Concern over usage cost of privatized airports

By Alexandra Kassimi

The ongoing privatization process concerning Greece’s regional airports carries the inherent risk of leaving the country with dozens of expensive small terminals.

The government’s plan to abolish the existing airport tax and replace it with a new levy whose level is yet to be determined initially appeared satisfactory to the air industry, whose officials thought that would have spelt the end of the infamous charge. However as things are shaping up, and as long as the actual level of the new levy remains up in the air, concerns are on the rise.

Notably, the companies participating in the regional airports’ sell-off procedure are keen to find out the rate of the levy so they can draft their sustainability reports.

The privatization timetable foresees the binding bids for regional airports being submitted by the end of June, although no one can rule out a tender extension.

The law foresees the new levy apply both to Athens International Airport (AIA) and the privatized terminals, whose cost of use will likely increase considerably. At the same time foreign air companies active in Greece stress that the lack of clarity in the privatized airports’ terms of operation could generate considerable problems.

Concerns over the level of the new charge stem from the expenditure it will have to cover: According to the law concerning the sell-off of regional airports, the new levy will need to fund the operational costs of the airports that will remain in state hands, otherwise they will have to shut down.

Still, it remains unclear how many of the country’s airports will be privatized, meaning that the calculations to work out the extent of the new charge cannot be made. Of the country’s 37 airports, estimates suggest that between 13 and 22 could pass into private hands. For the same reason, it is also unknown how many terminals will continue to require state funding or how much money the new tax will bring in. In addition, the new charge will also have to cover the funding of so-called unpopular routes to remote parts of the country that are subsidized by the state.

The law provides for the level of charges to be monitored in a bid to avoid a repetition of the phenomenon seen at AIA, which has particularly high usage costs. It also puts a limit on the profit margin from air revenues that contractors would not able to exceed. Both provisions have predictably met with strong reactions from prospective investors.

Developments are also expected in AIA’s privatization process. Sources say that the interested investors will submit their offers in early 2015. In the meantime state sell-off fund TAIPED is expected to ask Canadian fund PSP Investments, which holds a 26.7 percent stake in AIA and its management, to inform Athens whether it intends to increase its holding.

According to sources, candidate investors will reserve the option of signing a contract based on the current one that expires in 2026, which will also include an extension option, as the state requires. The period up to 2026 is considered too short for a company to make any substantial investments, therefore there is a strong likelihood that the AIA investment will come with the extension of the current contract.