EU Commission approves Greek airports deal – “It did not involve state aid,was transparent and in line with market conditions”

New Europe — The European Commission has approved the finalisation of transfer for 14 Greek airports to Fraport AG, a German-led consortium.

It’s now up to Greece to finalise the deal, a key element of the country’s bailout program, says the Commission. The €1.23 billion agreement can go ahead as it did not involve state aid, was transparent and in line with market conditions.

In particular, the agreement gets a green light as they result from a competitive, transparent and non-discriminatory tender,” according to the EU executive arm. Along with these terms, the Commission found that Greece selected the best offer submitted in this tender, as “the concessions were awarded to the company whose offer would generate the highest revenues for the Greek State.”

In a statement Friday, the Commission said Greek authorities now have to complete the transfer and delivery of the airports on a 40-year concession to Fraport AG and its Greek partner, Copelouzos Group, specialising in strategic economic growth areas and specific industrial sectors. The deal was initially due to come into effect last year.

The 14 airports are at Thessaloniki – Greece’s second largest city and Macedonia airport, while almost all the rest are in Greek islands – Mykonos, Santorini, Rhodes, Corfu, Zakynthos, Kefalonia, Kos, Lesbos, Skiathos, Samos, Chania – with another two, Kavala and Aktio completing the list.

The Fraport business plan:

Fraport estimates 22 million passengers pa

The payment to the Greek state on gross earnings [ before interest, taxes, depreciation, and amortization] is inflation linked  – full payments of 28.5% to start in 2019.

Capital expenditure – 330 million ( but 310 million of public money recently invested at two airports,  Chania and Thessaloniki where the upgrade work continues ) – Capital expenditure for expansion depending on traffic growth. Growth assumption not disclosed in the deal. [perhaps an oversight  on the part of the Greek government?] Fraport “assumes moderate growth at around 2%pa”

Dual Till

“IATA strongly supports the single till principle under which airport commercial revenues are taken into account to offset the charges cost base. The single till is justified because there is an interdependency between the passengers airlines transport to airports and the non-aeronautical revenues (e.g. retail,car parks) they generate for airports.

As dual till may result in higher aeronautical charges and may not only negatively impact  the development of air traffic, but additionally create the need for difficult and detailed cost and asset allocation between aeronautical and commercial tills”.

According to IATA, single till reflects the pricing mechanism airports would apply if they were under real competition: it is therefore the fairest mechanism of charging.

Dual till focuses only on the regulated business to avoid distorting the commercial, non-aeronautical airport service provisions.

“A dual till approach to charging is possible only because airports do not operate in a competitive environment. Economic regulation should strive for a single till approach that will  enable lower charges, generating lower fares and increased traffic volumes, while delivering appropriate returns across the whole airport business”.

According HRADF, consultants  for the airports tender   were : “Citigroup Global Markets Limited and Eurobank EFG Equities Investment Firm S.A. as financial advisors, Your Legal Partners and  Drakopoulous & Vasalakis Law firm as legal advisors and Lufthansa Consulting, (Lufthansa AG holds  8.45%  of Fraport shares) Doksiadis Associates and Alanna Consulting Group, as technical advisors to assist with the privatisation” and more importantly, formulate a strategy to ensure the long-term, sustainable development of the country’s regional airports. 

Ryanair chief executive officer Michael O’Leary said about the deal : “If the government just wanted to pass the airports on to the highest bidder, it did the right thing, but if it wanted to increase passenger traffic at those airports, it should have obtained a pledge from the preferred bidder saying as much.

“The fact that the contractor is not obliged to produce any growth in traffic“, O’Leary said, “creates the risk that regional airport charges will soar, which will most likely lead to a reduction to air arrivals”.

Airport fees  are going to be charged from the time Fraport will take the management of the airports.