Spanish airports operator, Aena, is not prepared to enter into negotiations over the core duty free and travel retail concessions held by World Duty Free Group in Spain – concessions whose ratcheting financial terms (see bottom table) are expected to hit the retailer’s profitability in coming years.

 

Aena – which has started its long-awaited privatisation process with a 21% stake going to core shareholders – has been firm in its rejection of the offer from WDFG to renegotiate rental contracts, particularly at Madrid airport where there has been a traffic collapse in recent years.

 

“Aena has declined to enter in a negotiation,” the company says in a statement. “The contract was awarded less than two years ago in a transparent public tender process. WDFG put in a better offer than its competitors. We do not see any reason to renegotiate the contract.”

 

‘PROJECTIONS WERE MERELY INDICATIVE’

Furthermore the airport authority has dismissed WDFG’s key gripe over Madrid Airport which is particularly contentious because, as part of the Lot 1 group of airports [there were three lots and seven bidders in the 2012 bidding process], it has been hit by huge traffic falls.

 

Spain’s top gateway lost about 10m passengers in 2012 and 2013 and is only recovering this year. Annual traffic of 39.7m passengers in 2013 was well below the 49.7m seen in 2011 and nowhere near the 52.1m peak in 2007 – before the global financial crisis.

 

Rents, says WDFG, were based on long-term Spanish traffic forecasts issued by Aena at the time of the tender in 2012 which have subsequently proved to be overly positive (see chart below). WDFG says that it was “expecting growth from 2013 onwards … but growth did not start until November 2013”, almost a year later.

 

Responding to questions from TRBusiness today about Aena’s traffic forecasts being too bullish, José Manuel Fernández Bosch (left), Director of Commercial Services and Property Management, comments: “It was very clear in the tender documents and in the contract that the projections were merely indicative and not-binding and that the bidders must prepare their own projections to put an offer at their own venture. All the bidders played the same cards and, from what I know, many of them, including WDFG, hired external support to prepare alternative projections.”

 

WDFG does not see it this way, and it was cautious not to confirm or deny that any escalation to the courts would be a next step if Aena continues to block a renegotiation.

 

 

PROTECTING THE PRIVATISATION PROCESS

However escalation seems a possibility given that Aena is unlikely to enter into any negotiation if it might be seen to undermine its privatisation process.

 

This is especially true if there is any element of ‘giving back’ funds that are essentially already pipelined to Aena and which have already been built into the company’s valuation. WDFG is contractually committed to paying Aena at least €1,989.2m ($2,534m) between 2014 and 2020 in minimum annual guarantees (see table right).

 

It is possible that WDFG could bring a case against Aena – at a sensitive time for the airport operator – in order to influence a better deal. However the company denies that this is a strategy. “We are not being opportunistic,” WDFG says. “We have had to be transparent with our investors and make it crystal clear to them how our profitability will be impacted in an appropriate time frame.”