SERVICE OFFERINGS
The Company will serve airports of varying sizes, volumes and throughput, preferring those that handle over 500,000 annual passengers and more than 75,000 metric tons of cargo per year in Latin America and the Caribbean. Key performance indicators also include aircraft movement, type of aircraft, rates and charges, fixed base operator, VIP lounge presence, as well as non-aeronautical businesses such as concessions, fuel, airport hotel, and other factors. Cargo can also be the main activity of the airport, instead of passengers. NewCo understands intimately how to measure these variables and will thus use its expertise to ensure the economic viability of its target projects.
In essence, NewCo can take any given airport in LAC and immediately evaluate the opportunities for air service development growth – may it be aeronautical or non-aeronautical.
Airport Management and Operations
Airport operations encompass all of the processes involved in an airport to ensure that the passenger experience runs as smoothly as possible. This includes airport finance, customer service, gateway operators, maintenance, airport security, border control, airport transfers, food and beverages, retail, and everything within the aviation service. Some airports operate extremely well, and those airports achieve favorable Skytrax reviews. By improving these different facets of operations, NewCo is able to bring substantial earnings to the region, making it synonymous with world-class service, efficiency, and experience.
One strategy is to invest capital in each airport for a significant equity stake, with dividends realized from profits and an eventual sale or merger. Capital can be used to improve operations, such as renovating or adding a new terminal, key hires, improving concessions, purchasing equipment, making infrastructure upgrades to develop a more efficient throughput for passengers and cargo, and more. The founders have in-depth knowledge of operating constraints and understand what is required to improve customer experience, enhance customer satisfaction, and ultimately increase the airport’s bottom line. NewCo’s investment structure are as follows:
Options for the Structure of Investment Vehicle, Once Opportunities Materialize
Option A: JV between NewCo + Investors
- Creation of a vehicle through a Joint Venture between NewCo and an investment fund / pool of investors
- Fund or pool of investors contribute the capital required for the opportunity, NewCo provides management on behalf of JV, and can also contribute a percentage of the capital
Option B: Approach Investment Fund
- Investment fund specialized in airport assets; NewCo Airport Fund 1 is created
- Manager of the NewCo fund, in charge of raising investment (private or institutional)
- NewCo is a partner of the Manager
- Airport partner can maintain orientation as an operator who is paid through a management contract with
- Under a 51/49 partnership, each party has a weighted say in the operation and management of the business. into an agreement can dissolve the partnership at any time
- Parties that enter into this partnership can contribute to the business in different ways
Management Contracts
The Company provides support to airport owners through short- and long-term contract airport management expertise and operational compliance activities. The main goal is to have operational control of any area that needs service quality or financial performance improvements. Management contracts may include commercial development, hiring and building teams (provision of airport CEO, Commercial Officer, COO, CFO, etc.), managing finances, marketing, or any other aspects related to revenue generation.
Partnership Deals
NewCo may form strategic partnerships with other business entities to share resources and services in order to help airports achieve success. Among many possible collaborations, the Company may partner with a construction company that will execute the building and infrastructure work of the airport – which will be subsequently operated and maintained by NewCo, as part of a deal. Partnerships allow NewCo to outsource its non-core competencies with the expectation that the strategic partner will deliver the needed expertise.
Thought Leadership
NewCo prides itself as an industry leader, taking airports and aviation to the next level of service, improving revenues for airports, and providing world-class infrastructure that serves as economic drivers in Latin America and Caribbean.
Advantages of Investing in Airports
The figure below highlights why airports serve as an ideal target market.
Essential Infrastructure
- High barriers to entry and bargaining power
- Stable regulatory frameworks
Robust Air Traffic Growth
- Historical growth above macroeconomic performance
- Good post-COVID traffic recovery and high prospects for the coming years
Diversified Income Generation
- Aeronautical (regulated) in general linked to inflation
- Commercial and real estate with margin to continue gaining relevance
Cost Reduction Opportunity
- Assets subject to economies of scale
- High EBITDA margin ranges
Expected ROI
- Predictable and stable cash flows that allow consistent returns
- Capital appreciation
Case Study Example
A government aims to expand the operation of one of its airports in a major city. This PPP project involves substantial construction, including building a new domestic and international terminal and rehabilitating the runway while the existing airport is still in operation. The proposal is to design, build, and operate the entire airport for 25 years under a long-term concession. The capital expenditure for the project is valued at $50 million, where 30% comes from the Company (bank lending) and 70% from equity partners based in Latin America and the Caribbean.
Once NewCo wins the contract, the Company engages in construction. Upon completion, it may take NewCo about 10 years or shorter (variable) to pay back the capital expenditure of $50 million, per the profits that it expects from the airport. NewCo has a very clear financial projection of how much airport revenue it takes – 50% of aeronautical revenue and 100% of nonaeronautical revenue. The income includes regulated revenues, such as airport-related taxes, as well as non-regulated income from airport operations.
NewCo manages the airport both from the operational, air service development, and commercial points of view, utilizing excellence across the board and a diverse set of capabilities. Due to these improvements implemented by NewCo, the airport is growing as more passengers are transported and new airlines are added. This allows NewCo to start making significant payments on its bank loan. Dividends are paid to shareholders once airport CapEx requirements are covered and Opex are paid, including debt service.
BUSINESS MODEL
NewCo’s revenue model is contingent on several factors. Depending on the terms of the partnership and the needs of the airport, the Company can either manage components of, or the whole airport. This can be straight management contracts (i.e. NewCo operating all concessions for an airport for 5 years), or an investment/equity play basis (i.e. NewCo invests $10 million for a significant equity stake in the business over set terms).
Goals are as follows:
- Target minimum EBITDA margin on any project will be 25% to 50%
- Latin American and Caribbean IRR / TIR anticipated of 15 to 40%
- North American IRR / TIR anticipated of 10 to 15%
NewCo’s operational expenses will allow it to keep overhead costs very low compared to the large international players who play in their own space. The Company’s pricing strategy is as follows:
Equity Investment / Revenue or Profit Share
Pricing: 49% / Variable
Fee-for-Service
Pricing: Variable
VALUE PROPOSITION
NewCo offers a multifold value proposition, as highlighted below.
Expert Management Team
Andrew O'Brian and Carlos Criado boast decades of experience in the aviation sector. The executives' combined expertise, knowledge, passion, and drive will help them uncover new, lucrative opportunities in the coming years. The founders' quest for constant innovation and customer satisfaction is never ending, and their successful track record proves this.
Top Tier, Comprehensive Services
The ultimate one-stop solution for all airport operations and management needs, NewCo offers all-encompassing services with the goal of improving airport revenue performance in LAC. The Company is dedicated to addressing all clients' needs, and ensuring that all possible opportunities for growth are uncovered. NewCo will work diligently to turn distressed and reactive airports into world-class, proactive, 5-star Skytrax quality hubs.
Ideal Market Opportunity
NewCo is launching at a time where airports in LAC are in need of private investments, as they struggle from the dearth of capital and the effects of the COVID-19 pandemic. Furthermore, many airports are currently underserved by large international operators. As more governments continue to seek publicprivate partnerships for air transport infrastructure, the Company is positioned for significant growth both in the short- and long-term.