01 Mar 2016 The new wave of French airport privatisations: Ready for take-off

The bidders are ready, the legal framework has been fine-tuned, the regional elections have taken place and national elections are not due before 2017. In other words, conditions are finally ripe for the French Government to launch the long-awaited sale of its 60 per cent stake in Lyon and Nice airports.

The privatisation of France’s main regional airports – Bordeaux, Nice, Lyon and Toulouse – has been in the offing for a number of years. The process was initially expected to begin in 2011 but was shelved until after the national elections in 2012 as it had become too politically sensitive. However, the stars are finally in alignment for the sale of Nice and Lyon airports. The sale in early 2015 of 49.99 per cent of the French State’s stake in the share capital of Aéroport de Toulouse-Blagnac (ATB), which operates the eponymous airport, has paved the way. In addition, a new piece of legislation, adopted in summer 2015, expressly authorises the transfer of the majority of the share capital of the Lyon and Nice airports concessionaires (namely the société Aéroports de Lyon and the société Aéroports de la Côte d’Azur) to private sector operators.

The privatisation processes for these two public-owned companies was finally launched on 10 March 2016 by the French Government. The two procedures are being run concurrently, which had not been expected.

This article gives an overview of the context and objectives of these privatisations, describes the lessons learned from the Toulouse airport transaction, and sets out details of the process and expected timing for these privatisations.

Context and objectives

The long-awaited privatisation of Lyon and Nice airports is the product of a lengthy process initially triggered by various reforms adopted more than ten years ago in the French airport sector. It was first decided in 2004 to “decentralise” 150 “minor” aerodromes owned by the French State, in other words to transfer their ownership to local authorities and specific public co-operation authorities (établissements publics de coopération intercommunale)^[1]. Major regional airports (in other words, airports of national or international interest), such as those in Bordeaux, Lyon, Nice and Toulouse-Blagnac, remained under the ownership of the French State and were still operated by the relevant public entities (the Chambres de commerce et d’industrie or CCI) who acted as concessionaires under concession contracts entered into with the French State.^[2]

The second, and more important, airport reform occurred the following year when, in 2005, the Government decided, among other measures, to transfer the operation of regional airports operated by the CCIs to specific public sector companies held by the French State, the relevant CCI and, as the case may be, local authorities who had expressed an interest in becoming shareholders (the Sociétés Aéroportuaires Régionales or SARs, i.e. regional airport companies). A law, dated 20 April 2005, provided that if a CCI so requested,“the administrative authority may authorise the transfer of the airport concession to a company whose initial shareholding is wholly owned by public entities, including the CCI holding the transferred concession^[3]. Almost a dozen regional airports operators became subject to this new legal framework, i.e. those operating the airports of Bordeaux- Mérignac, Lyon-Saint-Exupéry and Lyon-Bron, Marseille-Provence, Aix-Les Milles and Marignane-Berre, Montpellier- Méditerranée, Nice-Côte d’Azur and Cannes-Mandelieu, Strasbourg-Entzheim, Toulouse-Blagnac, Cayenne-Rochambeau, Fort-de-France-Le Lamentin, Pointe-à-Pitre- Le Raizet and Saint-Denis-Gillot.

The rationale behind the reform was the need for the concessionaires of major regional airports to benefit from having a suitable corporate structure in place, one which was more appropriate for a liberalised market and for coping with competition from foreign airport hubs, at a time when the growing traffic at these airports represented approximately 30 per cent of the total air passenger traffic in France (the remaining air traffic being allocated between the Paris airports operated by Aéroports de Paris (57 per cent) and the minor “decentralised” airports (13 per cent)).

The implementation of the reforms has taken time: the transfer of the ownership of minor airports to local authority control was completed in March 2007 and the setting up of the first SARs occurred in 2007 (Bordeaux, Lyon and Toulouse), followed by Nice in 2008 and Montpellier in 2009.

The shareholding of the SAR was initially split between the French State (60 per cent), the relevant CCI (25 per cent) and the “interested” local authorities (15 per cent), as had originally been announced by the Minister in charge of transportation during the parliamentary debate in 2005. However, as was also clearly signalled by the Government during the debate, the objective of the 2005 reform was, ultimately, to open the share capital of the SAR to private sector investors in order to benefit from their experience in the management of airports and to diversify the funding sources of major regional airports (with the aim of financing new investments in airport infrastructure). The time-frame for this was not however disclosed, for obvious political reasons.

In 2010, the French Government announced plans to sell a portion of its stake in the share capital of four SARs, namely those operating the airports of Bordeaux, Lyon, Montpellier and Toulouse. The plan was to sell off slightly less than 50 per cent of the share capital, with the public sector (the French State, CCI and local authorities) keeping a majority stake. This position was in line with the informal commitment made by the State to the Union des aéroports français (French airports trade union) pursuant to which it had agreed that a majority public shareholding would be kept in the SAR until the end of 2013.^[4] That was also probably a way to circumvent and avoid any potential debate and criticism around privatisation which, under French law, requires the transfer to the private sector of more than 50 per cent of the share capital of a publicly-owned company.

The political sensitivity of the issue certainly explains why the process was not launched until after the presidential election of May 2012 and the ensuing national elections of June that year. In addition, it is understood that local authorities had been hoping to acquire the stakes themselves, while the Government favoured selling the shares to private investors.

Lessons learned from the Toulouse airport acquisition transaction

It took another three years before the French State finally decided to launch the sale of a portion of its stake in the Toulouse airport operator.

Clearly, the Toulouse airport acquisition transaction was being used as a pilot for airport privatisations, as the next wave of French airports privatisation are all, in essence, based on the same principle. In each case, the French State only sells/transfers its shares in the company operating the airport (i.e. the SAR). However, the acquisition transaction for Toulouse was not, strictly speaking, a privatisation (in contrast with the proposed share sales for Lyon and Nice), as the French State only sold 49.99 per cent of its stake in the share capital of ATB, with a “put” option on another 10.01 per cent at its sole discretion. On this specific point, the French Economics Minister has, since the closing of the acquisition, insisted that the French State does not intend to exercise the put option. In any case, according to the shareholding agreement entered into between the buyer and the State^[5], the put option can only be exercised on the expiry of a three-year period following the transfer, and during a six-month period, renewable on one occasion.

This will obviously differ from the Lyon and Nice airports transactions, as it has already been announced by various ministerial authorities that 60 per cent of the share capital of the SARs operating those airports is to be sold to private companies (in fact, 70 per cent or more in the case of the Nice airport operator^[6]). For this reason, the transfer to the private sector has been expressly authorised by the Macron law^[7] dated 6 August 2015, in accordance with the provisions of the ordinance of 20 August 2014 which states that transactions in which the State sells the majority of the share capital of a publicly-owned company to the private sector must be authorised by law, if the number of employees exceeds 500 or its turnover exceeds €75m.^[8] On this last point, as a result of the Toulouse airport transaction, the Macron law has modified the ordinance of 20 August 2014 to provide that the privatisation of any companies operating airport (or motorway) facilities must be authorised by law irrespective of the number of employees or their turnover, in order to strengthen State control over these sensitive transactions.

However, notwithstanding this change in law, the French State continues to have a strong influence over the business activities of airport operators, irrespective of whether they are “privatised” or not, as it remains, in each case:

• the owner of all the airport infrastructure and equipment, at least those that are necessary to operate the airport public service (i.e. the runways, buildings, land, );
• the supervisory authority (autorité concédante) of the airport; e. the State defines the long-term airport development strategy and controls the operation of the airport by the concessionaire, in accordance with the terms and conditions of the concession contract;
• the entity in charge of safety, security and air navigation (e.g. opening of new routes);
• the competent body for establishing and modifying the legal framework applicable to airports; and
• the competent authority for the regulation of tariffs and fees paid by airlines to airport concessionaires.

As a result, notwithstanding the option for private sector companies to invest in the shares of SARs, the State keeps very tight control over the business of airports concessionaires and the operation of its regulatory powers.

Other important lessons have been learned from the Toulouse experience in terms of the tender process and the award criteria. At the time, there was a public outcry at the decision of the French Government to award preferred bidder status to a Chinese consortium.^[9] The main criticism was that the tender process and award criteria were, in the main, if not exclusively, driven by financial considerations, and did not take into account other equally important objectives such as, for example, the experience or capacity of the candidates/bidders in airports operation/development.

In order to avoid or minimise similar criticisms on future transactions, the Macron law expressly provides that:

• the terms of reference of the call for tenders (cahier des charges de l’appel d’offres) must be approved by the Minister in charge of civil aviation, who shall specify the criteria in relation to the protection of essential national interests in air transportation, and the attractiveness, and economic and touristic development, of the area where the airport is located. The terms of reference must also set out the obligations of the concessionaire to ensure the development of the airport in co-operation with local authorities as well as with other “public shareholders”;
• the candidates must give details in their bid of the conditions under which they will meet the requirements of the terms of reference referred to above; and
• the candidates must have experience as airport operators or as shareholders of a company operating airports. They must also demonstrate at the bidding stage their ability to perform the tasks set out in the airport concession contract, this ability being assessed by the signing authority of the contract (i.e. the Minister in charge of civil aviation).

This amended legal framework clearly highlights the greater consideration which will now be paid by public authorities to the professional/operational standing of the candidates/bidders for airport privatisations. It aims to rebalance financial and operational award criteria and to ensure better protection of “local interests” represented by the other “public shareholders” (CCIs, local authorities) of the SARs.

These changes probably explain why the anticipated bidders for the Lyon and Nice airport privatisations are composed of investment funds and companies currently operating airports (according to press reports, some ten consortia are hovering with interest, including Cube infrastructure/Geneva airport, Vinci concessions/Predica/CDC Infrastructure, Ferrovial/Meridiam and Atlantia/EDF Invest).

Process and timing

The launch of the sale process for the Nice and Lyon airport concessionaires has been delayed by a number of months due to regional elections, the terror attacks in Paris, and also perhaps a wish to avoid inadvertently competing with the ongoing sale of London City Airport.

The sale process is now finally underway, with the publication on 8 March 2016 of the decrees providing for the transfer to the private sector of the majority of the share capital of the two SARs, in accordance with the provisions of article 191 of the Macron law and article 22 of the ordinance of 20 August 2014.

In addition, two tender notices (one for each airport) in relation to the privatisation process were issued on 10 March 2016; the notices specify that the calls for tender/ specifications are available on the website of the Agence des participations de l’Etat (APE)^[10] and that Expressions of Interest must be received by the APE by noon on 24 March 2016 at the latest.

Indeed, the bidding process will largely be driven by the APE, with the assistance of the Minister in charge of civil aviation, by virtue of the provisions of the Macron law mentioned above.

The call for tenders identifies the general terms and conditions of the bidding process, the pre-qualification phase and the corresponding selection criteria, the indicative offer stage (content and timing),^[11] the access conditions to the data room for the selected bidders, the binding offer stage (content and timing)^[12] and the award criteria. On this last point, despite the rebalance between financial and operational considerations, it is highly likely that the proposed price will play a key role, as was the case for Toulouse, given that the estimated corporate value of the société Aéroports de la Côte d’Azur is in the region of €1.8bn and that of the société Aéroports de Lyon is around €1.4bn.

In addition, the acquisition transactions in Lyon and Nice will be subject to the specific regulations applicable to privatisation of publicly-owned companies.

This will, in practice, imply the following steps:

• Once the preferred bidder has been selected, the French Economics Minister will seek the opinion of the Commission des participations et des transferts (CPT)^[13] on the transaction, in accordance with article 26.II of the ordinance dated 20 August 2014.

“The privatisations of the Lyon and Nice airports operators will be two of the largest privatisation transactions initiated by the French Government for some time.”

The CPT will determine the corporate value of the company or, as the case may be, certain aspects of the transaction. In addition, the CPT must issue an opinion on the transaction process (which must ensure the protection of the interests of the public sector), with details of the name of the purchaser(s) as well as the purchase conditions proposed by the Economics Minister (article 27.II of the ordinance dated 20 August 2014).

In its assessment, the CPT must take into account, among other factors, the corporate value of the company, the statutory and contractual rights granted to the public sector, the nature of the transaction, the price, the characteristics of the purchaser(s) and the industrial and strategic project in connection with the transaction.

• The authorisation of the transaction will be granted by decree, which decree must comply with the opinion of the
• The price of the transaction will be set out in an order of the Economics Minister and it cannot be less than the assessment made by the This ministerial order must be made within thirty days of the date on which the opinion is issued by the CPT, which period may be extended by the CPT in specific circumstances.

Conclusion

Long in the pipeline, eagerly anticipated, finally on the market: the privatisations of the Lyon and Nice airports operators will be two of the largest privatisation transactions initiated by the French Government for some time. If these transactions are successful, it will lend support to the plans by public authorities to roll out the process to other sectors, and to access the share capital of publicly- owned companies acting, for example, in the energy sector, as was announced several months ago by the Economics Minister, and which has just been confirmed in relation to the possible opening up of the share capital of RTE (the transmission grid operator). We therefore await the outcome of these deals with interest.

This article is part of our InfraRead (Issue 7) released in March 2016. To download the full PDF publication, please click here.

<sub>Notes
1. Under article 28.I of law No. 2004-809 dated 13 August 2004 relating to local freedoms and responsibilities (loi n°2004-809 du 13 août 2004 relative aux libertés et responsabilités locales).
2. The Chambres de commerce et d’industrie have historically been entrusted with the management and operation of major provincial airports on the basis of the law dated 20 June 1933 which added airports to the list of business activities that the Chambres de commerce et d’industrie were authorised to set up and to manage.
3. Article 7.II of law No. 2005-357 dated 20 April 2005 relating to airports (loi n°2005-357 du 20 avril 2005 relative aux aéroports).
4. See Cour des comptes, rapport public thématique, Les aéroports français face aux mutations du transport aérien, page 50.
5. This is also confirmed in article 1 of the order dated 15 April 2015 establishing the conditions of the transfer to the private sector of a stake held by the State in the share capital of the company Aéroport Toulouse-Blagnac (arrêté du 15 avril 2015 fixant les modalités de transfert au secteur privé d’une participation détenue par l’Etat au capital de la société Aéroport Toulouse- Blagnac).
6. In the case of Nice, an additional share of at least ten per cent currently held by the CCI is also being sold.</sub>
<sup>7. <sub>Derived from the name of the Economics Minister who has presented the bill before the Parliament.
8. Article 22.I of ordinance No. 2014-948 of 20 August 2014 with respect to governance and share capital transactions of publicy-owned companies (ordonnance n°2014-948 du 20 août 2014 relative à la gouvernance et aux opérations sur le capital des sociétés à participation publique).
9. The consortium Symbiose, comprising China’s Shandong Hi-Speed Group and Friedmann Pacific Asset Management, was selected by the French State as the preferred bidder on 4 December 2014. Canadian developer SNC Lavalin provided technical expertise and support to the consortium although it was not a member of the consortium.
10. i.e. the specific holding of the French State depending on the Minister in charge of finance and Minister in charge of economy which oversees the national public-owned companies and the companies in which the French State is a shareholder.
11. 28 April 2016 for Nice and 12 May 2016 for Lyon.
12. 20 June 2016 for Nice and 4 July 2016 for Lyon.
13. The CPT is an independent administrative authority in charge whose remit includes determining the corporate value of publicly-owned companies whose portion of the share capital is subject to a transfer to the private sector.</sub></sup>