The Public Sector Pension Investment Board said on Tuesday that it will take a 40-per-cent stake in the operating company that runs Puerto Rico’s largest flight hub, Luis Munoz Marin International Airport in San Juan.Getty Images/iStockphoto
The Public Sector Pension Investment Board is flying into the tropics in search of investment returns, betting on the shopping side of the airport business in its latest deal.
The pension fund said on Tuesday that it will take a 40-per-cent stake in the operating company that runs Puerto Rico's largest flight hub, Luis Munoz Marin International Airport in San Juan. This airport has been expanding in the hands of private operators since early 2013, and ushered nine million passengers through its terminals last year.
PSP is no stranger to the sector, having previously amassed stakes in the airports of cities such as Athens and Düsseldorf, Germany, through its investment and operating platform AviAlliance. Its latest deal aligns the pension fund with a new partner, Grupo Aeroportuario del Sureste, S.A.B. de C.V. (ASUR), a Mexican airport operator that could open doors to other investments.
Despite Puerto Rico's geographic location, PSP said the San Juan airport's passenger traffic is expected to increase along with U.S. economic growth. In periods of prosperity, vacationers and Puerto Ricans living in the United States that want to visit friends and family will likely travel more, and have more disposable income.
"One component of this investment is that the cash flows, the revenues are long-term, but they're also linked, in a large proportion, to U.S. GDP and U.S. inflation," Patrick Charbonneau, head of infrastructure investments at PSP, said in an interview from the San Juan airport.
PSP is taking a 40-per-cent stake in the operations company Aerostar Airport Holdings LLC, while ASUR is buying another 10 per cent of the company to control a total of 60 per cent. These two new stakes are valued at a combined $430-million (U.S.)
As the largest airport in the Caribbean, San Juan's airport is highly dependent on tourism for growth. It has recently been enlarged to make way for more passengers over the next five to 10 years. Much of the construction is completed.
Where AviAlliance believes it can add value is on-site retail, since airports increasingly look to profit from their captive base of travellers who buy souvenirs, duty-free items and food and drinks to pass the time. Many other international airports have turned to these revenue streams – as well as hotels, on-site parking and office facilities – to boost returns outside of fees charged to airlines.
"We'll bring a new set of eyes, we'll bring the expertise from Europe, where the retail part of the airports is well developed," Mr. Charbonneau said. "I think that's the area where we want to contribute to ASUR and Aerostar."
This airport is so far the only successful candidate in the U.S. Federal Aviation Administration's airport-privatization pilot program, which was designed to help airports access private capital to fund airport improvement and development. In 2012, the Puerto Rico Ports Authority struck a 40-year agreement with Aerostar Airport Holdings to be its private operator partner.
The United States is an important market for PSP's infrastructure group overall. And when it comes to airports, Mr. Charbonneau said Luis Munoz Marin International could prove useful in helping the pension fund make future investment in the United States if more privatization deals come to market.
"The investment in Puerto Rico is strategic to getting to understand better the security requirements, the technical requirements, the structure of this privatization program, in order to better be prepared next time there is one coming up in the U.S.," he said. "Under the Trump administration, it seems to indicate that there is going to be more and more investment in infrastructure, and we want to be prepared for that."