By Wendy Gallagher

Brazil’s recession and political scandals are adversely affecting at least one airport operator in the country.

RIOgaleão, the consortium that paid approximately US $7.9 billion in 2014 for a 25-year contract to operate Rio de Janeiro’s international airport, is experiencing difficulty securing long-term financing to pay for the project.

Brazilian and international news services are reporting that the Brazilian government, under the leadership of its new president Michel Temer, is looking at various options to resolve the financial struggles faced by RIOgaleão. Those include re-tendering the contract, bringing in new investors, or reducing the stake that Infraero and Brazilian firm Odebrecht Transport have in the business.

RIOgaleão is comprised of Changi Airports International, Odebrecht, and Infraero (the State-run airport operator which retained 49% ownership in the deal). Former Odebrecht CEO Marcelo Bahia was recently sentenced on corruption charges linked to kickback schemes connected with Brazil’s state-run oil firm Petrobras. The scandal, linked to former Brazilian President Dilma Rousseff (who was impeached in late August), contributed to her downfall.

The Latin America Report contacted RIOgaleão about possible financing problems reported by Brazilian media, and was given this written reply:

“In long-term concessions of this size, the early years are of high investment and consequent limitations on free cash flow, which is why the long-term loan, provided in the bidding documents, is a condition for its viability. The unpredictable significant decline in GDP (Gross Domestic Product) for two consecutive years, coinciding with the years of greatest investment, added to the non-release of the long-term loan, affected the expected cash flow, requiring the re-programming of annual payments originally provided, without changes in their total value and with no loss to the government. The concessionaire believes that it will be possible to reach an understanding between the parties to take the necessary re-balancing of the contract in order to ensure continuity in a sustainable way thus allowing the constant improvement and growth of the airport.”

The consortium also referred to its recent success during the 2016 Olympic Games, held in Rio de Janeiro.

“RIOgaleão have invested R$ 2 billion for the complete upgrade of the airport and it counted on R$ 1.8 billion provided by its shareholders’ resources – Changi, Odebrecht TransPort and Infraero – in addition to a R$ 1.1 billion short-term financing from BNDES and the airport revenue, generated by its operations. Due to those investments, the operation during the Olympics, including the most challenging day of record flow of passengers (85,000 people), has become a widely recognized success. The new airport is one of the greatest legacies of the Olympics. A new 100,000 m² area was concluded, as well as a new parking garage and new services and technology solutions that increased the airport’s efficiency and improved the passenger experience, in addition to a renovation of all basic systems (electrical, air conditioner, sound and others).

The Latin America Report also contacted duty free retailer Dufry, who recently renewed contracts in the Rio airport until 2023 for its duty free business, and 2021 for its duty paid segment.

Dufry’s corporate communication department replied with the following statement: “We cannot comment on ongoing developments since any statement at this point in time would have a pure speculative character.”

Rio’s Tom Jobin International Airport is the second busiest airport in Brazil and the fourth busiest in Latin America. It can accommodate 30 million passengers a year.