure that no damage is to be expected from future hurricanes. That means, for example, that the roof will withstand hurricanes of this magnitude in the future, and at the same time, it is also better in terms of energy saving.”

There will also be a new suite of generators at the airport, to make sure that its electricity supply is not interrupted when the next hurricane hits Puerto Rico. Hotels and other local infrastructure, such as roads and connections to the island’s electrical grid, also had to be repaired. In short, the storm necessitates a profound – if temporary – shift in priorities for the shareholders at San Juan Airport.

“We, together with our co-shareholder ASUR and the management of the airport, had to change our business plan from post-acquisition action improvement project to, first of all, having the airport in place for rescue and support flights in and out of the US,” says Linkweiler. “At the same time, we are now in the process of executing our post-acquisition projects.” The intention, in other words, is not only that San Juan Airport survives as Puerto Rico’s main transportation link to the rest of the world, but thrives.

“We have defined optimisation projects, be it on the commercial side or the airline marketing side, in order to boost the performance, profitability and value of the airport,” says Linkweiler. “These are now in execution.”

Links in a chain

San Juan Airport is, of course, one airport in a whole chain operated by AviAlliance. The acquisition of the BOOT concession for Athens International Airport by its former parent company, Hochtief, and its partners in 1996 marked the birth of the company, which was founded a year later as Hochtief Airport. Athens International Airport was the world’s first privately financed airport project on the basis of a BOOT concession. From there, this new German airport operator invested in the airports of Budapest, Düsseldorf, Hamburg, Sydney – in partnership with Australian company Macquarie – and Tirana Airport, in Albania. “In Düsseldorf, the terminal building burnt down and the public side of the airport wanted to involve public-private money to realise a new terminal,” explains Schroeder. Hochtief Airport acquired a 50% share in partnership with Irish operator Aer Rianta.

These acquisitions would continue, after a short pause, when Hochtief Airport was sold to the Public Sector Pension Investment Board (PSP Investments) in 2013. As one of Canada’s largest pension investment managers, PSP Investments has a longterm orientation. Where the challenge came for Linkweiler and Schroeder, however, lay in identifying the long-term prospects that its parent’s stakeholders were interested in pursuing.

Hochtief Airport – since renamed AviAlliance – was free to think bigger. In May 2017, the company acquired a 40% stake in Aerostar Airport Holdings, the company operating San Juan Airport. “Private funds have been made available to invest and to execute capital expenditure,” explains Linkweiler. “The airport infrastructure has improved a lot, and that has been, by the way, confirmed by the main carriers on the ground at the Global Airport Development Conference in Denver this year. They underlined that the airport was changed totally from one with ugly infrastructure to one they would be keen to operate from.”

The considerations behind the investment were straightforward, and followed the same set of rules that prompted AviAlliance’s acquisitions in Europe. “We believe in a diversified passenger base,” explains Schroeder. “There must be a good mix of holiday and business traffic, so that the reliability of the airport is not just based on the performance of one of these groups.”

This means that a site like Budapest Airport, for example, is ideal: not only does it benefit from proximity to one of the region’s fastest-growing tourist markets, but also act as a crucial distribution point for goods traded between Europe and Asia.

Runways to nowhere

Vanity projects, by contrast, are anathema. “We would not look into a hub in a desert, artificially created,” says Linkweiler. “If the primary airline goes bust, or decides to move into another place, the airport is sitting somewhere without any purpose.”

Political and legal stability is also essential, and being located in a US territory, San Juan Airport offers this in abundance. “The contractual and regulatory framework also needs to be clear and reliable in the long term,” says Schroeder.

Finally, AviAlliance prefers a challenge. “We try to focus on airports in which we are beyond just being a financial investor,” explains Linkweiler. “We want to be helpful in improving the airport’s destination and airline mix, and expedite its expansion. We can bring in international ideas and transfer them into a local reality together with a local management. They run the airport day-to-day; we are supportive in specifically defined projects or in the strategic direction of the site.”

AviAlliance has ample experience of doing so, in Athens Airport. “In Greece, GDP went down by 26% during the financial crisis,” says Schroeder. Airport traffic, meanwhile, shot up by 72%. Suddenly, Greece’s airports became an engine of the country’s economic recovery and that of the wider region.

The nature of the business

Linkweiler is confident that the same can happen for Puerto Rico, through smart and prudent investment in the future of San Juan Airport. The devastation wrought by Hurricane Maria has done little to alter that calculation. “Natural disasters are a problem, this is clear,” Linkweiler concedes. “But you cannot avoid them if you want to invest in these regions. For example, Japan is a region of interest, and natural disaters are there as well: tsunamis, typhoons and earthquakes. You need to find answers to this problem; construction-wise, there are lots of ways to be better prepared. We’re trying, to improve airports in a way that they can better withstand these disasters.”

Now that San Juan Airport is better prepared for the oncoming storm, whenever it will make landfall, its prospects have become all the more clearer for AviAlliance. Linkweiler is confident that, in the next few years, this two-runway airport has the potential to transform the fortunes of the island. There are already promising signs of this in the number of arrivals: after months of declining traffic, September saw over half a million passengers pass through the airport’s terminals. For 2018, passenger numbers are expected to be slightly below the level of the previous year.

“This is a US airport with a stable legal and contractual environment, and excellent management on the ground,” says Linkweiler, with confidence. In other words, it’s a valuable – and irreplaceable – asset for AviAlliance.