Just one month after announcing a real estate
venture in Argentina, J. P. Morgan has its first
client: TASA Logística-Transfármaco.
BISA -The Bemberg Group’s holding company-
owns 51% of its share capital The Ader family
owns the remaining 49%. The swiftness of the negotiations
is not accidental: The Aders are the link between
both companies. 15% of the share capital of Plaza
Logística (Plaza Logistics) -project carried
out by Morgan together with O’Connor through
their investment fund Argo- is owned by DASA,
whose president is Santiago Ader. The aim of the
project is to build 84 thousand square meters
of warehouses using state-of-the-art technology
in a 14-hectare plot of land, behind the Ford
Motors plant in Pacheco. The estimated investment
amounts to 30 million dollars. TASA has earmarked
20 thousand of the 84 thousand square meters.
Jorge Ader hopes that Plaza Logística will
not house in the remaining land a rival company
that competes against TASA, the company he presides.
He says that a refrigeration operation is a likely
project. But people at Morgan are seeking to do
profitable business and they do not care about
any exclusive rights promises. “We are negotiating
with several multinational companies, not only
massive consumer products companies, but also
logistics companies,” explains Francisco
Bosch, vice president of J. P. Morgan and manager
of the Latin American operation of real estate
funds. The construction works of the warehouse
for TASA will start in December and will most
likely end eight months later. At the moment,
we are working on the preliminary project and
we are giving the finishing touches to the specifications
of the buildings. The people at Morgan pointed
out that the exact amount TASA will have to pay
to make use of the facilities will be determined
once the construction details are perfectly defined,
since a percentage of the building cost is charged.
If they were to pay between 6 and 8 pesos per
meter, the annual cost would be around 1,5 million
pesos a year. Part of the company’s strategy
consists in renting the facilities instead of
purchasing them. TASA does not invest in fixed
assets. At present, we rent 350 thousand square
meters of facilities and manage a fleet of 800
trucks which we do not own. “Our business
consists in providing the management tools to
operate,” explains Marcelo Orfila, CEO of
TASA-Transfármaco. Know-how application
begins when the infrastructure work begins. Orfila
believes that, in addition to the technical aspects,
the commercial needs of each client should be
taken into account. Otherwise, the project may
not be feasible. Refinerías de Maiz, Molinos,
Quilmes, Carrefour, Wal Mart and Barugel Azulay
are some of TASA’s clients. TASA also manages
a 3,500 square meter warehouse at a Ford Motors
car manufacturing plant. In a 230 million business,
TASA’s share is 75 million. The current
crisis does not seem to worry the key participants
of the alliance. Ader points out that, during
lean times, companies concentrate on their core
business and ignore the rest. And they look at
other countries where outsourcing of logistics
reaches 70%. In Argentina, outsourcing of logistics
reaches only 15%. Logistics is a 2 billion peso
business in Argentina -according to Marcelo
Orfila’s estimations- and, therefore,
the potential to grow is huge.
Daily newspaper La Nación. Published in
the print edition: Foreign Trade.
Tuesday, March 23rd, 1999.
Synergy that penetrates markets
Tasa-Transfármaco
seduces its customers with customized services.
Tasa-Transfármaco’s corporate profits
rose from US$ 8,7 million in 1994 to US$ 75
million in 1998, reaching leading positions
in the Integral Logistics Services.
The consortium was created in 1994, after BISA
-The Bemberg Group’s holding company-
acquired 51% of the share capital of Tasa Logística,
which specializes in customized supply and distribution
services for supermarkets, food producers, toy
manufacturers, consumer electronics companies
and glass manufacturers, among others. BISA
is also the majority shareholder of Transfármaco,
which provides logistics services for the pharmaceutical
industry and related products. For this reason,
it was decided to integrate both companies.
“There is synergy between the main services
of the group’s companies, although the
legal and commercial identity of each company
has been kept because they aim at different
niche markets,” explained Marcelo Orfila,
CEO of Tasa-Transfármaco, to La Nacion.
The consortium provides integral logistics services,
such as storage in warehouses owned by the consortium
itself or by the client, consolidated and non-consolidated
container services, raw materials supply, distribution
of goods, marking services, labeling services,
product handling with controlled temperatures,
customs services and cargo services.
Orfila puts the consortium’s growth –the
consortium has grown more than 400% in the last
four years- down to the fact that logistics
services have become more important in the Argentine
market. Companies are increasingly resorting
to logistics services to lower costs and to
become more competitive.
“Companies tend to specialize in their
core business and to outsource the rest, what
they do not know very well. They take care of
their core business (their main business) and
leave the development of logistics solutions
to the experts,” he emphasized.
He does not think growth in the logistics services
area will be affected or threatened by the crisis,
since, during lean times, “customers seek
to lower costs; and companies like ours are
an invaluable aid to customers seeking to reduce
costs.” Orfila stated that the group’s
market share is increasing because its logistics
services are different from the services offered
by other companies, “which do not actually
offer logistics services but mere transportation
services, which, at this point, are just another
commodity.”
According to Orfila, one of the advantages of
the services provided by Tasa-Transfármaco
to be highlighted is the fact that its customers’
goals are taken into account when the proposals
are drawn up. They also take into account the
commercial profile of their staff. “Thanks
to this, the proposals are not just ideal technical
solutions, but feasible courses of action that
take into account the actual position of the
product in the market,” he said.
He has also pointed out that the company can
get linked to the different computer systems
of their clients to manage stocks, and that
the company has developed its own computer programs,
like MK Logistics, which allows them to measure
staff efficiency and the efficiency of the storage
space of the warehouses.
Commercial Landings
Competition has been heating up in
the burgeoning market of Logistics Services
since many foreign companies started landing
in Argentina. Ryder, an American company, and
CAT & Calberson, two French companies, can
be found among the operators that have landed
in Argentina. There can also be found several
cargo companies that offer not only international
shipping services, but also logistics services
such as merchandise storage services and merchandise
just in time distribution services.
Orfila acknowledged that most of these operators
have the advantage of providing services at
a global level; however, he pointed out that
if said operators wanted to be competitive at
the domestic level, they should forge strategic
alliances with domestic operators, which could
give global players a deeper knowledge of domestic
markets. As an example, he made reference to
the alliance forged between Tasa Logística
(Tasa Logistics) & Customized Transportation
Inc. (CTI), an American operator specialized
in the Car Manufacturing Industry. This alliance
gave birth to a local joint venture: Customized
Logistics Argentina (CLA), a domestic operator
which provides services to Ford Motors &
several other automakers & auto parts companies.
“Technology is an essential factor to
conduct this business successfully; however,
skilled staff trained locally is also essential
since the domestic economic scenario is different
from the economic scenario in Europe or The
USA,” Orfila summed up.
By Leandro Uría
The Consortium
The Consortium comprises 800 employees,
700 trucks, a distribution center located in
General Pacheco & 17 facilities throughout
the country. The Consortium reaches 1250 towns
throughout the country. Its annual pallet movement
breaks the one-million mark, which represents
an annual volume of 750,000 tons. The Consortium
manages a 300 million dollar stock.
Among its customers we find the following companies:
Bayer, Cervecería Quilmes, Ford, Mattel,
Molinos Río de la Plata, Unilever, Vasa
and Zanon.
Published in the print edition:
The Economy.
Monday, May 27th, 2002
Aeronautical Market
Airports: more shoppers for
the stores
As air traffic has fallen sharply, the concessionaire
has moved several stores out of the pre-boarding
area.
1. This is Eurnekian´s response to the 30%
fall in air ticket sales.
2. The stores replicate the Duty Free Shop concept
and belong to The Exxel Group as well.
3. The stores yield monthly returns worth 450,000
Argentine Pesos.
If the main commercial activity slackens, it
is advisable to resort to clever solutions to
weather the commercial storm as elegantly as possible.
Such was the stance adopted by Aeropuertos Argentina
2000, manager of 32 Argentinian airports, which
is wary about the 30% fall in air traffic recorded
since the year began.
Eduardo Eurnekian´s company, concessionaire
of 32 Argentinian airports, decided to reap the
benefits of another commercial activity with healthy
returns. They began at Aeroparque Metropolitano:
early this year, the company moved its Shop Gallery
stores, managed by Interbaires ? Aeropuertos Argentina
2000 owns 50% of the stock capital of Interbaires
?, out of the pre-boarding area to the main hall
of the airport. In this way, not only passengers
can go shopping, but also anyone who happens to
be at the airport for whatever reason.
The Shop Gallery concept was born last October
and it replicates the Duty Free Shop concept.
However, unlike Duty Free Shops, Shop Gallery
stores are not duty exempt. The Exxel Group owns
the other 50% of the stock capital.
This measure, originally an experiment, turned
out to be an effective way to break out of the
deep recession hitting the Aeronautical Market.
As a result, though air traffic has fallen 30%
so far this year, the stores nowadays yield monthly
returns worth 450,000 Argentine Pesos, being the
only commercial activity at the airport that has
not suffered any losses.
The Group is planning to open new stores at Mendoza
Airport during the next two months, where they
are seeking to take advantage of air traffic coming
from Chile. Later on, probably next year, they
will open stores at Pajas Blancas Airport, Córdoba´s
main airport.
Farewell “Parties” –
Massive Farewells
According to Marcelo Orfila, commercial
director of Aeropuertos Argentina 2000,
“Argentinian-ness” & Argentine
customs make the retail business more profitable
outside the boarding area than around the jetways.
“Unlike other airports in the world, Argentine
airports witness an unusual influx of people who
are not travellers. Many people come to our airports
simply to welcome or bid farewell to travellers.
Besides, many people coming from or heading for
the countryside seize the opportunity to go shopping,
since there are no Duty Free Shops in the areas
where they live.”
However, everything changed with the devaluation
of the Peso: as merchandise stocks began to dwindle,
many foreign products were replaced by domestic
products. Thus, for example, in the textile sector,
Banana Republic products & Gap products were
gradually replaced by products manufactured by
brands with subsidiaries in Argentina, such as
Legacy, Lacoste, Paula Cahen D´Anvers &
Caro Cuore.
The wide range of products offered by the company
includes: local vintage wines, sunglasses, fashion
accessories, cigarettes, food & beverages.
“In general, airport users belong to the
ABC1 social grades, which explains why this sector
of the retail industry has not suffered as heavy
losses as the economy in general. Though less
people are travelling, ticket sales have remained
stable since last October,” added Orfila.
Part of the strategy was to separate the products
that can be purchased in the pre-boarding area
from the products that can be purchased outside
the pre-boarding area. “In the restricted
area, where only passengers are admitted, fast
selling merchandise, such as perfumes and colognes,
can be purchased. Whereas, for longer shopping,
we focus on a different target segment: those
people who come to welcome or bid farewell to
travellers,” Orfila explained.
This scenario contrasts sharply with the heavy
sales shrinkage Duty Free Shops have seen this
year. During the first quarter of 2002, revenues
fell 60% compared with the same quarter in 2001.
In part, this trend is mostly a result of the
devaluation of the Argentine Peso, which made
dollar denominated duty free products more expensive
in local currency terms for local buyers.
Revitalising retail: Aeropuertos Argentina 2000
is Latin America's most ambitious airport manager,
with an ever-expanding network of locations. John
Rimmer talks to commercial director Marcelo Orfila
about the company's plans for retail.(Latin America
report * Aeropuertos Argentina 2000)
Source: Duty-Free News International - Publication
Date: 15-APR-05
Author: Rimmer, John
COPYRIGHT 2005 Euromoney Institutional Investor
PLC. Internal use only 10 copy limit. No further
use w/o permission. Publisher@euromoneyplc.com.
The gradual privatisation of Latin America's
airports has resulted in a hike in retailing standards
that few would have thought possible only a few
years ago. Some of the credit must go to Aeropuertos
Argentina 2000 (AA2000), manager of 32 Argentinian
airports and main shareholder at Montevideo Carrasco
airport in Uruguay, Guayaquil in Ecuador and also
Armenia's main gateway at Yerevan. Majority-owned
by Argentinian entrepreneur Eduardo Eurnekian,
the company has built its network aggressively
and views retailing as a key part of its business.
AA2000 commercial director Marcelo Orfila is
charged with improving revenue across the company's
network of airports. He is convinced that the
wave of privatisation in Latin America has benefited
everyone, especially travellers. "The infrastructure
of state-owned airports often needs a lot of improvement,
and sometimes we invest a lot of money that the
passengers don't see," he says. "At
newly-privatised airports the state usually tries
to get money from the concessionaire. They give
the concessionaire the assets, but a lot of changes
are needed. We've gained a lot of experience and
we try to apply this to any new airport we take
on."
Like its retail tenants, AA2000 has had to adapt
to changing passenger profiles in the region.
"Brazilians, Chileans, Americans and Europeans
are completely different in the way they buy,"
says Orfila. "Before the devaluation of the
peso [in 2002] Argentinians represented between
60% and 75% of our traffic at Buenos Aires Ezeiza.
After the devaluation the figure fell to 25-30%;
the rest were Brazilians, Chileans and Europeans.
We had to adapt very quickly to protect our revenues."
In the midst of the crisis AA2000 moved to renegotiate
its retail contracts, says Orfila, linking rental
payments to traffic to insulate main tenant InterBaires
against the sudden drop in passenger numbers.
"Before the devaluation we worked with fixed
rents, and the variable aspect was not very important.
As a result of the crisis, InterBaires' sales
fell from $105m to $35m, and it became imperative
to change the rent structure. Now that we have
introduced a variable scheme, InterBaires is growing
again and we are seeing the benefit."
The relationship between the two parties has
not always been so cordial, however. In 2003 InterBaires
took its landlord to court over claims that it
had been illegally evicted from prime space at
Ezeiza, and the dispute resulted in the closure
of several stores. The disagreement was settled
when AA2000 bought a stake in InterBaires, and
the two companies have since cooperated on impressive
renovation work at the airport, where new walk-through
stores were opened last year with more to follow
in 2005.
"Last year InterBaires grew very rapidly.
We gave them more space and helped them to get
more passengers into the stores," says Orfila.
"We're trying to improve penetration and
make the best possible use of space. InterBaires'
sales are very important to our business."
Non-aeronautical revenue accounts for 32% of
AA2000's turnover at Ezeiza, compared with 24%
when the company took over the concession in 1998.
Until the devaluation crisis hit, the landlord
had managed to increase the figure to over 42%,
but that share has fallen since AA2000 divested
its directly-owned catering and taxi companies.
"To grow revenue more effectively we decided
to appoint partners in each business, and to concentrate
on running airports," says Orfila.
That focus appears to be paying off. Last year
AA2000's turnover increased by 20%, with growth
in non-aeronautical revenue--of which duty-free
is the biggest part--reaching 30%. Retail growth
was ahead of traffic, which increased by 20% at
Ezeiza. But this encouraging performance will
count for little if AA2000 fails to negotiate
an extension to its Argentinian concession, a
scenario that Orfila insists is unlikely.
"We have been negotiating with the government
for a long time and the contract is practically
finished," he says. "We are waiting
for the government to sign the final version.
They have been focused on Argentina's debt and
getting out of default. They now have to finish
64 contracts with private companies that had to
be renegotiated after the devaluation. Our contract
is nearly ready and we're confident it will be
signed. We have big investment plans in Argentina,
and every governor of every province wants a good
airport."
AA2000's biggest project is the addition of a
new terminal at Ezeiza to ensure the country's
main gateway has the capacity to deal with new,
bigger aircraft and growing traffic. A new terminal
is also planned at the Jorge Newbury Aeroparque
facility, which is likely to take on more regional
services to allow Ezeiza to concentrate on long-haul
flights. The investment will also help AA2000
maximise the opportunity offered by Latin America's
burgeoning low-cost sector, which Orfila hopes
will open up an Argentinian market dominated by
flag carrier Aerolineas Argentinas.
"I believe the low-cost market is a tremendous
opportunity, and it will have a big impact here.
We haven't seen much merger activity in the Latin
American airline business, but it will come. LAN,
in particular, is very strong, and has said it
wants to launch an airline in Argentina. About
87% of domestic traffic in Argentina is run by
Aerolineas Argentinas, so there are not many options
available. LAN Argentina will bring more competition,
more benefits and more passengers."
Brazilian airline Gol and Spain's Air Madrid
were among the first to bring no-frills travel
to Latin America, prompting further changes to
passenger profiles. Not all those changes are
beneficial, says Orfila. "I've been analysing
why people don't buy in duty-flee," he explains.
"If our penetration rate is 35%, I focus
our studies on the other 65%. We are starting
to see that there are more young people travelling,
but they don't have much money. Budget fliers
tend not to buy in duty-free--they might just
buy a Coke at the bar."
Orfila insists that the thriftiness of the regional
budget traveller is rooted in the Argentinian
sensitivity to price. "Argentinians look
for low prices all the time," he maintains.
"Their sensitivity to even one dollar is
incredible. People often travel with their families
and the costs can be high. Only 10% of Argentinians
have 60% of the country's wealth. When I was with
[defunct Argentinian airline] LAPA we embarked
on a price war with Aerolineas, charging $26 for
flights to Cordoba instead of the usual $100.
The move was very successful but when we returned
to normal pricing, people made the trip on the
bus again. The bus market is very big here, and
when low-cost carriers can compete, then you'll
see a significant change in traveller profiles."
The full Montevideo
If the renovation of Ezeiza's retail areas is
impressive, the transformation of the business
at Montevideo Carrasco airport is nothing short
of startling. AA2000's involvement at the location
stems from its shareholding in the Puerta del
Sur consortium, which won the 20-year contract
to run the airport in August 2003. The consortium
then created retailer Duty Free Uruguay to take
over the business formerly run by Neutral, and
set about renovating its stores in arrivals and
departures. The result is a high-quality operation
far removed from Carrasco's old stores.
"The stores were very small and the assortment
was poor," says Orfila. "By introducing
the walk-through concept we've replicated what
we've introduced at Ezeiza. According to our research,
passengers are very satisfied with the changes
and the sales figures have changed completely.
The airport as a whole is more secure and more
comfortable. We have to build a new terminal by
2009 and we're drawing up plans for the government
now." (See also page 63.)
Traffic at Carrasco grew by 17% last year but
retail sales were up by 40%, suggesting that the
walk-through format has had the desired effect
on penetration levels. The position of Duty Free
Uruguay's new arrivals store ensures 100% footfall
and capitalises on the popularity of arrivals
shopping among Uruguayans. Orfila says that the
walk-through concept will be rolled out wherever
AA2000 operates. "Only by owning the airport
are you able to do this," he argues. "My
job is to maximise revenue per passenger, and
we're in the same boat as the retailer. We've
had experience of fighting with each other in
the past, but together we have to do everything
we can to raise revenue. Every time we design
a new terminal, I have to be the first guy at
the table. I need to know what the flow is and
optimise it so that we expose passengers to the
shops. I work very closely with the architects
and engineers to ensure this."
In Ecuador, AA2000 is affiliated to the Tagsa
consortium, which won a 15-year contract to manage
Guayaquil Simon Bolivar airport last year. As
in Carrasco, the group set up its own retailer,
Duty Free Ecuador, and opened a walk-through 900sq
m (9,684sq ft) outlet along with a new food and
beverage operation. Orfila says the location has
benefited from a more professional approach since
Tagsa's arrival. "We increased revenues by
19% last year after revising the existing contracts.
Before, the concessionaires were paying peanuts.
Now they have contracts whose terms are based
on the commercial activity they run, which is
the norm at all private airports. In the past,
airports were a service run by the government;
now they are profitable companies. This is the
change that we have made at Guayaquil."
Orfila confirms that AA2000 is participating
in further concession bids in South America and
eastern Europe, but insists that the company's
principal goal for 2005 is to bring its contract
negotiations with the Argentinian government to
a positive conclusion. "This will allow us
to start projects such as hotels and other long-term
investments," he says. "We are forecasting
traffic growth of about 10% this year, with an
increase in Argentinian domestic traffic of about
8%." As ever in Latin America, much will
depend on economic stability, but Orfila is confident
that a period of prosperity is within Argentina's
grasp. "Although there are a few problems
with inflation, Argentina is receiving a lot of
dollars from exports," he points out. "I
expect the current stability to continue."
If it does, AA2000's aggressive strategy seems
likely to continue to deliver growing revenues
and profits.
ARGENTINA. Aeropuertos Argentina
2000 (AA2000) has granted InterBaires a 17-year
extension to the retailer’s duty-free contract.
Exclusive to DFNI: By Martin Moodie
Exclusive to DFNI: By Martin Moodie ARGENTINA. Aeropuertos Argentina
2000 (AA2000) has granted InterBaires a 17-year
extension to the retailer’s duty-free contract.
The deal extends the contract from 2010 to 2027,
with payment terms changing from a flat fee to
a percentage of revenue.
It is a great boost for InterBaires, especially
as the retailer’s parent company Exxel Group
has been granted the duty-paid rights at AA2000?s
33 airports (with certain exceptions).
As a result of the extension agreement, InterBaires
will invest heavily in the airports, boosting
retail space in Buenos Aires main airport, Ezeiza,
by 50% over the next two years.
The number of shops will be reduced by creating
much bigger stores which will enjoy vastly improved
passenger flows to ensure greater visibility and
penetration.
InterBaires CEO Randy Emch told DFNI: "We
have extended the term of our contract greatly;
and we have expanded our space enormously, both
the quality and the quantity. We have also extended
into the duty-paid business so the value of the
business has improved dramatically."
AA2000 commercial director Marcelo Orfila was
also upbeat about the deal. "This will develop
the potential of the business in a very significant
way," he said. "If InterBaires wins,
the airport wins. Currently, they are losing a
lot of sales because of the poor locations.
"We want upscale stores at the airports,
to give an international image. It is easier for
us to handle one contract than to handle lots
of contracts in 33 airports."
Aeropuertos Argentina 2000 is
Latin America's most ambitious airport manager,
with an ever-expanding network of locations. John
Rimmer talks to commercial director Marcelo Orfila
about the company's plans for retail
The gradual privatisation of Latin America's
airports has resulted in a hike in retailing standards
that few would have thought possible only a few
years ago. Some of the credit must go to Aeropuertos
Argentina 2000 (AA2000), manager of 32 Argentinian
airports and main shareholder at Montevideo Carrasco
airport in Uruguay, Guayaquil in Ecuador and also
Armenia's main gateway at Yerevan. Majority-owned
by Argentinian entrepreneur Eduardo Eurnekian,
the company has built its network aggressively
and views retailing as a key part of its business.
AA2000 commercial director Marcelo Orfila is charged
with improving revenue across the company's network
of airports. He is convinced that the wave of
privatisation in Latin America has benefited everyone,
especially travellers. "The infrastructure
of state-owned airports often needs a lot of improvement,
and sometimes we invest a lot of money that the
passengers don't see," he says. "At
newly-privatised airports the state usually tries
to get money from the concessionaire. They give
the concessionaire the assets, but a lot of changes
are needed. We've gained a lot of experience and
we try to apply this to any new airport we take
on."
Like its retail tenants, AA2000 has had to adapt
to changing passenger profiles in the region.
"Brazilians, Chileans, Americans and Europeans
are completely different in the way they buy,"
says Orfila. "Before the devaluation of the
peso [in 2002] Argentinians represented between
60% and 75% of our traffic at Buenos Aires Ezeiza.
After the devaluation the figure fell to 25–30%;
the rest were Brazilians, Chileans and Europeans.
We had to adapt very quickly to protect our revenues."
In the midst of the crisis AA2000 moved to renegotiate
its retail contracts, says Orfila, linking rental
payments to traffic to insulate main tenant InterBaires
against the sudden drop in passenger numbers.
"Before the devaluation we worked with fixed
rents, and the variable aspect was not very important.
As a result of the crisis, InterBaires' sales
fell from $105m to $35m, and it became imperative
to change the rent structure. Now that we have
introduced a variable scheme, InterBaires is growing
again and we are seeing the benefit."
The relationship between the two parties has not
always been so cordial, however. In 2003 InterBaires
took its landlord to court over claims that it
had been illegally evicted from prime space at
Ezeiza, and the dispute resulted in the closure
of several stores. The disagreement was settled
when AA2000 bought a stake in InterBaires, and
the two companies have since cooperated on impressive
renovation work at the airport, where new walk-through
stores were opened last year with more to follow
in 2005.
"Last year InterBaires grew very rapidly.
We gave them more space and helped them to get
more passengers into the stores," says Orfila.
"We're trying to improve penetration and
make the best possible use of space. InterBaires'
sales are very important to our business."
Non-aeronautical revenue accounts for 32% of AA2000's
turnover at Ezeiza, compared with 24% when the
company took over the concession in 1998. Until
the devaluation crisis hit, the landlord had managed
to increase the figure to over 42%, but that share
has fallen since AA2000 divested its directly-owned
catering and taxi companies. "To grow revenue
more effectively we decided to appoint partners
in each business, and to concentrate on running
airports," says Orfila.
That focus appears to be paying off. Last year
AA2000's turnover increased by 20%, with growth
in non-aeronautical revenue—of which duty-free
is the biggest part—reaching 30%. Retail
growth was ahead of traffic, which increased by
20% at Ezeiza. But this encouraging performance
will count for little if AA2000 fails to negotiate
an extension to its Argentinian concession, a
scenario that Orfila insists is unlikely.
"We have been negotiating with the government
for a long time and the contract is practically
finished," he says. "We are waiting
for the government to sign the final version.
They have been focused on Argentina's debt and
getting out of default. They now have to finish
64 contracts with private companies that had to
be renegotiated after the devaluation. Our contract
is nearly ready and we're confident it will be
signed. We have big investment plans in Argentina,
and every governor of every province wants a good
airport."
AA2000's biggest project is the addition of a
new terminal at Ezeiza to ensure the country's
main gateway has the capacity to deal with new,
bigger aircraft and growing traffic. A new terminal
is also planned at the Jorge Newbury Aeroparque
facility, which is likely to take on more regional
services to allow Ezeiza to concentrate on long-haul
flights. The investment will also help AA2000
maximise the opportunity offered by Latin America's
burgeoning low-cost sector, which Orfila hopes
will open up an Argentinian market dominated by
flag carrier Aerolíneas Argentinas.
"I believe the low-cost market is a tremendous
opportunity, and it will have a big impact here.
We haven't seen much merger activity in the Latin
American airline business, but it will come. LAN,
in particular, is very strong, and has said it
wants to launch an airline in Argentina. About
87% of domestic traffic in Argentina is run by
Aerolíneas Argentinas, so there are not
many options available. LAN Argentina will bring
more competition, more benefits and more passengers."
Brazilian airline Gol and Spain's Air Madrid were
among the first to bring no-frills travel to Latin
America, prompting further changes to passenger
profiles. Not all those changes are beneficial,
says Orfila. "I've been analysing why people
don't buy in duty-free," he explains. "If
our penetration rate is 35%, I focus our studies
on the other 65%. We are starting to see that
there are more young people travelling, but they
don't have much money. Budget fliers tend not
to buy in duty-free—they might just buy
a Coke at the bar."
Orfila insists that the thriftiness of the regional
budget traveller is rooted in the Argentinian
sensitivity to price. "Argentinians look
for low prices all the time," he maintains.
"Their sensitivity to even one dollar is
incredible. People often travel with their families
and the costs can be high. Only 10% of Argentinians
have 60% of the country's wealth. When I was with
[defunct Argentinian airline] LAPA we embarked
on a price war with Aerolíneas, charging
$26 for flights to Córdoba instead of the
usual $100. The move was very successful but when
we returned to normal pricing, people made the
trip on the bus again. The bus market is very
big here, and when low-cost carriers can compete,
then you'll see a significant change in traveller
profiles." The full Montevideo
If the renovation of Ezeiza's retail areas is
impressive, the transformation of the business
at Montevideo Carrasco airport is nothing short
of startling. AA2000's involvement at the location
stems from its shareholding in the Puerta del
Sur consortium, which won the 20-year contract
to run the airport in August 2003. The consortium
then created retailer Duty Free Uruguay to take
over the business formerly run by Neutral, and
set about renovating its stores in arrivals and
departures. The result is a high-quality operation
far removed from Carrasco's old stores.
"The stores were very small and the assortment
was poor," says Orfila. "By introducing
the walk-through concept we've replicated what
we've introduced at Ezeiza. According to our research,
passengers are very satisfied with the changes
and the sales figures have changed completely.
The airport as a whole is more secure and more
comfortable. We have to build a new terminal by
2009 and we're drawing up plans for the government
now."
Traffic at Carrasco grew by 17% last year but
retail sales were up by 40%, suggesting that the
walk-through format has had the desired effect
on penetration levels. The position of Duty Free
Uruguay's new arrivals store ensures 100% footfall
and capitalises on the popularity of arrivals
shopping among Uruguayans. Orfila says that the
walk-through concept will be rolled out wherever
AA2000 operates. "Only by owning the airport
are you able to do this," he argues. "My
job is to maximise revenue per passenger, and
we're in the same boat as the retailer. We've
had experience of fighting with each other in
the past, but together we have to do everything
we can to raise revenue. Every time we design
a new terminal, I have to be the first guy at
the table. I need to know what the flow is and
optimise it so that we expose passengers to the
shops. I work very closely with the architects
and engineers to ensure this."
In Ecuador, AA2000 is affiliated to the Tagsa
consortium, which won a 15-year contract to manage
Guayaquil Simon Bolivar airport last year. As
in Carrasco, the group set up its own retailer,
Duty Free Ecuador, and opened a walk-through 900sq
m (9,684sq ft) outlet along with a new food and
beverage operation. Orfila says the location has
benefited from a more professional approach since
Tagsa's arrival. "We increased revenues by
19% last year after revising the existing contracts.
Before, the concessionaires were paying peanuts.
Now they have contracts whose terms are based
on the commercial activity they run, which is
the norm at all private airports. In the past,
airports were a service run by the government;
now they are profitable companies. This is the
change that we have made at Guayaquil."
Orfila confirms that AA2000 is participating in
further concession bids in South America and eastern
Europe, but insists that the company's principal
goal for 2005 is to bring its contract negotiations
with the Argentinian government to a positive
conclusion. "This will allow us to start
projects such as hotels and other long-term investments,"
he says. "We are forecasting traffic growth
of about 10% this year, with an increase in Argentinian
domestic traffic of about 8%." As ever in
Latin America, much will depend on economic stability,
but Orfila is confident that a period of prosperity
is within Argentina's grasp. "Although there
are a few problems with inflation, Argentina is
receiving a lot of dollars from exports,"
he points out. "I expect the current stability
to continue." If it does, AA2000's aggressive
strategy seems likely to continue to deliver growing
revenues and profits.
Argentina’s biggest airport landlord Aeropuertos
Argentina 2000 is drawing a line under years of
economic and legal turmoil to get back to what
it does best. John Gallagher talks to commercial
director Marcelo Orfila about the company’s
renewed focus on retail.
Argentina’s biggest
airport landlord Aeropuertos Argentina 2000 is
drawing a line under years of economic and legal
turmoil to get back to what it does best. John
Gallagher talks to commercial director Marcelo
Orfila about the company’s renewed focus
on retail.
As the Argentinian economy emerges from the abyss
of monetary devaluation and recession, the fortunes
of the country’s biggest airport operator
Aeropuertos Argentina 2000 (AA2000) are also beginning
to change. When the company was awarded the concession
to run Argentina’s main airports in 1998
the economy was showing signs of stagnation. The
subsequent recession and the devaluation of 2002
led some experts to talk of a bottomless pit?
Consumption levels and living standards had fallen
to a degree that was beyond the memory of even
those used to the vagaries of Latin American economic
management or lack of it.
For AA2000 total passenger traffic fell from 20.3m
in 1999 to 12.9m in 2002. Traffic dropped in all
of the 32 airports in the AA2000 network most
catastrophically at Ezeiza and Aeroparque, Buenos
Aires international and domestic airports and
the two most important travel-retail locations
in Argentina.
In 2003 the situation took a fresh twist. AA2000
was still negotiating with president Duhalde's
government to adapt its concession agreement to
the new economic reality. The company hoped to
define a new investment programme with both parties
agreeing the priorities for the concession holder
and controlling authority. The Duhalde administration
agreed a new deal with AA2000 just days before
relinquishing power, but the new government, headed
by Nestor Kirchner, rescinded the revised contract
and threatened to annul the concession.
As negotiations resumed the climate slowly improved,
until at the end of the year AA2000 CEO Ernesto
Gutierrez told the local Buenos Aires press that
a new deal was imminent. The Kirchner government
set up a commission to revise the concession contracts
of a number of public utilities and service suppliers.
Most observers agree that AA2000 is doing a good
job. Although there are disagreements over backdated
concession payments, investments made and investment
priorities, the authority is now meeting its financial
obligations and insists that the system is working.
The main problem for AA2000 in 2003 was its well-documented
dispute with duty-free concessionaire InterBaires.
Directors of both companies spent more time on
legal disputes than on retail development plans.
InterBaires was and remains AA2000's biggest revenue
earner, but it became clear that neither side
was maximising revenues or satisfying the needs
of airport users.
Halfway through the year, the concessionaire and
landlord began to talk again. They struck a deal
and AA2000 bought a stake in InterBaires for an
undisclosed sum. At the end of last year commercial
space taken from InterBaires at the height of
the dispute was returned and both sides reaped
the benefits. In the fourth quarter InterBaires’
retail sales improved, prompting an increase in
revenue for AA2000.
TRI met AA2000 commercial director Marcelo Orfila
in his office in the Palermo district of Buenos
Aires in February, and his outlook had changed
since the previous year. "Last year we spent
too much time on managing and directing conflicts,"
he admits. "This year we will be able to
manage the business properly, look for short-term
opportunities and plan effectively for the medium
and long term. We’ll be moving forward and
working with our partners in Argentina and in
our new ventures in other countries in an aggressive
fashion, looking to maximise revenues and customer
satisfaction."
International traffic recovers
Passenger traffic in Buenos Aires is beginning
to recover, says Orfila, and 2003 ended with encouraging
figures. "Last year traffic was better than
we expected," he insists. "The strong
second half of the year was welcome after the
slow recovery in the first few months of the year.
Growth took place in the second half once the
new president had taken power and the economic
situation had stabilised. The uncertainty at the
end of 2002 and in the first few months of 2003
disappeared. Growth in the fourth quarter has
been fantastic. If that continues we can only
be optimistic."
Passenger traffic throughout the AA2000 network
increased slightly to 13.8m passengers in 2003.
Orfila points to solid growth in international
traffic to justify his optimism. "If we look
at the split between national and international
passengers we can see where the growth is coming
from. International traffic reached 5.3m in 2003,
an increase of 17.2% over the previous year. National
traffic grew by 1.5% to 7.8m. Although relatively
low, the figure is still good given the small
number of domestic carriers flying. In the past
couple of months we have seen double-digit growth
in the number of domestic flights and we hope
this will continue."
The biggest airports in the AA2000 network are
on the road to recovery. Buenos Aires Ezeiza enjoyed
strong growth throughout 2003, with the number
of international passengers increasing to 4.6m,
up by 18.2% on the previous year. Domestic traffic
more than doubled to 173,516 passengers. Growth
was more modest at Aeroparque airport, where domestic
traffic increased by only 1.9% to 4.1m passengers.
International traffic, mainly to Uruguay and southern
Brazil, reached 471,098, an increase of 5.4% on
2002.
The other airports in the network enjoyed mixed
fortunes. Bariloche showed 12.8% growth in domestic
traffic, reflecting renewed growth in the tourism
industry. Domestic traffic at Iguazu was up by
31.7%, with more than 350,000 passengers using
the airport. Argentina’s third biggest airport
Cordoba experienced a 5.8% fall in domestic traffic
to 755,711. The 13.6% increase in international
traffic to 108,475 was scant compensation.
"The growth in traffic was good news for
us and our concessionaire partners," says
Orfila. "The indications are that the good
news will continue. All airlines are flying full
to Europe from Ezeiza and many carriers are increasing
frequencies or using bigger aircraft. The same
is true of North American airlines. Most carriers
that stopped flying because of the economic crisis
are almost back to their original schedules.
"We are hoping for growth of about 15% this
year, which will show the strength of the tourism
industry in Argentina and the continuing economic
recovery in the country as a whole. Growth in
2004 will depend on two main factors. One is the
strength of the tourism business thanks to current
exchange rates. With the peso valued at 2.90?2.95
to the
dollar, and the dollar’s weakness against
the euro and pound sterling, long-haul tourism
from Europe and north America is likely to be
strong for the rest of the year. The relative
weakness of the peso against most South American
currencies means we are welcoming large numbers
of visitors from Chile, Colombia and Peru as well
as Brazil.
"The stability of the economy is also important.
The government’s tax revenues continue to
rise, inflation appears to be under control and
the consensus is that internal consumption will
grow this year. The only uncertainty is what will
happen when the government reaches agreement with
creditors to begin repaying the defaulted debt.
But we continue to be optimistic for the rest
of the year, and our objective remains 15% growth.
We expect better improvements to international
than to domestic traffic."
Since winning the concession AA2000 has made substantial
investments in the Aeroparque terminal buildings
and at Ezeiza terminal A and more investment is
planned. "As soon as the renegotiated contract
is signed, we will agree a revised programme with
the government," says Orfila. "We will
agree the priorities and some projects will start
almost immediately. A new terminal building at
Cordoba and Rio Gallegos are likely to be top
of the list."
The future of Buenos Aires Aeroparque is unclear.
The terminal was originally scheduled to close
in 2005 under the terms of AA2000's contract,
but public opinion may force the government to
change its mind. The airport’s position
close to the north of the city is a double-edged
sword, and will force the authorities to decide
between safety and convenience. Traffic levels
remain some way from original forecasts and the
levels of the late 90s, but a stay of execution
still looks likely.
Duty-paid recovery
Duty-paid retailing, which began at Ezeiza in
October 2001, is finally recovering from a tough
beginning. "We couldn’t have started
at a worse time," Orfila tells TRI. "Traffic
was down because of the economic recession and
the aftershocks from September 11 2001. The 2002
devaluation and the resulting banking restrictions
were almost the kiss of death. But we have stuck
at it and reworked the selection. For many local
shoppers duty-paid is sometimes the only chance
they have to buy luxury products. Many fragrance
and cosmetics brands are not distributed outside
the greater Buenos Aires area and we are able
to provide a full range at good prices.
"We have worked hard on duty-paid and if
domestic traffic picks up we will see a strong
upturn in business. Our range of foodstuffs, textiles
and clothing has also been well received by visitors
to the region, again owing to the lack of availability
of many items outside Buenos Aires.? Fashion is performing
well at Buenos Aires
The stability of the peso against the dollar has
also helped business, says Orfila, along with
lower-than-expected inflation and growth in GDP.
"This should mean more growth for domestic
airlines in 2004,"he argues. "Austral
will grow to push traffic onto the Aerolíneas
Argentinas international network, and the Southern
Winds alliance with Líneas Aéreas
Federales looks like consolidating. The smaller
American Falcon and Aerovip should also grow,
although more modestly."
Orfila confirms that big changes are imminent
at InterBaires duty-free shops at Ezeiza. The
main 2,100sq m (22,600sq ft) departures store
was reopened late last year, and Orfila says passengers
have welcomed the new layout and revenues have
improved as a result. "We plan to place greater
emphasis on local products, and we are opening
a new specialised store with a wide range of upscale
products adjacent to the main duty-free store.
InterBaires will also be making substantial renovations
at the departures store in the Aerolíneas
Argentinas terminal.
"In addition we have agreed on plans to renovate
the main arrivals store, which we hope will be
ready before Easter. This will increase from just
over 700sq m (7,535sq ft) to 1,100 sq m (11,840sq
ft) and we will offer travellers a wider range
of merchandise. The revised traffic flow will
ensure a high penetration rate and we hope our
concessionaire partner will take advantage of
this."
Duty Free Uruguay is born
A year ago the AA2000 management team was at
pains to explain that it was unlikely to bid in
the tender to manage, operate and renovate Montevideo
Carrasco International airport. Ceo Ernesto Gutierrez
told TRI at the time that the airport was unlikely
to be profitable in the short term. But between
March and July the company’s strategic viewpoint
changed and Corporación America headed
by AA2000?s main shareholder Eduardo Eurnekian
and its Italian partner SEA beat competition from
Advent International and others to take over Carrasco.
The winning consortium, now named Puerta del Sur,
started operating the concession in late November.
Puerta del Sur is contractually committed to investing
$70m during the first five years of the concession,
and a new terminal building should be in place
by 2009. The existing terminal building will undergo
extensive renovation, with work in the arrivals
and departures areas expected to start in March.
The new management team is in place. Fernando
Pelaez will oversee the operation with Eduardo
Acosta looking after all commercial activities.
Puerta del Sur will run the duty-free operation,
to be named Duty Free Uruguay, directly.
According to Orfila, the facelift will bring significant
commercial benefits to the airport. "The
new design will mean that the flow of passengers
in departures and arrivals will be directed to
the commercial activities," he explains.
"The departures store will move from the
first floor to the ground floor and will be more
user-friendly. The arrivals store will also be
relocated after immigration and travellers will
find new car hire and hotel reservation desks
before passing through Customs. The changes are
designed to maximise revenues and we are sure
that airport users will find the commercial areas
more attractive."
The Carrasco airport and duty-free operation will
be managed from Montevideo, and Orfila is keen
to ensure that all the commercial activities make
strategic sense for AA2000. "A large percentage
of traffic from Montevideo goes to Aeroparque
and vice-versa, so we have to make sure all our
commercial activities make regional sense."
Last December the Eurnekian group gave further
evidence of its appetite for expansion by winning
the tender to manage and operate Simón
Bolivar International airport in Guayaquil, Ecuador.
Corporación America again in partnership
with SEA saw off competition from consortia AGUNSA/Odebrecht
and AENA/Hidalgo, and plans to invest over $70m
in the first three years of the 15-year concession.
Extending the network
"Guayaquil is a nice addition to our network,"
says Orfila. "We hope to sign the final contract
at the end of February and we will begin renovations
to improve passenger services almost immediately.
Until now travellers have had few options for
duty-free or duty-paid shopping at Guayaquil,
and restaurant facilities have also been limited.
Both of these will change and commercial and restaurant
facilities will be vastly improved. As in Uruguay,
we plan to operate the duty-free concession ourselves
and we are drawing up plans for the new shop.
"We are confident we will be able to produce
a strong revenue stream for our shareholders from
the duty-free shop and from the rest of the commercial
activities in Guayaquil. Once the final contract
is signed, we must have the new terminal building
operating within 29 months. There is a lot of
work to be done but during that time we will still
be looking to ensure commercial revenues."
At present 1.7m passengers use Guayaquil but the
new operator is looking to increase this to about
3m as facilities are improved and new routes added.
According to Orfila, the Eurnekian group will
study all airport projects in Latin America with
a view to extending the network. The biggest opportunity
is the proposed privatisation of Bogotá
Eldorado International airport. Other possibilities
include Caracas Maiquetia and the airport network
in Paraguay. Orfila confirms that consultants
will be appointed shortly to draw up tender documents
for Bogotá.
AA2000 and other companies in the Eurnekian group
are also sizing up opportunities outside Latin
America. The Yerevan Zvartnots operation in Armenia
is up and running, and the Eurnekian management
team is likely to scrutinise any new projects
that become available in former Soviet countries.
A busy year beckons, then, for the Eurnekian empire.
As Argentina’s airports emerge from crisis
and Montevideo and Guayaquil are added to the
network, the role of commercial revenues will
be central to the fortunes of the group.
And the expansion of the group will not end there.
Eurnekian is in the running to become the main
shareholder in Italian airline Volare. In Argentina
the group has been looking at the management of
motorway concessions and Orfila confirms that
the country’s first motorway concession
will start shortly. Some may question the link
between operating airport and motorway contracts,
but the Eurnekian group is spreading the net wide
for its ambitions, confident in the future of
Argentina and Latin America as a whole.
With legal actions threatening its operations
and passenger figures not yet returning to steady
growth, Argentinian airport operator Aeropuertos
Argentina 2000 is hoping that the year ahead will
bring a return to stability.
With legal actions threatening its operations
and passenger figures not yet returning to steady
growth, Argentinian airport operator Aeropuertos
Argentina 2000 is hoping that the year ahead will
bring a return to stability.
Argentinian airport operator Aeropuertos Argentina
2000 (AA2000) has had a busy and controversial
year. The company has been in conflict with duty-free
retailer InterBaires, one of its most important
concessionaires; and Aerolíneas Argentinas,
the country’s national airline, has also
been locking horns with the operator on issues
ranging from landing fees to concession renegotiation.
And if this wasn’t enough Argentina’s
new government of three months has been making
veiled threats about a full renegotiation of AA2000’s
airport concession contract.
Late last year AA2000 made the headlines when
it revoked its "marriage made in heaven”
agreement with InterBaires, alleging that the
contract extension granted in summer 2001 was
not valid. Following Deutsche Bank’s acquisition
of Exxel Group’s 80% shareholding, AA2000
forced the duty-free operator to withdraw from
prime retail positions, relinquishing 1,800sq
m (19,400sq ft) of retail space it had occupied
for more than a year, and advised Deutsche Bank
that InterBaires concession would now run only
to the original date of 2009 and not 2027.
This was not the first time that the two companies
had disagreed publicly over contractual matters.
In the late 1990s AA2000 president Eduardo Eurnekian
and Exxel Group president Juan Navarro had several
bitter exchanges following Exxel’s acquisition
of a minority stake in AA2000. At the time Eurnekian
made no secret of his wish to control InterBaires.
Both sides eventually signed a truce, following
intervention by Argentina’s then president
de la Rua. That truce eventually ended in the
contract extension agreement, which was to be
blown apart by AA2000.
InterBaires and its new owners took AA2000 to
court to try and find a solution. At that time
many observers speculated that the solution would
be an arrangement whereby AA2000 would buy all
or part of Deutsche Bank’s shareholding.
That was the general consensus until London Supply
appeared on the scene in March this year, muddying
the waters further by purchasing a “strategic”
shareholding in the duty-free operator.
For the past month or so unconfirmed reports in
the Argentinian financial press indicate that
a new deal is about to be reached and that a solution
to the arguments of the past months has been found.
The exact nature of the deal is unclear but is
probably good news for the industry as the players
involved can now get back to running their businesses
instead of wasting energy on litigation.
Uncertain recovery
Meanwhile AA2000 has confirmed that traffic at
the main airports in Argentina is growing again.
AA2000 commercial director Marcelo Orfila states:
"Traffic for the first seven months of the
year was up by 5% throughout the AA2000 network.
"International traffic performed very well
with an overall increase of 21%. There was a very
strong performance at Ezeiza, the leading international
airport, which was up 23% on the same period last
year.
The performance of domestic traffic was mixed,
varying from airport to airport. Overall traffic
fell by 3% but we saw some very good performances
at some of the tourist airports such as Bariloche,
up 21% overall and Iguazu, up 31%.
Obviously we have been hit in the domestic market
by the bankruptcy of some of the smaller carriers.
We have also seen a fairly aggressive pricing
policy by the market leader Aerolíneas
Argentinas which has not been discounting or trying
to grow certain domestic routes.
Traffic at Aeroparque, the most important airport
for domestic flights, has been down overall by
4% and this has affected sales at the duty-paid
outlets we own with InterBaires.
We have quite a few plans to renovate parts of
Ezeiza and Aeroparque, as well as certain other
airports, but we are holding investments until
the contract situation becomes clearer."
Orfila confirmed that AA2000 was continuing to
look at opportunities outside Argentina. "We
are very much involved in new projects in Armenia
and we are looking at quite a few possibilities
in Latin America.” He refused to discount
a bid to manage Montevideo Carrasco airport, but
in view of the high fee required by the Uruguayan
government he was worried about the profitability
of the operation.
AA2000 will be hoping that the recovery in international
passenger traffic continues and that the incipient
growth in the domestic economy gets stronger.
Last year’s 17.9% fall in passenger numbers
didn’t help the company’s finances
as it reported a loss of Ps20.8m ($6.5m). The
first-half recovery has also been confirmed by
Aerolíneas Argentinas, whose passengers
numbers in the first six months grew by 58.9%
to just over 2m.
Just before leaving office in May President Duhalde
signed a decree changing the fixed fee nature
of AA2000's concession fee to the government to
a percentage figure based on traffic and cargo
movements. AA2000 made a commitment to increase
its investment programme, but the newly installed
Kirchner government has revoked the decree and
is now revising a number of other agreements in
the original concession.
Industry observers have pointed out that AA2000's
investment programme is bound to slow until the
contract issue is clarified. It is clear however
that stronger passenger figures and a final solution
to the disagreement with InterBaires would mean
fewer problems on two fronts for the AA2000 management
team.
The legal dispute between airport operator Aeropuertos
Argentina 2000 and duty-free concessionaire InterBaires
is not the first in the relatively short history
of these two companies. John Gallagher reports
on a turbulent relationship gone sour.
The legal dispute between airport operator
Aeropuertos Argentina 2000 and duty-free concessionaire
InterBaires is not the first in the relatively
short history of these two companies. John Gallagher
reports on a turbulent relationship gone sour.
Shortly after airport operator Aeropuertos Argentina
2000 (AA2000) took control of Argentina’s
privatised main airports in 1999, it realised
that a quick way to achieve profitability would
be to take greater control of airport retail activities.
But its ambitions for Argentina’s airport
market have not run smoothly alongside those of
its principal concessionaire InterBaires. The
story of AA2000 and InterBaires is a story of
ups and downs, of court battles and political
wrangling, and it’s a drama that’s
reaching its endgame in the Buenos Aires courts
as DFNI goes to press.
So how has it come to this? At the beginning of
2000 the new airport authority started to renovate
Buenos Aires Ezeiza airport, and in a situation
that dramatically mirrors its part-eviction of
InterBaires today, AA2000 displaced InterBaires
from its shops and the two sides ended up in court.
Industry observers claimed that the strategy was
designed to force InterBaires out of the airports
altogether. But following intervention from Argentinian
president Fernando de la Rua a truce of sorts
was called, and eventually the AA2000 and InterBaires
parent company Exxel Group reached an agreement
that left the operator in place.
The first part of the deal involved the sale in
August 2001 of Exxel Group’s 45% share in
airport bonded warehouse operator Edcadassa; and
shortly afterwards hostilities were called off
completely as AA2000 announced the extension of
the InterBaires concession contract from 2009
to 2027. AA2000 announced that the operator would
have more retail space, and in better positions;
and that the rental would be based on a percentage
of sales, reflecting the economic realities of
a depressed Argentina.
At the ASUTIL conference in September 2001 in
Rio de Janeiro both sides confirmed their new
relationship. AA2000 commercial director Marcelo
Orfila confirmed that the deal was good for both
companies. "Better locations for InterBaires
mean more sales," he said, "and more
sales mean more revenue for both the concessionaire
and the airport operator."
Alejandra Basile, InterBaires then marketing manager,
said the new agreement would lead to major investment
in shop renovation at Ezeiza and other airports.
The companies also announced the formation of
a 50:50 joint venture to operate duty-paid sales
at airports in the AA2000 network.
At the time, speculation that AA2000 was only
months away from a full takeover of InterBaires
appeared realistic enough. The Exxel Group had
signalled its desire to sell the subsidiary but
no one was willing to pay the asking price. Press
comment in Argentina at the time mentioned Aldeasa
as a possible predator, although more than one
international operator has taken a long hard look
at InterBaires accounts over the past two years.
But the severe economic crisis and economic meltdown
that was about to besiege Argentina was to scare
away any potential bidders. Meanwhile duty-paid
shops were opened at Buenos Aires Aeroparque airport
and, in spite of the crisis, sales remained at
acceptable
levels.
The downturn in the country’s economic fortunes
in late 2001, the floating of the peso in 2002
and the continued bad news in 2003 meant that
the deal that looked good on paper was not working
in practice. New duty-free and duty-paid shops
had opened but sales were hard to come by. InterBaires
sales were reported to be down by 60% on the previous
year despite the profitable Aeroparque duty-paid
outlets. There was simply no money in the economy;
families and business executives had stopped travelling.
Neighbouring duty-free operators such as Neutral
and Zeinal Hermanos in Montevideo, Aldeasa in
Santiago de Chile and Brasif in Brazil were all
mourning the disappearance of the Argentinian
traveller.
Bank takeover
In spite of the economic turmoil in the first
half of 2002, rumours still circulated that InterBaires
was for sale. No European company was tempted
as the economic situation continued to look grim.
But parent group Exxel was suffering as much as
any big Argentinian company and was under great
pressure from the banks. In the late 1990s it
had expanded very quickly with a number of highly
leveraged deals. Most of its creditors were financial
institutions that were becoming increasingly nervous
about their returns.
It came as no great surprise when Deutsche Bank
announced in November last year that it had taken
control of Exxel’s 80% share in InterBaires.
Immediately the new shareholder announced the
appointment of Enrique Urioste as ceo and its
commitment to running the business to recoup some
of the $30m that Exxel owed the bank. Suppliers
and staff welcomed the news, as the possibility
of bankruptcy was staved off.
However the new tranquillity was soon disturbed
when AA2000 played its ace card. According to
the airport authority the concession contract
that everyone had assumed was valid until 2027
was never countersigned by the government, the
holder of the other 20% of InterBaires and was
therefore invalid. AA2000 insisted that it had
reminded the Exxel-controlled company to seek
the countersignature to the contract extension,
but this was never done.
AA2000’s Orfila told DFNI (Dec 1 2002):
“As you are aware, we reached an agreement
with InterBaires in September 2001 to extend the
contract from 2009 to 2027 and to add new retail
space. The government should have countersigned
the contract within six months. This was not done,
so a six-month extension was granted. No countersignature
was added to the contract so we had to inform
InterBaires last month that the revised contract
had lapsed and that we should revert to the terms
of the original contract. As of this month we
are operating under the terms of the original
concession contract.
"Obviously there is some confusion,"
Orfila added, "and we are already talking
to InterBaires new owners of to clarify certain
points. We also need to assess whether Deutsche
Bank is in the business for the long term or whether
it intends to sell the company quickly to recover
debts. We cannot understand why the bank did not
come and talk to us, because its relationship
with us is crucial to the success of the business."
AA2000 clearly upset at the change of ownership,
apparently without either party talking to the
airport operator, continued to insist that the
original, pre-extension contract was the valid
one.
Negotiations started almost immediately and although
there was disagreement, the climate of the meetings
between the two sides was said to be cordial.
A deal seemed likely; after all both would incur
big legal fees in running to the courts. Negotiations
continued throughout November and December and
both sides agreed a brief respite during the Argentinian
holiday period at the beginning of January.
Slow progress
However the mood was to change in the New Year.
Progress was slow to non-existent and both sides
hinted at problems, although they still hoped
an agreement would be possible.
In mid-February, AA2000 played another of its
aces. Given the lack of progress it applied to
the courts to remove InterBaires from the 1,800sq
m (19,400sq ft) granted to the operator when the
new contract extension was signed. AA2000 insisted
that all the other conditions of the original
contract were now in play, the contract was only
valid until 2009, and the rental payment reverted
to the fixed fee of $500,000 as opposed to 10%
of sales.
Newly-appointed InterBaires CEO Urioste said:
"The court judgement [to remove InterBaires
from 70% of its spaces] is totally arbitrary and
abusive. It is based on a law that cannot be applied
in this case. We will demonstrate in court that
a contract is in place until 2027 and that we
should be allowed to occupy the additional retail
space. We are up to date with all our payments
to AA2000. We will continue to fight for the rights
of our shareholders and the rights of our employees."
Damian Pozzoli, Deutsche Bank managing director
and the new president of InterBaires, confirmed:
"We will present all our evidence to the
judge. We feel we have a very strong case and
we will win. The courts will confirm that our
concession is valid until 2027."
He added: "This is part of a strategy by
AA2000 to acquire our company, which is profitable
and has a strong cash position. We are up to date
with all our payments, whereas AA2000 owes the
government money."
Pozzoli confirmed that AA2000 had tried to buy
the company during the contract negotiations but
its offer had been rejected; the company was not
for sale. Reports in the Argentinian financial
press indicate that AA2000 had offered $10m, some
way short of the $30m Deutsche Bank deal and light
years away from the $300m that Exxel Group was
reportedly looking for only three years before
the economic crisis.
AA2000 appears intent on occupying the retail
space vacated by InterBaires. A new duty-paid
outlet was opened at the beginning of March, only
to be closed several days later by the Aeronautical
Police as the new shop did not have its licence
in order. AA2000 said that it would occupy the
remaining retail space with new outlets over the
next few months.
Both sides now await the outcome of InterBaires
appeal. No one is sure if the appeal court will
find in favour of InterBaires or uphold the original
decision, which benefited AA2000. Both companies
will probably wait until then to reveal their
plans.
If AA2000 wins, it will obviously want to operate
all its airports’ retail activities as quickly
as possible. Further negotiations with Deutsche
Bank cannot therefore be discounted. AA2000 has
the expertise to operate the duty-free activities
on its own, but a partnership with a local or
European operator could have its advantages.
If InterBaires wins, it may decide to continue
to operate the concession. Confirmation of the
concession until 2027 would increase the value
of the company. The Argentinian economy is beginning
to recover, but it still has a long way to go.
Although Deutsche Bank insists the company is
not for sale, it must be tempted to get a quick
return on its outlay. Nevertheless it cannot be
discounted from operating the concession for a
further two or three years to wait for a more
favourable economic environment. As Urioste says:
"Deutsche Bank has a long history of being
an active shareholder of different companies.
It’s not a typical financial institution
that’s nervous about running a commercial
company. Deutsche Bank didn’t jump into
this business willingly; it was because of an
unpaid debt. But they are not in a hurry and if
they have to wait until this process runs its
course then they will do that."
Uncertain outlook
But what of Deutsche Bank’s real plans?
If it were to sell the company, it is difficult
to see which international operators would be
interested at present, given the uncertain outlook
in Argentina and the Mercosur region. One leading
international operator tells DFNI: "If I
asked my shareholders for cash to buy a company
in Argentina, they would probably call an extraordinary
meeting and ask for my dismissal."
It is difficult to put a price on a company whose
sales have dropped from $125m a few years ago
to an estimated $35m this year. Only a few months
ago InterBaires was telling suppliers that its
close relationship with AA2000 was a key aspect
of its business. But given the uncertainty over
the contract, this relationship will have an important
influence on the value of the company.
Regional operators such as Waked Internacional,
Motta Internacional, Duty Free Americas and Operadora
de Aero-Boutiques owner Areas could be interested,
but the uncertain outlook probably means any expansion
strategies will be restrained by financial
concerns.
Discounting these groups and leaving risk capital
companies aside, then the most interested party
would appear to be AA2000 itself. The company
already employs a number of skilled retail veterans
who could run InterBaires. Orfila does not deny
the authority’s interest, but says many
other matters need to be clarified first.
Only time will tell; both companies await with
interest and expectation the verdict of the court.
As both companies trade insults, suppliers look
on with a degree of nervousness. The appeal court
will probably announce its decision this month.
Then all sides can begin to make their plans for
the future.
The legal dispute between airport
operator Aeropuertos Argentina 2000 and duty-free
concessionaire InterBaires is not the first in
the relatively short history of these two companies.
John Gallagher reports on a turbulent relationship
gone sour.
The legal dispute between airport operator
Aeropuertos Argentina 2000 and duty-free concessionaire
InterBaires is not the first in the relatively
short history of these two companies. John Gallagher
reports on a turbulent relationship gone sour.
Shortly after airport operator Aeropuertos Argentina
2000 (AA2000) took control of Argentina’s
privatised main airports in 1999, it realised
that a quick way to achieve profitability would
be to take greater control of airport retail activities.
But its ambitions for Argentina’s airport
market have not run smoothly alongside those of
its principal concessionaire InterBaires. The
story of AA2000 and InterBaires is a story of
ups and downs, of court battles and political
wrangling, and it’s a drama that’s
reaching its endgame in the Buenos Aires courts
as DFNI goes to press.
So how has it come to this? At the beginning of
2000 the new airport authority started to renovate
Buenos Aires Ezeiza airport, and in a situation
that dramatically mirrors its part-eviction of
InterBaires today, AA2000 displaced InterBaires
from its shops and the two sides ended up in court.
Industry observers claimed that the strategy was
designed to force InterBaires out of the airports
altogether. But following intervention from Argentinian
president Fernando de la Rua a truce of sorts
was called, and eventually the AA2000 and InterBaires
parent company Exxel Group reached an agreement
that left the operator in place.
The first part of the deal involved the sale in
August 2001 of Exxel Group’s 45% share in
airport bonded warehouse operator Edcadassa; and
shortly afterwards hostilities were called off
completely as AA2000 announced the extension of
the InterBaires concession contract from 2009
to 2027. AA2000 announced that the operator would
have more retail space, and in better positions;
and that the rental would be based on a percentage
of sales, reflecting the economic realities of
a depressed Argentina.
At the ASUTIL conference in September 2001 in
Rio de Janeiro both sides confirmed their new
relationship. AA2000 commercial director Marcelo
Orfila confirmed that the deal was good for both
companies. "Better locations for InterBaires
mean more sales," he said, "and more
sales mean more revenue for both the concessionaire
and the airport operator."
Alejandra Basile, InterBaires then marketing manager,
said the new agreement would lead to major investment
in shop renovation at Ezeiza and other airports.
The companies also announced the formation of
a 50:50 joint venture to operate duty-paid sales
at airports in the AA2000 network.
At the time, speculation that AA2000 was only
months away from a full takeover of InterBaires
appeared realistic enough. The Exxel Group had
signalled its desire to sell the subsidiary but
no one was willing to pay the asking price. Press
comment in Argentina at the time mentioned Aldeasa
as a possible predator, although more than one
international operator has taken a long hard look
at InterBaires accounts over the past two years.
But the severe economic crisis and economic meltdown
that was about to besiege Argentina was to scare
away any potential bidders. Meanwhile duty-paid
shops were opened at Buenos Aires Aeroparque airport
and, in spite of the crisis, sales remained at
acceptable
levels.
The downturn in the country’s economic fortunes
in late 2001, the floating of the peso in 2002
and the continued bad news in 2003 meant that
the deal that looked good on paper was not working
in practice. New duty-free and duty-paid shops
had opened but sales were hard to come by. InterBaires
sales were reported to be down by 60% on the previous
year despite the profitable Aeroparque duty-paid
outlets. There was simply no money in the economy;
families and business executives had stopped travelling.
Neighbouring duty-free operators such as Neutral
and Zeinal Hermanos in Montevideo, Aldeasa in
Santiago de Chile and Brasif in Brazil were all
mourning the disappearance of the Argentinian
traveller.
Bank takeover
In spite of the economic turmoil in the first
half of 2002, rumours still circulated that InterBaires
was for sale. No European company was tempted
as the economic situation continued to look grim.
But parent group Exxel was suffering as much as
any big Argentinian company and was under great
pressure from the banks. In the late 1990s it
had expanded very quickly with a number of highly
leveraged deals. Most of its creditors were financial
institutions that were becoming increasingly nervous
about their returns.
It came as no great surprise when Deutsche Bank
announced in November last year that it had taken
control of Exxel’s 80% share in InterBaires.
Immediately the new shareholder announced the
appointment of Enrique Urioste as ceo and its
commitment to running the business to recoup some
of the $30m that Exxel owed the bank. Suppliers
and staff welcomed the news, as the possibility
of bankruptcy was staved off.
However the new tranquillity was soon disturbed
when AA2000 played its ace card. According to
the airport authority the concession contract
that everyone had assumed was valid until 2027
was never countersigned by the government, the
holder of the other 20% of InterBaires and was
therefore invalid. AA2000 insisted that it had
reminded the Exxel-controlled company to seek
the countersignature to the contract extension,
but this was never done.
AA2000’s Orfila told DFNI (Dec 1 2002):
“As you are aware, we reached an agreement
with InterBaires in September 2001 to extend the
contract from 2009 to 2027 and to add new retail
space. The government should have countersigned
the contract within six months. This was not done,
so a six-month extension was granted. No countersignature
was added to the contract so we had to inform
InterBaires last month that the revised contract
had lapsed and that we should revert to the terms
of the original contract. As of this month we
are operating under the terms of the original
concession contract.
"Obviously there is some confusion,"
Orfila added, "and we are already talking
to InterBaires new owners of to clarify certain
points. We also need to assess whether Deutsche
Bank is in the business for the long term or whether
it intends to sell the company quickly to recover
debts. We cannot understand why the bank did not
come and talk to us, because its relationship
with us is crucial to the success of the business."
AA2000 clearly upset at the change of ownership,
apparently without either party talking to the
airport operator, continued to insist that the
original, pre-extension contract was the valid
one.
Negotiations started almost immediately and although
there was disagreement, the climate of the meetings
between the two sides was said to be cordial.
A deal seemed likely; after all both would incur
big legal fees in running to the courts. Negotiations
continued throughout November and December and
both sides agreed a brief respite during the Argentinian
holiday period at the beginning of January.
Slow progress
However the mood was to change in the New Year.
Progress was slow to non-existent and both sides
hinted at problems, although they still hoped
an agreement would be possible.
In mid-February, AA2000 played another of its
aces. Given the lack of progress it applied to
the courts to remove InterBaires from the 1,800sq
m (19,400sq ft) granted to the operator when the
new contract extension was signed. AA2000 insisted
that all the other conditions of the original
contract were now in play, the contract was only
valid until 2009, and the rental payment reverted
to the fixed fee of $500,000 as opposed to 10%
of sales.
Newly-appointed InterBaires CEO Urioste said:
"The court judgement [to remove InterBaires
from 70% of its spaces] is totally arbitrary and
abusive. It is based on a law that cannot be applied
in this case. We will demonstrate in court that
a contract is in place until 2027 and that we
should be allowed to occupy the additional retail
space. We are up to date with all our payments
to AA2000. We will continue to fight for the rights
of our shareholders and the rights of our employees."
Damian Pozzoli, Deutsche Bank managing director
and the new president of InterBaires, confirmed:
"We will present all our evidence to the
judge. We feel we have a very strong case and
we will win. The courts will confirm that our
concession is valid until 2027."
He added: "This is part of a strategy by
AA2000 to acquire our company, which is profitable
and has a strong cash position. We are up to date
with all our payments, whereas AA2000 owes the
government money."
Pozzoli confirmed that AA2000 had tried to buy
the company during the contract negotiations but
its offer had been rejected; the company was not
for sale. Reports in the Argentinian financial
press indicate that AA2000 had offered $10m, some
way short of the $30m Deutsche Bank deal and light
years away from the $300m that Exxel Group was
reportedly looking for only three years before
the economic crisis.
AA2000 appears intent on occupying the retail
space vacated by InterBaires. A new duty-paid
outlet was opened at the beginning of March, only
to be closed several days later by the Aeronautical
Police as the new shop did not have its licence
in order. AA2000 said that it would occupy the
remaining retail space with new outlets over the
next few months.
Both sides now await the outcome of InterBaires
appeal. No one is sure if the appeal court will
find in favour of InterBaires or uphold the original
decision, which benefited AA2000. Both companies
will probably wait until then to reveal their
plans.
If AA2000 wins, it will obviously want to operate
all its airports’ retail activities as quickly
as possible. Further negotiations with Deutsche
Bank cannot therefore be discounted. AA2000 has
the expertise to operate the duty-free activities
on its own, but a partnership with a local or
European operator could have its advantages.
If InterBaires wins, it may decide to continue
to operate the concession. Confirmation of the
concession until 2027 would increase the value
of the company. The Argentinian economy is beginning
to recover, but it still has a long way to go.
Although Deutsche Bank insists the company is
not for sale, it must be tempted to get a quick
return on its outlay. Nevertheless it cannot be
discounted from operating the concession for a
further two or three years to wait for a more
favourable economic environment. As Urioste says:
"Deutsche Bank has a long history of being
an active shareholder of different companies.
It’s not a typical financial institution
that’s nervous about running a commercial
company. Deutsche Bank didn’t jump into
this business willingly; it was because of an
unpaid debt. But they are not in a hurry and if
they have to wait until this process runs its
course then they will do that."
Uncertain outlook
But what of Deutsche Bank’s real plans?
If it were to sell the company, it is difficult
to see which international operators would be
interested at present, given the uncertain outlook
in Argentina and the Mercosur region. One leading
international operator tells DFNI: "If I
asked my shareholders for cash to buy a company
in Argentina, they would probably call an extraordinary
meeting and ask for my dismissal."
It is difficult to put a price on a company whose
sales have dropped from $125m a few years ago
to an estimated $35m this year. Only a few months
ago InterBaires was telling suppliers that its
close relationship with AA2000 was a key aspect
of its business. But given the uncertainty over
the contract, this relationship will have an important
influence on the value of the company.
Regional operators such as Waked Internacional,
Motta Internacional, Duty Free Americas and Operadora
de Aero-Boutiques owner Areas could be interested,
but the uncertain outlook probably means any expansion
strategies will be restrained by financial
concerns.
Discounting these groups and leaving risk capital
companies aside, then the most interested party
would appear to be AA2000 itself. The company
already employs a number of skilled retail veterans
who could run InterBaires. Orfila does not deny
the authority’s interest, but says many
other matters need to be clarified first.
Only time will tell; both companies await with
interest and expectation the verdict of the court.
As both companies trade insults, suppliers look
on with a degree of nervousness. The appeal court
will probably announce its decision this month.
Then all sides can begin to make their plans for
the future.
After almost three years of falling traffic
at Argentinian airports, airport operator Aeropuertos
Argentina 2000 (AA2000) posted an increase in
passenger numbers last month.
ARGENTINA. After almost three years of falling
traffic at Argentinian airports, airport operator
Aeropuertos Argentina 2000 (AA2000) posted an
increase in passenger numbers last month. Just
over 1.1m passengers used AA2000 airports in January,
a rise of 6.8% on the same month in 2002.
AA2000 commercial director Marcelo Orfila told
DFNI the increase was "small but significant"
and said it would have positive implications for
retail.
He added: “We have seen strong traffic growth
at the tourist airports of Bariloche and Iguazu,
but we have also seen increasing numbers leaving
Buenos Aires Ezeiza for international destinations
in North and South America and Europe. The economy
is settling down and we are hoping for some stability
this year, following the elections."
ARGENTINA. Following a short break coinciding
with the southern hemisphere summer, Argentinian
duty-free operator InterBaires and privatised
airport operator Aeropuertos Argentina 2000 are
back at the negotiating table.
By John Gallagher
ARGENTINA. Following a short break coinciding
with the southern hemisphere summer, Argentinian
duty-free operator InterBaires and privatised
airport operator Aeropuertos Argentina 2000 (AA2000)
are back at the negotiating table.
The two parties are attempting to resolve a dispute
that arose after the change of ownership at the
duty-free operator. When Deutsche Bank took control
of Exxel Group’s 80% share in InterBaires
in December last year, AA2000 cast doubt on the
validity of the contract extension signed in 2001,
which added almost 1,000sq m (10,765sq ft) of
retail space and lengthened the contract duration
until 2027.
AA2000 commercial director Marcelo Orfila told
DFNI: "We are talking to the other parties
involved and there is a common aim to reach an
agreement. We have had several meetings with InterBaires
and more meetings are planned. We hope to be able
to announce an agreement shortly."
lndustry observers have reported improved traffic
figures at Buenos Aires Ezeiza airport as national
carrier Aerolíneas Argentinas unveiled
plans to increase international services to Tokyo
and Beijing, as well as extending services from
Madrid. As the airline returns to profitability
the company has also announced plans to create
subsidiaries in Chile, Bolivia, Uruguay and Paraguay.
Aeropuertos Argentina develops
airport services arm
28-Mar-2002
A team from Aeropuertos Argentina 2000 attended
the Duty Free Show of the Americas to unveil a
new service and new retail concept.
"We are a privately-owned company with 33
airports in Argentina," said commercial director
Marcelo Orfila. "So we feel that we have
some expertise to offer other airport operators.
What we're offering is expertise in the field
of communication and marketing under the name
AirCom. We can help companies in everything from
selling light boxes, to promotion of the duty-free
shops, to banners and totems."
In addition the company has set up a 50-50 joint
venture with the Exxel Group, owner of duty-free
operator InterBaires, to develop duty-paid shops
in airports.
"We will be selling some traditional duty-free
products such as accessories and fragrances. But
they will also contain a section dedicated to
regional specialities, including food and wine,
leather goods and souvenirs. The concept is called
Tierra Argentina. The first one has already opened
in the airport of Aeroparque in Buenos Aires and
we will roll the concept out to all other airports."
At Orlando, Orfila was accompanied by former InterBaires
executive Alejandra Basile who has joined the
airport group as a consultant.
03-Dec-2002
By John Gallagher
Given the state of the Argentinian economy and
the continuing liquidity problems for the once
all-powerful Exxel Group, the recent purchase
of Exxel’s 80% share in InterBaires by Deutsche
Bank Trust Americas Corp came as no surprise.
But the move raises as many questions as it answers.
How long will the company’s contracts be
at Argentina’s principal airports? How much
retail space will InterBaires control and where,
particularly at Buenos Aires Ezeiza and Aeroparque
airports? And what is the future of the duty-paid
retail contracts controlled by Exxel under the
terms of last year’s much-trumpeted long-term
agreement between Exxel, InterBaires and airport
authority Aeropuertos Argentina 2000 (AA2000)?
As the story unfolds, the trade eagerly awaits
news of what plans Deutsche Bank has for the retailer
in the long term.
InterBaires chairman Damian Pozzoli informed suppliers
on November 22 about the change of shareholder,
and announced that well-known industry figure
Enrique Urioste had been appointed ceo to replace
Exxel-appointed Gustavo Sanchez. Pozzoli insisted
that operations would continue as normal, which
for now appears to be a sensible approach for
Deutsche Bank, a financial institution whose knowledge
of the duty-free business can only be described
as limited. However, almost immediately questions
began to surface about the length of the retailer’s
duty-free contract (last year extended from 2009
to 2027) and the size and location of the retail
outlets that were greatly expanded under the new
contract (DFNI Sept 1 2001).
AA2000 commercial director Marcelo Orfila tells
DFNI: "As you are aware, we reached an agreement
with InterBaires in September 2001 to extend the
contract from 2009 to 2027 and to add new retail
space. The Argentinian government should have
countersigned the contract within six months of
the original deal. This was not done so a six-month
extension was granted. No countersignature was
added to the contract and we had to inform InterBaires
last month that the revised contract had lapsed
and that we should revert to the terms of the
original contract. As of this month we are operating
under the terms of the original concession contract."
Uncertainty discourages bids
If this decision is upheld, InterBaires must return
to the original 883sq m (9,500sq ft) it operated
until the end of last year, as described in the
original contract. According to Orfila, the additional
1,800sq m (19,375sq ft) allocated last year must
be returned to the airport operator by December
31 this year.
"Obviously there is some confusion,"
Orfila adds, "and we are already talking
to the new owners of InterBaires to clarify certain
points. We also need to assess whether they are
in the business for the long term or whether they
intend to sell the company quickly to recover
debts."
He says: "We cannot understand why Deutsche
Bank did not come and talk to us because their
relationship with us is crucial to the success
of their business." Talks on the contract
issue were continuing as DFNI went to press, although
several regional observers say it would be a logistical
nightmare to force InterBaires to close its new
stores and to continue operating only with the
old ones, as if it were possible to turn back
the clock.
But what of Deutsche Bank’s plans? If it
was to sell the company, it is difficult to see
which international operators would be interested
at present, given the uncertain economic outlook
in Argentina and the Mercosur region. One leading
international operator tells DFNI: "If I
asked my shareholders for cash to buy a company
in Argentina, they would probably call an extraordinary
meeting and ask for my dismissal."
It is difficult to put a price on a company whose
sales have dropped from $125m a few years ago
to an estimated $35m this year. Only a few months
ago InterBaires was telling suppliers that its
close relationship with AA2000 was a key aspect
of its business. But given the uncertainty over
the contract, this relationship will have an important
influence on the value of the company.
Regional operators such as Waked Internacional,
Motta Internacional, Duty Free Americas and Operadora
de Aero-Boutiques owner Areas could be interested
but the uncertain outlook probably means ambitious
expansion strategies will be curbed due to financial
concerns.
If we discount these groups and leave risk capital
companies aside, then the most interested party
could be AA2000 itself. The company already has
a number of skilled retail veterans in-house who
could run InterBaires. Orfila does not deny the
authority’s interest but says many other
matters need to be clarified first.
AA2000 did not comment on the future of the joint-venture
company set up by AA2000 and InterBaires in September
2001 to develop duty-paid retail sales at several
Argentinian airports. And at the time of going
to press the future of IOSC, the InterBaires purchasing
arm, also taken over by the Deutsche Bank subsidiary,
remains unclear.
The relationship between InterBaires and AA2000
has often been described as a constant struggle
between boyfriend and girlfriend with few dull
moments. If the marriage was finally cemented
last September, could it now be on the rocks?
Only the next few weeks will tell whether the
two companies can get back together and re-establish
what seemed to be the dream concessionaire/airport
authority relationship.
Aeropuertos Argentina 2000 announces
airport services and duty-paid developments
16-Apr-2002
ARGENTINA.
A team from Aeropuertos Argentina 2000 attended
the Duty Free Show of the Americas to unveil new
service and retail concepts.
“We are a privately-owned company with 33
airports in Argentina,” said commercial
director Marcelo Orfila. “We feel that we
have some expertise to offer other airport operators.
What we’re offering is expertise in the
field of communications and marketing, under the
name AirCom. We can help companies in everything
from selling light boxes, to promotion of the
duty-free shops, to banners and totems.”
In addition the company has set up a 50:50 joint
venture with the Exxel Group, owner of duty-free
operator InterBaires, to develop duty-paid shops
in airports.
”The concept is called Tierra Argentina,
and will be selling some traditional travel-retail
products such as accessories and fragrances. But
our shops will be built around a section dedicated
to regional specialities, including food and wine,
leather goods and souvenirs. The first one has
already opened at Aeroparque in Buenos Aires,
and we will roll the concept out to other airports.”
Aeropuertos Argentina 2000 commercial director
Marcelo Orfila talks to DFNI about the tough times
the country faces, and why diversifying the business
is the way forward.
Aeropuertos Argentina 2000 commercial director
Marcelo Orfila talks to DFNI about the tough times
the country faces, and why diversifying the business
is the way forward.
Airport authority Aeropuertos Argentina 2000 (AA2000)
commercial director Marcelo Orfila isn't panicking.
While he describes the economic situation his
country faces as Argentina’s worst crisis
in history, he’s going to remain calm as
the storm rages around the country’s aviation
business.
After all, he says, we’ve been down this
road before. "Argentina has been through
a crisis every 10 years. I’ve seen it in
every job I’ve worked in, and every time
we’ve recovered. We’re adapting to
it this time too." But it’s not just
the economy that requires a quick fix. Orfila
says: "One of the main problems in predicting
the future is that we have no clear idea of where
the country is going economically. After the elections
next year, the president needs to be very clear
on the government’s aims for Argentina in
the world. That can help change occur, and it
can happen quickly."
AA2000 operates Argentina’s 33 airports.
For the airport authority’s revenues at
Buenos Aires Ezeiza, the fall in passenger numbers
remains the biggest issue. "Overseas travel
by Argentinians is suffering from the dollar rate.
We make our money in pesos but it’s then
difficult to travel overseas and spend it. And
airlines have also cut schedules to cut costs,
which doesn’t make life any easier."
Playing by the rules
The authority is also forced to defend its privatised
airport business against regulations which have
become outdated by the current crisis. Orfila
explains: "Our concession is based on traffic
levels, and it also stipulates that we pay in
US dollars. With the devaluation, clearly the
figures don’t add up, and we’ve already
had four court judgments in our favour on this
issue. On traffic levels, we forecast 25m passengers
this year, and we’ll only have 10m but we
are still supposed to pay based on the previous
estimate. Not only this, but last year the government
reduced tariffs for domestic airlines by 50%.
It changed our revenue forecasts but it was out
of our control. All of this means the rules have
been changed completely." As all the authority’s
investments have been in US dollars until now,
it is also asking tough questions about the nature
of future investments.
But AA2000 is mounting a strong defence and is
taking matters into its own hands where possible.
"We’ve started taking passenger taxes
at Ezeiza and Aeroparque ourselves rather than
letting the airlines do it. It took too long for
the payments to come through to us. And we’re
working hard on renegotiating with our support
services and talking to airlines to maintain the
system until things improve."
Orfila says InterBaires has made some admirable
changes to the airport stores in Buenos Aires,
and says the operator's long-term contract to
2027 can help it ride out the tough times. InterBaires
has also benefited from moving from a flat fee
payment to a percentage of sales, which has helped
it survive. "Their contract helps them a
lot,” admits Orfila, "but when we agreed
the extension we were sure traffic would grow
and our revenues would increase. But they’ve
implemented cost savings, they have new retail
concepts and they will get back to their previous
sales levels eventually. I think they’re
better off now than they were six months ago.
And it’s good to have a long-term transparent
relationship with an operator and be open about
your shared goals."
AA2000 has made some of its own retailing investments.
In partnership with InterBaires owner Exxel Group,
it has opened a series of duty-paid shops. "We’re
expanding the Ezeiza concept to Mendoza and hopefully
then to Bariloche and Cordoba,” he says.
The group has also started up a chauffeur service
from the airports; it has its own food concessions
company and owns Airport Media, which handles
all the advertising at the airports. "It’s
all about improving those areas of the business
that we can control, whether by ourselves or through
our concessionaires," he adds.
Looking overseas for profit
The company is not just looking at staying afloat
at home; it wants to grow overseas too, mainly
through its airport consulting arm.
"Since September 11 we’ve had to look
to diversify to make money. We’re interested
in all the privatisations that come up in this
region, and we even have a business in Armenia.
We know how to conduct the process for an airport
system or government; we can analyse the situation
and offer the best solution for that particular
location. Our experience shows that you need to
have a deal that is elastic and that is adaptable
to changes in traffic. We also know that wherever
you go, the airlines will claim your airport is
expensive, whether you charge $1 or $5 per square
metre."
Back to Argentina, and Orfila believes the long-term
outlook is still good. "Traffic will begin
to recover, and it will end up being better than
last year for sure. The domestic business will
be stronger as everyone is staying at home, travelling
within the country, so domestic airports are growing
compared to last year."
There is reason for hope from the international
business too, he insists. "This country has
a lot to offer, from hunting and fishing to skiing
or sightseeing. And even if the passenger numbers
are lower from outside South America, you get
quality spend. Where a Brazilian will spend $1,000
on a trip, a European or American might spend
$5,000. Commercially, it's quality, not quantity,
that counts."
ARGENTINA. As DFNI went to press, talks were
continuing over the future of InterBaires contracts
at Argentina’s leading airports following
the company’s takeover by Deutsche Bank
Trust Americas Corp on November 15.
By John Gallagher ARGENTINA. As
DFNI went to press, talks were continuing over
the future of InterBaires contracts at Argentina’s
leading airports following the company’s
takeover by Deutsche Bank Trust Americas Corp
on November 15.
The bank assumed an 80% controlling share in the
business from previous owner Exxel Group, which
has been selling off many of its interests in
the country. Well-known regional industry figure
Enrique Urioste has been appointed ceo of InterBaires.
However airport authority Aeropuertos Argentina
2000 (AA2000) has questioned the viability of
last year’s agreement to extend InterBaires
duty-free contracts to 2027. AA2000 commercial
director Marcelo Orfila claimed the government
had not approved the extension agreement, and
said that contracts would run only to 2009.
"Our understanding is that we are working
on the original contract,” he told DFNI.
"The revised contract [to 2027] was never
countersigned by the government and has now lapsed.
We advised InterBaires of this at the end of last
month. Clearly there is some confusion and we
will try to clarify this with the new owners.
We will talk to them to see in which direction
they plan to take the company."
He also claimed that the extension of space awarded
to InterBaires in the new agreement was invalid.
The operator has gained almost 1,000sq m (10,800sq
ft) of new space since last year’s agreement.
"We’ve just got married and are now
on our honeymoon." That was how InterBaires
marketing manager Alejandra Basile described the
Argentinian operator's relationship with airport
authority Aeropuertos Argentina 2000.
"We’ve just got married and are now
on our honeymoon." That was how InterBaires
marketing manager Alejandra Basile described the
Argentinian operator's relationship with airport
authority Aeropuertos Argentina 2000, with whom
the retailer has just signed a 17-year extension
to its duty-free contract (DFNI 15). Basile and
AA2000 commercial director Marcelo Orfila took
the stage at ASUTIL to explain the reasons behind
the deal that has caused many an envious glance
toward developments at Buenos Aires.
Orfila began by explaining how the new contract
would operate, with a concession fee based on
a percentage of InterBaires turnover replacing
the fixed fee that had been in place before the
new deal. "There will be a 50% increase in
retail space at Buenos Aires Ezeiza and our other
principal airports, related to the growth in air
traffic." Orfila said that 1,500sq m (16,140sq
ft) would be dedicated to duty-paid shops under
the Aeroparque concept, which AA2000 hopes to
further develop as a brand.
Orfila was bullish about the future despite the
economic gloom in Argentina. "As far as our
international business is concerned, we haven’t
suffered too much. This goes against the current
economic picture. In the past, a lot of product
categories suffered because of a lack of retail
space, but that is going to change. And spend
per passenger has held up well in 2000."
Orfila added that AA2000 was rebuilding Cordoba
airport which handles 2m passengers a year and
also developing its facilities at Bariloche and
Iguazu.
Basile went on to describe the work now being
carried out at Buenos Aires. "We will start
the renovation with two arrivals stores which
will open on October 16. Our departures stores
will be unified to form one 1,950sq m (21,000sq
ft) outlet to open on December 1. And by the end
of 2003 we will have further departures stores
focusing on newer categories such as fashion and
toys. Historically we have concentrated on the
traditional duty-free items, but with the extra
space we will have, we’ll be giving more
space to smaller categories."
One of the world’s longest airport retail
tenures has just been agreed after a pioneering
deal between Argentinian airport authority Aeropuertos
Argentina 2000 (AA2000) and the Exxel Group, parent
company of the country’s dominant travel
retailer InterBaires. In a world exclusive, InterBaires
CEO Randy Emch and AA2000 commercial director
Marcelo Orfila talked about the significance of
the new relationship to Martin Moodie.
One of the world’s longest airport retail
tenures has just been agreed after a pioneering
deal between Argentinian airport authority Aeropuertos
Argentina 2000 (AA2000) and the Exxel Group, parent
company of the country’s dominant travel
retailer InterBaires.
In a world exclusive, InterBaires CEO Randy Emch
and AA2000 commercial director Marcelo Orfila
talked about the significance of the new relationship
to Martin Moodie.
It is arguably the most significant deal to be
struck between an airport authority and a duty-free
retailer anywhere in the world during the past
decade. An agreement that has resulted in an unprecedented
ultra long-term extension to a retail contract
and one which paves the way for a 50% increase
in shopping space over the next two years alone.
The location is Argentina and the two protagonists
in the conclusion to this fascinating commercial
drama are Aeropuertos Argentina 2000 (AA2000)
and Exxel Group. In the past few weeks, the privately-held
airport management company and Exxel (parent company
to InterBaires) have agreed a 17-year extension
to InterBaires exclusive retail concession at
the country’s leading airports (taking the
company’s contract to 2027).
Great news for InterBaires, boosted further by
the fact that Exxel will also take over most of
the duty-paid activities at AA2000-controlled
airports.
The deals are part of a wider alliance between
AA2000 and Exxel, which recently saw the latter’s
45% stake in airport bonded store company Edcadassa
acquired by the
airport authority.
For the two organisations the deal offers mutual
advantages. InterBaires will now enjoy an almost
unparalleled security of tenure, encouraging it
to invest heavily in the country’s fast-developing
airport retail scene.
At a stroke, the value of InterBaires has also
soared; a considerable coup for the company’s
CEO Randy Emch who assumed the reins shortly after
Exxel acquired the retailer in 1997.
AA2000, meanwhile, has gained an improvement in
its contract terms. A higher concession payment
based on a percentage of revenue instead of the
previous flat fee will encourage the authority
to work hand in hand with the retailer to improve
penetration and spend per passenger.
And the landlord will enjoy a long-term relationship
with a retailer wholly committed to developing
the allure of the country’s leading airports.
Just as significantly, the alliance marks the
patching up of a relationship that had soured
dramatically a year earlier.
At that point, AA2000’s main shareholder
Eduardo Eurnekian was involved in a war of words,
all of them bitter, most of them public, with
Exxel chairman Juan Navarro. As the public wrangling,
which stemmed mainly from Eurnekian's outrage
over Exxel's acquisition of a 3.4% stake in AA2000,
was splashed across the country’s newspapers
last May, few would have wagered on such a harmonious
conciliation little more than a year later.
That conciliation came after the country’s
president Fernando de la Rua demanded that the
parties end their differences and appointed a
mediator to achieve that end. The results would
make any marriage counsellor proud. InterBaires
already enjoyed a long-term contract by industry
standards. The new one extended from 2010 to 2027
is the stuff of dreams for any retailer.
InterBaires CEO Randy Emch knows exactly how important
it is to his company. "For any airport duty-free
operator, the assets of the company are its concessions
and the rights to exploit the business that you
have in those airport concessions," he says.
"From that point of view, we have extended
the term of our contract greatly; and we have
expanded our space enormously, both the quality
and the quantity. We have also extended into the
duty-paid business so the value of the business
has improved dramatically.
"We have a much more secure foundation for
a long period of time, plus more space and that
is a great benefit."
The new deal will boost duty-free selling space
over the next 24 to 30 months, says Emch. "We
will be receiving approximately 50% more space
in the principal airports and the principal locations.
And in quality terms, the spaces we will get will
be better located, better designed and more usable."
By the year 2003 all incoming international passengers
will have to pass through the shops, after immigration,
before collecting their luggage. Currently the
shops are located before immigration, meaning
that most passengers ignore them in the race to
get into the entry queues. Also by 2003, changes
in passenger flows will mean that over half of
departing travellers will have to walk through
the stores.
It’s an encouraging and rare sighting of
that virtually extinct species, the landlord/retailer
partnership, working together in perfect and profitable
harmony. AA2000 commercial manager Marcelo Orfila
is very enthusiastic about the new relationship.
"Even more than 50% of departing passengers
may have to pass through the stores because we
are giving InterBaires a much bigger store in
Ezeiza departures," he explains.
"The new stores will be open stores, so this
will not only affect the business of InterBaires,
but the revenue for the airport. Our revenue today
is not at its optimum compared to other airports."
That should change soon. More and better space
will mean big opportunities for new product categories,
Emch affirms. "We will bring in new products
and new brands," he enthuses.
"There are whole categories of merchandise
that we did not commercialise previously. Not
because we did not think we could not sell them,
but because of restricted space, so we focused
on the products with the highest possibilities,
highest rotations and which were simpler to sell.
"For example, we ignored sporting goods.
And Argentinian wine is a wonderful product. With
this new space we can start developing such areas.
Seemingly every airport in the world sells local
souvenirs, yet we have not because it requires
a lot of space which we did not have.
The new deal means fewer but bigger stores. "We
currently have too many stores," says Emch.
"There are too many small stores and not
enough big ones. In terminal A departures, for
example, we have four stores and we will change
to just one. In arrivals, in the same terminal,
we have three stores; instead we will have one."
The advantages are enormous, both in customer
service terms and the fact that InterBaires will
no longer have to duplicate sales staff across
its various stores. Similarly, duplication of
merchandise and promotions will be avoided and
suppliers will be able to have larger fixtures.
It will also allow room for new companies to enter
the Argentinian market.
"Right now, we have very costly and inefficient
duplication of merchandise in two sectors of the
same departure hall, because of a separation of
a flow in the passengers," says Emch. "We
will unify these two larger single stores, so
not only do we have a 50% increase in space, but
we do away with the duplicate space. I am thrilled
about the efficiency aspect of having fewer, but
larger, stores in addition to more space."
Another improvement will be what Emch describes
as optimal gate usage. InterBaires is exchanging
information with AA2000 about the flights
that have the highest spend per passenger, to
ensure that those flights use the gates which
have the best visibility of the shops. He notes:
"That represents a level of sophistication
in the relationship between the airport and the
retailer which just does not exist in most places.
"There is a certain degree of trust and alignment
of interest in this new deal. Yes, 27 years is
unusual, but when you start looking at the investment
plans that AA2000 have, the number of airports
they need to remodel and the opportunity for new
shops in the smaller airports in the interior,
you realise we need to have a long term horizon
as well.?
Orfila says that the once rocky relationship between
privately-held AA2000 and the government is now
very good. AA2000 is a major investor in the country’s
tourism infrastructure, through not only its airports
but also the recently-acquired LAPA airline
as well as taking a stake in another domestic
carrier Southern Winds.
Orfila says retailer and landlord will work together
to better communicate the shopping offer to passenger.
"This will develop the potential of the business
in a very significant way," he says.
Adds Emch: "We will coordinate publicity
and advertising. So, for example, when we have
a major fragrance launch, you will see the advertising
in our stores and in the check-in area. So the
passenger will see a consistent message from the
point at which they arrive at the airport to the
point of purchase.”
It’s the most positive of stories. Yet,
perversely, it comes at the worst of times for
the country as a whole. Faced by near default
on some $130bn of public debt, Argentina has been
trapped between a sharply slowing economy, rising
debt payments and an anti-inflation policy of
pegging the peso to the US dollar. The end result
has been protracted recession and unemployment
exceeding 20%. More than a third of the population
is said to live below the official poverty level.
Orfila though, like most Argentinian businessmen,
has seen it all before. “I have had many
years of doing business in Argentina, and we had
experience of passing through this sort of crisis
many times," he says. “Although this
particular crisis has been going on for a long
time, my personal impression is that while Argentina
is suffering, there are many positive things happening.”
He cites a sharp reduction in the size of government
bureaucracy at both national and provincial level
which he says will address the vicious cycle of
a cash-strapped government needing higher taxes
to fund its own operations. July’s zero
deficit law, which called for big cuts in state
salaries and pensions to help balance the budget,
gives further cause for optimism.
"I believe that Argentina has a better future
than most people expect,” says Orfila. “The
changes we are seeing in Argentina both in the
political and business sectors are very important
to the future.”
Emch admits the economic gloom has made retailing
tough but he, too, sees solid grounds for optimism.
"We have had to be a bit more agile and a
bit more creative but we have managed to
do a very good job. While supermarket sales were
declining, for example, ours grew. Yes, sales
are slightly off right now, but that is really
because [national carrier] Aerolineas Argentinas,
which is having financial problems, has cut back
all their international flights which normally
account for 23% of passenger traffic.
"But that will resolve itself in time. The
airline will find new investors or a new company
will take over the international routes of Aerolineas,
and seat capacity will come back on stream, so
the passenger rate will go back to its normal
level."
While it’s not quite a case of "crisis
what crisis", Emch believes that InterBaires
has been relatively immune from the worst economic
ravages. And with such a long-term deal in place,
the company will be much better placed to ride
out future economic slumps.
For AA2000, the future looks rosy. "If InterBaires
wins, the airport wins,” says Orfila. "Currently,
they are losing a lot of sales because of the
poor locations. InterBaires is already a very
good retailer, they try to maximise everything
and analyse every square metre. With the new space,
they will have the chance to increase sales drastically."
Emch concludes on a similarly upbeat note: "This
is a new chapter in the company’s history,
a very positive one. There is a huge amount we
can do together now. It’s also a completely
new chapter in the relationship between our group
and the airport. Over the years you will see a
lot of great things happening in our area."
Duty-paid debut for Exxel InterBaires parent company Exxel Group
will take over most of the duty-paid retailing
rights in AA2000?s 33 airports under the terms
of the new alliance.
The only exceptions to the group’s exclusive
contract are food and beverages; books, newspapers
and magazines; jewellery (H Stern); pharmacies;
a local semi-precious stone business; and a small
kiosk business selling cigarettes by the pack,
candy, chewing gum and other small items.
So what has happened to Weitnauer's duty-paid
business, begun in 1999? And once seen as a potential
long-term threat to InterBaires?
Orfila replies: "That business will disappear.
The airports are being refurbished. The old spaces
will disappear and the new spaces are being given
to this new company."
In some cases existing short-term contracts will
be allowed to complete their terms, Orfila says.
He adds: "We are going to adapt the [duty-paid]
business according to the size of the airport
and the traffic. At the smaller ones, we will
have smaller stores. But the idea is to try to
take to all the airports a new type of business
and new interior style." DFNI says: A deal to shake the duty-free
world The new relationship between AA2000 and
Exxel has profound implications for the duty-free
world. In an industry dominated by short-term
contracts ranging from three to five years, long-term
thinking and investment are constantly discouraged
by the need for an immediate return. The airport
may think it benefits from the bidding up process
but the end loser is ultimately the consumers,
who do not get the retail offer they deserve.
What were AA2000's aims during the contract negotiations?
Simple, replies Orfila: "We wanted upscale
stores at the airports, and to give an international
image. It is easier for us to handle one contract
than to handle lots of contracts in 33 airports."
Notes Emch: "Because of the historic, legal
issues between the two companies we did not invest
as much as I would have liked over the last few
years. With this new agreement, the floodgates
are open and we are investing a great deal of
money in the airport.
"We are talking about very substantial investment
for our company, and the objective of both InterBaires
and the airport authority is to have shops in
this country every bit as good as those you would
find at Heathrow, at Charles De Gaulle, at JFK
or Hong Kong.?
With such a long-term deal in place, and given
the meteoric rise in retailing standards under
Emch's stewardship to date, few would bet against
that. Make no mistake, the consumer will be the
real winner here. Key aspects of the new agreement between
AA2000 and Exxel Group/InterBaires:
Duty-free retailing contract at AA2000 airports
extended from 2010 to 2027
Change from flat fee to percentage of revenue
Contract to cover duty-paid [certain stores
excluded] as well as duty-free
Approximately 50% increase in retailing space
over the next two years
04-Sep-2001
Aeropuertos Argentina 2000 (AA2000) has granted
InterBaires a 17-year extension to the retailer's
duty-free contract.
The deal extends the contract from 2010 to 2027
with payment terms changing from a flat fee to
a percentage of revenue. It is a huge boost for
InterBaires especially as the retailer's parent
company Exxel Group has been granted the duty-paid
rights at AA2000's 33 airports.
As a result of the agreement, InterBaires will
invest heavily in the airports, boosting retail
space in Buenos Aires' main gateway, Ezeiza airport,
by 50% over the next two years.
InterBaires CEO Randy Emch told TRW: "We
have extended the term of our contract greatly;
and we have expanded our space enormously, both
the quality and the quantity. We have also extended
into the duty-paid business-so the value of the
business has improved dramatically."
AA2000 commercial director Marcelo Orfila was
also upbeat about the deal: "This will develop
the potential of the business in a very significant
way," he said. "If InterBaires wins,
the airport wins. Currently, they are losing a
lot of sales because of the poor locations."
An exclusive interview with Emch and Orfila
appears in the September 1 issue of Duty-Free
News International, out now.
