Airport Development Romania Airport Forum 2009 Bucharest Romania

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Airport Development Romania Airport Forum 2009 Bucharest, Romania 28 October 2009 Jacqueline Muir Ivančajić

Airport Development Romania Airport Forum 2009 Bucharest, Romania 28 October 2009 Jacqueline Muir Ivančajić Business Manager Europe Copyright © 2009 Raytheon Company. All rights reserved. Customer Success Is Our Mission is a registered trademark of Raytheon Company.

Airport Development Types of Ownership and Key Needs n Business Case n Financing Options

Airport Development Types of Ownership and Key Needs n Business Case n Financing Options n Recommendations n Page 2

Airport Ownership n n n State ownership Regional/Town council ownership Private ownership Combination of

Airport Ownership n n n State ownership Regional/Town council ownership Private ownership Combination of Private Public Partnership Private Finance Initiative Model Regardless of the ownership the airport – is required to generate revenue to cover expenditures and in most cases turn over a profit – must meet international, European and national standards for provision of services and safety n n n The provision of services to meet required standards for air traffic and safety are rarely a revenue generator – they are an overhead direct cost to the airports operational expenses Today the requirements levied on airports for air traffic and safety are increasing and can be expected to be ever increasing Passenger acceptance of the extra demands in their travel experience and costs passed through to the passenger, is ever decreasing Page 3

Business Case n n n n Regardless of the ownership a feasibility study and

Business Case n n n n Regardless of the ownership a feasibility study and business case must be developed to justify investment Business case for a larger international airport is easier to establish as it may be the focal point for the economy and tourist centre/hub of the country Business case for medium sized international airports is slightly more difficult, however possible – particularly if it is a secondary airport to the main international, it is in an economically developing secondary centre from the capital and/or it is particularly well situated for cargo traffic Business case for smaller regional airports is the most difficult – these airports must have a solid focus on a “reason” for business forecast – tourism, cargo, institution Currently recommendations are being made world wide to make alliances of smaller regional/airports each with a slightly different business case focus that can make it worthwhile to investors eg. , 3 airports vice 1 small airport. Perhaps one focused on tourism element, another on cargo, and another on a secondary international airport or serving a potential gateway to further international travel. It requires significant investment in research, analysis and forecasts The retail opportunities possible, the potential for real estate exploitation (technology park), hotels and restaurants, conference facilities - these play a significant role regardless of the size of an airport Page 4

Financing options are available from several sources, once a business case is established n

Financing options are available from several sources, once a business case is established n Commercial Banks n Export Credit Agencies n Multilateral Development Banks n Supplier/Vendor Financing n Capital Market Debt n Page 5

Overview of Financing Options (1) COMMERCIAL BANKS EXPORT CREDIT AGENCIES MULTILATERAL DEVELOPMENT BANKS SUPPLIER/VENDO

Overview of Financing Options (1) COMMERCIAL BANKS EXPORT CREDIT AGENCIES MULTILATERAL DEVELOPMENT BANKS SUPPLIER/VENDO R FINANCING CAPITAL MARKET DEBT CHARACTERISTICS PRIVATE CAPITAL PROVIDERS n INT. RATE REFLECTS PRECEIVED CREDIT RISK n SHORTER TERM, HIGHER COST (5 -7 YR TERM FOR INVEST. GRADE CREDITS) n RELATIVELY FAST TO CLOSE (1 -2 MOS) n FLEXIBLE – NOT CONCERNED ABOUT SOURCING n GOVT AGENCIES PROMOTES EXPORTS THRU FUNDING SUPPORT n OFFERS LOANS, LOAN GUAR. & INSUR. n LENDER TO HIGHER RISK BORROWERS n OFFER LONGER REPAY (10+ YRS) AND LOWER INTEREST RATES n POLITICALLY DRIVEN: IMPACT ON JOBS IS CRITICAL n OWNED BY MEMBER COUNTRIES n CHARTERED TO REDUCE POVERTY AND IMPROVE LIVING STDS VIA ECON. DEV. n OFFER VERY ATTRACTIVE TERMS – LOW INT. (LIBOR +. 25 -. 5%) AND 15 -20 YR REPAY. n LESS SENSITIVE TO CREDIT RISK n LAST RESORT FUNDING – TO GET DEAL DONE n FLEXIBLE, FAST TO CLOSE n RISK DISTRIBUTION /TRANSFER CONSIDERATION S n RISK/RETURN DRIVEN n DEEP, LIQUID SOURCE OF SOVEREIGN FUNDING n POTENTIALLY LONG TERM n QUICK TO CLOSE (1 TO 2 MOS) n Page 6

Overview of Financing Options (2) COMMERCIAL BANKS EXPORT CREDIT AGENCIES MULTILATERAL DEVELOPMENT BANKS SUPPLIER/VENDOR

Overview of Financing Options (2) COMMERCIAL BANKS EXPORT CREDIT AGENCIES MULTILATERAL DEVELOPMENT BANKS SUPPLIER/VENDOR FINANCING CAPITAL MARKET DEBT MAY OR MAY NOT SUPPORT DEFENSE EXPORTS n RIGID CONTENT REQ. (15 -30% DEPENDING ON ECA) n SLOW TO CLOSE (4 -8 MOS) n. DO n. LTD n. NOT DRAWBACKS NOT AVAILABLE IN HIGH RISK MARKETS WITHOUT SIGNIFICANT RISK TRANSFER (ECA GUAR. , PRIVATE CREDIT INSUR. , COLLATERAL SECURITY) n SOME ARE UNWILLING TO FINANCE MILITARY EXPORTS – POSSIBLE PREMIUM n n NOT SUPPORT MILITARY PROJECTS n LARGE BUREAUCRATIC INSTITUTIONS n VERY LONG LEAD TIMES (1836 MOS. TO CLOSE) n REQUIRE COMPETITIVE TENDERING APPETITE COMMENSERATE WITH PROFIT POTENTIAL n SUPPLIER BAL. SHEET CONSIDERATION A RELIABLE SOURCE FOR HIGH RISK BORROWERS n CAPACITY AND TERMS SUBJECT TO SWINGS DRIVEN BY INVESTOR SENTIMENT AND “CONTAGION” n PROVIDES GENERAL PURPOSE FUNDING Page 7

Financing Structures – Project Finance “PFI” Model Customer SERVICES SERVICE CONTRACT SUBCONTRACT SPV (owned

Financing Structures – Project Finance “PFI” Model Customer SERVICES SERVICE CONTRACT SUBCONTRACT SPV (owned by contractors) “NON-RECOURSE” LOAN AGREEMENT GOODS & SERVICES e. g. Raytheon ($) Project Lenders Page 8

Recommendations n n n Long term planning Significant effort for business case – there

Recommendations n n n Long term planning Significant effort for business case – there are tremendous amount of specialists in this field to assist Consider Partnership with Investors Consider alliances of smaller airports Be prepared to provide real estate for exploiting the commercial opportunities Have a phased plan – Phase 1 with the lowest risk of success for highest potential to attract further investment Look for partners who offer one-stop shopping supplies and services to minimize the administrative costs and enhance their investment interest Investment comes in many forms – Capital, Resources, Business case support, lobbying, preparation of plans/bids etc. Consider grants available for Training – that can be available through several grants/funds Consider Taxes and Duties that will be revenue of the State Consider Job Creation Requires intensive support in facts and figures Page 9