Toggle SGML Header (+)


Section 1: 20-F (FORM 20-F)

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 20-F

  

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
   
OR
   
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2017
   
OR
   
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from __________ to ___________
OR
   
¨

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report ______________

 

Commission file number 001-38354

 

CORPORACIÓN AMERICA AIRPORTS S.A.
(Exact name of Registrant as specified in its charter)
 
Grand Duchy of Luxembourg
(Jurisdiction of incorporation or organization)
 

Raúl Guilermo Francos, Chief Financial Officer

Tel:+35226258274 Fax:+35226259776

4, rue de la Grêve L-1643, Luxembourg

(Name, Telephone, E-mail and or Facsimile number and Address Company Contact Person)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange in which registered
Common Shares, U.S.$1.00 nominal value per share   New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

  1,500,000,000 Common Shares, as of December 31, 2017

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨ Yes x No

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

¨ Yes x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes x No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x
    Emerging growth company ¨

  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ¨   International Financial Reporting Standards as issued
by the International Accounting Standards Board x
  Other ¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

¨ Item 17 ¨ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

 

 

 

 

 

  

TABLE OF CONTENTS

 

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS 2
   
CERTAIN CONVENTIONS 3
   
CURRENCY PRESENTATION 3
   
PRESENTATION OF FINANCIAL INFORMATION 3
   
PRESENTATION OF INDUSTRY AND MARKET DATA 7
     
PART I   7
     
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 7
     
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 7
     
ITEM 3. KEY INFORMATION 7
     
ITEM 4. COMPANY INFORMATION 49
     
ITEM 4A. UNRESOLVED SEC STAFF COMMENTS 143
     
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 144
     
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 193
     
ITEM 7. MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS 200
     
ITEM 8. FINANCIAL INFORMATION 204
     
ITEM 9. THE OFFER AND LISTING 210
     
ITEM 10. ADDITIONAL INFORMATION 211
     
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK 225
     
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 228
     
PART II   229
     
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 229
     
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 229
     
ITEM 15. CONTROLS AND PROCEDURES 229
     
ITEM 16. [RESERVED] 230
     
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 230
     
ITEM 16B. CODE OF ETHICS 230
     
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 230
     
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 232
     
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 232
     
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. 232
     
ITEM 16G. CORPORATE GOVERNANCE 232
     
ITEM 16H. MINE SAFETY DISCLOSURE 234
     
PART III   234
     
ITEM 17. FINANCIAL STATEMENTS 234
     
ITEM 18. FINANCIAL STATEMENTS 235
     
ITEM 19. EXHIBITS 236
     
SIGNATURES 237

 

i 

 

  

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

 

This annual report contains forward-looking statements about our expectations, beliefs and intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies, plans and prospects. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should,” “could,” “might,” “seek,” “target,” “will,” “project,” “forecast,” “continue” or “anticipate” or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical matters. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below:

 

·our business strengths and future results of operation;

 

·delays or unexpected casualties related to construction under our investment plan and master plans;

 

·our ability to generate or obtain the requisite capital to fully develop and operate our airports;

 

·general economic, political, demographic and business conditions in the geographic markets we serve;

 

·decreases in passenger traffic;

 

·changes in the fees we may charge under our concession agreements;

 

·inflation, depreciation and devaluation of the AR$, EUR, BRL, UYU, AMD or the PEN against the U.S. dollar;

 

·the early termination, revocation or failure to renew or extend any of our concession agreements;

 

·the right of the Argentine Government to buy out the AA2000 Concession Agreement (as defined herein);

 

·changes in our investment commitments or our ability to meet our obligations thereunder;

 

·existing and future governmental regulations;

 

·natural disaster-related losses which may not be fully insurable;

 

·terrorism in the international markets we serve;

 

·epidemics, pandemics and other public health crises; and

 

·changes in interest rates or foreign exchange rates.

 

 2 

 

  

We believe these forward-looking statements are reasonable; however, these statements speak only as of the date of this annual report and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this annual report in greater detail under the heading “Risk Factors” in this annual report. Given these uncertainties, you should not rely upon forward-looking statements as predictions of future events.

 

Unless required by law, we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or developments or otherwise.

 

CERTAIN CONVENTIONS

 

Corporación América Airports S.A., formerly known as A.C.I. Airports International S.à r.l., was incorporated under the laws of the Grand Duchy of Luxembourg (“Luxembourg”) on December 14, 2012. The Company owns no assets other than its direct and indirect ownership of the issued share capital of other intermediate holding companies for all of our operating subsidiaries. Except where the context otherwise requires or where otherwise indicated, all references to the “Company,” “we,” “us” and “our” refer to Corporación América Airports S.A. and its consolidated subsidiaries, as well as those businesses we account for using the equity method.

 

CURRENCY PRESENTATION

 

In this annual report, unless otherwise specified or the context otherwise requires:

 

·“U.S.$” and “U.S. dollar” each refers to the United States dollar;

 

·“AR$” refers to the Argentine peso;

 

·“€,” “EUR” or “euro” each refers to the euro, the single currency established for members of the European Economic and Monetary Union since January 1, 1999;

 

·“R$” or “BRL” each refers to the Brazilian real;

 

·“$U” or “UYU” each refers to the Uruguayan peso;

 

·“AMD” refers to the Armenian dram; and

 

·“PEN” or “S/” refers to the Peruvian sol.

 

PRESENTATION OF FINANCIAL INFORMATION

 

This annual report contains our audited consolidated financial statements as of December 31, 2017, 2016 and 2015 and for our fiscal years ended December 31, 2017, 2016 and 2015 (our “Audited Consolidated Financial Statements”).

 

We prepare our Audited Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). We have applied all IFRS issued by the IASB effective at the time of preparing our Audited Consolidated Financial Statements. Our Audited Consolidated Financial Statements have been audited by Price Waterhouse & Co. S.R.L., a member firm of the PricewaterhouseCoopers global network, an independent registered public accounting firm, whose report dated April 17, 2018, is also included in this annual report.

 

 3 

 

 

Our Audited Consolidated Financial Statements are presented in U.S. dollars. Our fiscal year ends on December 31 of each year. Accordingly, all references to a particular year are to the year ended December 31 of that year. Some percentages and amounts included in this annual report have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be an exact arithmetic aggregation of the figures that precede them.

 

Our Segments

 

We have identified seven reportable segments: Argentina, Italy, Brazil, Uruguay, Ecuador, Armenia and Peru. See Note 4 to our Audited Consolidated Financial Statements and “—Adjusted Segment EBITDA.”

 

Our Reorganization

 

In order to facilitate our initial public offering, during the fiscal year ended December 31, 2015, our ultimate controlling shareholder, Southern Cone Foundation, a foundation organized under the laws of Liechtenstein (“SCF” or our “Controlling Shareholder”), elected to complete a reorganization of A.C.I. Airports International S.à r.l. and various other entities and businesses under the common control of SCF in order to organize all of our airports business activities under A.C.I. Airports International S.à r.l., and to transfer all business activities not related to the airport business to other affiliates (the “Reorganization”).

 

SCF’s business was historically conducted through various entities with no single holding entity, and instead were separately owned by entities directly or indirectly controlled by SCF.

 

SCF effected the Reorganization through several corporate reorganization steps under local laws. None of these transactions affected the common control structure of the entities forming the group. Also, certain other business activities of SCF’s business not related to the airport business were either sold or transferred to other companies and not contributed to us.

 

The Reorganization was completed on December 22, 2016 with the contribution of the shares of American International Airports LLC, the holding company which directly and indirectly controls the operations of the airports in Armenia and Argentina, to A.C.I. Airports International S.à r.l.

 

A.C.I. Airports International S.à r.l. was formed as a private limited liability company (société à responsabilité limitée) under the laws of Luxembourg on December 14, 2012.

 

On September 14, 2017, A.C.I. Airports International S.à r.l. was converted from a Luxembourg private limited liability company into a Luxembourg public limited company (société anonyme) (the “Conversion”) and changed its name to Corporación América Airports S.A. (“CAAP”). CAAP is indirectly wholly owned by SCF. In connection with the Conversion, all of A.C.I. Airports International S.à r.l.’s outstanding equity interests were converted into common shares of CAAP.

 

The Reorganization was accounted for as a reorganization of the common control and common management of our Controlling Shareholder for all periods for which financial statements are presented. As such, we applied the “predecessor accounting approach” in accordance with the rules on accounting for business combinations under common control in consolidated financial statements to the entities under the common control of our Controlling Shareholder that were the subject of the Reorganization. This means that the assets and liabilities of the entities and businesses contributed as part of the Reorganization included in our Audited Consolidated Financial Statements correspond to the historical amounts in the individual financial statements of combined entities (i.e., predecessor values).

 

 4 

 

 

Brazilian Consolidation

 

On December 11, 2015, we acquired from Infravix Participações S.A. (“Infravix”) its 49.95% interest in Inframérica Concessionaria do Aeroporto de São Gonçalo do Amarante S.A. (“ICASGA”). ICASGA is the operator of the Natal Airport in Brazil. As a result of this transaction, we increased our ownership interest in ICASGA from 50.00% to 99.95%.

 

On December 30, 2015, we acquired from Infravix its 43.05% interest in Inframerica Participações S.A. (“Inframerica”). Inframerica owns a 51.00% interest in Inframérica Concessionaria do Aeroporto do Brasilia S.A. (“ICAB”) while the remaining 49.00% is owned by the Brazilian Government’s company for airport infrastructure, Empresa Brasileira de Infraestrutura Aeroportuária (“Infraero”). ICAB is the operator of the Brasilia Airport in Brazil. As a result of this transaction, we increased our indirect ownership interest in ICAB from 29.02% to 50.98%.

 

The aforementioned acquisitions of a direct interest in ICASGA and an indirect interest in ICAB through Inframerica are hereinafter referred to as the “Brazilian Consolidation.”

 

Subsequent to the Brazilian Consolidation, we made additional capital contributions into both ICASGA and ICAB. As of the date of this annual report, our ownership interest in ICASGA and ICAB is 99.97% and 50.98%, respectively.

 

We account for these acquisitions of controlling interests under the purchase method of accounting. We have included the operating results related to these acquisitions as from their respective acquisition dates.

 

For further information on the Brazilian Consolidation, see “Operating and Financial Review and Prospects—Factor Affecting Comparability—The Brazilian Consolidation” and Note 26 to our Audited Consolidated Financial Statements.

 

Separate Financial Statements of Inframerica and ICASGA

 

We accounted for our investments in Inframerica and ICASGA using the equity method until December 30, 2015 and December 11, 2015, respectively. We analyzed both of these equity method investments under Rule 3-09 of Regulation S-X for significance and determined that we were required to provide separate financial statements for these investments for the year 2015.

 

Therefore, full-year audited financial statements for each of these equity method investments as of December 31, 2015 and 2014 and for the years ended December 31, 2015 and 2014 are included in this annual report.

 

Adjusted Segment EBITDA

 

Adjusted Segment EBITDA is defined, with respect to each segment, as income from continuing operations before financial income, financial loss, income tax expense, depreciation and amortization for such segment. Adjusted Segment EBITDA excludes certain items that are not considered part of our core operating results. Specifically, we do not allocate financial income, financial loss, income tax expense, depreciation and amortization to our reportable segments.

 

 5 

 

 

Although Adjusted Segment EBITDA is commonly viewed as a non-IFRS measure in other contexts, pursuant to IFRS 8, “Segment Information,” Adjusted Segment EBITDA is treated as an IFRS measure in the manner in which we utilize this measure. We use Adjusted Segment EBITDA for purposes of making decisions about allocating resources to our segments and to internally evaluate their financial performance because we believe it reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.

 

Non-IFRS

 

Adjusted EBITDA

 

“Adjusted EBITDA” is a non-IFRS financial measure defined as net income from continuing operations before financial income, financial loss, income tax expense, depreciation and amortization.

 

Adjusted EBITDA is not defined under IFRS and has important limitations as an analytical tool. You should not consider it in isolation or as a substitute for analysis of our results as reported under IFRS. For example, Adjusted EBITDA:

 

·excludes certain tax payments that may represent a reduction in cash available to us;
·does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
·does not reflect changes in, or cash requirements for, our working capital needs; and
·does not reflect the significant interest expense, or the cash requirements, necessary to service our debt.

 

We believe that the presentation of Adjusted EBITDA enhances an investor’s understanding of our performance. We believe this measure is a useful metric for investors to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We present Adjusted EBITDA in order to provide supplemental information that we consider relevant for the readers of our Audited Consolidated Financial Statements included elsewhere in this annual report, and such information is not meant to replace or supersede IFRS measures.

In addition, our management believes Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods, capital structure or income taxes. We exclude the items listed above from income for the year in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired.

 

Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, consolidated net income for the year as determined in accordance with IFRS or as an indicator of our operating performance from continuing operations.

 

Adjusted EBITDA may not be the same as similarly titled measures used by other companies.

 

 6 

 

 

We have included the reconciliation of Adjusted EBITDA to consolidated net income from continuing operations for all the periods presented. For a reconciliation of Adjusted EBITDA to consolidated net income from continuing operations, see “Selected Financial Data – Reconciliation of non-IFRS data.”

 

Reverse Stock Split

 

On January 19, 2018, the Selling Shareholder approved and completed a 1-to-10.12709504 reverse stock split of its common shares, consequently decreasing the outstanding common shares from 1,500,000,000 common shares to 148,117,500 common shares (the “Reverse Stock Split”). The Reverse Stock Split was implemented through a share capital reduction and a concurrent allocation of the reduced share capital amount to a non-distributable reserve account. The nominal value of U.S.$1.00 of each common share did not change as a result of the Reverse Stock Split.

 

PRESENTATION OF INDUSTRY AND MARKET DATA

 

In this annual report, we rely on, and refer to, information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and forecasts used in this annual report were obtained from internal surveys, market research, governmental and other publicly available information and independent industry publications. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys and forecasts are reliable, but we have not independently verified them and cannot guarantee their accuracy or completeness.

 

Certain market share information and other statements presented herein regarding our position relative to our competitors are not based on published statistical data or information obtained from independent third parties, but reflects our best estimates. We have based these estimates upon information obtained from publicly available information from our competitors in the industry in which we operate.

 

PART I

 

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.KEY INFORMATION

 

A.SELECTED FINANCIAL DATA

 

The following selected consolidated financial information and other data of the Company should be read in conjunction with, and are qualified by reference to, “Operating and Financial Review and Prospects” and our Audited Consolidated Financial Statements and the notes thereto included elsewhere in this annual report.

 

 7 

 

 

The selected consolidated statement of financial position data as of December 31, 2017, 2016 and 2015 and the selected consolidated statement of income, comprehensive income and cash flow data for the years ended December 31, 2017, 2016 and 2015 have been derived from our Audited Consolidated Financial Statements included elsewhere in this annual report. The selected consolidated statement of financial position data as of January 1, 2015 have been derived from our Audited Consolidated Financial statements not included in this annual report.

 

We prepare our Audited Consolidated Financial Statements in accordance with IFRS as issued by the IASB. We have applied all IFRS issued by the IASB effective at the time of preparing our Audited Consolidated Financial Statements. We applied IFRS for the first time for our fiscal year ended December 31, 2016, which included comparative information for the fiscal year ended December 31, 2015.

 

Consolidated Statement of Income

 

   For the Year Ended December 31, 
   2017   2016   2015 
Continuing Operations               
Revenue   1,575.2    1,366.3    1,187.1 
Cost of services   (1,030.0)   (859.1)   (759.2)
Gross Profit   545.2    507.3    427.9 
Selling, general and administrative expenses   (194.2)   (170.9)   (167.2)
Reversal of previous impairment/(impairment loss)   3.1    (16.6)    
Other operating income   20.0    16.9    15.6 
Other operating expense   (4.8)   (4.9)   (2.7)
Operating Income   369.1    331.8    273.6 
Share of loss in associates   (15.8)   (1.3)   (69.3)
Income before financial results and income tax   353.3    330.5    204.3 
Financial Income   62.6    37.5    46.8 
Financial loss   (302.0)   (273.0)   (199.8)
Income before income tax expense   113.8    95.1    51.3 
Income tax expense   (46.9)   (56.4)   (45.0)
Income from continuing operations   66.9    38.7    6.3 
(Loss)/Income from discontinued operations       (9.5)   109.0 
Net Income   66.9    29.2    115.3 
Attributable to:               
Owners of the parent   63.5    33.8    105.5 
Non-controlling interest   3.4    (4.5)   9.8 
    66.9    29.2    115.3 

 

   For the Year Ended December 31, 
   2017   2016   2015 
Earnings per share attributable to the parent               
Weighted average number of common shares (in thousands) (1)   148,118    148,118    148,118 
Continuing Operations               
Basic and diluted earnings per share(1)   0.43    0.29    (0.07)
Continuing and Discontinued Operations               
Basic and diluted earnings per share(1)   0.43    0.23    0.71 
Discontinued Operations               
Basic and diluted earnings per share(1)       (0.06)   0.79 

 

 

(1)Includes the effect of the retroactive application of the 1-to-10.12709504 Reverse Stock Split. See “Reverse Stock Split” for more information.

 

 8 

 

 

Consolidated Statement of Comprehensive Income

 

   For the Year Ended December 31, 
   2017   2016   2015 
Net Income   66.9    29.2    115.3 
Items that will not be reclassified subsequently to profit or loss               
Remeasurement of defined benefit obligation   (1)   (0.3)   0.3 
Items that may be subsequently reclassified to profit or loss               
Shares of other comprehensive income from associates   0.4    (1)   (40.0)
Currency translation adjustment   (25.6)   (48.6)   (166.6)
Other comprehensive loss from continuing operations for the year, net of income tax   (25.1)   (48.9)   (206.3)
Currency translation adjustment from discontinued operations       4.3    (4.3)
Other comprehensive income of discontinued operations for the year, net of income tax       4.3    (4.3)
Total other comprehensive loss for the year   (25.1)   (44.6)   (210.5)
Total comprehensive loss for the year   41.8    (15.4)   (95.2)
Attributable to:               
Owners of the parent   34.9    1.5    (50.9)
Non-controlling interest   6.8    (16.9)   (44.4)
    41.8    (15.4)   (95.2)

 

 

(1)Amount not shown due to rounding.

 

Consolidated Statement of Financial Position

 

   As of December 31, 
   2017   2016   2015   January 1, 2015 
Assets                    
Non-current assets   3,221.7    3,120.2    2,876.9    2,015.2 
Current assets   579.5    507.1    394.7    817.5 
Total assets   3,801.2    3,627.3    3,271.6    2,832.8 
Total equity   797.1    803.3    834.1    1,466.6 
Liabilities                    
Non-current liabilities   2,272.1    2,161.2    1,955.5    688.0 
Current liabilities   732.0    662.8    482.0    678.2 
Total liabilities   3,004.1    2,824.0    2,437.5    1,366.2 
Total equity and liabilities   3,801.2    3,627.3    3,271.6    2,832.8 
Equity                    
Weighted average number of common shares (in thousands) (1)   148,118    148,118    148,118    148,118 
Declared dividends per share                

 

 

(1)Includes the effect of the retroactive application of the 1-to-10.12709504 Reverse Stock Split. See “Reverse Stock Split” for more information.

 

 9 

 

 

 Consolidated Statement of Cash Flows

 

   For the Year Ended December 31, 
   2017   2016   2015 
Net cash provided by/(used in) operating activities   (49.4)   172.8    43.6 
Net cash used in discontinued operating activities       (8.2)   (42.0)
Net cash provided by/(used in) investing activities   (45.2)   35.8    (86.4)
Net cash in discontinued investing activities       (8.1)   (183.6)
Net cash (used in)/provided by financing activities   129.0    (159.4)   22.8 
Net cash provided by discontinued financing activities           196.7 
Increase/(Decrease) in cash and cash equivalents from continuing operations   34.4    49.2    (20.0)
Increase/(Decrease) in cash and cash equivalents from discontinued operations       (16.2)   (28.8)

 

RECONCILIATION OF NON-IFRS DATA

 

Adjusted EBITDA

 

For the definition of “Adjusted EBITDA” please see “Presentation of Financial Information.”

Adjusted EBITDA is reconciled to consolidated income from continuing operations below:

 

   For the Year Ended December 31, 
   2017   2016   2015 
Income from continuing operations   66.9    38.7    6.3 
Financial income   (62.6)   (37.5)   (46.8)
Financial loss   302.0    273.0    199.8 
Income tax expenses   46.9    56.4    45.0 
Amortization and depreciation(1)   108.3    96.7    72.2 
Adjusted EBITDA   461.6    427.2    276.6 

 

 

(1)Amortization and depreciation used for reconciling income from continuing operations to Adjusted EBITDA excludes U.S.$29.8 million and U.S.$26.2 million related to the Brazil concession assets for the years ended December 31, 2017 and 2016, respectively, which is included in the Amortization and depreciation in the Consolidated Statement of Cash Flows.

 

B.CAPITALIZATION AND INDEBTEDNESS

 

Not applicable.

 

C.REASONS FOR THE OFFER AND USE OF PROCEEDS

 

Not applicable.

 

 10 

 

 

D.RISK FACTORS

 

You should carefully consider the risks and uncertainties described below, together with the other information contained in this annual report, before making any investment decision. Any of the following risks and uncertainties could have a material adverse effect on our business, prospects, results of operations and financial condition. The market price of our common shares could decline due to any of these risks and uncertainties, and you could lose all or part of your investment. The risks described below are those that we currently believe may materially affect us.

 

Risks Related to Our Business and Industry

 

Our concessions may be terminated under various circumstances, some of which are beyond our control.

 

Our business consists of acquiring, developing and operating airport concessions. These concessions are granted by governmental authorities for a limited period of time and subject to several conditions and obligations.

 

Our concessions may be terminated under various circumstances, some of which are beyond our control. In general, our concession agreements may be terminated at any time by the relevant governments or agencies for public interest reasons. For example, in 2017 the Peruvian Government unilaterally terminated the concession it had awarded to us for the construction and operation of the new Chinchero – Cusco International Airport in Peru (“Cusco Airport”). Concession agreements may also be terminated due to our material and repeated breach of the concession terms. The termination of one or more of our concessions could have a material adverse effect on our business, financial condition, and results of operations.

 

If an applicable governmental authority terminates any of our concessions, with or without cause, we may be entitled to seek claims for compensation from such terminating governmental authority. Although termination payments vary by concession, they usually include a claim for indemnification equal to the value of the non-amortized investments made by us for purposes of operating the airports and rendering the services agreed under the concession agreements. If the applicable governmental authority terminates one of our concessions due to our material and repeated breach or failure to make the committed investments, we may assert claims for indemnification equal to those non-amortized investments we made for purposes of operating the relevant airports and rendering of the services agreed under the relevant concession agreements. If the concession is terminated by the relevant government or agency for public interest reasons or without cause, we may assert claims for indemnification equal to the non-amortized investments plus loss of profits. Collecting on such claims may be difficult and time-consuming, and any amounts collected in respect of such claims may not provide us with the expected level of returns, which could have a material adverse effect on our business, financial condition and results of operations.

 

In addition, as of February 2018, the Argentine Government has the right to buy out the AA2000 Concession Agreement upon prior notification to us and indemnify us for certain investments we incurred for purposes of operating the airports and rendering the services agreed thereunder. See “—Risks Related to Argentina and the AA2000 Concession Agreement—Pursuant to the AA2000 Concession Agreement, as of February 2018 and thereafter, the Argentine Government may buy out our concession, which would significantly affect our revenues and operations.”

 

 11 

 

 

We may be subject to monetary penalties or early termination if we fail to comply with the terms of our concession agreements.

 

We may be subject to monetary penalties if we violate or otherwise fail to comply with the terms of our concessions. Some violations of a concession agreement may provide for cure periods or other remedial action, while other violations, whenever they are substantial and repeated, can result in the immediate termination of the relevant concession. If we experience difficulties, we may encounter problems in satisfying our obligations under our concession agreements and the relevant governmental authorities may impose sanctions on us. For a description of the consequences that may result from the violation of various terms of our concessions, or local laws and regulations related to such concessions. Monetary penalties could negatively affect our results of operations.

 

In addition, under all of our concession agreements, we are required to establish and comply with an investment plan for the airports covered under such concession agreements. If we do not fulfill our investment commitments on a timely basis or obtain financing necessary to complete such projects, such failures could lead to a breach of the relevant concession agreement.

 

Our revenue and profitability may be affected if we fail to win new concession agreements, acquire companies with existing concession agreements, or otherwise improve or expand our current operations.

 

Our growth strategy relies upon identifying and winning new concession agreements, acquiring companies with existing concession agreements or improving and expanding our current operations. Our future growth may also depend on new (greenfield) development projects, which may require significant time and upfront financial commitments for construction and development. While we anticipate having opportunities to bid for concession agreements or purchase existing concessionaires in the future, we cannot predict the frequency of such opportunities. We must also strategically identify which concession agreements and existing concessionaires to target based on numerous factors such as number of passengers, size of the relevant airport(s), type, location and quality of the available airports and subconcession space, rental structure, financial return, regulatory requirements and the competitive landscape within such market. We may not be able to successfully expand, as we may not correctly analyze the suitability of airport locations, anticipate all of the challenges imposed by expanding our operations or succeed in executing our growth plan efficiently. We also may fail to expand within budget or on a timely basis, or expand at all. In addition, to win a particular concession contract, we may be required to make investments or incur other expenses that would render such concession less economically attractive.

 

Our growth strategy and the substantial investment associated with the acquisition of each new concession agreement, existing concessions or expansion of existing concessions may cause our operating results to fluctuate and be unpredictable.

 

The loss or impairment of our relationship with governments and their agencies in the markets in which we operate could adversely affect our business, future revenues and growth prospects.

 

Our principal assets are concession rights granted by governments in the countries in which we operate. Our business depends to a large extent on our ability to manage relationships with such governments and their agencies. During the term of our concessions, we are in continuous communications with the relevant governments and their agencies regarding, among other things, the terms and conditions of the concession, compliance with the concession agreement, the applicable master plan and works to be performed at the airports, including works not specifically required by the terms of the relevant concession, and the establishment of tariffs. Our business, prospects, financial condition or operating results could be materially harmed if we were suspended or debarred from contracting with any such government or government agency or if our reputation or relationship with any such government or agency is impaired.

 

 12 

 

 

Our revenue is highly dependent on levels of air traffic, which depend in part on factors beyond our control, including economic and political conditions in the countries where we operate our airports.

 

Our revenue is closely linked to passenger and cargo traffic volumes and the number of air traffic movements at our airports. These factors directly determine our aeronautical revenue and indirectly determine our commercial revenue. Passenger and cargo traffic volumes and air traffic movements depend, in part, on many factors beyond our control. Such factors include economic conditions and the political situation in the countries where we operate our airports, epidemics, pandemics and other public health crises, terrorism, fluctuations in petroleum prices (which can have a negative impact on traffic as a result of fuel surcharges or other measures adopted by airlines in response to increased fuel costs), currency exchange rate fluctuations, geopolitical considerations and changes in regulatory policies applicable to the aviation industry. The occurrence of any of these risks may result in a reduction of passenger air traffic levels and air traffic movements globally and in the regions in which we operate. A significant decline in passenger and cargo traffic volumes and the number of air traffic movements at our airports would have a material adverse effect on our business, financial condition and results of operations.

 

We face risks related to our dependence on the revenue from Ezeiza Airport.

 

During the years ended December 31, 2017, 2016 and 2015, Ezeiza Airport generated U.S.$535.0 million in revenue, or 34.0%, U.S.$522.1 million in revenue, or 38.2%, and U.S.$482.0 million in revenue, or 35.3%, respectively, of our consolidated revenue for such periods. As a result of the substantial contribution to our revenue from the Ezeiza Airport, any event or condition affecting this airport (in addition to any potential termination or buyout of the AA2000 Concession Agreement) could materially adversely affect our business, financial condition and results of operations. For example, an economic recession in Argentina, a reduction in the operations of Ezeiza Airport, competition from other airports or a decrease in the number of passengers traveling to Buenos Aires as tourists could cause a decrease in our revenue at this airport which, in turn, could materially adversely affect our business, financial condition and results of operations.

 

Increases in international fuel prices could reduce demand for air travel.

 

International prices of fuel have experienced significant volatility in recent years. The price of fuel may be subject to further fluctuations resulting from a reduction or increase in output of petroleum, voluntary or otherwise, by oil producing countries, other market forces, a general increase in international hostilities, or any future terrorist attacks. In the past, increased fuel costs were among the factors leading to cancellations of routes, decreases in frequencies of flights and, in some cases, even contributed to filings for bankruptcy by some airlines. Although fuel is a widely-traded global commodity, in the event of a significant increase in fuel prices in one or more of the countries in which we operate, or in one or more countries that provide significant numbers of international air passengers to the countries in which we operate, the effects of a localized price increase may be more significant than a general, worldwide increase in fuel prices. Significant fluctuations may result in higher airline ticket prices and in a decrease in demand for air travel generally, both of which could have an adverse effect on our revenues and results of operations.

 

 13 

 

 

Extended interruptions or disruptions at the airports where we operate due to natural disasters, prolonged weather conditions and other adverse incidents could affect our business and results of operations.

 

A significant extended interruption or disruption in service at the airports where we operate could have a material adverse impact on our business, financial condition and results of operations. Our results of operations could be impacted by flight cancellations and airport closures caused by weather and natural disasters. Severe weather conditions, particularly heavy snowfall, increases in the frequency, severity and duration of natural disasters such as hurricanes, tornadoes, volcanic activity, earthquakes and tsunamis, including from changes in the global climate, can significantly disrupt service, cause cancellation of flights and negatively affect passenger traffic at airports, which may result in decreased revenues and increased costs.

 

The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business.

 

Outbreaks of disease and health epidemics could have a negative impact on international air travel.

 

Public health crises such as the outbreak of Severe Acute Respiratory Syndrome (known as SARS) between 2002 and 2003, the outbreak of the A/H1N1 virus of 2009 and the Ebola pandemic in 2014–2015 have disrupted the frequency and pattern of air travel worldwide in recent years. Most recently, travel to the Caribbean and Latin American countries has been affected as a result of the Zika virus. Because our revenue is largely dependent on the level of passenger traffic in our airports, any outbreaks of health epidemics, such as the H1N1 virus and the Zika virus, could result in decreased passenger traffic and increased costs to the air travel industry and, as a result, could have a material adverse effect on our business revenues and results of operations.

 

We could be subject to acts of terrorism or war, which could have a negative impact on air travel and result in increased security requirements.

 

Our airports operate within a stringent and complex security regime, as required by the relevant governmental authorities, which may impose additional security measures from time to time, including as a result of a terrorist attack. The consequences of any future terrorist action or threat may include the cancellation or delay of flights, fewer airlines and passengers using our airports, liability for damage or loss and the costs of repairing damage. If a terrorist attack affected one of the airports we operate, the airport in question would be closed, in whole or in part, for the time needed to care for victims, investigate the circumstances of the attack, rebuild any damaged areas or otherwise, with a subsequent decrease in the revenue and increase in costs for the reconstruction of the affected areas (to the extent these are not covered by insurance policies).

 

Moreover, if an act of terrorism or threat thereof were to occur in a country in which we operate, even if not at our airports, the perception of safety by airport users could decrease, and, consequently, there could be a reduction in passenger air traffic for an indefinite period of time, which could adversely affect our business, financial condition and results of operations.

 

Furthermore, the implementation of additional security measures at our airports in the future could lead to additional limitations on airport capacity or retail space, overcrowding, increases in operating costs and delays to passenger movement through the airport, any of which could have a material adverse effect on our business, financial condition and results of operations.

 

 14 

 

 

Our business may also be affected by the outbreak of wars or armed conflicts in any region of the world. Among other things, wars can lead to increased prices of fuel, supplies and interest rates for aircraft leases, which could, in turn, lead to increased prices of airline tickets and a decline in demand for air transportation in general. Likewise, the occurrence of armed conflicts could result in increased security measures, thereby increasing security costs.

 

Any event that affects the safety standard perception of any of our aeronautical customers could result in a loss of significant passenger traffic volume.

 

Any accident, incident or other event that affects the safety standard perception of any of our aeronautical customers may affect its image and generate a public perception that it is less safe or reliable than other airlines. These events could harm consumer demand and the number of passengers serviced by such airline, which could in turn adversely affect the number of passengers using our airports, thereby having an adverse effect on our revenues.

 

Competition from other destinations could adversely affect our business.

 

The principal factor affecting our business is the number of passengers that use our airports. Our passenger traffic volume may be adversely affected by the attractiveness, affordability and accessibility of competing destinations. In addition, our passenger traffic volume may be adversely affected by the level of business activity in each destination or the likelihood of airlines using any of those destinations as a hub or base for their operations. If business activity and tourism levels, and therefore, the number of passengers using our airports, is negatively impacted by competing airports and hubs in the geographic regions in which we operate, such development could have an adverse effect on our business, financial condition or results of operations.

 

We are subject to the risk of union disputes and work stoppages at our locations, which could have a material adverse effect on our business.

 

Some of our employees are members of labor unions. For example, as of December 31, 2017, approximately 66.8% and 51.1% (54.0% and 49.7%, respectively, as of December 31, 2016) of our employees in Argentina and Italy, respectively, were members of labor unions. Negotiating labor contracts, either for new locations or to replace expiring contracts, is time consuming or may not be accomplished on a timely basis. In addition, we negotiate some of our collective bargaining agreements on an annual basis. If we are unable to satisfactorily negotiate those labor contracts with the labor unions on terms acceptable to us or without a strike or work stoppage, the effects on our business could be materially adverse. Any strike or work stoppage could disrupt our business, adversely affecting our results of operations and our public image could be materially adversely affected by such labor disputes. In addition, existing labor contracts may not prevent a strike or work stoppage, and any such work stoppage could have a material adverse effect on our business.

 

The operations of our airports may be affected by actions or inactions of third parties that are beyond our control.

 

In most of our airports, our operations are largely dependent on the services provided by governments and other third parties who render services to passengers and airlines, such as meteorology, air traffic control, security, electricity, and immigration and customs services. In addition, in some of our airports we are dependent on third-party providers of certain complementary services such as baggage handling, fuel services, catering and aircraft maintenance and repair. While we are responsible for adopting security measures at some of our airports, we do not control the management or operation of security, which is controlled by government agencies or third parties. We are not responsible for, and cannot control, any of these services. Any disruption in, or adverse consequence resulting from, such services, including work strikes or other similar events, could cause the cancellation of flights and negatively affect passenger traffic at our airports, which may ultimately result in decreased revenues and have an adverse effect on our business, financial condition or results of operations.

 

 15 

 

 

The loss of one or more of our aeronautical customers or the interruption of their operations could result in a loss of a significant amount of our passenger traffic.

 

None of our agreements with our aeronautical customers obligates them to provide service at to our airports. If any of our aeronautical customers were to reduce their use of our airports or cease to operate at them for any reason, including merger, bankruptcy or due to regulatory restrictions, the remaining airlines may not increase their flight frequency to replace the flights that our aeronautical customers were no longer operating. Our business and revenue could be adversely affected if we are unable to replace the business of our main aeronautical customers.

 

Our main aeronautical customers are LATAM Airlines Group and Grupo Aerolíneas Argentinas. For the year ended December 31, 2017, LATAM Airlines Group and Grupo Aerolíneas Argentinas accounted for 22.4% and 16.4% of our consolidated aeronautical revenue, respectively. For the year ended December 31, 2016, LATAM Airlines Group and Grupo Aerolíneas Argentinas accounted for 22.8% and 15.2% of our consolidated aeronautical revenue, respectively. For the year ended December 31, 2015, LATAM Airlines Group and Grupo Aerolíneas Argentinas accounted for 19.3% and 17.1% of our consolidated aeronautical revenue, respectively.

 

An aircraft accident or other material factors beyond our control may affect the operation of our runways.

 

Our runways may require unscheduled repair due to natural disasters, aircraft accidents and other factors beyond our control. The closure of any runway for a significant period of time could have a material adverse effect on the number of passengers that use our airports, and therefore, a material effect on our operations and financial results.

 

Ongoing and proposed construction, renovation or repair work at our airports could have a negative impact on our revenues.

 

At any time, we may be in the process of constructing, renovating and/or repairing a number of our airports. These works may sometimes affect the passenger experience, which may ultimately adversely affect our commercial revenue. The operations of our other airports may decrease or be adversely affected by future construction, renovations or repairs, and this could have an adverse effect on our business, financial condition or results of operations.

 

We are exposed to certain risks in connection with the use of certain spaces by subconcessionaires at our airports.

 

We are exposed to risks related to the spaces subconcessioned to third parties, such as non-payment by subconcessionaires of certain fees and other lease arrangements or a weakening demand for the use of the spaces allocated to subconcessionaires. For example, many of our subconcessionaires’ locations are situated beyond the security checkpoints at airports, and they rely heavily on their customers spending a significant amount of time in the terminal and waiting areas of the airport terminals in which they have subconcessioned space. Changes in customers’ travel habits prior to departure, including an increase in the availability or popularity of airline business and first-class lounges, or an increase in the efficiency of ticketing, transportation safety procedures and air traffic control systems could reduce the amount of time that customers spend at such subconcessioned locations, which could materially reduce the revenue they are able to generate and which, in turn, could reduce the amount of fees and rent we can collect from our subconcessionaires. Any material reduction in the fees and lease payments that we are able to charge to our subconcessionaires could adversely affect our business, results of operations and financial condition.

 

 16 

 

 

Our insurance policies may not provide sufficient coverage against all liabilities.

 

We are required to maintain insurance under all of our concession agreements and we seek to insure all risks for which insurance coverage is available on commercially reasonable terms. We can offer no assurance that our insurance policies will cover all of our liabilities in the event of an accident, natural disaster, terrorist attack or other incident. The insurance market for airport liability coverage generally, and for airport construction in particular, is limited, and a change in the coverage policy by the insurance companies involved could reduce our ability to obtain and maintain adequate or cost-effective coverage. For some of our airports, we do not currently carry business interruption insurance or property insurance against terrorism and related risks. Consequently, any substantial interruption of our business or terrorist attacks could have a material adverse effect on our results of operations and our financial condition.

 

We are exposed to liability to third parties for injuries or damages.

 

We are obligated to protect the public and to reduce the risk of accidents at our airports. As with any company dealing with the security of individuals, we must implement measures for the protection of the public, such as hiring private security services, maintaining our airports’ infrastructure and fire safety in public spaces, and providing emergency medical services. These obligations could expose us to liability to third parties for personal injury or property damage and, to the extent not adequately covered by insurance, could adversely affect our financial condition and results of operations.

 

Most of our operations are in emerging markets.

 

Our existing concessions are mostly in countries with emerging economies, and investing in developing economies generally involves risks. These risks include political, social and economic events, any of which could impact our operations or the market value of our common shares and have a material adverse effect on our business, financial condition and results of operations. These risks and instability are caused by many different factors, including the following:

 

·adverse external economic factors;

 

·inconsistent fiscal and monetary policies (including currency devaluation);

 

·dependence on external financing;

 

·changes in governmental economic and tax policies and regulations;

 

·high levels of inflation;

 

·fluctuations in currency values;

 

·high interest rates;

 

 17 

 

 

·wage increases and price controls;

 

·limitation on imports;

 

·exchange rates and capital controls;

 

·political and social tensions;

 

·fluctuations in central bank reserves; and

 

·trade barriers.

 

Emerging markets have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability. Adverse economic conditions in any of these countries could have a material adverse effect on our business, financial condition and results of operations.

 

Some of the countries in which we operate have experienced, or are currently experiencing, high rates of inflation. In an effort to control inflation, governments of these countries often maintain a tight monetary policy with high interest rates, thereby restricting the availability of credit and retarding economic growth. Inflation, measures to combat inflation and public speculation about possible additional actions have also contributed significantly to economic uncertainty in many of these countries and to heightened volatility in their securities markets. Periods of higher inflation may also slow the growth rate of local economies. Inflation is also likely to increase some of our costs and expenses, which we may not be able to fully transfer to our clients, which could adversely affect our operating margins and operating income in some of the emerging markets in which we operate.

 

Depreciation or fluctuation of the currencies of the countries where we operate could adversely affect our results of operations and financial condition.

 

Many of the countries where we operate have experienced volatility in the exchange rate of their currency against the U.S. dollar. Because we present our financial statements in U.S. dollars, this volatility may reduce the revenues we report or increase the expenses we report in any given period. These effects may in turn have an adverse effect on the market of our common shares. In addition, because we have a substantial amount of dollar-denominated indebtedness, exchange rate volatility may result in increased debt service costs. Finally, in some instances we receive revenues in a currency different from that in which we pay expenses, in which case currency volatility can affect the profitability of our operations.

 

We are subject to various environmental laws, regulations and authorizations that affect our operations and may expose us to significant costs, liabilities, obligations or restrictions.

 

We, our subconcessionaires and our aeronautical customers are subject to various environmental laws, regulations and authorizations governing, among other things, the generation, use, transportation, management and disposal of hazardous materials, the emission and discharge of hazardous materials into the ground, air or water, and human health and safety. Failure to comply with these environmental requirements, including the terms of our concession agreements, could result in our being subject to litigation, fines or other sanctions. We could also incur significant capital or other compliance costs relating to such requirements. We could also be held responsible for contamination, human exposure to hazardous materials or other environmental damage at our airports or otherwise related to our operations. Environmental claims have been asserted against us, and additional claims may be asserted against us in the future. See “Business—Legal Proceedings—Argentine Proceedings—Environmental Proceedings.” We are unable to determine our potential liability under these pending or possible future claims. We only have environmental insurance coverage for environmental damages at a limited number of our airports.

 

 18 

 

 

These environmental requirements, and the enforcement and interpretation thereof, change frequently and have tended to become more stringent over time. Future environmental laws, regulations and authorizations may require us to incur additional costs in order to bring our airports into, and maintain, compliance. Our costs, liabilities, obligations and restrictions relating to environmental matters could have a material adverse effect on our business, results of operations and financial condition.

 

We are subject to review by taxing authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.

 

The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxing authorities. We are subject to the income tax laws of the countries in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, leading to disputes which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws. In some jurisdictions where we operate, the interpretations of tax laws by the taxing authorities are sometimes unpredictable and frequently involve litigation, introducing further uncertainty and risk as to our tax liability. If the judgment, estimates and assumptions we use in preparing our tax returns are subsequently determined to be incorrect, there could be a material adverse effect on us, which may ultimately affect our revenues. See “Business—Legal Proceedings—Tax Proceedings Related to Technical Assistance Agreements.”

 

We are dependent on information and communication technologies, and our systems and infrastructures face certain risks, including cybersecurity risks.

 

The operation of complex infrastructures, such as airports, and the coordination of the many actors involved in its operation require the use of several highly specialized information systems, including both our own information technology systems and those of third-party service providers, such as systems that monitor our operations or the status of our facilities, communication systems to inform the public, access control systems and closed circuit television security systems, infrastructure monitoring systems, air navigation systems, passenger ticketing and boarding, automated baggage handling, points of sale, terminals and radio and voice communication systems used by our personnel. In addition, our accounting and fixed assets, payroll, budgeting, human resources, supplier and commercial, hiring, payments and billing systems and our websites are key to the functioning of our airports. The proper functioning of these systems is critical to our operations and business management. These systems may, from time to time, require modifications or improvements as a result of changes in technology, the growth of our business and the functioning of each of these systems.

 

While we have contingency plans, backup systems, information and communication redundant systems, testing and certification procedures and information technology auditing systems, among others, these information systems cannot be completely protected against certain events such as natural disasters, fraud, computer viruses, hacking, communication failures, equipment breakdown, software errors and other technical problems.

 

The risk of cyber-crime has been increasing, especially as infiltrating technology is becoming increasingly sophisticated. If we are unable to prevent a significant cyber-attack, such attack could materially affect the number of passengers at our airports, cause the loss of passenger information, damage our reputation and lead to regulatory penalties and financial losses.

 

 19 

 

 

We have implemented continuity measures and technology disaster recovery plans to mitigate the damage from such incidents and in the future may incur in significant costs to protect against security threats or to alleviate problems caused by failures of or breaches to our systems. However, we cannot assure you that these measures will be adequate to prevent disruptions in all cases, the occurrence of which could significantly disrupt our operations, resulting in increased costs, a decline in revenue and significant harm to our business (including our public image) in general.

 

Our acquisition strategy could involve additional risks to us, many of which could have an adverse effect on our business, financial condition and results of operations.

 

We continue to examine opportunities to acquire or invest in existing or new concessions that complement or expand our business. These opportunities may involve government-owned entities as well as private sector companies. Any future acquisitions may result in a dilutive issuance of equity securities, incurrence of additional debt, reduction of existing cash balances, amortization of expenses related to goodwill and other intangible assets or other charges to operations. Additional leverage could require us to dedicate cash flow to fund debt service requirements, thus decreasing the funds available to us to finance working capital and business operations generally. All of the foregoing factors could have an adverse effect on our business, financial condition, results of operations or prospects.

 

Future acquisitions could involve numerous risks, including that we may recognize lower relative operating margins associated with such acquisitions, and we may recognize impairment charges with respect to future acquired assets due to the performance of such assets. Our results of operations may also be affected by the timing of acquisitions, the timing and amount of integration costs related to such acquisitions and the degree to and the rate at which the economic benefits of integration are realized.

 

Future growth may also place additional demands on our personnel and other resources, including an increased level of responsibility for management. Our ability to manage growth effectively will require us to continue to improve our operational, management and financial systems and controls and to successfully train, motivate and manage our employees. If our management is unable to manage growth effectively, our business could be adversely affected.

 

Our inability to raise additional financing may limit our operations.

 

We may have limited ability to incur additional financing for some of our concession agreements, which may entail important consequences for investors, among them (i) limiting our capacity to satisfy our future investment obligations with respect to the airports we operate pursuant to the terms and conditions of our concession agreements, or other capital expenditures required for the operation of such airports; and (ii) limiting our flexibility to take advantage of opportunities for new business within the markets we operate or potential new markets. Any of these situations may ultimately affect our operations and financial results.

 

Many of our most significant subsidiaries have substantial minority interests outstanding.

 

We own indirectly 81.3%, 55.7% and 51.0% of our principal Argentina, Italy and Brazil operating subsidiaries, respectively, which are namely Aeropuertos Argentina 2000 S.A. (“AA2000”), Toscana Aeroporti S.p.A. (“TA”) and ICAB. Because we control these entities, we record all their revenues and expenses and then allocate net income between controlling and non-controlling interest. The other shareholders–including, in the case of Italy, public shareholders–of these entities may have interests different from ours, and any substantial conflict with minority shareholders may have an adverse effect on our business, financial condition or results of operations.

 

 20 

 

 

We may have conflicts of interest with ACI Airports S.à r.l., our majority shareholder, and we may not be able to resolve such conflicts on terms favorable to us.

 

We are currently controlled by ACI Airports S.à r.l., a holding company incorporated in Luxembourg (the “Majority Shareholder”). Conflicts of interest may arise between our Majority Shareholder and us in a number of areas relating to our past and ongoing relationships. Potential conflicts of interest that we have identified include, among others, allocation of business and investment opportunities and/or the acquisition of airport assets outside of our existing corporate structure. Generally, the Majority Shareholder may from time to time make strategic decisions that it believes are in the best interest of the business as a whole, including its ownership interest in our business. These decisions may be different from the decisions that we would have made on our own and may not be aligned with your interests. We may not be able to resolve any potential conflicts and, even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.

 

We have been advised by SCF, our ultimate controlling shareholder, that it does not intend to participate in any significant future acquisitions of airport concession assets or airport-related companies, except through us.

 

The U.S. Federal Aviation Administration or another regulatory agency could downgrade the aviation safety rating of any of the countries in which we operate, which could have a negative impact on passenger traffic.

 

Under the U.S. Federal Aviation Administration regulations, the aviation safety rating of any of the countries in which we operate could be downgraded. Airlines from such countries could be prevented from expanding or changing their current operations to and from the United States, except under certain limited circumstances, code-sharing arrangements between such airlines and U.S. airlines could be suspended, and operations by such airlines flying to the United States could be subjected to greater administrative oversight. Any such additional regulatory requirements could result in reduced passenger traffic originating in or departing to the United States by non-U.S. airlines operating at our airports or, in some cases, in an increase in that cost of service, which could result in decrease in demand for travel. The Federal Aviation Administration may downgrade the air safety rating of any of the countries in which we operate in the future. The European Aviation Safety Agency and other regulatory agencies may take similar actions, either independently or in response to any such action by the U.S. Federal Aviation Administration. Such actions might reduce our revenues and have a negative impact on passenger traffic.

 

We are subject to anti-corruption laws in the jurisdictions in which we operate.

 

We are subject to and bound by U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the Argentine Anticorruption Law of 2018 (Law No. 27,401), the Italian Corruption Law of 2012 (Law No. 190) and the Brazil Clean Company Act of 2014 (Law No. 12,846). These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. Many jurisdictions have recently implemented new anti-corruption laws (such as in the case of Argentina and Brazil) or have broadened the scope of existing anti-corruption laws (such as in the case of Italy). The Brazilian Clean Company Act holds companies strictly liable for the corrupt acts of their employees and intermediaries, which means that a company may be held liable for such acts, without a finding of fault on the part of the company. See “—Risks Related to Our Other Principal Operations and Other Principal Markets in Which We Operate—Brazil—The ongoing economic uncertainty and political instability in Brazil may adversely affect our economic and financial condition” and “— Risks Related to Our Other Principal Operations and Other Principal Markets in Which We Operate— Brazil— We have identified payments made by ICAB that may not have had any proper purpose and that could expose us to fines and sanctions as well as reputational harm and other adverse effects.” Our business requires that we maintain continuous contact with governments and agencies from the initial bid process for any concession and throughout the entire term of any concession we are awarded. Despite our ongoing efforts to ensure compliance with anti-corruption laws, there can be no assurance that our employees, agents, and the companies to which we outsource certain of our business operations, will not take actions in violation of our policies, for which we may be ultimately held responsible. If we are not in compliance with anti-corruption laws and other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could harm our reputation and have a material adverse impact on our business, financial condition, results of operations and prospects. Any investigation of any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition and results of operations.

 

 21 

 

 

Risks Related to Argentina and the AA2000 Concession Agreement

 

The AA2000 Concession Agreement expires in 2028, unless it is extended by the Argentine Government.

 

The AA2000 Concession Agreement expires in February 2028. Subject to the satisfaction of certain conditions by AA2000 and the authorization of the Argentine Government, we may extend the term of the AA2000 Concession Agreement for an additional period of up to 10 years. We have made a formal request to the Organismo Regulador del Sistema Nacional de Aeropuertos (the “ORSNA”) to extend the term of the concession for the additional 10-year period. However, under Section 5.2 of the AA2000 Concession Agreement, if the concession is extended, the Argentine Government has reserved the right to maintain, modify or eliminate the exclusivity granted under the concession. In case the Argentine Government does not extend the AA2000 Concession, our revenue will be significantly affected.

 

Pursuant to the AA2000 Concession Agreement, as of February 2018 and thereafter, the Argentine Government may buy out our concession, which would materially affect our revenues and operations.

 

Pursuant to the AA2000 Concession Agreement, on or after February 13, 2018, the Argentine Government has the right to “buy-out” (“rescatar”) the AA2000 Concession Agreement upon prior notification to us. In the event the Argentine Government were to exercise this option, it would be required to indemnify us in an amount equal to the value of the non-amortized aeronautical investments we have made as of the time of the buy-out, multiplied by 1.10, plus the value of all other investments we made that have not been amortized. The Argentine Government would not be required to indemnify us for investments that were not included in our investment plan or that were not approved by the ORSNA. The Argentine Government would also not be required to indemnify us for lost revenue. The Argentine Government would be required to assume in full any debts incurred by us to acquire goods or services for the purposes of providing airport services, except for debts incurred in connection with the investment plan for which we would be compensated as part of the payment made to us by the Argentine Government. Subsequent to such buy-out, we may have other claims against the Argentine Government or the ORSNA, but we may not prevail on these claims.

 

Furthermore, the buy-out of the AA2000 Concession Agreement would constitute an event of default under our 6.875% senior secured notes due 2027 (the “Argentine Notes”), which will result in automatic acceleration of the Argentine Notes. As of the date of this annual report, the total amount outstanding under the Argentine Notes is U.S.$400.0 million. The Argentine Government’s indemnification obligations in combination with the collateral structure under the Argentine Notes may not be adequate to repay the holders of such notes. See “Indebtedness.”

 

 22 

 

 

 

During the years ended December 31, 2017, 2016 and 2015, the revenue derived from our operation of the airports under the AA2000 Concession Agreement represented 63.2%, 61.3% and 65.8%, respectively, of our total consolidated revenue. If the Argentine Government exercises its right to buy-out the AA2000 Concession Agreement, such buy-out would have a material adverse effect on our business, financial condition and results of operations.

 

The ORSNA may adjust the fees we charge for aeronautical services, the payments we are required to make to the Argentine Government and our investment plan in a way that is detrimental to us, or fail to adjust them to restore the AA2000 Concession Agreement’s economic equilibrium.

 

Under the AA2000 Concession Agreement, the ORSNA is required to review annually AA2000’s financial projections and, if necessary, to re-establish economic equilibrium by making adjustments to (i) the fees we charge airlines and passengers for aeronautical services, (ii) certain payments we make to the Argentine Government pursuant to the AA2000 Concession Agreement, and/or (iii) our investment obligations. Since the renegotiation of the AA2000 Concession in 2007, the Argentine Government has reviewed the financial projections six times. Effective January 1, 2017, the ORSNA adjusted the fees we may charge by decreasing the fee for international passengers from U.S.$57.00 to U.S.$49.00 and increasing the fee for domestic passengers from AR$29.73 to AR$74.33, in a way we believe is detrimental to us and therefore, we have filed a claim regarding this adjustment of fees. As of the date of this annual report, such claim has not been resolved.

 

In addition, the Argentine Government has recently hired a consulting firm to review the terms and conditions of the AA2000 Concession Agreement. According to the ORSNA, the Argentine Government is seeking to obtain detailed information about the quality of service provided by our airports under the AA2000 Concession Agreement as compared to the service levels at other international airports. It is unclear whether the Argentine Government expects to take any action based on the results of the consultant’s review.

 

If the ORSNA adjusts the fees we may charge or that we must pay under the AA2000 Concession in a way that is detrimental to us, if the ORSNA fails to adjust such fees in order to restore the AA2000 Concession Agreement’s economic equilibrium, or if the ORSNA seeks to modify our rights under the AA2000 Concession Agreement, such adjustments or failures to adjust, may have a material adverse effect on our business, financial condition and results of operations.

 

We and the Argentine Government expect to renegotiate the terms of our AA2000 Concession. The Argentine Government has indicated to us that it will not consider that the consummation of our initial public offering will affect its possible position in any renegotiation process and/or any of its rights under the AA2000 Concession or applicable law. Any renegotiated terms of our AA2000 Concession could have a material adverse effect on our business, financial condition and results of operations. If the parties fail to reach an agreement in any such renegotiation process, the Argentine Government could exercise its option to buy out the AA2000 Concession. See “—Risks Related to Argentina and the AA2000 Concession Agreement—Pursuant to the AA2000 Concession Agreement, as of February 2018 and thereafter, the Argentine Government may buy out our concession, which would materially affect our revenues and operations.”

 

 23 

 

 

If the ORSNA does not approve the capital expenditures already made under the AA2000 Concession Agreement, we would be required to make additional capital expenditures, which may affect our cash flows and financial condition.

 

The ORSNA reviews our capital expenditures to monitor our compliance with the investment plan under the AA2000 Concession Agreement, and to record such expenditures in the registry maintained by the ORSNA. If a capital expenditure is approved by the ORSNA, it is then entered into its registry.

 

Accordingly, we may record investments in any given period that have not yet been (and may never be) approved by the ORSNA. If the ORSNA does not approve our capital expenditures under the investment plan of the AA2000 Concession Agreement, we will be required to make additional capital expenditures. This may require us to obtain additional financing, which we may not be able to obtain on terms favorable to us, or at all. Our capital expenditures for the years ended December 31, 2017, 2016, 2015 and 2014, are currently under review by the ORSNA. In addition, we filed claims with the ORSNA in connection with the investment amounts recognized by the ORSNA for the years ended December 31, 2013, 2012 and 2011, which as of the date of this annual report have not been resolved.

 

The ORSNA may reject the transactions whereby Cedicor S.A. acquired from Societa per Azioni Esercizi Aeroportuali and from Riva S.A.I.I.C.F.A. 8.5% and 0.85% of AA2000’s shares, respectively.

 

In June 2011, our subsidiary, Cedicor S.A. (“Cedicor”), which is the controlling shareholder of Corporación América S.A. (“CASA”), agreed to purchase from Societa per Azioni Esercizi Aeroportuali (“SEA”) 21,973,747 class A shares of AA2000, which represented 8.5% of AA2000’s ordinary capital and voting stock, and 2.5% of its capital stock on a fully diluted basis (including the preferred shares). In addition, in July 2011, 2,197,375 Class B Shares of AA2000 which represented 0.85% of AA2000’s ordinary capital and voting stock, and 0.25% of the capital stock on a fully diluted basis (including the preferred shares), were transferred to Cedicor by Riva S.A.I.I.C.F.A. (“Riva”).

 

Both of these transfers are subject to the prior authorization of the ORSNA. As of the date of this annual report, the ORSNA has not issued any resolution approving or rejecting such transaction. While this approval is pending, all economic and political rights pertaining to the shares, including all distributed dividends, have been assigned to Cedicor pursuant to the terms of the sale agreements between Cedicor and SEA and between Cedicor and Riva.

 

If the ORSNA rejects the transfers of shares, Cedicor is entitled to transfer the shares to a third party upon the ORSNA’s approval within 18 months of the date that ORSNA notifies Cedicor of its denial resolution. If the ORSNA subsequently rejects the transfer to the proposed third party, the agreements between Cedicor and each of SEA and Riva will cease to have any effect, except that (i) all payments made by Cedicor to SEA and Riva shall be retained by SEA and Riva; and (ii) all dividends distributed or to be distributed by AA2000 to Cedicor with respect to the transferred shares and all additional shares subscribed by Cedicor in exercise of the pre-emptive rights pertaining to such shares shall be retained by Cedicor. In such case, SEA and Riva will be reinstated as owners of all of the shares originally proposed to be transferred to Cedicor.

 

While we have no reason to believe that the transaction will be rejected, if the transaction is rejected by the ORSNA, then the ownership of AA2000 will be affected which in turn could ultimately reduce our share of the earnings of AA2000 which may not be completely offset by the consideration received from any transfer of the shares to a third party.

 

 24 

 

 

Our operations in Argentina depend on macroeconomic conditions in Argentina.

 

Our business and financial results in Argentina depend to a significant degree on macroeconomic, political, regulatory and social conditions therein, generally, and in the City of Buenos Aires, especially. The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation, and may experience further volatility in the future.

 

Over the last years, Argentina experienced a period of severe political, economic and social crisis, which caused a significant economic contraction and led to radical changes in government policies. Among other things, the crisis resulted in Argentina defaulting on its sovereign foreign debt obligations, a significant devaluation of the Argentine peso and ensuing inflation, and the introduction of emergency measures that affected many sectors of the economy. Although Argentina has largely recovered from crisis, the pace of growth of Argentina’s economy has diminished.There is an increasing need for capital investment in many sectors. A decline in international demand for Argentine products, a lack of stability and competitiveness of the Argentine peso against other currencies, a decline in confidence among consumers and foreign and domestic investors, a higher rate of inflation and future political uncertainties, among other factors, may affect the development of the Argentine economy. Any of these factors may be especially significant if they have a concentrated impact on the City of Buenos Aires metropolitan region where our two main airports in the country are located. More recently the economy has shown signs of a slowdown, primarily due to the decline in global commodity prices and adverse conditions in Brazil, one of Argentina’s principal trading partners.

 

Volatility in the Argentine economy and measures taken by the Argentine Government have had and are expected to continue to have a significant impact on us. A decline in economic growth, increased economic instability or an expansion of economic policies and measures taken by the Argentine Government to control inflation or address other macroeconomic developments that affect private sector entities such as us—all developments over which we have no control—could have an adverse effect on our business, financial condition or results of operations.

 

The long-term impact of the presidential and congressional elections on the future economic and political environment of Argentina is uncertain.

 

The administration of Mauricio Macri took office on December 10, 2015. Since taking office, the new administration has announced and implemented several significant economic and policy reforms, including, among others: foreign exchange and trade reforms, electrical system state of emergency and reforms, reforms of gas prices, financial Policy and deficit reduction.

 

The long term impact that these measures and any future measures Macri’s administration may implement will have on the Argentine economy cannot be predicted. Some of the measures proposed by Macri’s administration may generate political and social opposition, which may in turn prevent the new government from adopting its proposed measures. Likewise, congressional elections were held in Argentina in October 2017, and although Macri’s party won in most jurisdictions, there is still uncertainty as to the administration’s ability to pass its proposed agenda or as to the possibility that some of the market reforms already executed may be reversed or amended.

 

We can offer no assurances as to the policies that may be implemented by the new Argentine administration, or that political developments in Argentina will not adversely affect our financial condition and results of operations.

 

 25 

 

 

The long-term impact of the recent reforms to several Argentine economic indices is uncertain.

 

From 2007 to 2015, the Argentine National Statistics and Censuses Institute (Instituto Nacional de Estadística y Censos) (the “INDEC”) underwent a process of institutional and methodological reforms that have created controversy with respect to the reliability and credibility of its reports with respect to the consumer price index, as well as other indexes published by the INDEC, including inflation, gross domestic product and unemployment data.

 

During December 2015 and January 2016, the Macri administration declared the national statistical system and the INDEC to be in a state of administrative emergency. The INDEC resumed its publication of the consumer price index in June 2016, after implementing certain methodological reforms and adjusting certain macroeconomic statistics on the basis of those reforms. The INDEC recently released revised GDP data for the years 2006-2015.

 

These events may affect the Argentine economy and investors’ perception of the country even after institutional and methodological reforms undertaken by the INDEC. Adverse economic developments, in turn, may ultimately affect the number of passengers in our airports in Argentina.

 

Argentina’s ability to obtain financing from international markets may be limited, which may in turn impair its ability to implement reforms and public policies and foster economic growth and could impact the ability of Argentine companies to obtain financing.

 

Argentina’s 2001 sovereign default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited and may continue to limit Argentina’s ability to access international financing. In 2005, Argentina completed the restructuring of a substantial portion of its indebtedness and settled all of its debt with the International Monetary Fund. Additionally, in June 2010, Argentina completed the restructuring of a significant portion of the defaulted bonds that were not swapped in the 2005 restructuring. As a result of debt exchanges in 2005 and 2010, Argentina restructured approximately 92% of its defaulted debt that was eligible for restructuring. However, holdout bondholders that declined to participate in the restructurings filed lawsuits against Argentina in several countries, including the United States. In February 2016, the new Argentine administration entered into settlement agreements with certain holdout bondholders to settle these claims, which were subject to the approval of the Argentine Congress and the lifting of the injunctions imposed by the U.S. courts. In March 2016, after the U.S. District Court agreed to vacate the injunctions subject to certain conditions, the Argentine Congress ratified these settlement agreements through Law 27,249 and repealed the so-called Lock Law No. 26,017 and the Sovereign Payment Law No. 26,984, which prohibited Argentina from offering holdout bondholders more favorable terms than those offered in the 2005 and 2010 debt swaps. In recent months, the Argentine Government has reached settlement agreements with holders of a significant portion of the defaulted bonds and has repaid the majority of the holdout creditors with the proceeds of a U.S.$16.5 billion international offering of bonds on April 22, 2016. Although the size of the claims involved has decreased significantly, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions.

 

Additionally, foreign shareholders of several Argentine companies have filed claims with the International Centre for Settlement of Investment Disputes (“ICSID”) alleging that the emergency measures adopted by the Argentine Government since the crisis in 2001 and 2002 differ from the just and equal treatment standards set forth in several bilateral investment treaties to which Argentina is a party. ICSID has ruled against Argentina with respect to many of these claims.

 

 26 

 

  

Litigation involving holdout creditors, claims with ICSID and other claims against the Argentine Government resulted and may result in material judgments against the government, may lead to attachments of or injunctions relating to Argentina’s assets and could cause Argentina to default under its other obligations, and such events may prevent Argentina from obtaining favorable terms or interest rates when accessing international capital markets or from accessing international financing at all. In addition, Argentina’s ongoing litigation with the remaining holdout creditors as well as ICSID and other claims against the Argentine Government, or any future defaults on its financial obligations, may prevent Argentine companies, such as us, from accessing the international capital markets or cause the terms of any such transactions to be less favorable than those provided to companies in other countries in the region, potentially impacting our financial condition. Therefore, our ability to obtain favorable financing to develop or grow our operations in Argentina and in our airports may be impaired.

 

In June 2017, after the Macri administration had entered into settlement agreements with certain holdout bondholders, Argentina completed the U.S.$2.75 billion sale of 100-year government bonds. However, if, for any reason, Argentina is not able to access capital markets in the future, it could have a negative impact on our ability to obtain financing and our financial condition in Argentina.

 

Historical exchange controls and restrictions on capital inflows and outflows could limit the availability of international credit, adversely affecting the Argentine economy, and, as a result, our financial condition and results of operations.

 

Exchange controls introduced in Argentina in the past, and in particular after 2011 during the prior administration, gave rise to an unofficial U.S. dollar trading market, and the Argentine peso/U.S. dollar exchange rate in that market substantially differed from the official Argentine peso/U.S. dollar exchange rate. Additionally, the level of international reserves deposited with the Argentine Central Bank significantly decreased from U.S.$47.4 billion as of November 1, 2011, to U.S.$25.6 billion as of December 31, 2015. The decline in international reserves reduced the Argentine Government’s ability to intervene in the foreign exchange market and to provide access to such markets to private sector entities. The Macri administration has eliminated a significant portion of foreign exchange restrictions, including certain currency controls that were imposed by the previous administration. On August 8, 2016, the Argentine Central Bank introduced material changes to the foreign exchange regime and established a new foreign exchange regime by means of Communication “A” 6037 that significantly eases access to the free floating foreign exchange market. As of April 13, 2018, the level of international reserves deposited with the Argentine Central Bank had increased again to U.S.$61.6 billion.

 

Although the Macri administration has lifted most of the restrictions on capital inflows and outflows in and from Argentina and the level of international reserves deposited with the Argentine Central Bank have increased significantly, in the future the Argentine Government could impose new exchange controls or restrictions on the movement of capital and/or take other measures in response to capital flight or a significant depreciation of the peso, which could limit our ability to access the international capital markets and our ability to make payments abroad may be affected. Such measures could lead to political and social tensions and undermine the Argentine Government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth.

 

Government measures, as well as pressure from labor unions, could require salary increases or additional employee benefits, all of which could increase companies’ operating costs.

 

Most industrial and commercial activities in Argentina are regulated by specific collective bargaining agreements that group together companies according to industry sectors and trade unions. Argentine employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to the high levels of inflation, employees and labor organizations are demanding wage increases. In the past, the Argentine Government passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and to provide specified benefits to employees. The Argentine Government increased the minimum salary to AR$3,300 in August 2013, to AR$3,600 in January 2014, to AR$4,400 in September 2014, to AR$5,588 in August 2015, to AR$6,060 in January 2016 and to AR$8,060 in January 2017. From July 1, 2017 and until December 31, 2017, the minimum monthly salary of private employees has been set at AR$8,860. As of January 1, 2018, the minimum monthly salary of private employees is AR$9,500.

 

 27 

 

 

In the future, the Argentine Government could take new measures requiring salary increases or additional employee benefits, and the labor force and labor unions may pressure employers to implement those measures. Increases in wages or employee benefits could result in added costs and adversely affect our results of operations in Argentina.

 

Increased public expenditures could result in long-lasting adverse consequences for the Argentine economy.

 

In recent years, the Argentine Government has substantially increased public expenditures. Although in 2017, public sector expenditures decreased by 40.4% as compared to 2016, the Argentine Government reported a primary fiscal deficit of 3.9% of GDP, according to the Argentine Ministry of Treasury. Future fiscal deficits could negatively affect the Argentine Government’s ability to access the long-term financial markets and could, in turn, result in more limited access to such markets by Argentine companies, including us.

 

Restrictions on imports may adversely affect our revenues from cargo operators, as well as our ability to access capital goods that are necessary for our operations.

 

In 2012, the Argentine Government adopted an import procedure (declaraciones juradas anticipadas de importación), pursuant to which local authorities must pre-approve any import of products and services to Argentina as a precondition to allow importers to access the foreign exchange market to pay for such imported products and services. In 2012, the European Union, the United States and Japan filed claims with the World Trade Organization against certain import-related requirements maintained by Argentina. Recently, the World Trade Organization determined that those measures are not consistent with Argentina’s obligations under the World Trade Organization and requested their elimination. On December 22, 2015, through Resolution No. 3,823, the Argentine Federal Administration of Public Income (Administracion Federal de Ingresos Publicos) removed the import authorization system and replaced it with the new Comprehensive Import Monitoring System (Sistema Integral de Monitoreo de Importaciones). Among other changes, local authorities must now reply to any approval requests within a ten-day period from the date of filing.

 

If the Argentine Government further modifies the current import regulations and/or restricts the import of certain products, our revenues derived from cargo operations may be adversely affected.

 

A continued decline in the global prices of Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth.

 

Since the beginning of 2015, international commodity prices of Argentina’s primary commodity exports such as soy, wheat and other agricultural products have declined, which has had an adverse effect on Argentina’s economic growth. If international commodity prices continue to decline, the Argentine economy could be adversely affected. In addition, adverse weather conditions can affect the production of commodities by the agricultural sector, which account for a significant portion of Argentina’s export revenues.

 

 28 

 

 

These circumstances could have a negative impact on the levels of consumer discretionary spending, government revenues, available foreign exchange and the Argentine Government’s ability to service its sovereign debt, and could generate either recessionary or inflationary pressures, depending on the Argentine Government’s reaction. Any of these results could adversely impact Argentina’s economic growth and our financial condition and results of operations.

 

The Argentine economy could be adversely affected by economic developments in other global markets and by more general “contagion” effects.

 

Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the European Union, China and the United States) could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. Brazilian demand for Argentine exports has generally declined over the past five years and further deterioration of economic conditions in Brazil may increasingly reduce demand for Argentine exports and create advantages for Brazilian imports. Further adverse developments in the Brazilian political and economic crisis may have further negative effects on the Argentine economy and our operations.

 

Argentina may also be affected by other countries that have influence over world economic cycles. If interest rates rise significantly in developed economies, including the United States, emerging market economies, including Argentina, could find it increasingly challenging and expensive to borrow capital and refinance existing debt, which could negatively affect their economic growth.

 

Significant fluctuation in the value of the Argentine peso may adversely affect the Argentine economy as well as our financial condition and results of operations.

 

The Argentine peso has suffered significant declines against the U.S. dollar and has continued to decline against the U.S. dollar. Despite the positive effects of the decline of the Argentine peso on the competitiveness of certain sectors of the Argentine economy, it can also have far-reaching negative impacts on the Argentine economy and on businesses’ and individuals’ financial condition.

 

After several years of relatively moderate variations in the nominal exchange, the Argentine peso depreciated 14.4% against the U.S. dollar in 2012, 32.6% in 2013, 31.2% in 2014, 52% in 2015, 22.2% in 2016 and approximately 20.3% in 2017. Since the depreciation of the Argentine peso in December 2015, the Argentine Central Bank has allowed the Argentine peso to float and has limited its intervention only to ensure the orderly functioning of the foreign exchange market. As of April 17, 2018, the exchange rate was AR$20.1 to U.S.$1.00. If the peso continues to depreciate, all of the negative effects on the Argentine economy related to such depreciation could resurface. Moreover, it could result in a material adverse effect on our financial condition and results of operations due to our exposure to financial commitments in U.S. dollars.

 

International and regional passenger use fees are denominated in U.S. dollars and are payable in both U.S. dollars and Argentine pesos. Currency exchange rate volatility directly affects conversions of U.S. dollars into Argentine pesos. Any appreciation in the value of the Argentine peso against the U.S. dollar may reduce our cash flows. Conversely, any depreciation in the value of the Argentine peso against the U.S. dollar may increase our cash flows.

 

The overall cost increase of international travel as a result of fluctuations in currency exchange rates could potentially lead to decreased passenger traffic volume as a result of increases in travel costs. A large decrease in the value of a particular foreign currency relative to the value of the Argentine peso or the U.S. dollar, as applicable, could have an adverse effect on the number of international air passengers originating from nations that use such devalued currency.

 

 29 

 

 

Continuing high inflation may impact the Argentine economy and adversely affect our results of operations.

 

Inflation has, in the past, materially undermined the Argentine economy and the Argentine Government’s ability to foster conditions that would permit stable economic growth. In recent years, Argentina has confronted inflationary pressures, evidenced by a significant increase in fuel, energy and food prices, among other factors. According to the most recent publicly available information, the inflation rate was 31.6% for 2015, 41.0% for 2016 and 24.6% for 2017.

 

High inflation could undermine Argentina’s foreign competitiveness by diluting the effects of the depreciation of the Argentine peso, negatively affecting the level of economic activity and employment, and undermining confidence in Argentina’s banking system, which could further limit the availability of domestic and international financing to businesses. Furthermore, a portion of Argentina’s sovereign debt is subject to adjustment by the Stabilization Coefficient (Coeficiente de Estabilización de Referencia), a currency index that is strongly related to inflation. Therefore, any significant increase in inflation could cause an increase in Argentina’s external debt and, consequently, in Argentina’s financial obligations, which could aggravate the pressure on the Argentine economy. If inflation remains high or continues to increase, Argentina’s economy may be negatively affected and our results of operations could be materially affected.

 

Government intervention in the Argentine economy could adversely affect the economy and our financial condition and results of operations.

 

During past years, the Argentine Government increased its direct intervention in the economy, including through the implementation of expropriations or nationalizations and price controls. In 2008, the Argentine Government nationalized the Argentine private pension funds (Administradoras de Fondos de Jubilaciones y Pensiones) and in April 2012, the Argentine Government nationalized the Argentine energy company Yacimientos Petrolíferos Fiscales.

 

Although the current administration has not implemented or advocated any nationalization or expropriation measures, similar measures, such as mandatory renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade, investment, among others, that may be adopted by the Argentine Government in the future could adversely affect our business, financial condition and results of operations.

 

Risks Related to Our Other Principal Operations and Other Principal Markets in Which We Operate

 

Italy

 

Our revenues and operations may be affected if the Ente Nazionale per L’Aviazione Civile (“ENAC”) and the Ministro delle Infrastrutture e Dei Transporti (“MIT”) do not comply with the executed Financing Program Agreement (Contratto Di Programma Quadro Di Finanziamento), to finance the works in the Florence Airport as required by the Florence Airport Master Plan.

 

On February 16, 2017, TA, MIT and ENAC executed an agreement whereby TA agreed to conduct the works in the Florence Airport master plan. ENAC, together with MIT, agreed to partially finance the works through a €150.0 million financing commitment. If these governmental entities do not provide such financing, the completion of the works at the Florence Airport may be delayed. We may not be able to replace such financing for completion of the works on comparable terms or at all. If any of these situations arise, our results of operations and revenues may be affected.

 

 30 

 

 

If the approval process from local and national authorities of the master plan for the Florence Airport is further delayed, our financial results from the operation of such airport will be negatively impacted.

 

Under the current master plan for the Florence Airport, we are planning to complete certain construction and renovation works. Prior to commencement of such works, we require technical, environmental impact study and urban planning approvals, among others, to be granted by local and national authorities. The approval process is taking longer than initially anticipated and therefore, completion of the projects is also being delayed. Our ability to increase revenues and profits derived from the operation of the Florence Airport will be adversely affected if the approval process is further delayed.

 

The exercise of the special powers of the Italian Government may restrict our ability to take certain corporate actions or restrict the ability of investors to acquire a significant stake in our share capital.

 

Certain regulations concerning legal restrictions on transfer of assets of strategic national importance to persons or entities that are not residents of the European Union may apply to us, as controlling shareholder of TA, the operator of our Italian Airports.

 

Provisions of Law Decree No. 21 of March 15, 2012 (“Law Decree 21/2012”), as converted with amendments into Law No. 56 of May 11, 2012, which granted the Italian Government special powers (the “Golden Powers”), could been triggered as a result of our initial public offering in the event that: (i) we try to transfer our shareholding in TA and/or the Italian Airports; or (ii) a controlling stake of our share capital is transferred to a third party in the future, the Italian Government may exercise its powers under Law Decree 21/2012. Below is a description of the procedure that would apply in such a case. As of the date of this annual report, we are not aware that our initial public offering has indeed triggered any procedures pursuant to Law Decree 21/2012.

 

Pursuant to current laws and regulations, (i) the approval of specific corporate resolutions by companies operating in the energy, transport, and communications sectors, which are understood to be of strategic importance to the nation, and (ii) the acquisition of significant shareholdings in such companies by investors, are subject to the Golden Powers. Article 2 of Law Decree 21/2012 specifically regulates the special powers of the Italian Government over the strategic assets of companies operating in the transport sector. In particular, these provisions state that, in relation to companies that own one or more of such strategic assets, the Italian Government may:

 

·veto any resolutions, acts and transactions that would (i) determine a change in the ownership, control, or transferability of those assets themselves or change their use, (ii) result in an exceptional situation not regulated by national or European laws applicable to the sector, or (iii) constitute a threat of a serious prejudice to the interest of public safety and operation of the networks and installations, and the continued provision of services (Article 2, paragraph 3);

 

·impose conditions requiring certain buyers outside the European Union to give guarantees in any purchase and for any reason, (Article 2, paragraph 5), of shareholdings in an amount that would give the buyer control of the company purchased, pursuant to Article 2359 of the Italian Civil Code and the Consolidated Financial Services Act, if such a purchase poses a serious threat to public interest in the security and operation of networks and installations and the continued provision of services (Article 2, paragraph 6); and

 

 31 

 

 

·oppose the purchase described in sub-section b), if such a purchase entails exceptional risks to the protection of public interest relating to the security and operation of networks and installations and continued provision of services, which cannot be mitigated by the buyer committing to guarantee the protection of such interests (Article 2, paragraph 6).

 

Article 2 of the Decree of the President of the Italian Republic No. 85 of March 25, 2014 has identified “strategic assets” in the transport industry in Italy as large networks and plants of national interest, intended to ensure the main trans-European corridors and the related conventional reports, including (i) ports of national interest; (ii) airports of national interest; and (iii) national railroad networks of relevance for trans-European networks.

 

The infrastructure located at our airports in Italy fall within the definition of  “strategic assets” mentioned above.

 

As a result, our ability to enter into certain commercial transactions (and, in particular, those involving the transfer of the shareholding in TA and/or the strategic assets owned by TA) may be further restricted by the Italian Government’s decision to exercise its Golden Powers with respect to the management of strategic transport assets in Italy. Furthermore, in the future, our or our shareholders’ ability to enter into change of control or takeover transactions may be impacted by the exercise by the Italian Government of its special powers under the Golden Powers rules. In either case, this may limit our ability, as TA’s shareholder, to benefit from the proceeds of certain proposed asset sales or acquisitions or business combinations, and may limit our shareholder’s ability to benefit from possible premiums connected to a proposed change in control transaction or tender offer.

 

If the Italian Government exercises these Golden Powers in the future with respect to any transaction involving, directly or indirectly, TA and/or the Italian Airports, such exercise could have a material adverse effect on our business, financial condition, results of operations or prospects in the future.

 

Volatility in the global financial markets resulting from the recurrence of the Eurozone crisis, geopolitical developments in Eastern Europe or otherwise could have a material adverse effect on our business, financial condition and results of operations.

 

Volatility in the global financial markets could have an adverse effect on the economic recovery in the United States and could result from a number of events, including a relapse in the Eurozone crisis, geopolitical developments in Eastern Europe or otherwise. The effects of the Eurozone crisis, which began in late 2009 as part of the global economic and financial crisis, continued to impact the global financial markets through 2013. Numerous factors continued to fuel the Eurozone crisis, including continued high levels of government debt, the undercapitalization and liquidity problems of many banks in the Eurozone and relatively low levels of economic growth. These factors made it difficult or impossible for some countries in the Eurozone to repay or refinance their debt without the assistance of third parties. As a result of the combination of newly implemented austerity programs, debt write-downs and the European Central Bank’s commitment to restore financial stability to the Eurozone, as well as the finalization of the primary European Stability Mechanism bailout fund, in 2013 and into 2014 interest rates began to fall and share prices began to increase. Although these trends have helped to stabilize the effects of the Eurozone crisis, the underlying causes of the crisis have not been completely eliminated.

 

 32 

 

 

In particular, in the second quarter of 2014, Italy’s economy entered a recession for the third time since 2008, underscoring the residual weakness of certain Eurozone economies. In June 2017, the European Central Bank announced that two small local Italian banks, Banca Popolare di Vicenza and Veneto Banca, were failing due to such bank’s reported breach of supervisory capital requirements. While the Single Resolution Board of the European Central Bank elected not to intervene, the Italian Government has decided to provide bailout funds to the two banks in order to protect depositors. Future bank failures in Italy could potentially affect our ability to obtain local financing from local banks in Italy. Furthermore, a weaker economy in Italy may lead to a decrease in air travel and related spending, which may have a material adverse effect on our business, financial condition and results of operations.

 

If other economies in the Eurozone experience similar trends in the near term, volatility in the global financial markets could return to levels experienced in the peak of the Eurozone crisis, which could have a material adverse effect on our business, financial condition and results of operations.

 

We intend to transfer our handling and security services from TA to a third party.

 

We currently directly provide handling and security services at the Florence Airport and Pisa Airport. However, we are in the process of transferring these businesses, services and employees to a third-party service provider. Such transfer or process of transfer could potentially result in either temporary or periodic disruption of operations due to work stoppages, protests or the transferred employees may seek to challenge the legitimacy of the transaction in the courts under applicable Italian law. Any such work stoppages may affect the experience of our passengers at such airports, reduce our revenues or potentially negatively affect their decisions to use such airports in the future.

 

Coordinating compliance with regulatory obligations may strain our resources and divert management’s attention.

 

TA is listed on the Milan Stock Exchange. As a public company, TA is subject to the reporting requirements of local regulations in Italy and other applicable securities rules and regulations. Compliance with these rules and regulations involves our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on TA’s systems and resources. Coordination between TA and us to comply with our respective regulatory and filings procedures can be burdensome, divert management’s attention and affect our daily operations and business.

 

In addition, the interests of TA’s public shareholders may not be the same as the interest of our new public shareholders or the Majority Shareholder. This conflict of interest may affect our operation and business.

 

The Alitalia Air Company bankruptcy proceeding, or any other bankruptcy proceeding filed by any of the other airlines that service any of the airports we operate, may affect our operations and revenue.

 

In May 2017, Alitalia Air Company (Società Aerea Italiana or “Alitalia”), filed for bankruptcy for a third time. The Italian Government did not institute a bailout program and is currently undertaking a sales process for Alitalia. Alitalia represented 4.4% of revenue in Italy in 2017 and 0.5% of our consolidated revenue in 2016. If we are unable to replace Alitalia’s business, the financial results and condition of our Italian operations could be adversely affected.

 

Furthermore, if any of our aeronautical customers were to reduce their use of our airports or cease to operate in them for any reason, including bankruptcy, the remaining airlines may not increase their flight frequency to replace the flights our aeronautical customers were no longer operating, in which case, our business would be adversely affected.

 

 33 

 

 

Our organization, management and control model may prove to be inadequate or insufficient pursuant to the requirements of the Italian Legislative Decree 231/2001.

 

TA is subject to the obligations arising from Legislative Decree No. 231 of June 8, 2001 (“Italian Legislative Decree 231/2001”). Italian Legislative Decree 231/2001 introduced a specific system of enterprise liability for several types of criminal offenses committed in corporate interest and/or to its advantage by persons in senior management positions or those persons’ subordinates.

 

In compliance with the Italian Legislative Decree 231/2001, TA has adopted and has currently in place an organization, management and control model (the “231 Model”) in order to adopt corporate governance structures and risk prevention systems to stop managers, executives, employees and external collaborators from committing crimes. However, the adoption of a 231 Model does not itself exclude any form of liability under Italian Legislative Decree 231/2001, and failure to update the 231 Model increases the risk that administrative liability under Italian Legislative Decree 231/2001 may arise. If TA’s 231 Model proves to be inadequate or insufficient following a violation committed by any of our managers, executives, employees and/or external collaborators, TA may be subject to pecuniary fines, suspension or revocation of licenses, permits or even disqualification from the public administration registry and prohibition on contracting with Italian public authorities. If any of these situations arises, our operations and business may be significantly affected.

 

We might be negatively affected by government instability in Italy.

 

Over the last 67 years, Italy has had 61 different governments. We have no control over and cannot predict the effects of future changes in the Italian Government and the future policies that these new governments may adopt. These developments, as well as potential crises and forms of political instability arising therefrom or any other as of yet unforeseen development, may adversely affect us and the price of our common shares.

 

Brazil

 

Officials of the entity that controls Infravix, a former shareholder of ICASGA and ICAB, were found guilty of corruption, money laundering and criminal organization in connection with the Car Wash Affair.

 

In recent years, the Office of the Brazilian Federal Prosecutor has been conducting various ongoing investigations into allegations of money laundering and corruption in Brazil, including the largest investigation, known as Lava Jato (the “Car Wash Affair”).

 

In 2014, Engevix (the entity that controlled Infravix, a former shareholder of ICASGA and ICAB) was the subject of investigations and allegations related to the Car Wash Affair. In 2015, Engevix’s executive officers were found guilty and required to pay penalties for corruption, money laundering and criminal organization in connection with Engevix’s engineering and construction companies unrelated to their airport business. According to public sources, these penalties are still under review by local courts in Brazil.

 

As part of the Brazilian Consolidation, we acquired all of the interests owned by Infravix in Inframerica and in ICAB and, as a result, Infravix is no longer a shareholder in either Inframerica or ICAB. Neither ICAB nor ICASGA have been notified of any investigation against them and, to our knowledge, the investigations of Engevix are related solely to its engineering and construction businesses and not to their investments in either ICAB or ICASGA. However, to the extent any of Engevix’s executive officers are found to have acted illegally in connection with business directly involving ICAB or ICASGA, we could be subject to penalties or reputational harm which, in either case, could have a material adverse effect on our business.

 

 34 

 

 

We have identified payments made by ICAB that may not have had any proper purpose and that could expose us to fines and sanctions as well as reputational harm and other adverse effects.

 

We have identified three payments totaling approximately U.S.$250,000 made by ICAB during 2014, when Infravix was still an indirect shareholder of ICAB, to individuals or entities that the press have suggested made illegal payments to government officials on behalf of corporate clients. We have been unable to identify a proper purpose for some of these payments. We may be, but have no official notice that we are, under investigation by Brazilian authorities in connection with these payments. We could be exposed to reputational harm and other adverse effects in connection with these payments. If these payments are ultimately found to have been improper, we could be subject to fines and sanctions, as well as other penalties. Any of the foregoing effects could have a material adverse effect on our business.

 

The ongoing economic uncertainty and political instability in Brazil may adversely affect our economic and financial condition.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.

 

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the Car Wash Affair, have negatively affected the Brazilian economy and political environment. Members of the Brazilian Government as well as senior officers of large state-owned companies have faced or are currently facing allegations of corruption and money laundering as a result of the Car Wash Affair. These individuals are alleged to have accepted and/or offered bribes by means of kickbacks on contracts granted by the Brazilian Government to several infrastructure, oil and gas and construction companies. These kickbacks allegedly financed the political campaigns of political parties forming the previous government’s coalition that was led by former President Dilma Rousseff, which funds were unaccounted for or not publicly disclosed. These funds were also allegedly destined toward the personal enrichment of certain individuals. A number of senior politicians, including former president Luiz Inacio da Silva, members of the Brazilian Congress, and high-ranking executive officers of major corporations and state-owned companies in Brazil have been arrested, convicted of various charges relating to corruption, entered into plea agreements with federal prosecutors and/or have resigned or been removed from their positions. The potential outcome of the Car Wash Affair as well as other ongoing corruption-related investigations is uncertain, but they have already had an adverse impact on the image and reputation of those companies that have been implicated as well as on the general market perception of the Brazilian economy, political environment and capital markets. These investigations and allegations may lead to further political and economic instability, and new allegations against government officials may arise in the future.

 

 35 

 

 

On April 17, 2016, the Brazilian House of Representatives voted to hold a trial on impeachment charges against former President Rousseff and suspended her from office. President Rousseff was replaced by Vice President Michel Temer, who served as acting President until Ms. Rousseff was impeached and permanently removed from office by the Brazilian Senate on August 31, 2016. While President Temer is expected to serve as President until December 2018, he is currently under investigation for corruption and the Office of the Brazilian Federal Prosecutor is seeking his indictment. Likewise, former president Luiz Inácio da Silva was recently sentenced to 9.5 years in jail for his conviction for corruption and is currently appealing such conviction. He is also subject of several other ongoing criminal investigations. Any of the above factors may create additional political uncertainty, which could have a material adverse effect on the Brazilian economy and, consequently, on our Brazil operations and on us.

 

We expect to incur losses in our Brazilian operations for the next several years due to the accretion of the financial liability recognized as a result of the fixed concession fee committed.

 

Under the Brazilian Concession Agreements with the Brazilian Government for the operation of the Brasilia Airport and the Natal Airport (as defined below), we are obligated to pay an annual fixed concession fee which is adjusted for inflation. Initially, we recognized this contractual obligation as a financial liability at fair value in acquisition accounting. Now, we measure the liability at amortized cost using an effective interest rate. Any change in the current market-based discount rate used to discount the estimated cash outflows, as well as an increase in the liability that reflects the passage of time (also referred to as the unwinding of a discount or accretion) is recognized as expense, period over period. During the year ended December 31, 2017, 2016 and 2015, we recognized a loss of U.S.$98.1 million, U.S.$107.4 million and U.S.$2.0 million, respectively, relating to these effects. See Note 22 to our Audited Consolidated Financial Statements.s. We expect the accretion described above to occur in a similar magnitude in the next several years.

 

We may not be able to achieve our strategy to expand commercial activities at the Brasilia Airport.

 

A key part of our strategy to expand and increase our commercial revenues in the Brasilia Airport is the development of an approximately 40,000 square meter gross leasable commercial area connected to the existing terminal, which will also be completely accessible from outside of the passenger departure area. We expect that the total cost of such development will be U.S.$190.0 million. Although ICAB could partner with third parties to complete the investment associated with such expansion, ICAB may elect to fund all or a part of the cost of the development with a mix of cash and financing obtained in the local market. If ICAB provides the capital and the costs of development exceed the current budget, the completion of the construction projects is delayed or the commercial area fails to attract the number of customers that we anticipate, our business, financial condition and results of operations could be adversely affected.

 

The Brazilian Government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazil’s political and economic conditions, could adversely affect us.

 

The Brazilian Government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian Government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, foreign exchange rate controls and currency devaluations. We have no control over and cannot predict what measures or policies the Brazilian Government may take in the face of mounting macroeconomic pressures or otherwise. Uncertainty over whether the Brazilian Government will implement changes in policy or regulation in the future may affect economic performance and contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian capital market and securities issued by Brazilian companies. Furthermore, a significant percentage of the revenue of the Brasilia Airport and the Natal Airport derives from the subleasing of rental space within and around the airport. Should such subleases not be renewed given the macroeconomic situation in Brazil, the results of operations of our Brazilian operations could be negatively affected.

 

 36 

 

 

Exchange rate instability may have adverse effects on the Brazilian economy and us.

 

The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian Government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the Brazilian real is generally linked to the rate of inflation in Brazil, depreciation of the Brazilian real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the Brazilian real, the U.S. dollar and other currencies. The Brazilian real depreciated against the U.S. dollar by 46.6% in 2015, and by 13.7% in 2014. The Brazilian real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$3.9048 per U.S. dollar on December 31, 2015, R$3.2591 per U.S. dollar on December 31, 2016 and R$3.3078 per U.S. dollar on December 31, 2017, but there can be no assurance that the Brazilian real will not again depreciate against the U.S. dollar or other currencies in the future, which could lead to fluctuations in our consolidated earnings and cash flow as measured in U.S. dollars.

 

We may not be successful in our claims before the Brazilian National Civil Aviation Agency (Agencia Nacional de Aviação) (“Brazilian ANAC”), and we may not prevail in any arbitration proceeding challenging claims denied by the Brazilian ANAC.

 

On January 13, 2016, ICAB filed claims before the Brazilian ANAC in the total amount of R$758.0 million (U.S.$253.1 million), requesting the economic re-equilibrium of ICAB’s concession agreement based on, among other things, additional construction works required to complete the terminals and the runway that were not provided for in the concession agreement, and the negative impact of the issuance of new rules and regulations by the Brazilian Ministry of Health, which reduced ICAB’s revenues in connection with the use of the cargo terminal.

 

In addition, on June 29, 2017, ICAB filed new claims with the Brazilian ANAC in the amount of R$196.8 million (U.S.$61.2 million) requesting the economic re-equilibrium of ICAB’s concession agreement based on, among other things, the loss of revenues as a result of the modification to the rules and regulations affecting the air traffic system at the Congonhas airport. In total, ICAB has claims in the amount of R$734.0 million (U.S.$225.9 million) that were denied by the Brazilian ANAC.

 

Claims in the amount of R$454.1 million (U.S.$120.2 million) were denied by the Brazilian ANAC, and ICAB expects to initiate an arbitration proceeding with respect to the denied claims. The remaining claims are under review by the Brazilian ANAC.

 

On December 29, 2015, ICASGA filed claims in the total amount of R$1.0 billion (U.S.$263.1 million) before the Brazilian ANAC requesting the economic re-equilibrium of ICASGA’s concession agreement. In total, ICASGA has claims in the amount of R$957.0 million (U.S.$251.7 million) that were denied by the Brazilian ANAC.

 

Both ICAB and ICASGA expect to initiate a judicial or an arbitration proceeding with respect to the denied claims.

 

 37 

 

 

The failure to recover such claimed amounts could adversely affect our profitability in future periods as a result of not being able to include these amounts in our income or to use the funds for general corporate purposes.

 

Uruguay

 

Our revenue derived from the operation of the airports in Uruguay could be adversely affected by the deterioration of neighboring markets.

 

In 2002, Uruguay experienced its steepest economic and financial crisis in recent history, resulting mostly from external factors. Devaluation in neighboring Brazil in 1999 and recent political and economic crises in Brazil made Uruguayan goods less competitive. Starting in late 2001, an economic crisis in Argentina also undermined Uruguay’s economy. In mid-2002, Argentine withdrawals from Uruguayan banks started a bank run that was overcome only by massive borrowing from international financial institutions, leading in turn to serious debt sustainability problems.

 

As the number of passengers that use the airports we operate in Uruguay remains highly linked to the numbers of passengers using the airports in Uruguay’s main trading partners, such as Brazil and Argentina, any deterioration of a neighboring market could have a material impact on the number of passenger at our Uruguayan airports which, in turn, could adversely affect our business, results of operations and financial condition.

 

Ecuador

 

The results of the Ecuadorian presidential elections in April 2017 may create further political instability which may adversely affect our business, financial condition and results of operations.

 

On April 2, 2017, Lenin Moreno narrowly won the Ecuadorian presidential election by a margin of 3% of votes cast, amid widespread accusations of voting irregularities. Voting officials recounted up to 1.3 million votes, representing 10% of all votes cast, despite opposition leader Guillermo Lasso’s call for a full recount of all votes cast. On August 3, 2017, President Moreno removed Vice President Jorge Glas from office due to his alleged connection to the Car Wash Affair. We have no control over and cannot predict the effects of Lenin Moreno’s administration or policies. These developments, as well as potential crises and forms of political instability arising therefrom or any other as of yet unforeseen development, may adversely affect us.

 

The ongoing economic uncertainty in Ecuador may adversely affect us.

 

Ecuador defaulted on a sovereign debt obligation in 2008 and its economic policies have created uncertainty about its future. The Ecuadorian economy is heavily dependent on the oil industry, and the decline of oil prices in 2014 and 2015 had a significant impact on the Ecuadorian economy and its national budget. Due to Ecuador’s dollarized economy, the strength of the U.S. dollar against local currencies of Ecuador’s trading partners has negatively impacted the export sector in Ecuador. All of the foregoing has increased uncertainty as to the future economic conditions in Ecuador which may affect our revenue derived from the Ecuadorian airports. A weaker economy may lead to a decrease in air travel and related spending, which may have a material adverse effect on our business, financial condition and results of operations.

 

 38 

 

 

Tensions with Colombia may affect the Ecuadorian economy and, consequently, our results of operations and financial condition in the future.

 

Diplomatic relations between Ecuador and Colombia have from time to time been tense and affected by events surrounding the Colombian armed forces’ engagement with the Revolutionary Armed Forces (Fuerzas Armadas Revolucionarias de Colombia, known as FARC), particularly on Colombia’s borders with Ecuador. Any future deterioration in relations with Colombia may result in the closing of borders, the imposition of trade barriers or a breakdown of diplomatic ties, any of which could have a negative effect on trade balance, economy and the general security situation, which may adversely affect our results of operations and financial condition.

 

Armenia

 

Our operations in Armenia are significantly affected by travel to and from Russia.

 

For the year ended December 31, 2017, approximately 65.0% of the traffic to our airports in Armenia came from Russia. In the last two years, the Russian ruble has experienced significant depreciation against many world currencies. In addition, Russia has been subject, and may be subject in the future, to economic and other sanctions from the United States, other European nations and neighboring countries. Adverse developments relating to and occurring in Russia would have a negative impact on our operations in Armenia.

 

Armenia’s relations with Azerbaijan may deteriorate.

 

The dissolution of the Soviet Union, which allowed its constituent republics, including Armenia, to become sovereign nation states, also led other groups to assert claims for independence, sometimes leading to violent clashes. Such clashes have occurred, for example, in Russia’s Chechnya region, in Moldova’s Transdniester region and in Georgia’s Abkhazia and South Ossetia regions.

 

In December 1991, the population of Nagorno-Karabakh, a predominantly ethnic Armenian enclave on the border of Armenia and Azerbaijan, voted in favor of the establishment of the Nagorno-Karabakh Republic, now known as the Republic of Artsakh. After a period of armed conflict during which Azerbaijan tried to assert control over the Nagorno-Karabakh Republic, a ceasefire was established in 1994 and is currently in force.

 

Minor skirmishes continue to break out from time to time along the truce line. No country has yet recognized the Republic of Artsakh.

 

The Nagorno-Karabakh conflict has had serious repercussions for Armenia, including high cost for the defense of Nagorno-Karabakh. An escalation in hostilities arising from the situation in Nagorno-Karabakh could materially disrupt the Armenian economy (including reducing air traffic to the region), require Armenia to make substantial defense expenditures in the region and have negative consequences for Armenia in its international diplomatic and trade relations, which in turn, could have an adverse effect on our results of operations and financial condition.

 

 39 

 

 

Peru

 

Construction and improvement works performed at our AAP Airports have not been approved by the Peruvian Government and thus we may not be reimbursed for the investment and expenditures made under the AAP Concession Agreement.

 

We are currently completing the mandatory construction works necessary for our requesting of reimbursement from the Peruvian Government for the investments we made at the AAP Airports for the construction, improvement, operation and maintenance of such airports. The Peruvian Government has not yet agreed to reimburse us for such investments because the mandatory construction works have not yet been completed. Upon completion of such mandatory construction works and determination of final construction metrics, we will be able to determine the final settlement value of such works and request reimbursement from the Peruvian Government. As of December 31, 2017, there was approximately U.S.$8.2 million in construction works for which we anticipate requesting reimbursement. AAP also registered an intangible asset for U.S.$18.4 million related to these mandatory construction works. However, we may never be reimbursed by the Peruvian Government for the total investment amount, which could affect our results of operation and financial condition.

 

Risks Related to Our Common Shares

 

The price of our common shares may be highly volatile.

 

We cannot predict the extent to which investor interest in our common shares will create or be able to maintain an active trading market, or how liquid that market will be in the future. The market price of our common shares may be volatile and may be influenced by many factors, some of which are beyond our control, including:

 

·the failure of financial analysts to cover our common shares or changes in financial estimates by analysts;

 

·actual or anticipated variations in our operating results;

 

·changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our common shares or the shares of our competitors;

 

·announcements by us or our competitors of significant contracts or acquisitions;

 

·future sales of our common shares; and

 

·investor perceptions of us and the industries in which we operate.

 

In addition, the equity markets in general have experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our financial condition or results of operations.

 

 40 

 

 

In the future, we may issue options, restricted shares and other forms of share-based compensation, which have the potential to dilute shareholder value and cause the price of our common shares to decline.

 

We may offer share options, restricted shares and other forms of share-based compensation to our directors, officers and employees in the future. If any options that we issue are exercised, or any restricted shares that we may issue vest, and those shares are sold into the public market, the market price of our common shares may decline. In addition, the availability of common shares for award under any equity incentive plan we may introduce, or the grant of share options, restricted shares or other forms of share-based compensation, may adversely affect the market price of our common shares.

 

We have broad discretion in how to use the net proceeds we received from our initial public offering and we may not apply the proceeds to uses with which all our shareholders agree or that produce income.

 

We have no specific allocation for the net proceeds we received in the initial public offering, and our management retains the right to utilize the net proceeds as it determines. Our management could fail to use the proceeds to effectively continue the growth of our business or to use the proceeds in a manner with which all our shareholders will agree.

 

You may face future dilution if we issue options to acquire common shares.

 

We may issue options to acquire common shares. To the extent any such options are issued, there will be dilution to investors in this offering.

 

A significant portion of our common shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

 

If our directors, executive officers or the Majority Shareholder sell, or indicate an intention to sell, substantial amounts of our common shares in the public market after the lock-up and legal restrictions on resale discussed in this annual report lapse, the trading price of our common stock could substantially decline.

 

Our officers, directors, and the Majority Shareholder have entered into lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell, directly or indirectly, any common shares, including securities that are convertible into common shares and securities that are convertible into, repayable with, exchangeable for or exercisable for common shares, without the permission of Oppenheimer & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC for a period of 180 days following January 31, 2017. We refer to such period as the “lock-up period.” When the lock-up period expires, we and the other persons subject to the lock-up agreement will be able to sell our common shares in the public market. In addition, pursuant to a registration rights and indemnification agreement, the Majority Shareholder and any affiliate transferees have the right, subject to certain conditions, to require us to register the sale of their common shares under the Securities Act. By exercising their registration rights and selling a large number of shares, our existing owners could cause the prevailing market price of our common shares to decline. The common shares covered by registration rights would represent approximately 82.1% of our outstanding capital stock. Registration of any of these outstanding common shares would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.” In addition, Oppenheimer & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC may, in their sole discretion, release all or some portion of the common shares subject to lock-up agreements at any time and for any reason.

 

 41 

 

  

Sales of a substantial number of such common shares upon expiration of the lock-up, the perception that such sales may occur or early release of these agreements could cause our market price to fall or make it more difficult for you to sell your common shares at a time and price that you deem appropriate.

 

We may need additional capital after this offering and we may not be able to obtain it.

 

We believe that our existing cash and cash equivalents, cash flows from operations, ability to raise financing and the proceeds to us from the initial public offering will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain other sources of financing. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness could result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations.

 

Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

 

·investors’ perception of, and demand for, securities of technology services companies;

 

·conditions of the U.S. capital markets and other capital markets in which we may seek to raise funds;

 

·our future results of operations and financial condition;

 

·government regulation of foreign investment in the United States, Europe and Latin America; and

 

·global economic, political and other conditions in jurisdictions in which we do business.

 

Our business and results of operations may be adversely affected by the increased strain on our resources from complying with the reporting, disclosure and other requirements applicable to public companies in the United States promulgated by the U.S. Government, New York Stock Exchange or other relevant regulatory authorities.

 

Compliance with existing, new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance. Changing laws, regulations and standards include those relating to accounting, corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Sarbanes-Oxley Act of 2002, new SEC regulations and the New York Stock Exchange (“NYSE”) listing guidelines. These laws, regulations and guidelines may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. In particular, compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and related regulations regarding required assessment of internal controls over financial reporting and our external auditor’s audit of that assessment, requires the commitment of significant financial and managerial resources. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business. We also expect the regulations to increase our legal and financial compliance costs, making it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time-consuming and costly.

 

 42 

 

 

Existing, new and changing corporate governance and public disclosure requirements could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards. Our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, new laws, regulations and standards regarding corporate governance may make it more difficult for our company to obtain director and officer liability insurance. Further, our board members and senior management could face an increased risk of personal liability in connection with their performance of duties. As a result, we may face difficulties attracting and retaining qualified board members and senior management, which could harm our business. If we fail to comply with new or changed laws or regulations and standards differ, our business and reputation may be harmed.

 

Due to our recent adoption of IFRS and the Reorganization, our internal controls over financial reporting may not be effective, which could have a significant and adverse effect on our results of operation and financial reporting process.

 

As we recently adopted IFRS and prepared our first IFRS financial statements in 2016, we have faced many challenging and complex accounting and financial reporting matters. As a private company, except pursuant to contractual obligations, we were not required to produce annual or quarterly periodic reports in the past. Furthermore, in connection with the Reorganization, several businesses that were previously separately operated, albeit under common control, are now unified in their reporting activities for the first time. Many of our financial reporting and internal controls have undergone significant changes in a short period of time. Implementation of our internal control mechanisms and governance might be challenging and complicate our financial reporting process.

 

In connection with our initial public offering, we identified a material weakness in our internal control over financial reporting. If we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, or prevent fraud, and investor confidence in our company and the market price of our shares may be adversely affected.

 

In connection with our initial public offering, we identified a material weakness in our internal control over financial reporting, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to the accounting for the disposition of subsidiaries at the consolidated level. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in the annual or interim financial statements will not be prevented or detected on a timely basis. This control deficiency resulted in the restatement of our Consolidated Financial Statements as of December 31, 2016 and 2015 and January 1, 2015 and for the years ended December 31, 2016 and 2015 for an error related to the release of incorrect amounts of cumulative translation adjustments into earnings upon the disposition of subsidiaries.

 

We have implemented a remediation plan of the control deficiency that resulted in the material weakness, including performing a risk-assessment process on a regular basis to identify, design, implement and re-evaluate our control activities related to internal control over financial reporting. We cannot assure you that the measures we have taken, and the actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal controls over financial reporting or that they will prevent potential future material weaknesses. Likewise, if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial statement and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis.

 

 43 

 

 

As a registered public company and as we continue with our activities related to the testing of internal controls, we may identify further internal control issues.

 

We have begun a more comprehensive review of our internal controls in order to comply with U.S. law requirements, including the Sarbanes-Oxley Act. This review includes an assessment of the design and effectiveness of our internal control environment under the Committee of Sponsoring Organizations of the Treadway Commission framework. We believe that this process will provide consistency in evaluations and verification of the appropriateness and completeness of our activities. We will regularly monitor and report on our review of internal controls to executive officers, our board of directors, our external auditors and to the market, if additional material weaknesses are identified.

 

As a foreign private issuer, we are not required to comply with attestation reports for the year ended December 31, 2017. However, we intend to evaluate our internal controls over financial reporting in order to allow in future periods management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder, which we refer to as Section 404. The process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. During the course of our testing, we may identify deficiencies of which we are not currently aware.

 

If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our consolidated financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets and lead to a decline in the trading price of our common shares.

 

If we are unable to conclude that we have effective internal control over financial reporting, our independent auditors (when we become subject to Section 404(b)) are unable to provide us with an unqualified report as required by Section 404, or we are required to restate our financial statements, we may fail to meet our public reporting obligations and investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our common shares.

 

Our exemption as a “foreign private issuer” from certain rules under the U.S. securities laws will result in less information about us being available to investors than for U.S. companies, which may result in our common shares being less attractive to investors.

 

As a “foreign private issuer” in the United States, we are exempt from certain rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. companies. As a “foreign private issuer,” we are exempt from certain rules under the Exchange Act, that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as companies that are not “foreign private issuers” whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD promulgated by the SEC under the Exchange Act, which restricts the selective disclosure of material information. As a result, our shareholders may not have access to information they deem important, which may result in our common shares being less attractive to investors.

 

 44 

 

 

As a public company, we may become subject to further compliance obligations, which may strain our resources and divert management’s attention.

 

As a publicly-traded company, we will incur additional legal, accounting and other expenses that we did not incur as a private company. In addition, SEC and NYSE rules impose various requirements on public companies, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

 

Our ability to pay dividends will be affected by restrictions under Luxembourg law.

 

Our articles of association and the Luxembourg law of August 10, 1915, on commercial companies as amended from time to time (loi du 10 août 1915 sur les sociétés commerciales telle que modifiée), require a general shareholders meeting to approve any dividend distribution except as set forth below.

 

Our ability to declare dividends under Luxembourg corporate law is subject to the availability of distributable earnings or available reserves, including share premium. Moreover, we may not be able to declare and pay dividends more frequently than annually. As permitted by Luxembourg corporate law, our articles of association authorize the declaration of dividends more frequently than annually by the board of directors in the form of interim dividends so long as the amount of such interim dividends does not exceed total net profits made since the end of the last financial year for which the annual accounts have been approved, plus any profits carried forward and sums drawn from reserves available for this purpose, less the aggregate of the prior year’s accumulated losses, the amounts to be set aside for the reserves required by law or by our articles of association for the prior year, and the estimated tax due on such earnings.

 

We are a holding company and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments, which they may not be able to do.

 

We are a holding company and our subsidiaries conduct all of our operations. We have no relevant assets other than the equity interests in our subsidiaries. As a result, our ability to make dividend payments depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by covenants included in most of the concession agreements in which we act as concessionaires, such as the AA2000 Concession Agreement, the Uruguayan Concession Agreements, the Armenian Concession Agreement, the Italian Concession Agreements and the Brazilian Concession Agreements, or by the financing agreements we have entered into, or by the law of their respective jurisdictions of incorporation. See “Description of Indebtedness.” If we are unable to obtain funds from our subsidiaries, we will be unable to distribute dividends. We do not intend to seek to obtain funds from other sources to pay dividends.

 

 45 

 

  

Our shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation, which could adversely impact trading in our common shares and our ability to conduct equity financings.

 

Our corporate affairs are governed by our articles of association and the laws of Luxembourg, including the laws governing stock companies (société anonyme). The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. In addition, Luxembourg law governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg law and regulations in respect of corporate governance matters may not be as protective of minority shareholders as state corporation laws in the United States. Therefore, our shareholders may have more difficulty in protecting their interests in connection with actions taken by our directors and officers or our principal shareholders than they would as shareholders of a corporation incorporated in the United States.

 

Neither our articles of association nor Luxembourg law provides for appraisal rights for dissenting shareholders in certain extraordinary corporate transactions that may otherwise be available to shareholders under certain U.S. state laws. As a result of these differences, our shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. issuer.

 

Holders of our common shares may not be able to exercise their pre-emptive subscription rights and may suffer dilution of their shareholding in the event of future common share issuances.

 

Under Luxembourg law, our shareholders benefit from a pre-emptive subscription right on the issuance of common shares for cash consideration. However, shareholders may, at a general shareholders’ meeting and in accordance with Luxembourg law and our articles of association, waive or suppress and authorize the board to waive, suppress or limit any shareholders’ pre-emptive subscription rights provided by Luxembourg law to the extent the board deems such waiver, suppression or limitation advisable for any issuance or issuances of common shares within the scope of our authorized share capital prior to the pricing for a period of up to five years following the publication of the deed granting such authorization on the Luxembourg Recueil Electronique des Sociétés et Associations (“RESA”) which period may be renewed. Such common shares may be issued above, at or below market value as well as by way of incorporation of available reserves (including premium). In addition, a shareholder may not be able to exercise the shareholder’s pre-emptive right on a timely basis or at all, unless the shareholder complies with Luxembourg corporate law and applicable laws in the jurisdiction in which the shareholder is resident, particularly in the United States. As a result, the shareholding of such shareholders may be materially diluted in the event common shares are issued in the future. Moreover, in the case of an increase in capital by a contribution in kind, no pre-emptive rights of the existing shareholders exist.

 

We are organized under the laws of Luxembourg and it may be difficult for you to obtain or enforce judgments or bring original actions against us or our executive officers and directors in the United States.

 

We are organized under the laws of Luxembourg. The majority of our assets are located outside the United States. Furthermore, the majority of our directors and officers and some experts named in this annual report reside outside the United States and a substantial portion of their assets are located outside the United States. Investors may not be able to effect service of process within the United States upon us or these persons or to enforce judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons. Furthermore, Luxembourg law does not recognize a shareholder’s right to bring a derivative action on behalf of the company, except in limited cases. Minority shareholders holding securities entitled to vote at the general meeting and holding at least 10.0% of the voting rights of the company may bring an action against the directors on behalf of the company. Minority shareholders holding at least 10.0% of the voting rights of the company may also ask the directors questions in writing concerning acts of management of the company or one of its subsidiaries, and if the company fails to answer these questions within one month, these shareholders may apply to the Luxembourg courts to appoint one or more experts instructed to submit a report on these acts of management.

 

 46 

 

 

As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. A valid judgment in civil or commercial matters obtained from a court of competent jurisdiction in the United States may be entered and enforced through a court of competent jurisdiction in Luxembourg, subject to compliance with the enforcement procedures (exequatur). The enforceability in Luxembourg courts of judgments rendered by U.S. courts will be subject prior any enforcement in Luxembourg to the procedure and the conditions set forth in the Luxembourg procedural code, which conditions may include the following as of the date of this annual report (which may change):

 

·the judgment of the U.S. court is final and enforceable (exécutoire) in the United States;

 

·the U.S. court had jurisdiction over the subject matter leading to the judgment (that is, its jurisdiction was in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal or state jurisdictional rules);

 

·the U.S. court has applied to the dispute the substantive law that would have been applied by Luxembourg courts;

 

·the judgment was granted following proceedings where the counterparty had the opportunity to appear and, if it appeared, to present a defense, and the decision of the foreign court must not have been obtained by fraud, but in compliance with the rights of the defendant;

 

·the U.S. court has acted in accordance with its own procedural laws;

 

·the judgment of the U.S. court does not contravene Luxembourg international public policy; and

 

·the U.S. court proceedings were not of a criminal or tax nature.

 

We have amended our articles of association and have entered into separate indemnification agreements to indemnify our directors for and hold them harmless against all claims, actions, suits or proceedings brought against them, subject to limited exceptions. The rights and obligations among or between us and any of our current or former directors and officers will be generally governed by the laws of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or obligations do not relate to or arise out of their capacities listed above. Although there is doubt as to whether U.S. courts would enforce such provision in an action brought in the United States under U.S. federal or state securities laws, such provision could make enforcing judgments obtained outside Luxembourg more difficult to enforce against our assets in Luxembourg or jurisdictions that would apply Luxembourg law.

 

 47 

 

 

Luxembourg insolvency laws may offer our shareholders less protection than they would have under U.S. insolvency laws.

 

As a company organized under the laws of Luxembourg and with its registered office in Luxembourg, we are subject to Luxembourg insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Council Regulation (EC) No. 2015/848 of May 20, 2015, on insolvency proceedings. Should courts in another European country determine that the insolvency laws of that country apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us. Insolvency laws in Luxembourg or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency laws.

 

Holders generally will be subject to a 15.0% withholding tax on payment of dividend distributions made on the common shares under current Luxembourg tax law.

 

Under current Luxembourg tax law, payments of dividends made on the common shares generally are subject to a 15.0% Luxembourg withholding tax. Certain exemptions or reductions in the withholding tax may apply, but it will be up to the holders to claim any available refunds from the Luxembourg tax authority. For more information on the taxation implications, see “Taxation—Luxembourg Tax Considerations.”

 

We are subject to complex tax rules in various jurisdictions, and our interpretation and application of these rules may differ from those of relevant tax authorities, which could result in a liability to material additional taxes, interest and penalties.

 

We operate in a number of territories, and will accordingly be subject to tax in several jurisdictions. The tax rules to which the Company and its subsidiaries are subject are complex, and we must make judgements (including based on external advice) as to the interpretation and application of these rules. Our tax affairs will in the ordinary course be reviewed by tax authorities. Those tax authorities may disagree with our interpretation and/or application of relevant tax rules. A challenge by a tax authority in these circumstances might require us to incur costs in connection with litigation against the relevant tax authority or reaching a settlement with the tax authority and, if the tax authority’s challenge is successful, could result in additional taxes (perhaps together with interest and penalties) being assessed on us, and as a result an increase in the amount of tax payable by us.

 

Additionally, dividends and other intra-group payments made by our subsidiaries may be subject to withholding taxes imposed by the jurisdiction in which the entity making the payment is organized or tax resident. Unless such taxes are fully creditable or refundable, dividends and other intra-group payments may increase the amount of tax paid by us. Although the Company and its subsidiaries arrange themselves and their affairs with a view to minimizing the incurrence of such taxes, there can be no assurance that we will succeed.

 

Holders of our common shares who sell or transfer common shares acquired after January 1, 2018 representing 10% or more of our equity may be subject to Argentine capital gains tax under the new Argentine tax law.

 

Under the newly enacted Argentine tax law, non-Argentine residents who sell or transfer shares or other participations in foreign entities, which shares were acquired after January 1, 2018, may be subject to capital gains tax in Argentina if 30% or more of the value of the foreign entity is derived from assets located in Argentina and the shares being sold or transferred represent 10% or more of the equity interests of such foreign entity. Therefore, any non-Argentine resident holders of our common shares who sell or transfer common shares acquired after January 1, 2018 and which shares being sold or transferred represent 10% or more of our equity interests, would be subject to the Argentine capital gains tax. See “Taxation—Argentine Tax Considerations.”

 

 48 

 

 

ITEM 4.COMPANY INFORMATION

 

A.HISTORY AND DEVELOPMENT OF THE COMPANY

 

We have been operating since 1998 and have become a leading global airport concession operator.

 

·In 1998, as part of the AA2000 consortium, we were awarded the national and international public bid conducted by the Argentine Government for the concession rights related to the operation of 33 airports in Argentina, including the two largest airports, the Ministro Pistarini International Airport (“Ezeiza Airport”), located at Ezeiza, Buenos Aires, and the Jorge Newbery Aeroparque Airport (“Aeroparque Airport”), located in Buenos Aires.

 

·In 2001, as part of the Aeropuertos del Neuquén S.A. (“NQN”) consortium, we were awarded the concession to operate Aeropuerto de Neuquén (“Neuquén Airport”), our 34th airport in Argentina.

 

·In 2002, our subsidiary Armenia International Airports CJSC (“AIA”) was awarded the concession to operate the Zvartnots International Airport (“Zvartnots Airport”), located 12 kilometers from downtown Yerevan, Armenia’s capital.

 

·In 2003, in a public auction conducted by the Uruguayan Government, we purchased the shares of Puerta del Sur S.A. (“Puerta del Sur”), owner of the concession that operates the General Cesáreo Berisso International Airport (“Carrasco Airport”) in Carrasco, Uruguay, located 19 kilometers from downtown Montevideo, Uruguay’s capital.

 

·In 2004, as part of the Terminal Aeroportuaria de Guayaquil S.A. (“TAGSA”) consortium, we were awarded the concession to operate the José Joaquín de Olmedo International Airport (“Guayaquil Airport”), located five kilometers from downtown Guayaquil, Ecuador.

 

·In 2007, we executed an amendment to the Zvartnots Airport concession agreement to include Shirak Airport in Gyumri (“Shirak Airport”), the second largest civil airport in Armenia.

 

·In 2008, in a private transaction, we acquired all of the equity interests of Consorcio Aeropuertos Internacionales S.A. (“CAISA”), which owns the concession that operates the Carlos A. Curbelo Airport (“Punta del Este Airport”) located in Maldonado, by Punta del Este, Uruguay.

 

·In 2008, as part of the consortium Aeropuerto de Bahía Blanca S.A. (“BBL”), we were awarded the concession to operate Aeropuerto de Bahía Blanca (“Bahía Blanca Airport”), our 35th airport in Argentina.

 

·In 2011, as part of the consortium Aeropuertos Andinos del Perú S.A. (“AAP”), we were awarded the concession to operate six principal airports in southern Peru (the ‘‘AAP Airports’’). Currently, we operate five of the six airports that are part of the AAP concession agreement.

 

 49 

 

 

·In 2011, as part of the consortium Aeropuertos Ecológicos de Galápagos S.A. (“ECOGAL”), we were awarded the concession to operate the Seymour Airport (“Galapagos Airport”), located in Baltra Island, Galapagos Archipelago, our second airport in Ecuador.

 

·In 2011, as part of the consortium ICASGA, we were awarded the concession to operate the International Airport of São Gonçalo do Amarante (“Natal Airport”), located in Natal, Brazil.

 

·In 2012, pursuant to an agreement between AA2000 and the Argentine province of Santiago del Estero, we began operating the Termas de Río Hondo Airport, our 36th airport in Argentina.

 

·In 2012, as part of the consortium ICAB, we were awarded the concession to operate the Presidente Juscelino Kubitschek International Airport (“Brasilia Airport”), located 11 kilometers from downtown Brasilia, Brazil’s capital.

 

·In 2012, we formed A.C.I. Airports International S.à r.l. to hold, either directly or indirectly, our interests in various companies that own our airport concessions.

 

·In 2014, we acquired controlling interests in the companies that own the Aeroporto Galileo Galilei di Pisa (“Pisa Airport”) located in Pisa, Italy, and the Aeroporto di Firenze (“Florence Airport,” and together with Pisa Airport, the “Italian Airports”) located in Florence, Italy, through a number of private acquisitions with former shareholders as well as the consummation of two public tender offers. In 2015, we merged the two companies that operated the Italian Airports to form TA, a company publicly listed on the Milan Stock Exchange (Borsa Italiana) and of which we own 51.1% of the issued and outstanding common stock. The concessions for the Pisa Airport and the Florence Airport have been transferred to TA.

 

·In 2014, we executed an amendment to the concession agreement of the Carrasco Airport extending the term by 10 years to 2033.

 

·In 2015, we completed the Reorganization.

 

·In 2015, we completed the Brazilian Consolidation.

 

·In 2015, as part of the Reorganization, we completed the dispositions of Latin Exploration S.A. (“Latin Exploration”) and its subsidiary Compañía General de Combustibles S.A., and Helport S.A.

 

·In 2016, as additional steps in the Reorganization, we completed the dispositions of Helport do Brasil S.A. and Hidroaconcagua S.A.

 

·In 2016, we completed the disposition of Corporación América Europa.

 

·In 2017, we completed the Conversion and renamed our company Corporación América Airports S.A.

 

 50 

 

  

·In 2017, as part of the AA2000 consortium, we were awarded the concession rights related to the operation of the El Palomar Airport (“El Palomar Airport”), located in the province of Buenos Aires, our 37th airport in Argentina.

 

·In 2018 we acquired an additional 4.5% in TA, increasing our ownership to 55.7% of its issued and outstanding common stock

 

The following table lists our concessions by country, together with their commencement date and extension details (if any):

 

Country  Concessoin  CAAP
Effective
Ownership
   Number of
Airports
  Concession
Start Date
  Current
Concessoin
End Date
  Extension
Details
Argentina  AA2000   81.3%  35(1)  1998  2028  Extendable for 10 years(2)
   NQN   74.1%  1  2001  2021  Extendable for 5 years(2)
   BBL   81.1%  1  2008  2033  Extendable for 10 years(2)
Italy  TA (SAT)(3)   55.7%  1  2006 (2014)(4)  2046 
   TA (ADF)(3)   55.7%  1  2003 (2014)(5)  2043 
Brazil  ICASGA   99.9%(6)  1  2012(7)  2040  5 years
   ICAB   51.0%  1  2012(8)  2037  5 years
Uruguay  Puerta del Sur   100.0%  1  2003     2033(9) 
   CAISA   100.0%  1  1993 (2008)(10)       2019(11) 
Ecuador  TAGSA   50.0%  1  2004  2024 
   ECOGAL   99.9%  1  2011  2026 
Armenia  AIA   100.0%  2  2002  2032  Option to renew every 5 years (12)
Peru  AAP(13)   50.0%  5  2011  2036  Extendable 20 2071
Total          52         

 

 

(1)Includes Termas de Rio Hondo Airport, which is operated by AA2000 but is pending certain regulatory approvals to be included in the AA2000 Concession Agreement.
(2)Subject to certain terms and conditions, including governmental approval.
(3)Both SAT and ADF have been merged into TA, of which we own a 55.7% equity interest.
(4)We began operating the Pisa Airport in 2014.
(5)We began operating the Florence Airport in 2014.
(6)Our effective ownership is 99.97%.
(7)The concession for the Natal Airport was awarded in August 2011, which became effective in January 2012. The Natal Airport began operating in June 2014.
(8)We began operating the Brasilia Airport in December 2012.
(9)Renegotiated extension in 2014.
(10)We acquired the shares of CAISA in 2008.
(11)We are currently in negotiations with the Uruguayan Government to extend the term of this concession.
(12)Renewable at our sole discretion for an indefinite number of 5-year extension periods.
(13)AAP’s concession comprises six airports; however, we currently only operate five.

 

B.BUSINESS OVERVIEW

 

We acquire, develop and operate airport concessions. We are the largest private sector airport concession operator in the world based on the number of airports under management and the tenth largest private sector airport operator in the world based on passenger traffic. Currently, we operate 52 airports globally in Latin America, Europe and Eurasia. Since 1998, when we acquired the AA2000 Concession Agreement, we have expanded the environments and geographies in which we operate airports by acquiring concessions in Armenia, Uruguay, Ecuador, Peru, Brazil, Italy and additional concessions in Argentina.

 

 51 

 

  

We operate some of the largest and most important airports in the countries where we conduct operations, including a large international airport, such as Ezeiza Airport in Argentina, domestic airports, such as Brasilia Airport in Brazil and Aeroparque Airport in Argentina, airports in tourist destinations, such as Bariloche and Iguazu in Argentina, Galapagos Ecological Airport in Ecuador and Florence Airport in Italy, as well as mid-sized domestic and tourist destination airports.

 

Argentina is our largest and longest established market where we operate and manage 37 of the 56 airports in Argentina’s national airport system, including the Argentina’s two largest airports, Ezeiza and Aeroparque. In each year since we acquired the rights under the AA2000 Concession Agreement, our airports in Argentina have handled over 90.0% of Argentina’s total passenger traffic.

 

For the year ended December 31, 2017, we had total consolidated revenue of U.S.$1.6 billion, consolidated income from continuing operations of U.S.$66.9 million and Adjusted EBITDA of U.S.$461.6 million, and our airports handled 851,290 total aircraft movements and served 76.6 million total passengers (of which approximately 35.1% were international, approximately 53.9% were domestic and approximately 11.0% were transit passengers). For the year ended December 31, 2016, we had total consolidated revenue of U.S.$1.4 billion, consolidated income from continuing operations of U.S.$38.7 million and Adjusted EBITDA of U.S.$427.2 million, and our airports handled 871,130 total aircraft movements and served 71.8 million total passengers (of which approximately 34.2% were international, approximately 52.8% were domestic and approximately 13.0% were transit passengers). For the year ended December 31, 2015, we had total consolidated revenue of U.S.$1.2 billion, consolidated income from continuing operations of U.S.$6.3 million and Adjusted EBITDA of U.S.$276.6 million, and our airports handled 836,354 total aircraft movements and served 71.0 million total passengers (of which approximately 32.2% were international, approximately 53.8% were domestic and approximately 13.9% were transit passengers).

 

Our Airports by Country in Which We Operate

 

Argentina

 

Our largest operations are in Argentina, where we operate a total of 37 of the 56 airports in the Argentine national airport system, including the two largest airports in Argentina, Ezeiza Airport and Aeroparque Airport.

 

Our airports are located in 22 of the 23 Argentine provinces and in the City of Buenos Aires and currently serve major metropolitan areas in several Argentine provinces (such as Buenos Aires, Córdoba and Mendoza) and the City of Buenos Aires, tourist destinations (such as Bariloche, Mar del Plata and Iguazú), regional centers (such as Córdoba, Santa Rosa, San Luis, San Juan, La Rioja, Santiago del Estero and Catamarca) and border province cities (such as Mendoza, Iguazú, Salta and Bariloche).

 

Of the 37 airports we operate in Argentina, 18 have been designated as “international airports” under applicable local law, meaning that they are or may potentially be equipped to receive international flights.

 

 52 

 

  

      Passenger traffic 
Airport  International
or national
designation
  Year Ended
December
31, 2017
   Year Ended
December
31, 2016
   Year Ended
December
31, 2015
 
      (in thousands) 
Aeroparque Internacional, “Jorge Newbery”  International   13,920.9    11,661.5    11,052.9 
Aeropuerto Internacional de Ezeiza, “Ministro Pistarini”  International   9,877.8    9,831.1    9,127.9 
Aeropuerto Internacional de Córdoba, “Ing. A. Taravella”  International   2,863.7    2,212.9    1,947.8 
Aeropuerto de San Carlos de Bariloche  International   1,296.6    1,187.1    1,038.7 
Aeropuerto Internacional de Mendoza, “El Plumerillo”  International   1,762.1    1,086.0    1,351.6 
Aeropuerto Internacional de Salta, “Martín Miguel de Güemes”  International   1,128.8    972.3    856.5 
Aeropuerto de Misiones, “Cataratas del Iguazú”  International   999.2    893.9    863.2 
Aeropuerto de Neuquén, “Presidente Peron”  International   909.7    818.5    774.4 
Aeropuerto de Tucumán, “General Benjamin Matienzo”  International   559.6    670.1    600.8 
Aeropuerto de Comodoro Rivadavia, “Geral. Enrique Mosconi”  International   623.5    573.6    577.5 
Aeropuerto de San Juan, “Domingo Faustino Sarmiento”  National   225.9    379.3    191.0 
Aeropuerto de Bahía Blanca, “Comandante Espora”  National   416.6    305.5    306.8 
Aeropuerto de Rio Gallegos, “Piloto Civil Norberto Fernández”  International   262.4    269.1    302.5 
Aeropuerto de Jujuy, Gobernador Horacio Guzmán  International   268.6    227.0    200.7 
Aeropuerto de Resistencia, “José de San Martín”  International   317.2    219.1    262.5 
Aeropuerto Internacional de Mar del Plata, “Astor Piazzolla”  International   295.0    203.0    201.3 
Aeropuerto de Posadas, “Libertador General José de San Martín”  International   212.2    178.5    178.9 
Aeropuerto de Rio Grande  International   151.1    142.2    164.8 
Aeropuerto Internacional de Formosa, “El Pucu”  International   106.6    95.8    96.2 
Aeropuerto de San Luis, “Brigadier Mayor César R Ojeda”  National   90.9    94.4    65.2 
Aeropuerto de Santiago del Estero, “Vcom. Angel de la Paz Aragones”  National   99.1    85.0    68.4 
Aeropuerto de La Rioja, “Capitán Vicente Almandos Almonacid”  National   89.8    63.1    51.7 
Aeropuerto de San Rafael, “S.A. Santiago Germano”  National   56.9    60.8    47.4 

 

 53 

 

 

      Passenger traffic 
Airport  International
or national
designation
  Year Ended
December
31, 2017
   Year Ended
December
31, 2016
   Year Ended
December
31, 2015
 
                   
Aeropuerto de Puerto Madryn, “El Tehuelche”  National   107.2    53.2    49.3 
Aeropuerto de Catamarca, “Coronel Felipe Varela”  National   78.6    50.6    44.9 
Aeropuerto de Esquel  National   60.3    48.7    45.4 
Aeropuerto de Entre Rios, “General Justo José de Urquiza”  National   106.3    43.3    38.7 
Aeropuerto de Santa Rosa  National   49.5    42.3    40.9 
Aeropuerto de San Fernando  International   46.9    41.7    45.9 
Aeropuerto de Viedma, “Gobernador Castello”  National   43.4    37.8    34.7 
Aeropuerto Termas de Río Hondo  National   166.9    17.4    20.3 
Aeropuerto de Rio Cuarto, “Área de Material”  National   57.5    15.3    1.1 
Aeropuerto de General Pico  National   4.1    4.1    2.2 
Aeropuerto de Reconquista  National   4.5    3.0    2.8 
Aeropuerto de Malargüe, “Comodoro D Ricardo Salomon”  National   1.8    2.9    3.2 
Aeropuerto de Villa Reynolds  National   0.8    0.6    1.4 
Aeropuerto El Palomar  National   (1)   (1)   (1)

 

 

(1)No information available as we did not operate the El Palomar Airport during the referenced period and given that during such time El Palomar was a military airport.

 

In Argentina, our main concession is the AA2000 Concession, which accounted for approximately 35.9 million passengers, or 96.4% of the total 37.3 million total passengers we served during the year ended December 31, 2017. Approximately 9.9 million of our passengers were at Ezeiza Airport and 13.9 million at Aeroparque Airport. For the year ended December 31, 2016, the airports under the AA2000 Concession Agreement served 31.5 million passengers of the 32.6 million total passengers we served in the country. Approximately 9.8 million of our passengers were at Ezeiza Airport and 11.7 million at Aeroparque Airport. For the year ended December 31, 2015, the airports under the AA2000 Concession Agreement served 29.6 million of the 30.7 million passengers we served in the country, of which approximately 9.1 million were at Ezeiza Airport and 10.8 million at Aeroparque Airport.

 

In our Argentina segment, AA2000 represented over 99.6% of our total revenues, 96.4% of our passengers and 94.9% of our air traffic movements in each of these periods. In a consolidated basis, AA2000 represented over 63.2% of our consolidated revenues, 48.6% of our total passengers and 50.0% of our air traffic movements during the year ended December 31, 2017.

 

In June 2011, Cedicor, the controlling shareholder of CASA, agreed to purchase from SEA 21,973,747 class A shares of AA2000, which represented 8.5% of AA2000’s ordinary capital and voting stock, and 2.5% of its capital stock on a fully-diluted basis (including the preferred shares). In addition, in July 2011, 2,197,375 Class B Shares of AA2000 which represented 0.85% of the ordinary capital and voting stock, and 0.25% of the capital stock of AA2000 on a fully-diluted basis (including the preferred shares), were transferred to Cedicor by Riva. These transactions are still subject to ORSNA authorization. See “Risk Factors—The ORSNA may reject the transactions whereby Cedicor S.A. acquired from Societa per Azioni Esercizi Aeroportuali and from Riva S.A.I.I.C.F.A. 8.5% and 0.85% of AA2000’s shares, respectively.”

 

 54 

 

  

The Argentine Government owns 15.0% of AA2000’s ordinary share capital and voting stock through its ownership of AA2000’s common shares. In addition, the Argentine Government owns all of AA2000’s preferred shares. Beginning in 2020, the Argentine Government may convert each year preferred shares into common shares up to a maximum of 12.5% of the total initial amount of preferred shares issued to the Argentine Government. In order to exercise its conversion right, the Argentine Government must notify AA2000 of its intention to convert preferred shares and AA2000 will have 30 days from delivery of such notification to redeem those preferred shares before conversion occurs. In addition, AA2000 has the option, but not the obligation, to redeem the preferred shares held by the Argentine Government at any time. The conversion ratio will be based on the price of the common shares at the time of conversion compared to the nominal value of each preferred share, which is AR$1. If AA2000’s common shares are listed on the Buenos Aires Stock Exchange, then the price will be established based on the average traded value of such common shares on the Buenos Aires Stock Exchange during the five trading days prior to the notice of conversion delivered by the Argentine Government to AA2000. If AA2000’s shares are not listed on the Buenos Aires Stock Exchange, the price of such common shares will be established by a third party appointed by the Argentine Government but paid by AA2000. AA2000 has no current plan to list its common shares on the Buenos Aires Stock Exchange. As of December 31, 2017, there were 616,914,353 preferred shares of AA2000 outstanding.

 

We currently expect that AA2000 will exercise its options to redeem such preferred shares held by the Argentine Government, so that we may maintain our ownership percentage in AA2000. However, if AA2000 does not exercise such right and the Argentine Government exercises the conversion right, our proportional ownership of the common shares of AA2000 will be decreased. The actual impact on our proportional ownership of common shares of AA2000 upon any such conversion will depend upon the price of AA2000 common shares at the time of the conversion.

 

The following table provides summary data for our operations in Argentina for the periods indicated:

 

  

For the Year Ended December 31,(1)

 
   2017   2016   2015 
       % of
Total
       % of
Total
       % of
Total
 
Revenue (in millions of U.S.$)  $998.6    63.4%  $840.9    61.5%  $783.9    66.0%
Number of passengers (in millions)   37.3    48.6%   32.6    45.4%   30.7    43.2%
Air traffic movements (in thousands)   425.9    49.9%   393.1    47.0%   396.5    45.5%

 

 

(1)We have included information for our three concessions in Argentina: AA2000, Bahía Blanca and Neuquén. We currently own 81.3% of the share capital of AA2000, 81.1% of the share capital of Bahía Blanca, and 74.1% of the share capital of Neuquén.

 

Our Argentina segment had Adjusted Segment EBITDA of U.S.$315.2 million, U.S.$294.1 million and U.S.$233.3 million, for the years ended December 31, 2017, 2016 and 2015, respectively.

 

 55 

 

  

Italy

 

In Italy, we operate and manage the Florence Airport and the Pisa Airport through our 55.7% share ownership of TA. TA is the result of the merger of Società Aeroporto Toscano (“SAT”), Galileo Galilei S.p.A. and Aeroporto di Firenze S.p.A. (“ADF”) on June 1, 2015, and is headquartered in Florence. As a result of the merger, Corporación América Italia S.p.A. (“CA Italy”), which is 100% owned by us, has a controlling stake of 55.7% of TA. SAT was incorporated in 1978 and commenced operations at the Pisa Airport in 1980. In 2006, SAT was officially awarded the concession to fully operate the Pisa Airport for 40 years. In 2003, ADF was officially awarded the concession to fully operate Florence Airport for 40 years. After the merger, TA became the owner and operator of both concessions.

 

The following table provides summary data for our operations in Italy for the periods indicated:

 

   For the Year Ended December 31, 
   2017   2016   2015 
       % of
Total
       % of
Total
       % of
Total
 
Revenue (in millions of U.S.$)  $154.5    9.8%  $141.3    10.3%  $152.7    12.9%
Number of passengers (in millions)   7.9    10.3%   7.5    10.5%   7.2    10.2%
Air traffic movements (in thousands)   77.4    9.1%   76.2    9.1%   73.8    8.5%

 

Of the approximately 7.9 million total passengers in the TA airports during the year ended December 31, 2017, approximately 5.2 million were in Pisa Airport and 2.7 million were in the Florence Airport. Our Italy segment had Adjusted Segment EBITDA of U.S.$29.8 million for the year ended December 31, 2017. For the year ended December 31, 2016, of the approximately 7.5 million total passengers in the TA airports, approximately 5.0 million were in Pisa Airport and 2.5 million in the Florence Airport. Our Italy segment had Adjusted Segment EBITDA of U.S.$27.3 million for the year ended December 31, 2016. For the year ended December 31, 2015, of the 7.2 million total passengers in the TA airports, approximately 4.8 million were in the Pisa Airport and 2.4 million in the Florence Airport. Our Italy segment had Adjusted Segment EBITDA of U.S.$25.7 million for the year ended December 31, 2015.

 

TA is listed on the Italian Stock Exchange under the ticker TYA. The year-end price for 2017 was €16.2 per share, representing a market cap of  €300.6 million. Corporate capital amounted to €30.7 million, which is comprised of 18.6 million ordinary shares with no nominal value.

 

Brazil

 

In Brazil, we operate the Brasilia Airport through our 50.98% indirect ownership of ICAB, a subsidiary of Inframerica. Inframerica was originally owned by Infravix and CASA. In 2015, we and the Majority Shareholder acquired Infravix’s shareholding in Inframerica. In 2015, pursuant to our Reorganization, CAAP acquired CASA’s stake in Inframerica. As of the date of this annual report, we own 99.96% of the equity interests of Inframerica, which in turn holds 51.0% of the equity interests of ICAB. Infraero is the owner of the remaining 49.0% interest in ICAB.

 

We also operate the Natal Airport through our 99.97% ownership of ICASGA. ICASGA was originally owned by Infravix (50.0%) and CASA (50.0%). In 2015, we acquired from Infravix a 49.95% interest in ICASGA and the Majority Shareholder acquired the remaining 0.05% interest in ICASGA. See, “Presentation of Financial and Certain Other Information—Brazilian Consolidation.” As of the date of this annual report, we own 99.97% of ICASGA and the Majority Shareholder owns the remaining 0.03%.

 

 56 

 

  

The following table provides summary data for our operations in Brazil for the periods indicated:

 

  

For the Year Ended December 31,(1)

 
   2017   2016   2015 
       % of
Total
       % of
Total
       % of
Total
 
Revenue (in millions of U.S.$)  $128.8    8.2%  $127.0    9.3%  $0.8    0.1%
Number of passengers (in millions)   19.4    25.3%   20.4    28.3%   22.5    31.7%
Air traffic movements (in thousands)   185.2    21.8%   198.8    23.8%   230.6    26.5%

 

 

(1)Although for the year ended December 31, 2015, the results of operations of ICASGA and Inframerica were consolidated only as from their respective dates of acquisition, i.e. December 11, 2015 and December 30, 2015, respectively. We have included 100% of operational information of both ICASGA and ICAB, with respect to number of passengers and air traffic movements, for the year ended December 31, 2015. The revenue information for the year ended December 31, 2015 includes only the consolidated revenue of ICASGA and ICAB as from their respective dates of acquisitions.

 

For the year ended December 31, 2017, of the approximately 19.4 million total passengers in Brazil, approximately 17.0 million were in the Brasilia Airport and 2.4 million were in the Natal Airport. For the year ended December 31, 2017, our Brazil segment had Adjusted Segment EBITDA of U.S.$16.8 million. For the year ended December 31, 2016, of the approximately 20.4 million total passengers in Brazil, approximately 18.0 million were in the Brasilia Airport and 2.3 million were in the Natal Airport. For the year ended December 31, 2016, our Brazil segment had Adjusted Segment EBITDA of U.S.$3.8 million. For the year ended December 31, 2015, of the 22.5 million passengers in our Brazilian airports, approximately 20.0 million were in the Brasilia Airport and 2.6 million were in the Natal Airport. For the year ended December 31, 2015, our Brazil segment had Adjusted Segment EBITDA of U.S.$(71.8) million.

 

Uruguay

 

Our operations in Uruguay consist of the operation and maintenance of the two main Uruguayan airports that receive commercial flights. We own 100% of Puerta del Sur, the holder of the concession agreement through the execution of a comprehensive management agreement with the Uruguayan Ministry of Defense (“Carrasco Concession Agreement”) to operate the Carrasco Airport and 100% of Consorcio Aeropuertos Internacionales S.A. (“CAISA”) the holder of the concession agreement (“Punta del Este Concession Agreement,” and together with the Carrasco Concession Agreement, the “Uruguayan Concession Agreements”) with the Uruguayan Ministry of Defense to operate the Punta del Este Airport. The Carrasco Airport, located near Montevideo, is Uruguay’s largest airport in terms of passenger traffic and serves as the country’s primary gateway for international travel. We also own TCU S.A. (“TCU”) through which we operate the cargo terminal at the Carrasco Airport.

 

The following table provides summary data for our operations in Uruguay for the periods indicated:

 

  

For the Year Ended December 31,(1)

 
  

2017(1)

  

2016(2)

  

2015(3)

 
       % of
Total
       % of
Total
       % of
Total
 
Revenue (in millions of U.S.$)  $110.0    7.0%  $97.8    7.2%  $93.1    7.8%
Number of passengers (in millions)   2.3    3.0%   2.0    2.9%   1.8    2.6%

 

 57 

 

 

  

For the Year Ended December 31,(1)

 
  

2017(1)

  

2016(2)

  

2015(3)

 
       % of
Total
       % of
Total
       % of
Total
 
                               
Air traffic movements (in thousands)   33.6    4.0%   32.4    3.9%   31.8    3.6%

 

 

(1)Includes revenues for TCU and reflects intersegment adjustments of U.S.$6.3 million.

(2)Includes revenues for TCU and reflects intersegment adjustments of U.S.$5.7 million.

(3)Includes revenues for TCU and reflects intersegment adjustments of U.S.$6.1 million.

 

For the year ended December 31, 2017, of the approximately 2.3 million total passengers in Uruguay, approximately 2.1 million were in the Carrasco Airport and 0.2 million were in the Punta del Este Airport. Our Uruguay segment had Adjusted Segment EBITDA of U.S.$55.2 million for the year ended December 31, 2017. For the year ended December 31, 2016, of the approximately 2.0 million total passengers in Uruguay, approximately 1.9 million were in the Carrasco Airport and 0.2 million were in the Punta del Este Airport. For the year ended December 31, 2016, our Uruguay segment had Adjusted Segment EBITDA of U.S.$53.7 million. For the year ended December 31, 2015, of the 1.8 million passengers in our Uruguayan airports, approximately 1.7 million were in the Carrasco Airport and 0.1 million were in the Punta del Este Airport. For the year ended December 31, 2015, our Uruguay segment had Adjusted Segment EBITDA of U.S.$49.8 million.

 

The Punta del Este Concession Agreement expires on March 31, 2019. However, CAISA is currently conducting negotiations with the Uruguayan Government to extend the original term until 2033. Although the discussions with the Uruguayan Government are ongoing and there can be no assurances that we will be successful in being granted an extension to the concession agreement, our preliminary discussions with the Uruguayan Government have been positive.

 

Ecuador

 

Our operations in Ecuador consist of the operation and maintenance of the Guayaquil Airport and the Galapagos Airport. The following table provides summary data for our operations in Ecuador for the periods indicated:

 

  

For the Year Ended December 31,(1)

 
   2017   2016   2015 
       % of
Total
       % of
Total
       % of
Total
 
Revenue (in millions of U.S.$)  $85.3    5.4%  $85.3    6.2%  $79.0    6.7%
Number of passengers (in millions)   4.1    5.4%   4.2    5.9%   4.1    5.8%
Air traffic movements (in thousands)   78.2    9.2%   87.6    10.5%   90.9    10.4%

 

 

(1)Although for the years ended December 31, 2016 and 2015, the results of operations of the our associate ECOGAL are not consolidated, we have included 100% of operational information of ECOGAL, with respect to number of passengers and air traffic movements, for the years ended December 31, 2017, 2016 and 2015. The revenue information for the years ended December 31, 2017, 2016 and 2015 includes only the consolidated revenue of TAGSA, our other concession in the Ecuador segment.

 

 58 

 

  

For the years ended December 31, 2017, 2016 and 2015, our Ecuador segment had Adjusted Segment EBITDA of U.S.$26.5 million, U.S.$28.0 million and U.S.$23.1 million, respectively.

 

We own 50.0% of TAGSA, which operates and maintains the Guayaquil Airport in the City of Guayaquil, pursuant to the terms and conditions of a concession agreement (“Guayaquil Concession Agreement”) among TAGSA, Autoridad Aeroportuaria de Guayaquil (“AAG”), and the M.I. Municipalidad de Guayaquil (“Municipality of Guayaquil”). The Guayaquil Concession Agreement is scheduled to expire in July 2024, as agreed in the third amendment to the Guayaquil Concession Agreement.

 

We own 99.9% of ECOGAL, which operates and maintains the Galapagos Airport located at the Galapagos Islands which is an Ecuadorian province located 605 miles west of the Ecuadorian coast, and which were declared a National Park in 1959. The Galapagos Airport is located in the Baltra Island, within a short distance from Santa Cruz Island, which holds the most populous city of the province and the city with the best tourist infrastructure in the province (the city of Puerto Ayora). The duration of the Galapagos Concession Agreement is 15 years as from the compliance of the conditions precedent set forth therein; such conditions were satisfied on July 15, 2011.

 

The Galapagos Airport has been recognized as the first ecological and sustainable airport in the world by the U.S. Green Building Council. The airport terminal was entirely planned, designed and built taking into account its relationship with the surrounding environment to reduce its environmental impact. The terminal also received Leadership in Energy and Environmental Design (LEED) certification, GOLD level.

 

Additionally, on June 23, 2015, the Galapagos Airport received the Carbon Footprint Reduction accreditation from the Airport Carbon Accreditation program. The program, implemented by Airports Council International Europe, is aimed at evaluating and recognizing airports that make outstanding efforts to reduce and compensate for greenhouse gas emissions. The Galapagos Airport is the first airport in South America and the second one in Latin America to receive a carbon footprint reduction accreditation. Currently, we are working to obtain the next level of accreditation, Optimization which is the third level of the four possible accreditation levels.

 

Armenia

 

We own 100% of AIA which owns the concession from the Armenian Government (the “Armenian Concession Agreement”) to operate and maintain the only two operating airports for scheduled commercial flights in Armenia: the Zvartnots Airport and the Shirak Airport.

 

The following table provides summary data for our operations in Armenia for the periods indicated:

 

   For the Year Ended December 31, 
   2017   2016   2015 
       % of
Total
       % of
Total
       % of
Total
 
Revenue (in millions of U.S.$)  $94.5    6.0%  $73.2    5.4%  $74.7    6.3%
Number of passengers (in millions)   2.6    3.3%   2.1    2.9%   1.9    2.7%
Air traffic movements (in thousands)   22.0    2.6%   18.7    2.2%   18.0    2.1%

 

 59 

 

  

For the years ended December 31, 2017, December 31, 2016 and 2015, our Armenia segment had Adjusted Segment EBITDA of U.S.$41.2 million, U.S.$28.1 million and U.S.$25.3 million, respectively.

 

For the year ended December 31, 2017, of the approximately 2.6 million total passengers in Armenia, approximately 2.5 million were in the Zvartnots Airport and 0.1 million were in the Shirak Airport. For the year ended December 31, 2016, of the approximately 2.1 million total passengers in Armenia, approximately 2.1 million were in the Zvartnots Airport and 0.02 million were in the Shirak Airport. For the year ended December 31, 2015, of the approximately 1.9 million passengers in our Armenian airports, approximately 1.8 million were in the Zvartnots Airport and approximately 0.04 million were in the Shirak Airport.

 

Peru

 

Our operations in Peru consist of the operation, use and maintenance of five airports in southern Peru, including the Arequipa Airport, which is the third largest airport in Peru in terms of passenger traffic, through our 50.0% participation in AAP. AAP was incorporated by public deed dated November 22, 2010, for the sole purpose of acting as the concessionaire of the AAP Concession Agreement. We account for the results of operations of AAP using the equity method and therefore, such results are not included in the total revenue for our operations.

 

The following table provides summary data for our operations in Peru for the periods indicated:

 

  

For the Year Ended December 31,(1)

 
   2017   2016   2015 
       % of
Total
       % of
Total
       % of
Total
 
Revenue (in millions of U.S.$)   N/A    N/A    N/A    N/A    N/A    N/A 
Number of passengers (in millions)   3.1    4.0%   3.0    4.2%   2.7    3.9%
Air traffic movements (in thousands)   29.0    3.4%   29.6    3.5%   29.4    3.4%

 

 

(1)Although for the years ended December 31, 2017, 2016 and 2015, the results of operations of the our associate AAP are not consolidated, we have included 100% of operational information of AAP with respect to number of passengers and air traffic movements for the years ended December 31, 2017, 2016 and 2015.

 

For the years ended December 31, 2017 and December 31, 2016, our Peru segment had a negative Adjusted Segment EBITDA of U.S.$(15.3) million and U.S.$(0.4) million, respectively. For the year ended December 31, 2015, our Peru segment had an Adjusted Segment EBITDA of U.S.$0.8 million.

 

AAP is an associate corporation which was incorporated in 2010, 50.0% owned by CAAP and 50.0% owned by Andino Investment Holding (a private Peruvian logistics conglomerate). Pursuant to the by-laws of AAP, major corporate decisions, including the amendment of its by-laws, approval of corporate reorganizations and any increase or reduction of share capital, may be made only with the consent of all shareholders. The AAP Concession Agreement grants AAP the rights for the management and operation of the following six airports in southern Peru for a period of 25 years:

 

·Rodriguez Ballón International Airport—Arequipa

 

 60 

 

  

·Coronel FAP Alfredo Mendívil Duarte Airport—Ayacucho

 

·Inca Manco Capac International Airport—Juliaca

 

·Padre Almadiz International Airport—Puerto Maldonado

 

·Coronel FAP Carlos Ciriani Santa Rosa International Airport—Tacna

 

·Andahuaylas Airport—Apurimac

 

Although included under the AAP Concession Agreement, the Andahuaylas Airport has not ever been operated by AAP, as the Peruvian Government does not own the land, which is a condition for the Peruvian Government to deliver such airport to AAP for operation under the AAP Concession Agreement.

 

Our airports currently serve major metropolitan areas in five southern Peruvian provinces: Arequipa, Puno, Ayacucho, Tacna and Puerto Maldonado. Of the five airports that we currently operate under the AAP Concession Agreement, four have been designated as international airports under Peruvian law, which means that they are or may potentially be equipped to receive international flights, although they mostly receive domestic flights.

 

Our Airports

 

Our strategically most important airports are described below:

 

Ezeiza Airport (EZE)

 

Ezeiza Airport is our largest airport in terms of contribution to revenue and Argentina’s second largest airport in terms of passenger traffic. During the year ended December 31, 2017, Ezeiza Airport served 9.9 million total passengers, representing approximately 12.9% of our total passenger traffic. Of the total passengers, 91.0% were international, 7.0% were domestic and 2.0% were transit passengers. During the year ended December 31, 2017, Ezeiza Airport accounted for 66,916 total air traffic movements, which represented 7.8% of all air movements in the airports we operate. During the year ended December 31, 2016, Ezeiza Airport served 9.8 million total passengers, representing approximately 13.7% of our total passenger traffic. Of the total passengers, 90.7% were international, 7.4% were domestic and 2.0% were transit passengers. During the year ended December 31, 2016, Ezeiza Airport accounted for 68,839 movements, which represented 8.2% of all air movements in the airports we operate. During the year ended December 31, 2015, Ezeiza Airport served 9.1 million total passengers, representing approximately 12.8% of our total passenger traffic. Of the total passengers, 92.6% were international, 6.7% were domestic and 0.7% were transit passengers. During the year ended December 31, 2015, Ezeiza Airport accounted for 66,834 movements, which represented 8.0% of all air movements in the airports we operate.

 

A number of commercial airlines, including Aerolíneas Argentinas, Air Canada, Air France, Alitalia, American Airlines, British Airways, Delta Airlines, Lufthansa, LATAM Airlines Group and United Airlines, operate international flights to and from Ezeiza Airport.

 

Ezeiza Airport is located approximately 22 kilometers (13.7 miles) from downtown Buenos Aires, the capital city of Argentina. Approximately 3 million people live within the city itself and approximately 12 million people live within the city and its suburbs (the “Greater Buenos Aires Area”). The City of Buenos Aires is home to most of Argentina’s largest companies in a wide variety of industries, as well as several major universities. The Greater Buenos Aires Area represents one-third of the Argentine population and produces 40% of Argentina’s GDP.

 

 61 

 

  

Ezeiza Airport operates 24 hours a day. The total area of the airport’s premises is approximately 3,475 hectares (374.0 million square feet). The airport has two operating runways, one with a length of 3,300 meters (10,824 feet) and the other with a length of 3,105 meters (10,170 feet). The airport’s approximate runway capacity is 60 air traffic movements per hour. Ezeiza Airport has nine taxiways, which cover 526,300 square meters (5.7 million square feet), and two types of aprons (remote and operative), with an area of approximately 656,290 square meters (7.1 million square feet). The airport has three terminals, A, B and C, which cover an area of 103,000 square meters (1.1 million square feet). The parking lot is approximately 125,460 square meters (1.4 million square feet), with the capacity to accommodate 4,182 vehicles.

 

Aeroparque Airport (AEP)

 

Aeroparque Airport is Argentina’s largest airport in terms of passenger traffic. During the year ended December 31, 2017, Aeroparque Airport served a total of 13.9 million passengers, which accounted for approximately 18.2% of all passengers served by our airports. In the year ended December 31, 2017, Aeroparque Airport accounted for 134,532 total air traffic movements, which accounted for 15.8% of all air traffic movements in the airports we operate. During the year ended December 31, 2016, Aeroparque Airport served a total of 11.7 million passengers, which accounted for approximately 16.2% of all passengers served by our airports. In the year ended December 31, 2016, Aeroparque Airport accounted for 121,882 total air traffic movements, which accounted for 14.6% of all air traffic movements in 2016 in the airports we operate. During the year ended December 31, 2015, Aeroparque Airport served a total of 11.0 million passengers, which accounted for approximately 15.6% of all passengers served by our airports. In the year ended December 31, 2015, Aeroparque Airport accounted for 120,492 total air traffic movements, which accounted for 14.4% of all air traffic movements in 2015 in the airports we operate.

 

The principal airlines operating at Aeroparque Airport are Aerolíneas Argentinas, Austral–Cielos del Sur, LAN Airlines, LAN Argentina, TAM Linhas Aereas and VRG Linhas Aereas S.A. Aeroparque offers flights to all domestic airports and certain international routes to Uruguay, Brazil, Chile, Paraguay, Bolivia and Peru. Beginning in 2018, Aeroparque Airport will offer domestic flights only (other than flights to Montevideo) and all international routes to be transferred from Aeroparque Airport to Ezeiza Airport.

 

Aeroparque Airport is located two kilometers (1.24 miles) from downtown Buenos Aires. Aeroparque Airport does not operate from 12:30 a.m. to 5:30 a.m. in compliance with ICAO regulations. Such regulations set forth restrictions on airports located within cities to minimize noise pollution. The total area of the airport premises is approximately 129.6 hectares (13.8 million square feet). The runway has a length of 2,100 meters (7,185 feet) and an approximate runway capacity of 57 air traffic movements per hour. The Aeroparque Airport has one taxiway which covers 71,495 square meters (769,565 square feet) and 207,650 square meters (2.2 million square feet) of remote and operative aprons. The airport’s terminal covers approximately 95,570 square meters (1.0 million square feet). The parking lot is 78,755 square meters (847,711 million square feet), with the capacity to accommodate 2,456 vehicles.

 

 62 

 

  

Florence Airport (FLR)

 

During the year ended December 31, 2017, Florence Airport served a total of 2.7 million passengers, which accounted for approximately 3.5% of all passengers served by our airports. Florence Airport accounted for 35,490 total air traffic movements, which accounted for 4.2% of all air traffic movements in the year ended December 31, 2017. During the year ended December 31, 2016, Florence Airport served a total of 2.5 million passengers, which accounted for approximately 3.5% of all passengers served by our airports. Florence Airport accounted for 35,645 total air traffic movements, which accounted for 4.3% of all air traffic movements in the year ended December 31, 2016 in the airports we operate. During the year ended December 31, 2015, Florence Airport served a total of 2.4 million passengers, which accounted for approximately 3.4% of all passengers served by our airports. Florence Airport accounted for 34,269 total air traffic movements, which accounted for 3.9% of all air traffic movements in the year ended December 31, 2015 in the airports we operate.

 

Florence Airport is located near the city of Florence, Italy. The metropolitan area served by the Florence Airport has approximately one million inhabitants. The airport serves the tourist market in Florence, as well as the nearby industrial market. Even though some low-cost carriers operate in the airport, Florence Airport is mostly dedicated to full-cost carriers, such as Lufthansa, Alitalia and Air France. This premium service also correlates with the premium retail offerings at the airport.

 

In the last six years, the airport has experienced an average 6.2% annual passenger growth rate. However, the airport is constrained by its current infrastructure. Florence Airport cannot service long-haul flights given the short length of its runway. Additionally, since the runway was built in the direction of the prevailing wind, Florence Airport has a relatively high number of flight cancellations due to adverse weather conditions. Since the merger of ADF with SAT, flights have been rerouted to Pisa Airport when possible to avoid passenger loss. Passengers can also be rerouted to Bologna Airport, if needed. Plans are underway to build a new terminal and runway. The new infrastructure should allow Florence Airport to reach its full potential and complement Pisa Airport’s offerings.

 

On November 3, 2015, we received the technical approval by ENAC of our 2014-2029 master plan for Florence Airport. The master plan is subject to the environmental impact assessment, which was approved by the Ministry of the Environment on December 28, 2017. The urban planning assessment procedure is currently underway.

 

Pisa Airport (PSA)

 

During the year ended December 31, 2017, Pisa Airport served a total of 5.2 million passengers, which accounted for approximately 6.8% of all passengers served by our airports. Pisa Airport accounted for 41,860 total air traffic movements, which accounted for 4.9% of all air traffic movements in the year ended December 31, 2017. During the year ended December 31, 2016, Pisa Airport served a total of 5.0 million passengers, which accounted for approximately 7.0% of all passengers served by our airports. Pisa Airport accounted for 40,601 total air traffic movements, which accounted for 4.9% of all air traffic movements in the year ended December 31, 2016 in the airports we operate. During the year ended December 31, 2015, Pisa Airport served a total of 4.8 million passengers, which accounted for approximately 6.8% of all passengers served by our airports. Pisa Airport accounted for 39,515 total air traffic movements, which accounted for 4.5% of all air traffic movements in the year ended December 31, 2015 in the airports we operate.

 

The Pisa Airport is located in the city of Pisa, Italy, and is one of the main entryways to the Toscana and Liguria regions of Italy. The Pisa Airport is easily accessible by train with a rail link to Pisa’s central train station and Florence’s Santa Maria Novella train station. There is a people mover under construction, which should further the connectivity of the airport and sustain the airport’s future growth.

 

 63 

 

  

Low-cost carriers dominate in terms of passengers and aircraft movements at the Pisa Airport. Historically, the airport has invested in its infrastructure, allowing it to operate long-haul intercontinental flights and cargo flights. Pisa Airport is the entryway for foreigners entering the Toscana region (incoming traffic). Further investments in capex will allow the airport to reach six million passengers in the short term.

 

On October 24, 2017, ENAC approved and signed our 2015-2028 master plan for Pisa Airport.

 

Brasilia Airport (BSB)

 

During the year ended December 31, 2017, the Brasilia Airport served a total of 17.0 million passengers, which accounted for approximately 22.2% of all passengers served by our airports. The Brasilia Airport accounted for 166,200 total aircraft movements, which accounted for 19.5% of all aircraft movements, in the year ended December 31, 2017. During the year ended December 31, 2016, the Brasilia Airport served a total of 18.0 million passengers, which accounted for 25.1% of all passengers served by our airports. In addition, the Brasilia Airport accounted for 180,086 air traffic movements, which represented 21.5% of all air traffic movements in the year ended December 31, 2016, in the airports we operate. During the year ended December 31, 2015, the Brasilia Airport served a total of 20.0 million passengers, which accounted for 28.1% of all passengers served by our airports. In addition, the Brasilia Airport accounted for 208,140 air traffic movements, which represented 25.4% of all air traffic movements in the year ended December 31, 2015, in the airports we operate.

 

The Brasilia Airport is located in the Brazilian capital city of Brasilia. The concession for the Brasilia Airport is owned by ICAB, a subsidiary of Inframerica. As of the date hereof, we own 99.9% of the equity interests of Inframerica, which holds 51.0% of the equity interests of ICAB. Infraero is the owner of the remaining 49.0% interest in ICAB. Infraero is a state-owned company affiliated with the Civil Aviation Secretariat of Brazil and it currently operates 59 airports in Brazil and owns a 49.1% stake in 5 other airports (including Brasilia) that it does not directly operate. The Brasilia Airport is Brazil’s third largest airport in terms of passenger traffic and serves 42 domestic routes and 5 international routes. Because of its geographic location in the central region of the country and its location in the federal capital of Brazil, the Brasilia Airport is one of the only airports with direct and daily flights to all 26 Brazilian state capitals. The Brasilia Airport also offers international routes to and from the United States, Argentina, Portugal, the Dominican Republic and Panama.

 

The Brasilia Airport is the only airport in South America capable of operating two runways simultaneously, which provides the largest runway capacity in Brazil.

 

The principal airlines operating at the Brasilia Airport are LATAM Airlines Group, Gol Transportes Aéreos, Avianca and Azul which collectively represent 97% of the airport’s traffic. Other principal airlines include American Airlines, TAP, Copa Airlines and Passaredo.

 

The Brasilia Airport is located 12 kilometers (8.5 miles) from downtown Brasilia. The Brasilia Airport operates twenty-four hours a day. The total area of the airport premises is approximately 4.4 hectares (473,612 square feet). The two runways have a length of 3,300 meters (approximately 10,826 feet) and 3,200 meters (approximately 10,498 feet) and an approximate runway capacity of 53 air traffic movements per hour. The airport has two parallel taxiways which can operate simultaneously, and which cover 148,500 square meters (approximately 1,598,441 square feet) and 144,000 square meters (approximately 1,550,003 square feet), respectively, and which can be expanded without the need for significant new expenditures. The airport’s terminal covers approximately 110,000 square meters (1,184,300 square feet), of which 14,290 square meters (approximately 153,816 square feet) is commercial area. The parking lot is 100,000 square meters (1,076,931 square feet), with the capacity to accommodate 3,354 vehicles.

 

 64 

 

  

Carrasco (MVD)

 

Carrasco Airport, located near Montevideo, is Uruguay’s largest airport in terms of passenger traffic and serves as the country’s primary gateway for international travel. Carrasco Airport has the capacity to handle up to 4.5 million passengers annually. It currently serves regional centers, tourist destinations and certain major cities throughout the Americas and Europe.

 

During the year ended December 31, 2017, the Carrasco Airport served a total of 2.1 million passengers, which accounted for approximately 2.8% of all passengers served by our airports. In addition, the Carrasco Airport accounted for 24,507 aircraft movements, which represented 2.9% of all air traffic movements in the year ended December 31, 2017 in the airports we operate. During the year ended December 31, 2016, the Carrasco Airport served a total of 1.9 million passengers, which accounted for 2.6% of all passengers served by our airports. In addition, the Carrasco Airport accounted for 23,333 air traffic movements, which represented 2.8% of all air traffic movements in the year ended December 31, 2016, in the airports we operate. During the year ended December 31, 2015, the Carrasco Airport served a total of 1.8 million passengers, which accounted for 2.4% of all passengers served by our airports. In addition, the Carrasco Airport accounted for 22,747 air traffic movements, which represented 2.6% of all air traffic movements in the year ended December 31, 2015 in the airports we operate.

 

In 2003, our wholly-owned subsidiary Cerealsur S.A. acquired 100% of the outstanding shares of Puerta del Sur, the holder of the Carrasco Concession Agreement. The original concession agreement was for a period of 20 years ending in November 2023, which term has recently been extended for an additional period of 10 years, until 2033.

 

Main Customers

 

Main Aeronautical Customers

 

For the years ended December 31, 2017, 2016 and 2015, our main aeronautical customers were LATAM Airlines Group, Grupo Aerolíneas Argentinas, VRG Linhas Aereas S.A. (operating as Gol Transportes Aereos), American Airlines, Avianca, Ryanair Ltd., Copa, Air France and Lufthansa Group. In the years ended December 31, 2017, 2016 and 2015, aeronautical revenue received from LATAM Airlines Group totaled U.S.$171.9 million, U.S.$153.2 million and U.S.$105.1 million, respectively representing 22.4%, 22.8% and 19.3%, respectively, of our total consolidated aeronautical revenue. For the years ended December 31, 2017, 2016 and 2015, the aeronautical revenue received from Grupo Aerolineas Argentinas totaled U.S.$126.0 million, U.S.$102.3 million and U.S.$93.1 million, respectively, representing 16.4%, 15.2% and 17.1%, respectively, of our total consolidated aeronautical revenue.

 

The following table sets forth our main aeronautical customers for the years ended December 31, 2017, 2016 and 2015, based on the total amount of aeronautical revenue.

 

 65 

 

  

   For the Year Ended December 31, 
   2017   2016   2015 
Main Aeronautical
Customers
  (in
millions of
 U.S.$)
   % of Total
Aeronautical
Revenue
   (in
millions
 of U.S.$)
   % of Total
Aeronautical
Revenue
   (in
millions
of U.S.$)
   % of Total
Aeronautical
Revenue
 
LATAM Airlines Group   171.9    22.4%   153.2    22.8%   105.1    19.3%
Grupo Aerolíneas Argentinas   126.0    16.4%   102.3    15.2%   93.1    17.1%
Gol Transportes Aéreos   52.0    6.8%   49.9    7.4%   27.9    5.1%
American Airlines   34.2    4.5%   33.8    5.0%   28.0    5.2%
Avianca   38.3    5.0%   33.2    5.0%   22.8    4.2%
Ryanair Ltd   33.1    4.3%   32.0    4.8%   32.1    5.9%
Copa   24.7    3.2%   23.1    3.4%   19.8    3.6%
Air France   22.2    2.9%   20.9    3.1%   20.5    3.8%
Lufthansa Group   20.8    2.7%   19.4    2.9%   21.4    3.9%
Others   244.1    31.8%   205.5    30.5%   172.5    31.8%
Total   767.0    100.0%   673.5    100.0%   543.2    100.0%

 

Main Commercial Customers

 

For the year ended December 31, 2017, our main commercial customers were Dufry and Aerofuels Overseas. In the year ended December 31, 2017, amounts invoiced by us to Dufry totaled U.S.$71.4 million and amounts invoiced by us to Aerofuels Overseas totaled U.S.$11.8 million, representing 12.9% and 2.1%, respectively, of our total consolidated commercial revenues.

 

For the year ended December 31, 2016, our main commercial customers were Dufry and Grupo Aerolíneas Argentinas. For the year ended December 31, 2016, amounts invoiced by us to Dufry totaled U.S.$71.2 million and amounts invoiced by us to Grupo Aerolíneas Argentinas totaled U.S.$10.6 million, representing 13.6% and 2.0%, respectively, of our total consolidated commercial revenue.

 

For the year ended December 31, 2015, our main commercial customers were Dufry and Grupo Aerolíneas Argentinas. For the year ended December 31, 2015, amounts invoiced by us to Dufry totaled U.S.$70.5 million and amounts invoiced by us to Grupo Aerolíneas Argentinas totaled U.S.$13.1 million, representing 15.3% and 2.8%, respectively, of our total consolidated commercial revenue.

 

In 2011, we sold our duty free operations in Argentina, Uruguay, Ecuador and Armenia to Dufry Group. Dufry Group, therefore, became the exclusive duty free operator at these airports. In Brazil and Italy, countries in which we acquired the concessions agreements after 2011, we have separate duty free concession agreements with Dufry Group. Dufry Group does not operate at our AAP Airports in Peru.

 

Our duty free concession agreements are primarily long-term contracts and include a variable payment, as well as a required minimum fee. Variable payments are calculated as a percent of revenues. New contracts may include an upfront payment once executed. We also charge a separate fee for use of retail and warehouse space. The terms of each agreement with Dufry vary, depending on the jurisdiction and size of the airport where it operates.

 

The following table sets forth our main commercial services providers for the years ended December 31, 2017, 2016 and 2015, based on the percentage of total amounts invoiced by us (net from value added tax) to all commercial services providers during the periods indicated:

  

   For the Year Ended December 31, 
   2017   2016   2015 
Main Commercial
Customers
  (in
millions
of U.S.$)
  

% of Total
Commercial
Revenue(1)

   (in
millions
of U.S.$)
  

% of Total
Commercial
Revenue(1)

   (in
millions
of U.S.$)
  

% of Total
Commercial
Revenue(1)

 
Dufry   71.4    12.9%   71.2    13.6%   70.5    15.3%
Grupo Aerolineas Argentinas   9.2    1.7%   10.6    2.0%   13.1    2.8%

 

 

 66 

 

 

   For the Year Ended December 31, 
   2017   2016   2015 
Main Commercial
Customers
  (in
millions
of U.S.$)
  

% of Total
Commercial
Revenue(1)

   (in
millions
of U.S.$)
  

% of Total
Commercial
Revenue(1)

   (in
millions
of U.S.$)
  

% of Total
Commercial
Revenue(1)

 
Gate Gourmet   10.6    1.9%   8.1    1.6%   9.1    2.0%
Aerofuels Overseas   11.8    2.1%   5.7    1.1%   7.6    1.7%
JCDecaux do Brasil S.A.   5.4    1.0%   5.4    1.0%   -    - 
Intercargo S.A.C.   5.8    1.0%   5.2    1.0%   5.1    1.1%
International Meal Company Alimenta   2.0    0.4%   4.5    0.9%   -    - 
Sita Information Networking   5.1    0.9%   4.1    0.8%   3.9    0.9%
Petrobras   4.2    0.8%   3.9    0.8%   0.4    0.1%
Others   430.0    77.4%   403.4    77.3%   350.0    76.1%
Total   555.5    100.0%   522.2    100.0%   459.7    100.0%

 

 

(1)Based on the percentage of total commercial revenue invoiced by us (net of value added tax)

 

Regulatory and Concessions Framework

 

Introduction

 

We hold concessions in Argentina, Italy, Brazil, Uruguay, Ecuador, Armenia and Peru and are subject to regulations in each one of these countries. The following table sets out aspects of our concession agreements, along with their respective term and extension provisions, and the corresponding regulatory governmental authority.

 

    Concession
agreement
  Governmental
authority
  Term and
extension provisions
Argentina   AA2000 Concession Agreement   Argentine Government; ORSNA   30-year term (ending February 13, 2028); may be extended an additional 10 years, subject to authorization by the Argentine Government.
  NQN Concession Agreement   Government of the Province of Neuquén; ORSNA   20-year term (ending October 24, 2021).  Concession may be extended for 5 years upon governmental approval.
  BBL Concession Agreement   Municipality of Bahía Blanca; ORSNA   25-year term (ending May 22, 2033).  Concession may be extended for 10 years upon governmental approval.
Italy   Pisa Concession Agreement   ENAC   40-year term (ending December 7, 2046).
  Florence Concession Agreement   ENAC   40-year term (ending February 10, 2043).
Brazil   Natal Concession Agreement   Brazilian ANAC   28-year term (ending January 24, 2040); may be extended for an additional 5 years if necessary to reestablish economic equilibrium.
  Brasilia Concession Agreement   Brazilian ANAC   25-year term (ending July 24, 2037); may be extended for an additional 5 years if necessary to reestablish economic equilibrium.
Uruguay   Carrasco Concession Agreement   Defense Ministry   20-year term with 10-year extension already approved (30-year total, ending November 20, 2033).
  Punta del Este Concession Agreement   Defense Ministry   26-year term (ending March 31, 2019).  We are currently under negotiations with local government to extend this concession.
Ecuador   Guayaquil Concession Agreement   AAG; Municipality of Guayaquil   20-year and 5-month term (ending July 27, 2024).
  Galapagos Concession Agreement   DGAC; STAC   15-year term (ending July 6, 2026).
Armenia   Armenian Concession Agreement   Armenian Government; GDCA   30-year term (ending June 8, 2032), with option to extend the term of the agreement by 5-year periods if in good standing.
Peru   AAP Concession Agreement   MTC   25-year term (ending January 5, 2036); may be extended at request of AAP at least 3 years prior to the termination date; the term of the concession cannot exceed 60 years.

 

 67 

 

  

Argentina

 

Our Airports in Argentina

 

    Name   Location   International or
national status
  Category(1)
1.   Aeropuerto de San Carlos de Bariloche   San Carlos de Bariloche   International   I
2.   Aeropuerto de Catamarca, “Coronel Felipe Varela”   Catamarca   National   I
3.   Aeroparque Internacional, “Jorge Newbery”   Ciudad A. Buenos Aires   International   I
4.   Aeropuerto de Comodoro Rivadavia, “Geral. Enrique Mosconi”   Comodoro Rivadavia   International   I
5.   Aeropuerto Internacional de Córdoba, “Ing. A. Taravella”   Córdoba   International   I
6.   Aeropuerto de Esquel   Esquel   National   I
7.   Aeropuerto Internacional de Ezeiza, “Ministro Pistarini”   Ezeiza   International   I
8.   Aeropuerto Internacional de Formosa, “El Pucu”   Formosa   International   I
9.   Aeropuerto de General Pico   General Pico   National   II
10.   Aeropuerto de Misiones, “Cataratas del Iguazú”   Puerto Iguazú   International   I
11.   Aeropuerto de Jujuy, “Gobernador Horacio Guzmán”   Jujuy   International   I
12.   Aeropuerto de La Rioja, “Capitán Vicente Almandos Almonacid”   La Rioja   National    
13.   Aeropuerto de Malargüe, “Comodoro D Ricardo Salomon”   Malargüe   National   II
14.   Aeropuerto Internacional de Mar del Plata, “Astor Piazzolla”   Mar del Plata   International   I
15.   Aeropuerto Internacional de Mendoza, “El Plumerillo”   Mendoza   International   I
16.   Aeropuerto de Entre Rios, “General Justo José de Urquiza”   Parana   National   I
17.   Aeropuerto de Posadas, “Libertador General José de San Martín”   Posadas   International   I

 

 68 

 

  

    Name   Location   International or
national status
  Category(1)
18.   Aeropuerto de Puerto Madryn, “El Tehuelche”   Puerto Madryn   National   II
19.   Aeropuerto de Reconquista   Reconquista   National   II
20.   Aeropuerto de Resistencia, “José de San Martín”   Resistencia   International   I
21.   Aeropuerto de Rio Cuarto, “Área de Material”   Rio Cuarto   National   II
22.   Aeropuerto de Rio Gallegos, “Piloto Civil Norberto Fernández”   Rio Gallegos   International   I
23.   Aeropuerto de Rio Grande   Rio Grande   International   I
24.   Aeropuerto Internacional de Salta, “Martín Miguel de Güemes”   Salta   International   I
25.   Aeropuerto de San Fernando   San Fernando   International   II
26.   Aeropuerto de San Luis, “Brigadier Mayor César R Ojeda”   San Luis   National   I
27.   Aeropuerto de San Rafael, “S.A. Santiago Germano”   San Rafael   National   II
28.   Aeropuerto de San Juan, “Domingo Faustino Sarmiento”   San Juan   National   I
29.   Aeropuerto de Santa Rosa   Santa Rosa   National   I
30.   Aeropuerto de Santiago del Estero, “Vcom. Angel de la Paz Aragones”   Santiago del Estero   National   I
31.   Aeropuerto de Tucumán, “General Benjamin Matienzo”   San Miguel de Tucuman   International   I
32.   Aeropuerto de Viedma, “Gobernador Castello”   Viedma   National   I
33.   Aeropuerto de Villa Reynolds   Villa Reynolds   National   I
34.   Aeropuerto El Palomar   Buenos Aires   National   (2)
35.   Aeropuerto de Neuquén, “Presidente Peron”   Neuquén   International   I
36.   Aeropuerto de Bahía Blanca, “Comandante Espora”   Bahía Blanca   National   I
37.   Aeropuerto Termas de Rio Hondo   Santiago del Estero   National   (3)

 

 

(1)The category determines the maximum fees we may charge. See “—Passenger Use Fees,” “—Landing Fees” and “Parking Fees.”
(2)The El Palomar Airport has not yet been categorized by ORSNA as it was recently brought under the AA2000 Concession Agreement.
(3)The Termas de Rio Hondo Airport is not categorized since it is not currently under a formal concession agreement. It will be categorized by the ORSNA once it is included within the AA2000 Concession Agreement.

 

Sources of Regulation

 

We are subject to numerous regulations that govern the AA2000 Concession Agreement, the concession agreements for the Neuquén and the Bahía Blanca Airports, as well as our business and the operation of the airports, issued by the Argentine Congress, the Executive Branch, the Ministry of Transportation, the ORSNA and the Administration of National Civil Aviation (Administración Nacional de Aviación Civil or the Argentine ANAC).

 

Title III of Law 17,285, dated May 17, 1967 (the “Argentine Aeronautical Code”), as amended, and Regulation 1/2017 of the Airport Infrastructure and Services General Bureau (Dirección General de Infraestructura y Servicios Aeroportuarios), set forth the basic framework for the regulation of airports in Argentina. The Argentine Aeronautical Code also provided for the creation of both international and national airports and established concepts such as public and private airports. Decree 375/97 created the Argentine National Airport System and established the general framework for regulating the use, operation and management of the Argentine airport facilities that are part of the Argentine National Airport System. Under Decree 375/97, the Argentine Government may grant concessions to operate and manage some or all of the airports in the Argentine National Airport System subsequent to a public bidding process that is open to both national and international entities. Decree 375/97 provides that the Argentine National Airport System is regulated by the ORSNA, with respect to matters generally involving management and maintenance, and by the Argentine ANAC with respect to matters generally involving airport safety and air travel.

 

 69 

 

  

Argentina has a federal government system and 23 provinces and the City of Buenos Aires with individual laws. Under the Argentine Constitution, all powers which are not granted to the Argentine Government remain with the provinces and the City of Buenos Aires. Laws related to civil, commercial, criminal, mining, transportation, labor and social security matters are regulated by the National Congress. Pursuant to Article 75, Subsection 30) of the Argentine Constitution, national airports are considered “premises of national interest” (establecimientos de interes nacional), therefore, federal legislation is applicable, with the sole exception for tax and police powers of each of the Argentine Provinces, insofar as they do not interfere with the federal interest.

 

Governmental Authorities

 

Role of the ORSNA

 

The ORSNA is the principal regulator of our airports under Argentine law, and is an agency under the authority of the Ministry of Transportation. The ORSNA is directed by a four-member board (while only three members are currently appointed) and represented by the president of the board. The ORSNA is responsible for establishing the rules and procedures that govern our management and maintenance of the airports we operate and for enforcing our compliance with Argentine laws and the terms of the concession agreements in Argentina, including our fulfillment of our investment plan and master plans. The ORSNA and the Argentine ANAC are jointly responsible for establishing the criteria for our development of airport safety manuals, airport operations manuals, emergency plans and maintenance programs.

 

All disputes arising in connection with the operation or management of our airports must be submitted to the ORSNA. If we challenge any of ORSNA’s decisions, we may seek final judgment on the matter from the Ministry of Transportation and subsequently from the Argentine federal court system.

 

Role of the Argentine ANAC

 

Under the authority of the Ministry of Transportation, the Argentine ANAC is responsible for providing services relating to aeronautical activities, including air traffic control and flight protection services. Since July 2009, the Argentine ANAC has been exclusively in charge of civil aeronautical functions, which were previously provided by the Argentine Air Force, the ORSNA and the Sub-Secretariat of Aerocommercial Transportation.

 

The Argentine ANAC has the power to audit and control civil aviation activities, including public and private airports and airdromes, air traffic and communications and air navigation and aeronautical services. In addition, it may develop regulatory projects in connection with such activities.

 

Under the terms of the AA2000 Concession Agreement, the Argentine ANAC is responsible for providing in our airports, among other functions, operating functions (including air traffic control and communications), supervisory functions (including supervision of airport infrastructure, aviation personnel and flight equipment) and safety functions (including direction and supervision of search and rescue operations) at our airports. The Argentine ANAC charges the airlines and is responsible for the collection of general security, flight route security and aircraft landing support charges.

 

Additional Argentine Agencies

 

The Ministry of Interior operates the Argentine Migrations Bureau and, under the Ministry of the Treasury, operates the Argentine General Customs Bureau (Dirección General de Aduanas) which performs all immigration and customs functions for all airports in Argentina. The Argentine Migrations Bureau imposes and collects certain charges relating to immigration. In addition, security functions are provided by the Airport Security Police (Policía de Seguridad Aeroportuaria), which is under the authority of the Ministry of Security.

 

 70 

 

  

The AA2000 Concession Agreement

 

Pursuant to Administrative Decision 60/98, AA2000 was awarded the concession for the operation of 33 of the airports of the Argentine National Airport System set forth and covered by the AA2000 Concession Agreement. The AA2000 Concession Agreement was approved by Decree 163/98, dated February 13, 1998.

 

Because of the period of severe political, economic and social crisis that Argentina experienced during 2001 and 2002, the Congress enacted Law 25,561, which was subsequently amended and expanded, which declared a public emergency in social, economic, administrative, financial and exchange matters and provided for, among other things, the renegotiation of public services and works contracts, such as the AA2000 Concession Agreement. Decree 311/03 established that the renegotiation of public services and works contracts would be carried out by the Public Service Contract Analysis and Renegotiation Unit (Unidad de Renegociación y Análisis de Contratos de Servicios Públicos) and that the renegotiation process would be presided over by the former Ministry of Economy and Production and the Ministry of Planning.

 

Within the renegotiation framework established by Decree 311/03, on July 20, 2005, we executed a memorandum of understanding with the Argentine Government which set forth the guidelines for the renegotiation of the AA2000 Concession Agreement. The renegotiation of the AA2000 Concession Agreement resulted in a preliminary memorandum of agreement, dated June 16, 2006, which was subsequently replaced by a second memorandum of agreement, dated August 23, 2006. The memorandum of agreement, dated August 23, 2006, was then submitted for public hearing by the former Ministry of Economy and Production and the Ministry of Planning. As a result of the comments received at the public hearing, the Public Service Contract Analysis and Renegotiation Unit modified certain provisions of the memorandum of agreement, dated August 23, 2006, and renegotiated the memorandum of agreement with us. The renegotiations resulted in a revised memorandum of agreement, dated December 1, 2006.

 

The memorandum of agreement, dated December 1, 2006, was approved by the Congress on February 13, 2007, with certain recommendations. The final memorandum of agreement, which was previously approved by the Argentine Congress, was executed by the Argentine Government and us on April 3, 2007, and was confirmed by the Executive Branch by Decree 1799, dated December 4, 2007 (“Final Memorandum of Agreement”).

 

On December 27, 2017, AA2000 was awarded the concession for the operation of the El Palomar Airport, which was brought under the AA2000 Concession Agreement pursuant to Decree 1107/2017. As of the date of this prospectus, we operate 34 airports under the AA2000 Concession Agreement. See “Summary—Our History.”

 

Unless otherwise stated, the term “AA2000 Concession Agreement” refers to the AA2000 Concession Agreement modified by the Final Memorandum of Agreement.

 

In addition to the regulatory structure set forth under Argentine law and regulations governing the AA2000 Concession Agreement, the majority of our rights and obligations with respect to the concession are regulated by the specific terms of the AA2000 Concession Agreement as set forth below.

 

 71 

 

  

Our General Obligations

 

In general, under the terms of the AA2000 Concession Agreement, we are responsible for the following functions in connection with the airports, among others:

 

·ensuring equality, freedom of access and nondiscrimination with respect to the use of airport services and facilities on the terms established under the relevant bidding documentation;

 

·ensuring that the operations of the airports under the AA2000 Concession Agreement comply with community interests, environmental protection, anti-drug trafficking laws and national defense;

 

·implementing the master plans approved by the ORSNA;

 

·operating airport services and facilities in a reliable manner, in accordance with applicable national and international standards;

 

·investing in airport infrastructure in accordance with the applicable investment plan;

 

·the maintenance of airports under the AA2000 Concession Agreement, except for those facilities used by the Argentine Government in the areas assigned to and/or reserved for it;

 

·the installation, operation and maintenance of the airport facilities and/or equipment in such manner as to prevent them from constituting a public safety hazard;

 

·compliance with the relevant environmental protection standards and assessment of the environmental impact that may result from proposed works;

 

·providing the ORSNA with all documents and information necessary or requested for verifying compliance with the AA2000 Concession Agreement and any applicable laws and regulations;

 

·providing, in the areas under our control, firefighting services for the airports under the AA2000 Concession Agreement;

 

·ensuring the ability of the Argentine Government to exercise its relative powers necessary for the operation of the airports under the AA2000 Concession Agreement; and

 

·controlling and coordinating operations and activities on each apron, under the supervision of the Argentine ANAC.

 

Term

 

The concession is for an initial period of 30 years through February 13, 2028. Pursuant to Section 5.2 of the AA2000 Concession Agreement and Section 26.3 of Decree 1799/07, subject to the prior authorization of the Argentine Government and fulfillment of certain conditions by AA2000, we may extend the term of the concession for an additional period of up to 10 years. We have made a formal request to the ORSNA to extend the term of the concession for the additional 10-year period ending February 13, 2038. We can provide no assurances that the Argentine Government will grant our request or on what conditions. However, pursuant to Section 5.2 of the AA2000 Concession Agreement, if the concession is extended, the Argentine Government has reserved the right to maintain, modify or eliminate the exclusivity granted to the concession. The ORSNA may require us to continue complying with the terms of the AA2000 Concession Agreement for a term of no more than 12 months following the termination of the AA2000 Concession Agreement. In such a case, the ORSNA shall have to expressly notify us of its decision no less than six months prior to the termination of the AA2000 Concession Agreement.

 

 72 

 

  

Property

 

Pursuant to the AA2000 Concession Agreement, the Argentine Government transferred to us all of its personal property and the right to use real property in connection with the airports under the AA2000 Concession Agreement for the term of the concession. Under the terms of the AA2000 Concession Agreement, we are required to use the real property to satisfy all airport service needs and we are required to provide for the ongoing maintenance of the property. However, we have the right to grant subconcessions or otherwise allow third parties to use the real property, subject to the prior notification to the ORSNA. In the event of the destruction of all or part of the real property, we are responsible for the payment of all expenses related to the repair or replacement of the property except for damages that occur in connection with acts of God or a force majeure event or if the damaged property is not necessary for complying with our obligations under the AA2000 Concession Agreement. If any event occurs during the term of the AA2000 Concession Agreement that makes the continued use of any property impossible, we are required to return such property to the Argentine Government and will have no recourse against the Argentine Government for the damages we suffer. We are also required under the terms of the AA2000 Concession Agreement to grant to the Argentine Air Force free of charge the space necessary at each airport under the AA2000 Concession Agreement to conduct its assigned duties under the AA2000 Concession Agreement and Argentine law. The Argentine ANAC is responsible for all costs and maintenance in connection with the space provided to it. At the end of the AA2000 Concession Agreement, we are required to transfer all personal and real property, together with any improvements thereto, back to the Argentine Government.

 

Under the AA2000 Concession Agreement, we may suggest the substitution of one or more airports by building new airports during the term of the AA2000 Concession Agreement, when such substitution is beneficial for customers in terms of price and service quality, subject to the ORSNA’s prior authorization. In such cases, the airports being substituted shall be returned to the Argentine Government simultaneously with the new airport’s commencement of operations. In addition, the ORSNA may add or remove airports from the AA2000 Concession Agreement with our prior consent. Airports may also be removed from AA2000 Concession Agreement when they are no longer in use.

 

Exclusivity

 

Under the AA2000 Concession Agreement, the Argentine Government cannot, under any circumstances, affect our exclusive rights or affect the economic equilibrium of the AA2000 Concession Agreement.

 

Liabilities

 

Under the AA2000 Concession Agreement, we are liable for all damages caused to the Argentine Government and/or third parties as a consequence of our performance of the AA2000 Concession Agreement and our failure to perform our obligations thereunder.

 

 73 

 

 

Penalties

 

Under the terms of the AA2000 Concession Agreement, the ORSNA is required to approve a regulation regarding penalties applicable to us. On December 13, 2004, the ORSNA issued Resolution No. 88/2004, approving the Rules on Penalties for Infringements of the Concessionaire of the airports under the AA2000 Concession Agreement (Régimen de Sanciones de Aplicación al Concesionario del Grupo “A” de Aeropuertos del Sistema Nacional de Aeropuertos). In the event that we breach any of our obligations under the AA2000 Concession Agreement, the ORSNA has the right to impose monetary fines as it deems appropriate. In addition, in accordance with the provisions of the AA2000 Concession Agreement and the Final Memorandum of Agreement, delays in implementing the investment plan according to the schedule would result in the ORSNA’s imposition of a penalty equal to 10% of the value of the work that is delayed, which could be collected directly by the ORSNA against the performance guarantee, as discussed further below. Any monetary fines imposed by the ORSNA would only become due and payable after a final administrative decision.

 

Service Standards

 

Under the AA2000 Concession Agreement, we have agreed to adopt certain standards for our airports regarding design, construction, operation, administration, maintenance, renewal, improvement, development, equipment and systems as reasonably established by the ORSNA in accordance with guidelines developed by IATA and ICAO using similar airports as a reference based on their type, size and passenger traffic. In connection with monitoring our compliance with these standards, the ORSNA shall have the right to inspect all the airports managed by us. The ORSNA is not required to notify us in advance of its inspection. Such inspections are to be carried out at least annually for each airport with passenger traffic greater than 750,000 per year.

 

Performance Guarantee and Guarantee for the Performance of the Works Foreseen in the AA2000 Concession Agreement

 

Under the terms of the AA2000 Concession Agreement, we are required to maintain a performance guarantee in the amount of at least AR$30 million (U.S.$1.9 million) as security for the timely fulfillment of all of our obligations under the AA2000 Concession Agreement. The amount of the guarantee is to be kept constant during the term of the AA2000 Concession Agreement. In the event that the ORSNA collects part or all of the guarantee, we are required to restore the full amount of the guarantee within 30 days from the date of collection and to pay the Argentine Government interest in an amount equal to LIBOR plus 2.0% from the fifth day following such collection until the date that the guarantee is restored. We may, with the approval of the ORSNA, pledge securities, assets, mortgages and surety bonds to satisfy our guarantee requirement. In this regard, we obtained a surety bond in the amount of AR$410.6 million (U.S.$25.8 million).

 

In addition, we are required to annually establish, prior to March 31 of each year, a guarantee in the amount of 50% of the annual investment plan required under the AA2000 Concession Agreement in order to guarantee our compliance with the investment plan for such year. We may, with the approval of the ORSNA, pledge securities, assets, mortgages and surety bonds to satisfy our guarantee requirement. We obtained a surety bond in the amount of AR$1.5 billion (U.S.$94.4 million) to comply with our obligation for 2017.

 

Technical Expert Requirement

 

Under the AA2000 Concession Agreement, we are required to have as a shareholder, at all times, a technical expert who has expertise in operating and managing airports. Under the AA2000 Concession Agreement, any shareholder who has held at least 10.0% of our share capital for a minimum of five years is considered a technical expert. Any substitution of a shareholder that qualifies as a technical expert must be previously approved by the ORSNA. Since CASA and CAS have owned at least 45.9% and 29.8% of AA2000’s common shares, respectively, for over five years, they are deemed technical experts.

 

 74 

 

  

Maintenance of Insurance

 

The Concession Agreement requires us to maintain a civil insurance policy covering personal and property damages, loss or injury in an amount equal to at least AR$300.0 million (U.S.$18.9 million) throughout the term of the Argentine Concession. We are also required to maintain worker’s compensation insurance in accordance with Argentine law. We have taken out a civil liability insurance policy in our name as well as in the ORSNA’s and the Argentine Government’s names in the amount of U.S.$500.0 million covering liabilities that may arise under civil law in connection with the management of our airports and the development of works in our airports.

 

Collateral Assignment of Revenue

 

We may collaterally assign revenue derived from the concession, in order to obtain the necessary resources for the fulfillment of our obligations. Such assignment cannot affect the Specific Allocation of Revenue, as defined in the AA2000 Concession Agreement and described in “—Specific Allocation of Revenue,” or the resources foreseen for the financing of the investment plan detailed in the Final Memorandum of Agreement. In addition, collateral assignment of revenue that is made into a trust may remain in effect even upon an early termination of the AA2000 Concession Agreement, as long as the application of the funds thereunder is audited by the Argentine Government and/or by a consulting firm hired for such purpose that is satisfactory to the Argentine Government. Such collateral assignment must be previously authorized by a resolution of the ORSNA, which is responsible for the auditing of the application of the funds. On January 17, 2017, the ORSNA issued Resolution No. 1/2017, pursuant to which it authorized the collateral assignment of proceeds from the Argentine Notes up to an amount equal to U.S.$400 million as long as, after such assignment, AA2000 would have sufficient funds to cover basic operating costs.

 

Additionally, according to the AA2000 Concession Agreement, a collateral assignment cannot, under any circumstances, decrease the quality of our services or affect the fulfillment of our contractual obligations. Moreover, the collateral assignment must recognize the powers and privileges of the Argentine Government set forth in the AA2000 Concession Agreement and must guarantee that no rights or actions that jeopardize the continuity of the aeronautical public services are exercised. According to the AA2000 Concession Agreement, while a collateral assignment remains in place, we shall have no right to indemnification for the investments secured by the relevant collateral assignment. Once the collateral assignment is terminated, we shall be paid the relevant indemnification amount corresponding to such investments net of the amounts transferred to and applied by the trust.

 

Assignment of Concession Agreement

 

The AA2000 Concession Agreement may not be assigned to any third party without the prior consent of the ORSNA and the Argentine Government. We are authorized to grant concessions relating to commercial operation of the airports under the AA2000 Concession Agreement to third parties during the term of the AA2000 Concession Agreement, including the execution of subcontracts with, and the granting of permits to, third parties in order to exploit AA2000’s rights emerging from the provision of the commercial services under the AA2000 Concession Agreement. We are required to inform the ORSNA of our intentions prior to the execution of subcontracts or the granting of the permits. The ORSNA may object to any assignment if it considers it to be insufficient or against the best interests of the management, operation or functioning of the airports.

 

 75 

 

  

Previous Subconcessions

 

Pursuant to the bidding documentation for our concessions in Argentina, we were required to maintain in effect certain subconcessions granted by the Argentine Government for the provision of commercial activities within our airports that were in effect at the time we commenced our activities at the airports until the expiration of such agreements’ terms. After the expiration of their terms, such subconcessions will belong to us. We may decide to continue such activities ourselves, continue with the existing providers or enter into new agreements with third parties to provide such services. We describe below the most important agreements that are currently in effect.

 

·Agreement with Intercargo: On November 20, 1990, the Argentine Government granted a concession to Intercargo for a period of 20 years. Intercargo provides assistance with the connection of aircraft to terminals through passenger walkways, for arriving and departing passengers, in 16 of our airports. Intercargo also provides additional services such as ramp services, loading and unloading of luggage, mail and cargo, among other services.

 

Intercargo had executed an agreement with the Argentine Government providing for the payment of monthly fees of U.S.$156,000 for ramp services and U.S.$8,000 for the use of space within our airports. Such agreements were assigned to us when we took over the operations of the airports. As a result of certain negotiations following the Argentina peso devaluation, Intercargo currently pays to us an additional monthly fee of U.S.$156,740 and, every six (6) months, pays us the difference between such amounts and the amount resulting from the calculation using the current market exchange rate. The agreement with Intercargo expired on November 19, 2010. In May 2011, through Resolution No. 421/2011, the Argentine ANAC approved a new fee structure for the services rendered by Intercargo, therefore tacitly renewing (tácita reconducción) this subconcession. In June 2011, we challenged such Resolution with the Argentine ANAC. On December 31, 2012, we entered into a new agreement with Intercargo which expired on September 31, 2015. In March 2016, we also challenged Resolution No. 421/2011 with the ORSNA. As of the date of this prospectus, the Argentine ANAC and the ORSNA have not issued resolutions to our challenges to Resolution No. 421/2011 and Intercargo continues making monthly payments to us as described herein. Furthermore, we are currently negotiating the terms of a new agreement with Intercargo regarding ramp services and the use of space within our airports.

 

·Agreement with Interbaires: On April 24, 1990, the Argentine Government granted a 20-year concession to Interbaires, which may be automatically extended for an additional 10-year term. Interbaires operates the duty free shops at Ezeiza, Aeroparque and the airports of Córdoba, Bariloche, Mendoza, Mar del Plata and Iguazú. AA2000 agreed to extend the concession on May 4, 2010. The additional term under which Interbaires will continue providing services to us consists of an additional 17 years, two months and 29 days, and expires on February 8, 2028. Interbaires pays us a monthly royalty fee equal to 15% of its total gross revenue, net of VAT.

 

·Agreement with Gate Gourmet (previously Buenos Aires Catering): On June 8, 1989, the Argentine Government granted a concession to Buenos Aires Catering for an indefinite period of time. Such concession was terminated in 2000, when we granted them a commercial use permit. In 2005, we entered into an agreement with Gate Gourmet, which substituted the previous agreement and granted such company an exploitation and commercial use permit for the provision of catering services in aircraft, laundry services, catering for third parties delivered outside the airports and training courses, among other services. Such agreement shall expire on February 29, 2028. Pursuant to such agreement, Gate Gourmet is required to pay us a monthly fee of 10% of the gross amounts invoiced by such company for the provision of catering services, 5% of the gross amounts invoiced for laundry services, 1.5% of the gross amounts invoiced for the renting of space for training courses and 1.5% of the gross amounts invoiced for catering to third parties delivered outside the airports.

 

 76 

 

  

Share Transfer Restrictions

 

AA2000’s shares may not be pledged or encumbered without prior authorization from the ORSNA. The pledging or refraining from pledging shares or other assets may not be regarded as a condition precedent for fulfillment of investment commitments, and may not serve as justification for failing to fulfill the commitments assumed under the AA2000 Concession Agreement in a proper and timely manner.

 

The shareholders of AA2000 can only change their stake ownership or sell their shares upon prior authorization from the ORSNA. AA2000 cannot merge or spin off during the term of the AA2000 Concession Agreement.

 

Applicable Law and Jurisdiction

 

The AA2000 Concession Agreement is governed and interpreted in accordance with the laws of Argentina. The parties to the AA2000 Concession Agreement agree to accept the jurisdiction of the competent federal courts of the City of Buenos Aires.

 

Miscellaneous Provisions

 

Under the terms of the AA2000 Concession Agreement, we and the Argentine Government have additional rights and obligations, including the following:

 

We are permitted to use and manage airports other than the airports under the AA2000 Concession Agreement with the prior authorization of the Argentine Government;

 

In order to encourage the performance of new works in the airports, we may stipulate in agreements with third parties aimed at rendering services which require the performance of new works, upon the prior authorization of the ORSNA that these agreements shall continue in effect in the event of an early termination of the AA2000 Concession Agreement. In such a case, the Argentine Government or its assignee shall be subrogated in our rights and obligations under such agreements; and

 

The Argentine Government, through the Secretary of Transportation, is required to establish a procedure for governing slot allocation at each apron.

 

Specific Allocation of Revenue

 

Under the terms of the Final Memorandum of Agreement, we are required to, on a monthly basis, allocate an amount equal to 15% (in Argentine pesos) of the total revenue derived from the AA2000 Concession Agreement (“Specific Allocation of Revenue”), pursuant to the following percentages:

 

·11.25% of total revenue to a trust for the development of the Argentine National Airport System to fund capital expenditures for the Argentine National Airport System. The Secretary of Transportation, following the ORSNA’s approval, will determine which construction projects within the Argentine National Airport System shall be implemented with such funds, whether at airports operated by us or not.

 

·1.25% of total revenue to a fund to study, control and regulate the AA2000 Concession Agreement, which shall be administered and managed by the ORSNA.

 

·2.5% of total revenue to a trust for investment commitments for the airports under the AA2000 Concession Agreement.

 

 77 

 

  

The Specific Allocation of Revenue is set forth in a trust agreement for the development of the Argentine National Airport System executed on December 29, 2009, between us and Banco Nación, as trustee (“Development Trust”). See “—Development Trust” below.

 

However, for the purpose of calculating the Specific Allocation of Revenue, we do not take into account our revenue derived from reimbursement of expenses by our subconcessionaire’s, revenue derived from Construction services under IFRIC 12, and the revenue resulting from our contributions to the Development Trust aimed at investments in our airports equivalent to 2.5% of the total revenue derived from the AA2000 Concession Agreement.

 

Investment Plan

 

Under the terms of the AA2000 Concession Agreement, we are required to make capital expenditures in accordance with our investment plan submitted with the Final Memorandum of Agreement, which sets forth our required investment commitments for the period from 2006 through the end of the AA2000 Concession Agreement in 2028. Under the AA2000 Concession Agreement, our total required investment commitments from January 2006 until 2028 are AR$2.2 billion (U.S.$733.3 million) (calculated in December 2005 values). As of September 30, 2017, we have invested AR$2.1 billion (U.S.$700.0 million) (calculated in December 2005 values) under our investment plan. Our investments have thus far been financed by cash generated by our operations and the net proceeds from our issuance of indebtedness.

 

Compliance with the investment plan was evaluated after the first five-year period following the effective date of the Final Memorandum of Agreement. The first five-year period ran from December 13, 2007 until December 31, 2012, while the second five-year period overlapped with the first five-year period and ran from January 1, 2011 to December 31, 2015. For the period from January 1, 2016 through the end of the AA2000 Concession Agreement, the investment plan will be revised and approved by the ORSNA every five years, notwithstanding other adjustments that the ORSNA may apply within its annual review of the economic equilibrium. The investments contemplated in the five-year plans submitted to the ORSNA will be directed, in all cases, to cover operating needs and capacity and demand increases, as well as the fulfillment of international quality and safety standards within our airports. Each successive investment plan will take into account our revenue and expenses as they relate to the financial projections set forth in the AA2000 Concession Agreement. We may not commence works that are not authorized by the ORSNA and included in the applicable investment plan. We are required to present, pursuant to the procedures established by the ORSNA, each five-year investment plan to the ORSNA by January 31 of the year prior to the year in which the investment plan will come into effect. If the ORSNA comments on the investment plan, we are required to modify the investment plan in accordance with the comments or we will be deemed to have breached the AA2000 Concession Agreement. In addition, the ORSNA will specify the rules governing the authorization of our related construction.

 

Under the AA2000 Concession Agreement, the ORSNA may revise the timing of the works contemplated in the applicable investment plan and may also modify the investment plan to require additional works, provided that such modifications may not require investment commitments in excess of those already contemplated for the relevant annual period.

 

Works performed in accordance with the investment plan are entered in an investment registry maintained by the ORSNA, which catalogues both the physical progress and economic investments made under the investment plan. We are required to provide all the necessary documentation and any other data or reports requested by the ORSNA with respect to the investment registry.

 

 78 

 

  

Master Plan

 

Under the terms of the AA2000 Concession Agreement, we are also required to establish a master plan for each of our airports, which shall be approved and can only be subsequently amended by the ORSNA. Each master plan sets forth the investment commitments to be received by each airport over the term of the AA2000 Concession Agreement, taking into account the expected demand for aeronautical and commercial services.

 

Financial Projections

 

The AA2000 Concession Agreement requires us to submit to the ORSNA financial projections (“Financial Projection of Income and Expenses”) of our income, operational expenses, investment obligations and the procedure for paying balances and mutual claims during the term of the AA2000 Concession Agreement. See “—The AA2000 Concession Agreement—Withdrawal and Settlement of Claims.” The AA2000 Concession Agreement contemplates annual revisions to the Financial Projection of Income and Expenses in order to preserve the stipulated economic equilibrium to be made during March of each year. All changes to the projections are contemplated to be effective as of April 1 of the same year, although as of the date of this Prospectus, the yearly adjustments for 2016 were not yet effective.

 

Economic Equilibrium

 

Under the AA2000 Concession Agreement, the ORSNA must annually review the Financial Projection of Income and Expenses in order to verify and preserve the equilibrium of the variables on which it was originally based. The “economic equilibrium” derives from, and is determined in accordance with, the Financial Projection of Income and Expenses and the initial investment, as determined in Annex V of Final Memorandum of Agreement and subsequent regulations, including ORSNA Note No. 152/08. The Financial Projection of Income and Expenses establishes fund flows for each year during the AA2000 Concession Agreement. These annual fund flows, together with the AR$857.7 million initial investment, are used to determine the “economic equilibrium.” During each annual review, amounts previously included in the Financial Projection of Income and Expenses as projections are replaced with our actual results of operations and investments for each relevant period. Our actual results of operations and investments for any year are adjusted to eliminate the effects of inflation for such year in accordance with a formula set forth in the Final Memorandum of Agreement, in order for the Financial Projection of Income and Expenses to be restated in December 2005 values. The ORSNA then determines a new set of projections through the term of the AA2000 Concession Agreement which, together with our past results of operations, may result in an economic equilibrium. The three principal factors that determine economic equilibrium are the payments we make to the Argentine Government, the fees we charge airlines and passengers for aeronautical services (such as passenger use fees and aircraft landing and parking fees) and the investments that we are required to make under the AA2000 Concession Agreement. The ORSNA then determines the adjustments to be made to these three factors that would be needed, if any, to achieve economic equilibrium through the term of the AA2000 Concession Agreement. The only factor that has been adjusted in the past has been the fees that we are permitted to charge for aeronautical services and the additional investment commitments.

 

In addition, we may propose additional charges not included in the AA2000 Concession Agreement whenever such charges are for technical and financial improvements to the rendering of services to users and air operators. In the event we engage in or offer new or additional services not expressly contemplated in the AA2000 Concession Agreement, we may also request the ORSNA to approve such services and set additional fees for such services when the application of such additional fees results in better service for the airlines and the passengers using our airports.

 

 79 

 

  

Since 2012, the ORSNA has reviewed the Financial Projection of Income and Expenses four times through Resolution 115/12, dated November 7, 2012, Resolution No. 44/14, dated March 31, 2014, Resolution No. 167/15, dated November 20, 2015, and Resolution No. 100/2016, dated November 25, 2016.

 

Pursuant to Resolution No. 100/2016, the ORSNA retroactively approved the Financial Projection of Income and Expenses for the period of 2015, according to the following rules:

 

·to re-establish the economic equilibrium of the Financial Projection of Income and Expenses through an adjustment in aeronautical fees; and

 

·to maintain the benefit airlines paying on time are entitled to under Resolution No. 10/09, dated January 28, 2009, pursuant to which such airlines pay fees equivalent to 70.0% of the international aeronautical charges set forth in Annex II of the Final Memorandum of Agreement, instead of paying the fees established by ORSNA Resolution No. 101/2016, which became effective as of January 1, 2017.

 

In addition, by means of Resolution No. 101/2016, the ORSNA approved a 14.0% decrease in the international passenger use fees from U.S.$57.0 to U.S.$49.0 and a 150.0% increase in the rate of the domestic passenger use fees from AR$20.00 to AR$74.33. We filed a claim with the ORSNA regarding the adjustments to the fees approved by Resolution No. 101/2016 which, as of the date of this prospectus, has not been resolved.

 

Withdrawal and Settlement of Claims

 

As a result of Argentina’s 2001-2002 economic crisis, we and the Argentine Government, among other parties, had several claims against each other for breach of payment obligations under the AA2000 Concession Agreement. As a result of the withdrawal of such claims, we and the Argentine Government agreed that the total amount to be paid by us to the Argentine Government was AR$849.1 million, which we reflected in AA2000’s Audited Consolidated Financial Statements for the year ended December 31, 2006. We also agreed that this amount would be settled as follows:

 

·23.0% (AR$195.0 million) (U.S.$45.3 million), was fully satisfied in 2011;

 

·18.6% (AR$158.0 million) (U.S.$36.7 million) through the issue of convertible notes, which were converted into shares of AA2000 in December 2011; and

 

·58.4% (AR$496.1 million) (U.S.$115.3 million) was capitalized through the delivery to the Argentine Government of 496,161,413 preferred shares which are convertible into common shares of AA2000. Such preferred shares have a nominal value of AR$1 and have no voting rights. In addition, such shares are redeemable by us at any time at nominal value plus accrued interest. Beginning in 2020, the Argentine Government will be able to convert all of the preferred shares into common shares of AA2000 with a nominal value of one peso each, up to a maximum amount of 12.5% per year of the total amount of the initial preferred shares issued to the Argentine Government to the extent we have not previously redeemed such an annual percentage for that year. At the time of exercising any conversion rights, the Argentine Government shall execute an agreement with other shareholders of AA2000 to secure and maintain the Argentine Government’s level of participation in common shares as a consequence of the conversion. The preferred shares will accrue an annual dividend of 2% of the nominal value of the preferred shares, which shall be paid in kind with delivery of additional preferred shares and will be accumulated in the event we do not have sufficient retained earnings during a given fiscal period. In addition, the preferred shares have a priority over common shares in the event of liquidation.

 

 80 

 

  

The decisions to increase AA2000’s corporate capital, issue preferred shares and issue the convertible notes were authorized by the ORSNA under Resolution No. 26/2008, dated April 25, 2008. In turn, these were authorized by the Argentine Securities and Exchange Commission (Comisión Nacional de Valores or “CNV”) on June 9, 2008, and registered before the Mercantile Registry on June 19, 2008, under No. 12,201, Corporations Book No. 40.

 

The preferred shares will be considered part of the shareholder’s equity of AA2000 so long as they are not redeemed by us. The debts and commitments are reflected in our Audited Combined Consolidated Financial Statements.

 

Regulation of Fees

 

The AA2000 Concession Agreement establishes the maximum fees that we may charge to aircraft operators and passengers for aeronautical services that principally consist of passenger use fees for the use of the airports, which are charged to each departing passenger and vary depending on whether the passenger’s flight is an international, regional or domestic flight, and aircraft fees, which are charged for aircraft landing and aircraft parking and vary depending on whether the flight is international or domestic, among other factors. In accordance with its annual review of our financial projections, the ORSNA may adjust the maximum fees which we may charge, taking into account increases in air traffic, improvements in efficiency, increases in taxes, the level of services provided, as well as projected investment levels under the master plan and the need to preserve the economic equilibrium of the AA2000 Concession Agreement. See “—Financial Projections” above. The implementation of such fees generally occurs over different periods of time following effectiveness of the resolution authorizing such fees. In addition, from time to time as established by the ORSNA, we may set fees for arrangements not contemplated under the AA2000 Concession Agreement when the implementation of such additional charges represents technical and financial improvements in the provision of services to airlines and passengers. Under Argentine law, we have the right to collect all passenger use fees and aircraft fees.

 

Pursuant to ORSNA Resolutions Nos. 10/09, 126/11, 45/14, 168/15 and 101/2016, airlines that pay aircraft landing fees on time benefit from a discount pursuant to which such airlines pay fees equivalent to 70.0% of the international aeronautical fees set forth in Annex II of the Final Memorandum of Agreement, irrespective of the fees set forth in each of such resolutions. With respect to the fees set forth by ORSNA Resolution No. 101/2016, which are currently in place, the discount entails a 48.42% effective discount on landing fees, and a 42.35% effective discount on parking fees. We filed a claim with the ORSNA regarding the fee adjustments approved by Resolution No. 101/2016, which became effective on January 1, 2017. As of the date of this prospectus, our claim has not been resolved by the ORSNA. See “—Financial Projections” above.

 

Passenger Use Fees

 

The table below sets forth the maximum fees that, effective as of January 1, 2017, we may charge for passenger use fees by airport category under the AA2000 Concession Agreement.

 

  

Airport Category

 
Use Fees Per Departing Passenger 

I

  

II

  

III

  

IV

 
International flights  U.S.$49.00   U.S.$36.48   U.S.$32.34   U.S.$32.34 
Domestic flights  AR$74.33   AR$52.00   AR$45.50   AR$45.50 

 

 81 

 

  

Regional passenger use fees are a variation of the international flight passenger use fees and are applied only to international flights which cover a distance of less than 300 kilometers (187.5 miles), including international flights between the City of Buenos Aires and Uruguay. Regional passenger use fees are set at U.S.$25.16 and correspond to the following airports and destinations: Río Grande Airport and Río Gallegos Airport to all passengers flying to Punta Arenas, Chile; Bariloche to all passengers flying to Puerto Montt, Chile; Mendoza to all passengers flying to Santiago de Chile, Chile; and Resistencia, to all passengers flying to Paraguay.

 

Passenger use fees on international flights are not charged for: (i) children under the age of 2, (ii) diplomats and (iii) transfer and transit passengers. Passenger use fees on domestic flights are not charged for: (i) children under the age of 3 and (ii) transfer and transit passengers.

 

Landing Fees

 

The table below sets forth the maximum amounts that, effective as of January 1, 2017, we may collect from aircraft operators by airport category under the AA2000 Concession Agreement in respect of international and domestic aircraft landing fees.

 

International Flights

     
   I   II   III   IV 
   (U.S.$ per ton, except percentages) 
Aircraft weight                    
2 – 12 tons   29.32    17.39    9.99    9.99 
Minimum fee   184.89    92.38    39.57    39.57 
12 – 30 tons   6.27    3.73    2.24    2.24 
31 – 80 tons   7.16    4.48    2.62    2.62 
81 – 170 tons   8.81    5.37         
> 170 tons   9.76             
Minimum fee   81.50    48.51    29.11    29.11 
Surcharge for operation out of the normal timetable   352.82    255.12    162.84    162.84 
Surcharge for night air field lighting   30%   30%   30%   30%

 

Domestic Flights

     
   I   II   III   IV 
   (AR$ per ton, except percentages) 
Aircraft weight    
2 – 12 tons   20.37    15.18    8.82    4.54 
Minimum fee   142.73    108.34    62.15    31.53 
12 – 30 tons   1.05    0.67    0.43    0.26 
31 – 80 tons   1.14    .73    0.52     
81 – 170 tons   1.26    0.88         
> 170 tons   1.47             
Minimum fee   13.65    8.71    5.59    3.38 
Surcharge for operation out of the normal timetable   260.00    188.00    120.00    68.00 
Surcharge for night air field lighting   30%   50%   30%   30%

 

 82 

 

 

 

Per ton aircraft fees are charged for international and domestic flights to all commercial and private aircraft, with the exception of aircrafts that weigh less than two tons. Aircraft weighing between two and twelve tons pay the minimum fee set forth in the table above. A rush-hour landing surcharge, equal to 50% of the landing fee applicable to such aircraft, is charged to all domestic and international flights that land at Aeroparque between 6:00 a.m. and 10:00 am, and between 6:30 p.m. and 9:30 p.m., daily.

 

Parking Fees

 

The table below sets forth the maximum amounts that, effective as of January 1, 2017, we may collect from aircraft operators, by airport category, under the AA2000 Concession Agreement with respect to international and domestic aircraft parking fees.

 

International Flights

 

   Airport Category 
   Ezeiza/
Aeroparque
   I   II   III   IV 
   (U.S.$ per ton per hour or fraction) 
Aircraft weight (tons)                         
5 – 12 tons   3.84    1.92    1.43    1.12    1.12 
Minimum fee   55.46    36.99    13.18    13.18    13.18 
12 – 80 tons   0.34    0.17    0.13    0.10    0.10 
81 – 170 tons   0.48    0.20    0.14    0.11     
> 170 tons   0.98    0.22    0.14         
Minimum fee   7.33    4.89    2.44    2.44    2.71 

 

Domestic Flights

 

   Airport Category 
   Ezeiza/
Aeroparque
   I   II   III   IV 
   (ARS.$ per ton per hour or fraction) 
Aircraft weight (tons)                         
5 – 12 tons   4.45    2.65    2.1    1.6    1.05 
Minimum fee   124.44    81.9    51.9    37.8    23.64 
12 – 80 tons   0.85    0.65    0.50    0.40    0.20 
81 – 170 tons   1.15    0.65    .50    0.40     
> 170 tons   1.50    0.85    0.62         
Minimum fee   39.5    26.00    16.50    12.00    7.05 

 

Aircraft parking fees for international flights are charged to all commercial and private aircrafts, with the exception of aircrafts that weigh less than five tons. Aircraft parking fees for domestic flights are charged to all commercial and private aircraft, with the exception of aircraft that weigh less than five tons. Aircrafts that weigh less than five tons pay the minimum fee set forth above, only when parking time is greater than 15 days within a one-month period. Aircraft parking fees for international and domestic flights for Ezeiza Airport and Aeroparque Airport are charged to aircrafts parked in an operative apron; aircraft parking fees for international and domestic flights for aircraft parked in a remote apron are charged the fees corresponding to Category I. Free parking time is not applicable, irrespective of whether the flight is international or domestic, or commercial (whether in regular flight or not) or private.

 

 83 

 

  

Commercial Revenue

 

Fees for commercial services may be freely established by us. However, under the terms of the AA2000 Concession Agreement, we are required to submit to the ORSNA any information it requests in connection with our agreements with third parties for the provision of commercial services within 30 days of the execution of such agreements. If the ORSNA objects to the terms of an agreement, it may request that the agreement be terminated. Either we or the third party may challenge such request in an administrative proceeding to be decided by the ORSNA, which is subject to further administrative proceedings and judicial review.

 

Termination by the Argentine Government upon breach by AA2000

 

The Argentine Government may terminate the AA2000 Concession Agreement upon the existence of the following conditions:

 

·if we repeatedly breach, as determined by the ORSNA, any of our obligations under the AA2000 Concession Agreement and the breach is not cured within the time period specified by the ORSNA in its notice of the breach;

 

·if the cumulative amount of fines (affirmed by final administrative ruling) imposed on us exceeds 20% of our annual gross revenue, net of taxes and charges, as calculated by the ORSNA at the end of each fiscal year;

 

·if any of our shareholders encumber or allow to be encumbered in any manner AA2000’s shares without the ORSNA’s consent, and do not secure the discharge of the encumbrance within a time period specified by the ORSNA;

 

·if we fail to pay the Specific Allocation of Revenue in due manner and time;

 

·if AA2000’s shareholders approve, without the ORSNA’s consent, an amendment to our bylaws or a stock issuance that alters or permits alterations of the shareholdings existing at the time of incorporation, on the terms established under the AA2000 Concession Agreement; or

 

·if our shares are transferred and no technical expert remains a shareholder without the prior approval from the ORSNA.

 

If the Argentine Government elects to terminate the AA2000 Concession Agreement (even due to our breach), it is required to pay us the value of the aeronautical investments we have made that have not been amortized as of the time the termination is ordered, after deducting the following percentages as compensation for damages incurred:

 

·50.0% during the first 10 years of the AA2000 Concession Agreement;

 

·45.0% during the second 10-year period of the AA2000 Concession Agreement; and

 

·40.0% during the third 10-year period of the AA2000 Concession Agreement.

 

Aeronautical investments include those investments that are contemplated under the AA2000 Concession Agreement or that are specifically authorized by the ORSNA as aeronautical investments within our airports’ premises, but do not include investments not originally contemplated under the investment plan that are not expressly authorized by the ORSNA. In the event that the Argentine Government elects to terminate the AA2000 Concession Agreement for one of the reasons stated above, the Argentine Government and the ORSNA may also foreclose on and collect the full amount of the performance guarantees.

 

 84 

 

  

Termination of the AA2000 Concession Agreement would constitute a default under the Argentine Notes.

 

Buy-out of the AA2000 Concession Agreement

 

Under Argentine public law, the Argentine Government has the right to buy out or otherwise terminate concessions, including the AA2000 Concession Agreement, at any time if such buy out or termination is made in the public interest. Under the terms of the AA2000 Concession Agreement, the Argentine Government has agreed not to buy-out our concession rights before February 13, 2018. If the Argentine Government elects to buy out the AA2000 Concession Agreement, it is required to indemnify us in an amount equal to the value of the aeronautical investments we have made that have not been amortized as of the time of the buy-out, multiplied by 1.10 plus the value of all other investments made that have not been amortized. The Argentine Government will not indemnify us for investments not foreseen in our investment plan, investments that have not been authorized by the ORSNA or for lost revenue. In addition, the Argentine Government must assume in full any debts incurred by us to acquire goods or services for purposes of providing airport services, except for debts incurred in connection with the investment plan (such as the issuance of the Argentine Notes) for which we would be compensated as part of the indemnification to us by the Argentine Government. However, in accordance with section 30.4 of the Final Memorandum of Agreement, while a collateral assignment of revenue that is made into a trust remains in effect, we will have no right to indemnification for the investments secured by the relevant collateral assignment.

 

The buy-out of the AA2000 Concession Agreement by the Argentine Government would constitute a default under the Argentine Notes.

 

Termination by AA2000 upon breach by the Argentine Government

 

We may demand termination of the AA2000 Concession Agreement if the Argentine Government breaches its obligations in such a manner that prevents us from providing the services required of us under the AA2000 Concession Agreement or which permanently affects the same and if the Argentine Government does not remedy the situation giving rise to such breach within 90 days following notice from us.

 

Upon our termination of the AA2000 Concession Agreement, we shall be entitled to the following damages from the Argentine Government:

 

·if terminated during the first 10-year period of the AA2000 Concession Agreement, the amount of our aeronautical investments that have not been amortized as of the time of the termination multiplied by 1.30;

 

·if terminated during the second 10-year period of the AA2000 Concession Agreement, the amount of our aeronautical investments that have not been amortized as of the time of the termination multiplied by 1.20; and

 

·if terminated during the third 10-year period of the AA2000 Concession Agreement, the amount of our aeronautical investments that have not been amortized as of the time of the termination multiplied by 1.10.

 

 85 

 

  

Additionally, if the Argentine Government’s breach of the AA2000 Concession Agreement that gives rise to our termination of the AA2000 Concession Agreement is caused by the negligence, fault or willful misconduct of the individuals acting on behalf of the Argentine Government, we shall have the right to demand compensation for all damages, with the exception of lost profits, that arise in connection with our obligations under the AA2000 Concession Agreement.

 

Termination of the AA2000 Concession Agreement shall be deemed a default under the Argentine Notes.

 

End of Concession

 

Upon the termination of the AA2000 Concession Agreement, we will be required to (i) turn over the airports under the AA2000 Concession Agreement to the Argentine Government and all property thereof, together with any improvements thereto, at no charge and in good condition, subject to normal wear and tear; (ii) undertake responsibility for payment of all of our debts, which cannot be transferred to the Argentine Government; and (iii) transfer to the Argentine Government or the new grantee of the concession the performance of all services in connection with the AA2000 Concession Agreement, including developments and technological breakthroughs and other services related to the performance of the services under the AA2000 Concession Agreement.

 

In addition, under the terms of the AA2000 Concession Agreement, no agreement entered into by us and in effect as of such date will be transferred to the Argentine Government upon the end of the AA2000 Concession Agreement. We are required to include provisions in any such agreements whereby the providers of goods or services undertake to continue with the performance of the relevant agreements for at least 180 days following the end of the AA2000 Concession Agreement. Such agreements shall also provide for the Argentine Government’s right to terminate the same.

 

Notwithstanding the foregoing, pursuant to section 30.4 of the Final Memorandum of Agreement, a collateral assignment of revenue that is made into a trust may remain in effect even upon an early termination of the AA2000 Concession Agreement, as long as the application of funds thereunder is audited by the Argentine Government and/or by a consulting firm, hired for such purpose and satisfactory to the Argentine Government. The collateral assignment of revenue must be previously authorized by a resolution of the ORSNA. On January 17, 2017, the ORSNA issued Resolution No. 1/2017, pursuant to which it authorized the collateral assignment of revenue under the Argentine Notes, up to an amount equal to U.S.$400 million. While such a collateral assignment remains in place, we will have no right to indemnification for the investments secured by the relevant collateral assignment. See “—Collateral Assignment of Revenue.”

 

Development Trust

 

On December 29, 2009, we, as trustor, and Banco Nación, as trustee, entered into the Development Trust, aimed at managing and allocating the funds to be transferred by us under the Specific Allocation of Revenue and the Allocated Revenues under the Mutual Claim Settlement Procedure. The Secretary of Transportation and the ORSNA also executed the Development Trust acknowledging and providing their consent with the terms and conditions therein.

 

Under the Development Trust, the following trust funds were established:

 

·“Trust Fund to Study, Control and Regulate the Concession,” consisting of the assignment in trust of 1.25% of AA2000’s total revenues, which shall be designated to carry out studies on the control and regulation of the concession as required by the ORSNA;

 

 86 

 

  

·“Trust Fund for the Payment of the Unpaid Amounts Arising from Mutual Claims,” consisting of Allocated Revenues under the Mutual Claim Settlement Procedure, which shall be designated to pay the amount of AR$195.0 million (U.S.$51.3 million) plus interest at a 2% annual rate, owed to the Argentine Government according to the provisions set forth in the Final Memorandum of Agreement. See “—The AA2000 Concession Agreement—Withdrawal and Settlement of Claims.” In turn, such funds shall be used in connection with infrastructure projects at airports of the Argentine National Airport System not operated by us;

 

·“Trust Fund for Funding Infrastructure works of the Argentine National Airport System,” consisting of the assignment in trust of 11.25% of AA2000’s total revenues, 70.0% of which is to be contributed to finance infrastructure airport works and to improve the services provided in airports of the Argentine National Airport System and 30.0% of which is to be contributed directly to ANSES;

 

·“Trust Fund for Funding Infrastructure Works in airports under the AA2000 Concession Agreement,” consisting of the assignment in trust of 2.5% of AA2000’s total revenues derived from services under the AA2000 Concession Agreement, which shall be designated to finance works included in each five-year investment plan;

 

·“Trust Fund for Infrastructure Airport Works Derived from Potential Charges and Tariff Increases for Specific Allocations,” consisting of the assignment in trust of 100% of the amounts deriving from specific charges and tariff increases that may be set in the future, net of collection expenses, which shall be designated to finance airport infrastructure works as it shall be detailed in the regulations under which such specific tariff and charges are created. Pursuant to Resolutions No. 118/12, as amended, and 45/14, the ORSNA created two specific trust funds: (a) “Trust Fund for Works of 2012 Project” and (b) “Trust Fund for the Reinforcement of Significant Works in airports under the AA2000 Concession Agreement.” Under these trusts, after giving effect to the Specific Allocation of Revenue detailed above, we must assign: (1) 100% of the difference between the increase of the passenger use fee approved by the ORSNA for the 2011–2012 period, in comparison with the fees in effect as of 2010, for the “Trust Fund for Works of 2012 Project,” until we finished the works under 2012 investment plan or the expiration of a 30-year period, whichever occurs first; and (2) 10.72% of the passenger use fees approved by the ORSNA for the 2011–2012 revision period, for the “Trust Fund for the Reinforcement of Significant Works in airports under the AA2000 Concession Agreement” (which include works that were not previously specified in the AA2000 Concession Agreement, nor in the Final Memorandum of Agreement), until the expiration of the concession or the expiration of a 30-year period, whichever occurs first.

 

The term of the above-mentioned trust funds shall not exceed 30 years and shall be terminated if the concession is terminated for any cause, except for the “Trust Fund for the Payment of the Unpaid Amounts Arising from Mutual Claims,” which terminated in 2011, and the “Trust Fund for Infrastructure Airport Works Derived from Potential Charges and Tariff Increases for Specific Allocations,” which shall have the duration set forth under the regulations pursuant to which such tariff and charges are created.

 

The ORSNA shall calculate the amounts that we shall transfer on a monthly basis to Banco Nación pursuant to the procedure for Specific Allocation of Revenues approved by ORSNA Resolution No. 64/2008, dated August 7, 2008. The amount calculated shall be communicated to us and to Banco Nación during the first 15 days of each month. We shall deposit the respective amounts during the following 48 business hours after being notified of the amount by the ORSNA. In the event of payment default, the amounts will accrue interest at a rate equal to one and a half times the discount rate for commercial transactions of Banco Nación in pesos.

 

 87 

 

  

The Development Trust sets forth that we are not obligated to make any additional capital contributions to the above-mentioned trust funds. In the event such trust funds are insufficient to meet their purpose due to a cause not related to us, the amounts required to fulfill the commitments undertaken shall be paid by the Argentine Government.

 

Contributions to the Development Trust

 

Pursuant to the Development Trust, the Specific Allocation of Revenue and the Allocated Revenues under the Mutual Claim Settlement Procedure retroactively accrued from January 1, 2006, through the execution date of the Development Trust would be transferred to the Development Trust pursuant to the conditions and methodologies to be set forth by the ORSNA, with the approval of the Secretary of Transportation.

 

The Development Trust provides that we may pay the amounts in cash payable to the Development Trust through the assignment of credits owed to us originated in aeronautical services and/or commercial services within the AA2000 Concession Agreement, subject to the ORSNA’s prior authorization.

 

Assessment of the Regulatory and Concessions Framework

 

Pursuant to Resolution No. 8/2017 dated March 17, 2017, the ORSNA initiated an international procurement process for hiring consultancy services to conduct a comprehensive study of the legal framework governing the AA2000 Concession Agreement, including a comparative analysis of the regulatory frameworks existing in other countries. It is expected to be completed within a six-month term from the date of commencement. The tasks to be performed under the consultancy services include:

 

A survey of the current condition of infrastructure of the airports under the AA2000 Concession Agreement, including their needs of upgrading, standardization and adequacy to current legislation as well as an assessment of new investments in terms of current and future capacity, based on demand forecasting in a short, medium and long term.

 

An analysis of operational, security and planning matters in airports under the AA2000 Concession Agreement as compared to the current international trends, including the analysis of Master Plans and the pertinence of the incorporation, substitution or removal of airports under the AA2000 Concession Agreement.

 

A critical analysis of the economic and finance regulations in force, stating pros and cons and including proposal of alternatives as regards economic regulation, rates and charges.

 

A comprehensive survey of the legal regime in force in the AA2000 Concession Agreement, compared with the regulation of airport activity in other countries. The comparative legal analysis of the Argentine regulatory model shall include, among others, the following topics:

 

·The main duties of the concessionaire, such as the Investment Plan.

 

·The Specific Allocation of Revenues as compared to the fee (canon) system or other compensation mechanisms. Analysis of the most beneficial system for the interest of the State. A survey on the amounts effectively deposited by the concessionaire to date.

 

·The regulations regarding approval, supervision and authorization of use of works (Reglamento para la Autorización, Fiscalización, Habilitación y Aprobación de Obras) in the airports under the AA2000 Concession Agreement.

 

 88 

 

  

·The regulations for the registration of investments (Reglamento de Registro de Inversiones) and the regulatory accounting rules (Manual de Contabilidad Regulatoria), including an assessment of the enforcement of these regulations and compliance with the corresponding procedures.

 

·The Guidelines for the Review of the Financial Projection of Income and Expenses (Pautas y Mecanismos de Revisión de la Proyección Financiera de Ingresos y Egresos de la Concesión).

 

·The Rules on Penalties applicable to both the Concessionaire and third-party providers that develop activities in the airports. A further analysis on the legal regime applicable to the providers that develop non-aeronautical activities in the airports is also required.

 

·The applicable regulations for the approval of the Land Use Plan and of the Master Plans.

 

·Evaluation of the legal feasibility in accordance with the international best practices that the Argentine Government re-assume direct management or exploitation of airports in the cases and matters it considers pertinent.

 

The Argentine Government may adopt new measures upon completion of this study which could affect our business. While the current administration has publicly stated that it intends to foster long-term investments by assuring a stable and reliable legal framework for investors, we cannot provide any assurance that the Argentine Government will not enact new regulations, seek to renegotiate the AA2000 Concession Agreement and extend its term in order to preserve the economic equilibrium or to pursue its early termination for reasons of public interest. See “—The AA2000 Concession Agreement.”

 

Other airports we operate in Argentina

 

In addition to the airports operated under the AA2000 Concession Agreement, we also operate the Neuquén Airport, the Bahía Blanca Airport and the Termas de Rio Hondo Airport.

 

In 2001, the Government of the Province of Neuquén together with the ORSNA awarded to us the concession agreement to operate the Neuquén Airport for an initial term of 20 years, which is set to expire in 2021. Likewise, in 2008 the Municipality of Bahia Blanca together with the ORSNA awarded to us the concession to operate the Bahía Blanca Airport for an initial term of 26 years, which is set to expire on 2033. Both concession agreements provide the possibility of extension upon approval.

 

We operate the Termas de Rio Hondo Airport in Argentina, pursuant to an agreement between AA2000 and the Province of Santiago del Estero, but there is no written concession agreement with the Argentine Government. As of the date of this prospectus, there are certain regulatory approvals pending to include the Termas de Rio Hondo Airport within the AA2000 Concession Agreement.

 

The Neuquén Airport, the Bahía Blanca Airport and the Termas de Rio Hondo Airport are not material to our business.

 

Italy

 

Headquartered in Florence, TA is the result of the merger of SAT, Galileo Galilei S.p.A. and ADF on June 1, 2015. As a result of the merger, CA Italy, which is 100% owned by CAAP, has a controlling stake of 51.1% of TA. Prior to the merger, SAT and ADF were granted concessions for the management of the Pisa Airport and the Florence Airport, respectively. After the merger, the concessions were transferred to TA. Set forth below is a description of their main terms and conditions, as well as of the relevant regulatory framework.

 

 89 

 

  

On February 19, 2018, CA Italy acquired an additional 4.56% of the share capital of TA. Following this acquisition, CA Italy currently holds 55.7% of TA’s share capital.

 

Sources of Regulation

 

Set forth below are the main laws and regulations that govern the concession agreements entered into by ENAC with SAT and ADF, as well as the operation and management of the airport operation and business:

 

·Law No. 537/1993 and Decree Law No. 251/1995 (converted into law with modifications by Law No. 351/1995, as subsequently supplemented and amended) set forth the regulations that apply to the management of airports and the realization of the relative infrastructure.

 

·Legislative Decree No. 250/97, as subsequently supplemented and amended, which regulates the responsibilities of ENAC.

 

·In implementation of Law No. 537/1993, Ministerial Decree No. 521/1997 provided that the granting of full airport management under concession is conditioned upon the execution of a concession agreement.

 

·Regulation of the Ministry of Transportation and Navigation and the Ministry of the Interior No. 85/1999, implementing Decree Law No. 9/1992, converted with modifications by Law No. 217/1992, as subsequently supplemented and amended, sets forth provisions concerning the granting of concessions relating to security services.

 

·The Ministry of Transportation and Navigation (currently named “Ministry of Infrastructure and Transport”), in implementation of the abovementioned Ministerial Decree No. 521/1997, issued the Directive No. 141-T/2000 sets forth the guidelines for the granting of concessions, subsequently repealed and replaced by Ministerial Guidelines No. 8736/2003.

 

·On March 16, 2004, ENAC issued certain guidelines for procedures concerning the granting of concessions.

 

·Law No. 265/2004 provided certain innovations to the applicable framework of rules concerning the granting of airport management concessions.

 

·Decree Law No. 203/2005, as subsequently supplemented and amended and converted into law by Law No. 248/2005, introduced certain provisions for the rationalization and improvement of the efficiency of the airport management sector.

 

·Decree Law No. 96/2005, as supplemented and amended, implemented the provisions set forth with Law No. 265/2004 and revised the aviation section of the Italian navigation code.

 

·Directive 96/67/EC on access to the ground handling market at European Union airports and the relative implementation Legislative Decree No. 18/1999, as subsequently amended and supplemented.

 

·Article 71, paragraph 2, of Law Decree No. 1/2012, as subsequently supplemented and amended, established the Transport Regulation Authority (Autorità di Regolazione dei Trasporti) and granted it with the powers, inter alia, of supervision and financial regulation in relation to the airport operation and business.

 

 90 

 

  

·Article 71, paragraph 3, of Law Decree No. 1/2012, as subsequently supplemented and amended, established the criteria and models for the determination of the tariffs applicable in relation to the airport business and the relative approval process.

 

·Article 705 of Italian Navigation Code (Royal Decree No. 327/1942, as subsequently supplemented and amended) sets forth the rules concerning the determination of airport management and the relative responsibilities.

 

·Law No. 324/1976, as subsequently supplemented and amended, provided the regulations concerning the use of airports open to civil air traffic.

 

Powers Reserved to the Italian Government with Respect to Strategic Transport Assets

 

Pursuant to current laws and regulations, (i) the approval of specific corporate resolutions by companies operating in the energy, transport, and communications sectors, which are understood to be of strategic importance to the nation, and (ii) the acquisition of significant shareholdings in such companies by investors, are subject to special “Golden Powers” of the Italian Government provided under Law Decree 21/2012. Article 2 of Law Decree 21/2012 specifically regulates the special powers of the Italian Government concerning the strategic assets of companies operating in the transport sector. In particular, Article 2 of Law Decree 21/2012 includes the following regulations for identifying:

 

·strategic assets in the transport sector, such as ports and airports, including those necessary to ensure the minimum provision and operation of essential public services, the assets and relationships of strategic importance to the national interest in the transport sector;

 

·the types of acts or transactions within the same group of companies to which the Italian Government’s special powers do not apply; and

 

·the procedures for exercising the special powers in the transport sector.

 

·The “strategic assets” in the transport sector have been defined by Article 2 of Presidential Decree No. 85 of March 25, 2014 (the “Presidential Decree 85/2014”) as large networks and plants of national interest, intended to ensure the main trans-European corridors and the related conventional reports, including:

 

·ports of national interest;

 

·airports of national interest; and

 

·national railroad networks of relevance for trans-European networks.

 

Such regulations apply to TA by virtue of its being an entity that operates the Italian Airports of national interest located in Pisa and Florence. In particular, these provisions state that, in relation to companies that own one or more of these strategic assets, the Italian Government, having assessed the relevant transaction and identified a threat concerning said strategic assets, may:

 

 91 

 

  

·impose specific conditions on, or (in case the specific conditions are not adequate to protect the essential national interests of defense and national security) veto any resolutions, acts and transactions by any company owning strategic assets that would determine a change in the ownership, control, availability or transferability of those assets themselves or change their use (including merger or demerger, transfer of the registered office to a foreign country, change of the relevant company’s business purpose, winding up, amendments to the company’s articles of association concerning the limits to the voting rights attaching to the company’s interest or the maximum shareholding which each shareholder may own, transfer of the entire business or of a business division which include the strategic assets, assignment of the strategic assets by way of security, and resolutions concerning the sale of subsidiaries which own strategic assets), where such resolutions, acts or transactions result in an exceptional situation not regulated by national or European laws applicable to the sector which constitute a threat of a serious prejudice to the interest of public safety and operation of the networks and installations, and the continued provision of services (Article 2, paragraph 3);

 

·impose conditions requiring certain buyers outside the European Union to give guarantees in any purchase and for any reason, (Article 2, paragraph 5), of shareholdings in an amount that would give the buyer control of the purchased company, pursuant to Article 2359 of the Italian Civil Code and the Consolidated Financial Services Act, if such a purchase poses a serious threat to public interest in the security and operation of networks and installations and the continued provision of services (Article 2, paragraph 6); and

 

·oppose the purchase described before, if such a purchase entails exceptional risks to the protection of public interest relating to the security and operation of networks and installations and continued provision of services, which cannot be mitigated by the buyer committing to guarantee the protection of such interests (Article 2, paragraph 6).

 

To exercise these special powers, Article 2 of Law Decree 21/2012 provides that:

 

·the operator has an obligation to disclose both any resolutions, acts and transactions that could be subject to the actions described before, and any purchases or transactions that could be subject to the actions described before; and

 

·the Italian Government shall abide by objective and non-discriminatory evaluation criteria in exercising its special powers. The Italian Government is required, in relation to any transaction, to consider the following: (i) in relation to the official position of the European Union, whether there is any reason to believe (a) that connections may exist between the buyer and other countries that do not recognize the principles of democracy or the rule of law, and which may not comply with international law, or that have acted in a way that poses as a threat to the international community, as evidenced by their alliances; or (b) that the buyer has relationships with criminal or terrorist organizations or with persons or entities otherwise related to them; (ii) the suitability of the structure resulting from the legal deed or transaction, considering conditions for financing the acquisition and the economic, financial, technical, and organizational capacity of the buyer to guarantee the security and continuity of provision of services, or provide adequate security and operation of the networks and installations.

 

Without prejudice to the disclosure obligations set out in Article 2, paragraphs 2 and 5 of Law Decree 21/2012, Article 4 of Presidential Decree 85/2014 provides that:

 

·the special powers apply to the extent that protection of the essential national interests, including those relating to adequate infrastructure development, is not guaranteed by the existence of specific sector regulation, either in the form of a convention connected with a specific concession relationship or otherwise;

 

·certain transactions are excluded from the scope of the special powers, including transactions carried out within the same corporate group, such as mergers, demergers, takeovers, or sales and transfers, including, in certain cases, the sale and transfer of shares; and

 

 92 

 

  

·such an exclusion is not available when there is information indicating a threat of serious harm to the public interest in the security and operation of the networks and installations and continued provision of services.

 

The procedures for exercising such special powers in the transport sector have been established by Presidential Decree No. 86 of March 25, 2014 (the “Presidential Decree 86/2014”).

 

As discussed above, the Italian Government may exercise its veto power in relation to the adoption of shareholders’ meeting or management body meeting resolutions of companies that own strategic assets in the transport sector in the matters indicated in Article 2, paragraph 2, of Law Decree 21/2012. Accordingly, the company that owns these strategic assets must notify the Prime Minister’s Office (Presidenza del Consiglio dei Ministri) within ten days of the implementation of any such resolution, and must provide the complete set of information concerning the resolution itself  (Article 5, Presidential Decree 86/2014). The Prime Minister’s Office will announce any veto it may issue within 15 business days after being so notified. If additional information is requested by the Prime Minister’s Office, the deadline for giving notice of any veto is postponed once until such requested information is received. The Italian Government’s veto power may also be exercised by imposing specific requirements or conditions if such requirements and conditions are considered to be sufficient to ensure protection of the public interest in the security and operation of the networks and installations and continuous provision of services. If the deadline for announcing any veto expires without any order having been issued, the transaction is deemed approved and can be executed.

 

Resolutions or acts adopted in violation of the abovementioned veto power are null and void. The Prime Minister’s Office may also require the company and any counterparty to unwind any such transaction at its own expense. Unless the act constitutes a criminal offense, anyone who fails to comply with the measures associated with the exercise of the veto power is subject to monetary administrative fine up to twice the value of the transaction, and at any rate not less than 1% of the total revenues realized by the companies involved during the last financial year in which a financial statement has been approved.

 

The Italian Government has the power to impose conditions or oppose the acquisition of significant shareholdings attributing control of companies that own assets of strategic importance in the transport sector to a party outside the European Union pursuant to Article 2, paragraph 5, of Law Decree 21/2012. Accordingly, the person or entity outside the European Union that acquires a significant shareholding constituting control of a company that owns strategic assets in the transport sector (Article 4, paragraph 1, Presidential Decree 86/2014) must disclose such a purchase within ten days after the execution of any such transaction to the Prime Minister’s Office, together with all information providing a general description of the merger plan, the buyer, and the scope of its operations. The Prime Minister’s Office will notify the buyer of any conditions it deems necessary to impose or exercise its veto power within 15 business days after such disclosure. Until the expiry of this deadline, the voting rights and those rights other than ownership associated with the shares representing the significant shareholding are suspended.

 

If the Prime Minister’s Office exercises its power to impose conditions, in the event of breach or violation of such conditions, the voting rights or rights other than ownership of the shares which represent a significant shareholding are suspended for the entire period that the breach or violation continues. Any resolutions adopted with the deciding vote of such shares and the resolutions and acts adopted in violation or in breach of the imposed conditions, are null and void. A buyer that fails to comply with the imposed conditions, unless the act constitutes a criminal offense, is subject to a monetary administrative fine up to twice the value of the transaction and, in any event, no less than 1% of the total revenues realized in the last financial year for which a financial statement has been approved (Article 8, Presidential Decree 86/2014). If the power to oppose the acquisition of the shareholding is exercised, the buyer may not exercise its voting rights of such shares and must sell these shares within one year. If it fails to comply with this obligation, the courts, on request from the Prime Minister’s Office, will order the sale of these shares according to the procedures provided for in Article 2359 of the Italian Civil Code. Any shareholders’ meeting resolutions adopted with the deciding vote of such shares are null and void.

 

 93 

 

  

On October 2, 2014, the Prime Ministerial Decree (Decreto del Presidente del Consiglio dei Ministri) of August 6, 2014 was published in the Official Gazette of the Republic of Italy (General Series No. 229). It contains rules for the coordination of the activities of the Prime Minister’s Office necessary to exercise the special powers over company ownership structures in the defense and national security sectors, and over strategic activities in the energy, transport, and telecommunication sectors. These rules specify the Department of the Prime Minister’s Office to which these notifications must be sent, as well as the relevant procedures, and also provide a simplified procedure in the case of intercompany transactions.

 

Governmental Authorities

 

Transport Regulatory Authority (Autorità di Regolazione dei Trasporti)

 

The Transport Regulatory Authority (“TRA”) was established pursuant to Article 37 of Decree-Law 6 December 2011, No. 201 (converted into law, with modifications, by Law No 214 of December 22, 2011).

 

It is responsible for regulation in the transport sector and access to its infrastructure and ancillary services. Among its tasks are also the definition of the quality levels of transport services and the minimum content of the rights that users can claim against the operators. The TRA reports annually to the Parliament and the President of the Council of Ministries indicating the state of the services.

 

In the airport sector, the TRA undertakes supervisory duties (Article 71 et seq., Decree-Law No 1/2012), approving the airport regulatory system and the amount of airport charges.

 

ENAC

 

ENAC was established on July 25, 1997, under Legislative Decree No. 250/97 as the national authority committed to oversee the technical regulation, oversight and control of civil aviation.

 

ENAC is responsible for many aspects of the civil aviation regulation including the control and vigilance of the application of the regulatory regimes, and the regulation of the administrative and economic aspects of the air transport system.

 

Other aspects of the aviation sector that fall within the institutional mandate of ENAC include safety, security control and enforcement of international law, and guaranteeing the quality of the services provided to the user and the protection of the rights of the passenger.

 

The Pisa Concession Agreement

 

With the Inter-managerial Decree (decreto interdirigenziale) No. 002/2004, the Pisa Airport was assigned to ENAC. On January 11, 1999, SAT filed a request for the granting of the concession for the full management of the Pisa Airport, along with its operations program, which is comprised of the investment plan and business plan for the Pisa Airport. Following the positive results of the assessment, ENAC and SAT executed a concession agreement on December 14, 2001, granting a temporary three-year concession.

 

 94 

 

  

On April 14, 2004, ENAC requested that SAT provide an update of the abovementioned program and plans, which SAT filed on January 18, 2005. The submitted documents were reviewed by ENAC in determining the duration of the full management concession, which it determined to be a 40-year duration starting in March 2005. On March 14, 2006, ENAC and SAT entered into a full management concession agreement (“Pisa Concession Agreement”). In light of the changes made to the relevant legal framework under Legislative Decree No. 151/2006, ENAC and SAT executed an updated version of the Pisa Concession Agreement on October 20, 2006.

 

The concession for Pisa Airport (“Pisa Concession”) was approved on December 7, 2006, with the Inter-Ministerial Decree issued by the Ministry of Transportation, the Ministry of the Economy and the Ministry of Defense.

 

On October 9, 2015, ENAC and TA entered into an operating agreement (contratto di programma) in order to define TA’s obligations with respect to (i) airport traffic level forecasts, (ii) new construction and extraordinary maintenance works, (iii) the quality levels with respect to environmental protection, (iv) the status of TA’s performance of the obligations arising under the relevant operating agreement for TA’s four-year intervention plan, as well as its quality and environmental protection plan and (v) the fines that would apply to TA in the case of delay in carrying out its obligations arising under the operating agreement, or failure to fulfill such obligations.

 

Obligations Assumed by TA as Concessionaire

 

Under the terms of the Pisa Concession Agreement, TA is responsible for developing, managing, exploiting, operating and maintaining Pisa Airport, which includes, inter alia, the performance of the following obligations and activities:

 

·paying the annual concession fee;

 

·performing the works provided by the plan of works (programma d’intervento) and the ordinary and extraordinary maintenance works;

 

·entering into an operating agreement (contratto di programma) with ENAC;

 

·adopting all appropriate measures in favor of the neighboring territorial communities and their security;

 

·organizing and managing the airport business, ensuring the optimal use of available resources for the purpose of providing an adequate level of services and activities, to be carried out in compliance with the principles of security, efficiency, cost effectiveness and environmental protection;

 

·providing its services under conditions of continuity and regularity, in compliance with the impartiality principle and in accordance with the applicable non-discrimination rules;

 

·obtaining prior authorization from ENAC to appoint subconcessionaires to carry out airport activities and to give prior written communication to ENAC of the subconcession of other activities (e.g., commercial activities), in any case ensuring that the relative third-party subconcessionaires obtain insurance policies to cover the risks related to their respective activities;

 

·providing all of the necessary support for the relevant public administrations to carry out their emergency and health services within the context of the airport business and management;

 

 95 

 

  

·adopting all necessary measures to ensure the provision of the fire-fighting service;

 

·ensuring the carrying out of airport security control services;

 

·complying with the relevant obligations provided under the applicable framework and periodically communicating data on the quality of offered services to ENAC;

 

·preparing and presenting to ENAC a report on the implementation status of the operations program and related investment plan; and

 

·guaranteeing the suitability of the standards of offered services.

 

Fees

 

The table below sets forth the maximum amounts that we were permitted to collect as of January 1, 2018, under the Pisa Concession:

 

Pisa Airport

 

   2018 
   (in Euros) 
Takeoff/Landing     
< 25 t   2.43 
> 25 t (each subsequent ton)   3.36 
Parking (per hour or fraction besides the first two hours)   0.26 
Cargo embarking/ Disembarking   0.0502 
Check-in desks   1.51 
Assets for exclusive use/offices   249.35 
Fueling   0.0070 
Passengers charges (EU adult)   6.45 
Passengers charges (EU child)   3.23 
Passengers charges (EXTRA EU, adult)   7.39 
Passengers charges (EXTRA EU, child)   3.70 
Body Check & Hand Baggage Security   1.97 
Hold Baggage Security   1.06 
PMR   0.54 

 

As consideration for the airport concession granted by ENAC, TA is required to pay annual fees to be determined pursuant to Law No. 662/1996, which states that the relevant fees shall be the subject of the joint determination of the Ministry of Finance and the Ministry of Infrastructure and Transport.

 

Canon payments are to be made in two separate installments, the first one to be made each July 31 and the second one each January 31 of each year during the concession agreement. The following year, each payment shall be equivalent to 50% of the annual canon payments. The value of the minimum canon is adjusted on an annual basis according to inflation. For the year ended December 31, 2016, TA paid an annual canon equal to €4.2 million (U.S.$4.5 million) under the Pisa Concession Agreement.

 

 96 

 

  

The fees are established by Inter-managerial Decree (decreto interdirigenziale) dated June 30, 2003, which provides the adoption of a workload unit criterion, where each unit corresponds to one passenger or 100 kg of goods or post.

 

Revenue

 

Under the terms of the Pisa Concession Agreement, TA is entitled to collect, inter alia:

 

·the aeronautical, commercial and cargo revenue related to services rendered at Pisa Airport;

 

·the embarkation and debarkation charges on transported goods; and

 

·the fees for security control services.

 

Guarantees

 

Under the Pisa Concession Agreement and for the purpose of securing its performance obligations, TA is required to provide a bank guarantee (fideiussione bancaria) and/or insurance policy for an amount equal to a yearly concession fee (to be updated on the basis of the yearly recalculations of the concession fee). TA currently has an aggregate of  €3.9 million (U.S.$4.6 million) in guarantees outstanding for both the Pisa Concession and the Florence Concession.

 

On the expiration, revocation or termination of the Pisa Concession Agreement, ENAC shall authorize TA to release the security following an assessment concerning the fulfilment of TA’s obligations and ascertaining that no legal proceedings are in place due to actions or omissions attributable to TA.

 

ENAC may proceed, without prior formal notice or filing before the courts, to withdraw the amount of the security should TA fail to pay a yearly concession fee. ENAC may also enforce such guarantee in payment of damages incurred as a result of TA’s actions.

 

Insurance

 

Under the Pisa Concession Agreement, TA shall obtain an insurance policy, for an amount to be determined in agreement with ENAC, in order to cover a series of risks related to the assets used either directly or indirectly in the airport management business (e.g., fires, aircraft crashes, damages due to transported goods, machinery or natural events). The relevant policy must provide that ENAC shall be named as a loss payee under such policy, and only upon prior authorization from ENAC may the relevant payment be made to TA (in this case, TA being responsible for the reparation of the relevant damages).

 

Furthermore, TA is also required to obtain an insurance policy to cover the risks connected to the performance of its business and damages that may be incurred by public administrations and entities and/or third parties present in the Pisa Airport.

 

In order to comply with regulatory and/or security requirements, ENAC may give directions to TA concerning the insurance policy to be obtained, including the extension of the covered risks.

 

Termination, Revocation and Forfeiture

 

The Pisa Concession Agreement will expire on December 7, 2046.

 

 97 

 

  

Termination upon Breach by TA

 

If ENAC determines that TA is in breach of the relevant provisions of the Italian Navigation Code or of the Pisa Concession Agreement, TA shall be liable for the payment of a penalty equal to 20% of the annual concession fee (in any case, not less than €50,000 (U.S.$52,070). If TA repeats a breach of the same nature within a period of two years, the relative penalty shall be equal to 40.0% of the annual concession fee (in any case, not less than €100,000 (U.S.$105,410). In the instance of multiple violations within the period of two years, the penalty shall be equal to 70.0% of the annual concession fee (in any case, to a sum not less than €170,000 (U.S.$179,197). The abovementioned penalty shall also be applied should TA fail to deliver the required plans and programs or not achieve the relevant quality objectives within the provided deadlines.

 

If TA breaches any of the relevant provisions concerning security, the penalty shall be equal to 30% of the annual concession fee (in any case, not less than €75,000 (U.S.$79,058) and if a violation of the same nature be repeated within a period of two years, 60.0% of the annual concession fee (in any case, not less than €150,000 (U.S.$158,115).

 

Revocation and Forfeiture

 

The Pisa Concession Agreement provides that, in the event needs of public interest arise, TA may request that the Pisa Concession be revoked, at which time TA will assume the burden of making all compensatory payments to be determined with the relevant third parties and after consulting ENAC.

 

The concession granted may be forfeited before its expiration date upon the occurrence of specified events of default, as provided under the Pisa Concession, including: (i) prevailing reasons of public interest; (ii) serious and repeated violations of the Italian navigation code or the Pisa Concession Agreement; (iii) a breach of the security regulations or the loss of requirements for certification as provided under the relevant ENAC regulations for the construction and operation of airports; (iv) a failure to implement the operations program and investment plan; (v) events that indicate that TA is no longer capable of operating the Pisa Airport; (vi) over 12-month delays in payment of the applicable concession fee; or (vii) a TA bankruptcy.

 

If the Pisa Concession is revoked before its expiration, whether through a forfeiture or termination due to an event of default, ENAC shall regain the rights over the assets which were assigned to TA.

 

For the projects which it has financed, TA shall have the right to an indemnity which shall not exceed the value of the relevant project at the moment of revocation minus any amortizations. In any case, TA shall be liable for any damages that derive from its actions or omissions and, in the event of forfeiture of the Pisa Concession, TA shall have no right to reimbursement for the completed works or for the costs it may have incurred.

 

Governing Law

 

The Pisa Concession Agreement is governed by the laws of Italy.

 

 98 

 

  

Dispute Resolution

 

Under the Pisa Concession Agreement, ENAC and TA may elect to have a dispute concerning the Pisa Concession Agreement be decided by an arbitration panel, without prejudice to their right to file their claims before the competent courts. The arbitration panel shall be composed of three members, of which TA and ENAC may appoint one each and the chairman being appointed by the two selected by TA and ENAC. Should the two arbiters fail to reach an agreement on the appointment of the chairman of the panel, the relative appointment shall be made by the chairman of the Italian State Council (Consiglio di Stato). ENAC has no liability in the disputes between or among TA, subconcessionaires and third parties that arise in relation to the Pisa Concession Agreement.

 

The Florence Concession Agreement

 

On January 19, 1999, ADF filed a request for the granting of the concession for the full management of the Florence Airport, along with its operations program, which is comprised of the relative investment plan and business plan for the Florence Airport. Directive No. 141-T/2000 provided the possibility of a temporary granting of concessions on the basis of a summary evaluation by ENAC of the submitted business plan, which would subsequently proceed to define a definitive duration of the concession following the complete assessment of the provided programs and plans. On April 26, 2001, ENAC determined that the temporary concessions would have a maximum duration of three years.

 

Following the positive results of the relative assessment, ENAC and ADF executed a concession agreement on December 14, 2001, granting a temporary three year concession. The concession for the Florence Airport was approved on March 11, 2003, with the Inter-Ministerial Decree issued by the Ministry of Infrastructure and Transport and the Ministry of the Economy and Finance (the “Florence Concession Agreement” and jointly with the Pisa Concession Agreement, the “Italian Concession Agreements”).

 

In order to meet the urgent need to implement the relevant legal framework, the abovementioned Inter-Ministerial Decree provided the extension of the duration of the Florence Concession Agreement to 40 years.

 

On October 9, 2015, ENAC and TA entered into an operating agreement (contratto di programma) in order to define TA’s obligations with respect to (i) airport traffic level forecasts; (ii) new construction and extraordinary maintenance works; (iii) the quality levels with respect to environmental protection; (iv) the status of TA’s performance of the obligations arising under the relevant operating agreement for TA’s four-year intervention plan, as well as its quality and environmental protection plan; and (v) the fines that would apply to TA in the case of delay in carrying out its obligations arising under the operating agreement, or failure to fulfill such obligations.

 

Obligations Assumed by TA as Concessionaire

 

Under the terms of the Florence Concession Agreement, TA is responsible for developing, managing, exploiting, operating and maintaining the Florence Airport, which includes the performance of the following obligations and activities:

 

·paying the annual concession fee;

 

·performing the works provided by the plan of works (programma d’intervento) and the ordinary and extraordinary maintenance works;

 

·entering into an operating agreement (contratto di programma) with ENAC;

 

·adopting all appropriate measures in favor of the neighboring territorial communities and their security;

 

·organizing and managing the airport business, ensuring the optimal use of available resources for the purpose of providing an adequate level of services and activities, to be carried out in compliance with the principles of security, efficiency, cost effectiveness and environmental protection;

 

 99 

 

  

·providing its services under conditions of continuity and regularity, in compliance with the impartiality principle and in accordance with the applicable non-discrimination rules;

 

·obtaining prior authorization from ENAC to appoint subconcessionaires to carry out airport activities and to give prior written communication to ENAC of the subconcession of other activities (e.g., commercial activities), in any case ensuring that the relative third-party subconcessionaires obtain insurance policies to cover the risks related to their respective activities;

 

·providing all of the necessary support for the relevant public administrations to carry out their emergency and health services within the context of the airport business and management;

 

·adopting all necessary measures to ensure the provision of the fire-fighting service;

 

·ensuring the carrying out of airport security control services;

 

·complying with the relevant obligations provided under the applicable framework and periodically communicating data on the quality of offered services to ENAC;

 

·preparing and presenting to ENAC a report on the implementation status of the operations program and related investment plan; and

 

·guaranteeing the suitability of the standards of offered services.

 

Fees

 

The table below sets forth the maximum amounts that we were permitted to collect as of January 1, 2018, under the Florence Concession Agreement:

 

Florence Airport

 

   2018 
   (in Euros) 
Landing and take off fees (from 1 ton to 25 ton)   3.96 
Landing and take off fees (each subsequent ton)   5.31 
Aircraft parking (per hour or fraction after first two hours)   0.20 
Passengers charges (EU adult)   9.81 
Passengers charges(EXTRA EU adult)   11.87 
Passengers charges (intra EU flights, child)   4.90 
Passengers charges (EXTRA EU, child)   5.93 
Cargo embarking/disembarking charges   0.36 
Body check and hand baggage security   1.54 
Hold baggage security   1.11 
PRM   0.90 
Assets for exclusive use (offices)   299.96 
Assets for exclusive use (technical operating room)   60.25 

 

 100 

 

  

   2018 
Assets for exclusive use (self-check-in)   345.25 
Check-in desks   2.37 
De-icing   0.19 

 

As consideration for the airport concession granted by ENAC, TA is required to pay annual fees to be determined pursuant to Law No. 662/1996, which provides that the relevant fees shall be the subject of the joint determination of the Ministry of Finance and the Ministry of Infrastructure and Transport. The fees are established by Inter-managerial Decree (decreto interdirigenziale) dated June 30, 2003, which provides the adoption of a workload unit criterion where each unit corresponds to one passenger or 100 kg of goods or post.

 

Canon payments are to be made in two separate installments, the first one to be made each July 31 and the second one each January 31 of each year during the concession agreement. The following year, each payment shall be equivalent to 50% of the annual canon payments. The value of the minimum canon is adjusted on an annual basis according to inflation. For the year ended December 31, 2016, TA paid €1.2 million (U.S.$2.1 million) in annual canon under the Florence Concession Agreement.

 

Revenue

 

Under the terms of the Florence Concession Agreement, TA is entitled to collect, inter alia:

 

·the aeronautical, commercial and cargo revenue related to services rendered at Florence Airport;

 

·the embarkation and debarkation charges on transported goods; and

 

·the fees for security control services.

 

Guarantees

 

Under the Florence Concession Agreement and to secure its performance obligations thereunder, TA is required to provide a bank guarantee (fideiussione bancaria) and/or insurance policy for an amount equal to a yearly concession fee (to be updated on the basis of the yearly recalculations of the concession fee). TA currently has an aggregate of €3.9 million (U.S.$4.6 million) in guarantees outstanding for both the Pisa Concession and the Florence Concession. On the expiration, revocation or termination of the Florence Concession Agreement, ENAC shall authorize TA to release the security following a determination that TA has fulfilled its obligations thereunder and a determination that no legal proceedings are in place due to actions or omissions attributable to TA.

 

ENAC may proceed, without prior formal notice or filing before the courts, to withdraw the amount of the security should TA fail to pay a yearly concession fee. ENAC may also enforce such guarantee in payment of damages incurred as a result of TA’s actions.

 

Insurance

 

Under the Florence Concession Agreement, TA shall obtain an insurance policy, for an amount to be determined in agreement with ENAC, in order to cover a series of risks related to the assets used either directly or indirectly in the airport management business (e.g., fires, aircraft crashes, damages due to transported goods, machinery or natural events). The relevant policy must provide that ENAC shall be named as a loss payee under such policy, and only upon prior authorization from ENAC may the relevant payment be made to TA (in this case, TA being responsible for the reparation of the relevant damages).

 

 101 

 

  

Furthermore, TA is also required to obtain an insurance policy to cover the risks connected to the carrying out of its business and damages that may be incurred by public administrations and entities and/or third parties present in the Florence Airport.

 

Termination, Revocation and Forfeiture

 

The Florence Concession Agreement will expire on February 10, 2043.