Aecon, Houston Airport System, Andrade Gutierrez and Airport Development Corporation have closed a $359 million financing on the new main airport concession in Quito, Ecuador. The financing, through Opic, US Ex-Im, the IDB and EDC, is an impressive feat of multisourcing. However, its tortuous route towards financial close illustrates the difficulties inherent in financing infrastructure developments in Latin America.

Quito has been in need of a new airport for roughly 30 years, since the existing Mariscal Sucre airport is located on a cramped site in the middle of the city. But the Ecuadorian government, which would have liked to finance the project itself, did not have the resources to do so. Only an increase in regional prosperity, and the accompanying growth in passenger numbers, enabled the government to look to a private solution.

The Ecuadorian government decided to use a Swiss challenge process to deal with an approach from Aecon of Canada, which proposed a concession for the airport. Aecon spent the middle of 2001 working on a concession structure, and by September that year the two had produced a concession structure and a construction contract that a competing bidder would have to match. Unfortunately there were no other bids.

Aecon originally envisaged a consortium with Houston Airport Systems, Airport Development Corporation, and involving Techint and ABB. Aecon, when it signed an initial management agreement for the airport in November 2002, said that while its initial stake was 66.67%, and that of ADC was 33.3%, it wanted to sell down its commitment to 20%. ABB and Technint pulled out, but the sponsors brought in local construction firm Andrade to take some equity in the consortium.

The final equity tally was Aecon (30%), Andrade Gutierrez (30%), Houston Airport System (HAS) (25%) and Airport Development Corporation (ADC) (15%). HAS and ADC operate the airport, while the other two partners are responsible for design and construction, as subcontractors under an engineering, procurement and construction contract between the City of Quito and the Canadian Commercial Corporation, a Crown agency of the Canadian government. The total cost of the project is $585 million, while the EPC contract is worth $415 million.

The sponsors will also operate the Mariscal Sucre airport during the construction of the new facility, 25km outside Quito. The project thus benefits from the use of the revenues at the existing airport during construction. These revenues are counted as a type of equity contribution, and thus increase lender comfort, as well as the returns available to sponsors. According to an Aecon statement from August 2005, it is contributing $34 million in equity, as well as $20 million in contingent equity, to the concession. Aecon officials have declined to comment until the project meets its conditions precendent and funds.

The concession awarder is Corpaq, Quito's municipal airport authority, which was established to assume control of the airport from Direccion de Aviacion Civil (DAC, civil aviation authority), which, despite its name, is under the control of the country's air force. The DAC guards its authority jealously, and still retains responsibility for the general direction of aviation matters in the country. Negotiations with the DAC over the division of responsibilities between it, the municipality, and the concessionaire occupied much of the period around the awarding of the concession.

The involvement of a municipal authority as the primary awarder is one of the most interesting features of the concession. While the central government provides top-level assurance that the concession will not be expropriated, Corpaq conducted the negotiations and is responsible for security and its other obligations under the concession agreement. The construction contractor is the Canadian government.

The credit behind the concession is based on landing fees charged to airlines, and regulated by Corpaq. These fees apply to both passenger and commercial traffic, and are the only real source of revenue available to the operators. Commercial and other retail operations are unlikely to provide any meaningful revenue streams as far as lenders are concerned, and the free trade zone next to the new airport is excluded from the concession.

The airport is much less dependent on a single carrier than it was when the concession was first developed. Until recently the national carrier, TAME, was the main user of the airport. More recently, a number of new airlines such as Icaro have created competition, and there are also several European and US airlines that serve the country.

The four lenders to the project came in at different times – all but the IDB approved the project in principle in early 2003. Opic, which is providing the bulk of the financing, approved the project in April 2003, while the IDB granted final approvals to the project in August 2005, and EDC and Ex-Im approved the project in June and July 2005, respectively. However, the different approval dates should not be taken as indicators of the relative efficiency of the four lenders, since the four define "approve" differently.

The four worked in tandem towards a common terms agreement, all rank at the same level in terms of security, and they shared counsel in the form of Allen & Overy. Nevertheless, they adopted the position of the most conservative lender on each issue, and had different worries with regards to the concession, whether over content or the role of the Ecuadorian counterparties.

The financing breaks down into $200 million from Opic, $75 million from the IDB, $37.5 million from EDC, and $57.75 million from US Ex-Im. All four facilities have a tenor of 15 years, with small differences in final maturity to take account of differing repayment schedules. The construction period is 51 months.

Given the occasional hostility to foreign ownership of Ecuadorian assets as well as the risk perceptions of the country to outside investors, the lenders did not bring any commercial banks in under their facilities. The difficulty of closing the financing owes a little to these perceptions, as well as the fact that in comparison with many of their peers the sponsors lacked a long track record of financing airport, particularly greenfield airport, assets.

Quiport SA
Status: Closed August 2005, currently working towards funding
Size: $585 million
Location: Quito, Ecuador
Description: New main airport development for Ecuador's capital
Sponsors: Aecon (30%), Andrade Gutierrez (30%), Houston Airport System (25%) and Airport Development Corporation (15%)
Debt: $359 million
Lenders: Opic, EDC, US Ex-Im, IDB
Financial adviser to US Ex-Im: HSBC
Lender legal: Allen & Overy
Sponsor legal: White & Case
Traffic and engineer: Mott MacDonald
Environmental: Golden
Insurance: Marsh