French airport operator Group ADP is determined to invest in the region, leveraging on the long history of its design engineering arm
After a few false starts, French airport operator Groupe ADP is redoubling its efforts to invest in the dynamic Asia Pacific aviation sector.
The chief executive of the Paris-based group’s international arm, Antonin Beurrier, outlined the group’s ambitions on a visit to Hong Kong last week.
“As a strategic airport player, we have to be successful in this part of the world”, he told reporters at a briefing on Friday (9 March).
Also present was ADP International Asia Pacific managing director, Julien Coffinier. He tells Inframation the company began dedicating more resources to the region last year. This includes his relocation to Hong Kong six months ago. On the design engineering side, a team of ten is being increased as resources are transferred from Paris and Dubai.
ADP is betting on double digit passenger growth at airports across the region as an emerging middle class takes to the skies, and especially in India and Vietnam. Beyond that, the company is also interested in owning airports in China, Japan, Indonesia and the Philippines.
But chasing that growth has not proven easy. The company had ambitions to own a shareholding in the state-run Airports Corporation of Vietnam (ACV), but differing valuations of the stake led to negotiations ending last year.
The company’s focus has since shifted to Japan, where the central government is offering concessions for several state-run airports.
The Asian expansion strategy continues to unfold as the French government presses ahead with selling down its 51% stake in the EUR 18bn company. The sale has gained momentum since Emmanuel Macron’s victory in the presidential elections last year, and there is talk of minority shareholder Vinci Airportsincreasing its shareholding.
Coffinier says Asia has always been in Groupe ADP’s sights, but “at the same time, there have not been many opportunities in the past to invest”.
The group has, however, maintained a presence in the region through its design and engineering arm, ADP Ingénierie, which has notched up a decades-long list of achievements.
Coffinier points to activities in China, including terminal one at Shanghai Pudong International Airport in the 1990s, as well as its present engagement to improve airside efficiency at Beijing’s existing airport and a design review for a new airport in Chengdu.
Elsewhere, ADP Ingénierie is currently engaged on work in Bangkok, Gimhae (Korea), Ho Chi Minh City, Kathmandu, Taipei and Yogyakarta.
Globally, ADP International manages 26 airports serving 228 million passengers.
While Coffinier says investment in Chinese airports is a “longer term” goal, he explains that “we need to be prepared and identify partners [now].”
In India, “it’s more O&M than equity investment opportunities [at present]”, he says, adding that the country’s regulatory framework is “inspired by the economic regulatory framework you can find in Europe…which is rare in Asia.”
At the same time, there is pending litigation with regards to the interpretation of the regulations as they apply to airports. “The market expects clarification within the coming months,” he says.
In Indonesia, Coffinier points to Medan airport in Sumatra along with Lombok as well as the market sounding underway for Batam Airport as having potential for investment. “There is the pipeline [but] not a formal process yet”.
While foreign investors are prevented from owning more than a 49% stake in airports in Indonesia, he says it would still be of interest, as “with 49% you can have voice and balanced governance”.
ADP International last week revealed it was seeking to partner with a Japanese trading house to bid for a bundle of airports in the northern island of Hokkaido, and has set up an office in Tokyo to work on the tender.
“In Paris, we have been very successful over the years to establish in-depth relationships with tour operators – with people bringing inbound traffic from China, Korea, Japan. It’s a network built over years, we can leverage this and orient to places like Hokkaido,” says Beurrier.
“In Japan, we need to find the right chemistry between the large international trading houses, real estate developers, tourism – a local component for Hokkaido – all this chemistry we’re trying to put together,” he says.
At the same time, it is still considering joining the Hokkaido Airport Terminal Co (HKK) consortium, which includes the Development Bank of Japan, Mitsubishi Estate and railway operator Tokyu Corp.
“In this consortium there are 16-plus companies,” says Beurrier. “Everybody takes a 2 or 3% stake. We said, look, we need to find ways for us to develop the portfolio and for development opportunities,” he adds.
ADP previously considered participating in Japan’s first large airport privatization, Kansai Airports – which reached financial close in March 2016, before deciding not to bid. It had been tied up with other priorities at the time, Coffinier explains.
Alongside Japan, a spate of unsolicited proposals for airports in the Philippines may translate into investment opportunities in the near term.
“We don’t know yet how the authorities will make a decision,” [on the proposals], Coffinier says. The government is weighing whether or not to award original proponent status to consortia which have submitted a variety of proposals to upgrade and operate large and small airports in the country, including a bundle of regional airports which ADP prequalified to bid for in 2015. That tender was subsequently cancelled by the government.
Under Philippine law, if the government provides original proponent status to a party making an unsolicited proposal, it may then proceed to negotiate the terms of the concession agreement.
Many features – including the concession period – can be adjusted in order to meet the needs of both the public and private sectors. The final agreed concession agreement would then be subject to a Swiss Challenge, in which the original proponent has the right to match the challenger’s bid.
“Maybe we would look at” a Swiss Challenge, Coffinier says.
Philippine conglomerate Aboitiz revived the regional airports plan that has been on hold, when it submitted an unsolicited proposal to the Department of Transportation earlier this month.
The PHP 148bn (USD 2.85bn) unsolicited proposal is to upgrade, expand, operate, and maintain four of the five airports in the original regional airports bundle, over a 35-year concession period.
But the fact that seven Filipino conglomerates are in a consortium that submitted a proposal to expand and operate the country’s busiest airport, Ninoy Aquino International Airport (NAIA), on 13 February, complicates the situation.
“We had a very good relationship with Metro Pacific with which we prepared the five regional airport privatization, but given there is no more process and given that Metro Pacific joined [the NAIA Superconsortium], for the moment it’s quite difficult to have detailed discussion about specific opportunities. But we are having regular meetings with all the usual suspects,” Coffinier says.
The trouble with ACV
Majority-owned by the French government but slated for privatization, ADP has experienced being squeezed between majority and minority stakeholders.
In March 2016, ADP said it had been invited to negotiate exclusively with the Vietnamese authorities to acquire a 20% stake in Airports Corporation of Vietnam (ACV), the monopoly operator of airports.
“We have been very patient and resilient in our engagement with the Vietnamese government on the privatization programme of Airports Corporation of Vietnam,” says Beurrier. “However, the way it is being run by the government of Vietnam – with a partial privatization of 3% of the capital on the local market, which gave some valuations which were more casino valuation than airport valuation” has meant that negotiations have now ended.
While there was a deadline set – of 31 March 2017 – to conclude negotiations, Beurrier says “deadlines are not black or white – especially in Vietnam, with so many stakeholders”.
Beurrier blamed leaks in the press about ADP’s intentions to invest for contributing to a lofty valuation. Since listing the ACV’s share price has tripled. “We could not justify paying three or four times the intrinsic value, it was simply not possible,” he says.
He explains that the process had begun with master planning for the planned Long Thanh International Airport. “It was something very rational – [the government said it would] open a state-owned operation to international strategic investors. Then [it said], ‘why don’t we privatise 3% [first]”.
“It was an impasse or dead end,” he says of the company’s decision to pull out of the process.
The company is not giving up on Vietnam, however. “Somehow something will happen – we don’t know what,” says Beurrier. The country’s private sector enterprises are impatient for airports to be developed at a faster pace than ACV is doing.
Outside Indonesia and the Philippines, however, Coffinier says the company’s main opportunities in Southeast Asia will be in consulting and engineering to airports rather than investing in and operating them.