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By Neal Dihora, CFA | 11-10-2011 12:00 AM

Taking Off With Mexican Airports

A diversified portfolio of properties lets Pacific Airport Group withstand fluctuations at any one airport, says director of investor relations Miguel Aliaga.

Neal Dihora: Hi. I am Neal Dihora, equity analyst. At Morningstar, we try to focus on companies with sustainable competitive advantages; what we call economic moats. Here with me today is Miguel Aliaga from Grupo Aeroportuario del Pacifico, or we'll call it GAP from here on out.

Hi Miguel, how is it going?

Miguel Aliaga: Very good. Thank you.

Dihora: So, your company operates 12 airports in Mexico, and one of the things that's really interesting is that you have a long-term time frame for the licenses. Can you maybe help us understand how that happened, how you got them, and maybe how long they last, the specific time frames?

Aliaga: Yes. This was started in 1998 when the government decided to privatize the airports after looking at the airports and saw no investment opportunities because of course the government was more focused on putting money in some other areas. So, they decided to privatize the airports. Initially, there were four groups. We are the largest among the private ones, so we would have three groups; there is GAP, which is the company I represent, then there is Grupo Aeroportuario del Sureste, and then there is Grupo Aeroportuario del Centro Norte. Also Mexico City has the largest airport, but it’s still owned and operated by the government. So, since 1998, we have been privatized. We had our IPO February 2006. One of the advantages that we have is of course natural monopolies. We have 12 airports around the Pacific Coast and the Baja California region and some of the central part of Mexico.

Dihora: You have a 50-year license to operate these airports?

Aliaga: It's a 50-year license, and it's reviewed each five years in terms of what we need to invest in the airports, and what’s the traffic expectation, for example.

Dihora: Yes, specifically that five-year thing that you're talking about is called the master development plan, and it allows you to generate around 80% of your revenues. How do you go about negotiating that with the government entity?

Aliaga: Yes, let's say that if, for example, we are running now from January 2010 to December 2014 with these maximum rates that were approved in December 2009, we start working in the middle of 2008, for example. We then finally we released the draft in the beginning of 2009, and by mid-2009, that is when the government has the documents and reviews finally what's there.

What we usually do is, well, we look for the following five years in terms of traffic and then we look for the current facilities we have. So, we say, well with those current facilities, what additional investments do we require in terms of capital expenditures. There's a formula that is included in the law, in the concessions that we have, a formula that never changes. Of course, what changes is only the result, which is the maximum rate.

So, we solve the formula, and then we end up on a maximum rate or at a certain level, which means that we can charge that amount of money at the maximum on a per-passenger basis. This is limited to the per-passenger basis, but this means that if traffic goes beyond the forecast in reality, of course, that's a benefit. Of course, if traffic goes below the forecast, that's part of the risk. And that's only for the analytical side. Of course, for commercial, it's not included there.

Dihora: Right, and I think recently you guys have talked about trying to own companies or airports in other countries. Is there any regulation restrictions from Mexico that doesn't allow you to do that?

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