The airport development industry is one of the few that can point to a very real and very damaging period following the 9/11 attacks. Operators and lenders have vivid memories of the slump in passenger numbers and the financial distress that followed.

Nevertheless, in the last two months alone, Ankara, Cyprus, Bangalore and Bristol have been the subject of financings in Euro, Rupee, Sterling, and Dollar debt. The Budapest Airport expansion has attracted nine bidders, and most recently a second Indian airport project has closed – the Rs17.6 billion greenfield Hyderabad International Airport.

Airport development attracts a broad group of investors – from dedicated funds to recently privatised national operators to contractors turned operators looking for additional returns. But airport concessions are as prone to boom-bust as the airline busines.

Overcapacity, a reliance on the business of exacting low-cost airline customers, and the prevalence of emerging markets deals in the most recent wave, are all making lenders more wary. Even in more developed markets, sponsors are becoming more exacting. Macquarie's recent £515 million ($939 million) refinancing of Bristol, led by SG and Calyon, was seen by some potential participants as too aggressive and is still in syndication after some tinkering with the financial engineering.

Lenders have had to approach the business with caution and have demanded more of both sponsors and government. Bangalore's financing, for instance, was delayed while the Indian government worked on the provision of a backstop.

But are lenders being too demanding and how do sponsors expect the market to develop? What follows is the opinions of three leading operators in the airport sector, all of which approach the sector from different angles:

Kerrie Mather is CEO of Macquarie Airports, which owns stakes in Birmingham (14.9%), Bristol (30.8%), Brussels (52%) Rome (33.6%), and Sydney (55.5%). MAp has recently taken over Brussels airport, and has refinanced Bristol and Sydney. Macquarie is a financial investor for its listed funds, and usually takes over operational assets.

Ulrich Stucke is managing director of Hochtief Airport. Which owns stakes in Athens, Dusseldorf, Hamburg, Sydney and Tirana airports. The Athens and Tirana concessions required a substantial element of construction work, while the remainder were largely operational contracts.

Andrea Pal is head of business development at Fraport, the holding company for Frankfurt Airport in Germany. In addition to several ground-handling, logistics and consulting operations, Fraport has stakes in Lima Airport and Antalya in Turkey. Fraport has bid on several recent airport concessions.

What has been the most important development in the financing of your business in the last year?

Andrea Pal, head of business development, Fraport: We did not invest higher amounts of equity last year, and so do not have any special developments to mention.

Kerrie Mather, CEO Macquarie Airports: It has been a combination of continued improvement in airport traffic and increasing the operational performance of our airports. Managing the relationship between airport capacity and debt levels has also been important when looking at the financing of the business. We have completed significant renegotiations/refinancings of Sydney and Bristol airports to take advantage of improved operational performance and favourable debt markets.

Dr Ulrich Stucke, managing director Hochtief Airport: The launch of our investment partnership HTAC in March. Via this newly founded company, three investors – two funds managed by Hastings Funds Management (Australia), Caisse de dépôt et placement du Québec (Canada) and KfW IPEX-Bank (Germany) – now hold a stake in our portfolio. HTA itself functions as HTAC's General Partner and thus manages the partnership. This gives us far greater scope for successfully realizing further airport acquisitions: in future bidding procedures we will operate together.

Do you think current airport valuations are aggressive?

Pal: No – but financing structures have become more aggressive.

Mather: As a rule, no – but there are always exceptions. As in any asset class, there have been transactions that we would consider as fully valued.

Stucke: No. In fact for a long time airports were undervalued. It is only now that the potential and opportunities they offer are getting proper recognition. After all, airports have proved to be crisis-resistant, they promise stable cashflows and good yields, and that naturally attracts investors. Against this background, current airport valuations must be seen as reasonable.

How would you characterise (if any) the change in approach of government towards airport concessions over the last several years?

Mather: We have identified two key trends. The first is a move towards more light-handed regulation, which enables a commercial return on investments in airport infrastructure. The other is the increasing transfer of economic ownership of airports from the public to the private sector as governments have increasingly recognised that they do not need to own airports to influence the way those airports are operated and grown for the national community and economic benefit.

Stucke: Following a slight decline in confidence in the wake of 9/11, governments appear to have regained their trust in the principle of privatization. Privatizations have proven to be an effective and up-to-date instrument. Experience has shown that private operators and investors are more efficient at utilizing an airport's inherent potential – and this fact has overcome any skepticism or worries. This is why there are now numerous projects in the pipeline, with various governments on the lookout for reliable partners.

What has been the most important change in the way that investors approach airport concessions in the last five years?

Pal: As I mentioned, the focus in the evaluation of assets is not the business, so much as a financial structure that allows the new owner to pay a higher price. These structures are linked to financial products that are available only in some regions of the world and enjoy the advantages of particular tax systems.

Mather: There has been increasing valuation of airports based on the cash they generate rather than on more static, traditional measures such as EBITDA multiples. We believe this is a very positive development.

Stucke: After 9/11, there was a marked drop in interest on the part of institutional investors – the uncertainty was simply too great. But the successes of the few independent investors who kept going in this field have demonstrated just how promising this market continues to be. In the meantime interest has increased again. Although there are now more investors involved in this attractive sector, we mustn't ignore the fact that only a few of them are actively concerned in managing and developing concessions.

Have investors and lenders placed too much stress on the impact of low-cost airlines on concession fundamentals?

Pal: Low-cost traffic has a different impact on each airport. Investing in a regional airport driven only by low-cost is a higher risk than going for well-established airports. But lenders are now very aware of the differences.

Mather: It varies. Some airports have been acquired solely on the basis of a contractual agreement with one low-cost carrier. Our view is that the attraction of any airport is largely driven by the surrounding population fundamentals and its competitive/locational position, rather than a contract with any one airline.

Stucke: Low-cost carriers have promoted the segmentation of services offered by airports to their clients. We observe that some airports behave in quite a dangerous and hardly appropriate manner when trying to attract low-cost airlines. Those low-cost carriers that are of interest to normal airports, though, pay the same fees as all the other airlines. The low-cost label doesn't make any difference to these airports – and so it doesn't bother investors either

How receptive have you found debt markets to your business? How would you characterise the change in terms available from lenders and bondholders?

Pal: Very receptive. The equity market seems to trust more and more our business model and the terms are getting very attractive.

Mather: Highly receptive, reflecting the high quality nature of the airports we have acquired, our strict investment criteria and our focus on maximising the cash flow generated by each of our assets. As lenders have increased their understanding of the business, and our assets have shown resilience to shocks, we have seen an increased appetite from lenders in the sector.

Stucke: The debt markets are again exhibiting considerable interest in the airport business. Many banks increasingly understand the strong business fundamentals of air traffic and stable cash flows of airports.

Has the revenue available from retail operations lived up to the expectations of concessions financed several years ago?

Pal: In general yes, this has been the case.

Mather: Generally, yes. We have invested heavily in improving retail facilities to provide more competitive and attractive product, and we have seen a good return on these investments. Airport retailing is something that needs to be constantly improved.

Stucke: Especially when compared with the average results in this sector – we are very satisfied with the development at our airports.

What is currently the biggest challenge in financing airport assets?

Mather: Achieving the right balance between regulatory control and commercial returns which support airport investment at a competitive cost of capital is perhaps one of the biggest challenges. We don't believe that these goals are necessarily at odds. The two can work together to achieve airports that offer the very best facilities for the communities they serve and also achieve a level of return which supports ongoing capital investment beyond that which could have been made if the assets had remained in public ownership.

Stucke: More and more airports in emerging markets are being privatized. This gives rise to two difficulties: first, the political, legal and economic situation makes it more difficult to appraise the risks involved, which in turn makes it make more difficult to convince banks to share a certain level of risk.

Secondly, the general framework in such countries calls for innovative financing concepts, since off-the-peg solutions aren't enough. Generally speaking, concession structures are becoming increasingly elaborate – and this necessitates a lot more effort and creativity on the part of those involved in the financing.

What do you think will be the most promising or interesting development in financing airports in coming year?

Mather: The most promising development is governments around the world increasingly embracing the transfer of airports to the private sector as an efficient means to fund their future expansion.

Stucke: Innovative forms of financing need to be evolved in order to permit the development and promotion of airports – even in countries that at first sight are not so attractive. There will be a wider use of hybrid financing structures, which take greater account of the risks that exist in less stable countries, and which spread those risks more broadly.