The Plan Obrador begins to shift into action in Mexico – Santa Lucia’s second runway to be operational in two years

Having scuppered the partially built New Mexico City International Airport on the basis of the result of a dubious referendum, Mexico’s President, Andrés Manuel López Obrador, who took office on 01-Dec-2018, has now affirmed two airports and five runways will serve Mexico City in three years time, despite the cancellation of the new airport project. President Obrador stated the existing airport congestion will be resolved by 2021, complying with the existing budget.


Highlights:

  • New Mexican President Obrador moves swiftly to get the Santa Lucia airbase up and running, but there could still be a role for Toluca Airport;
  • Bondholders in abandoned New Mexico City airport project to be reimbursed –  alternative will still be costly but up to USD10 billion could be saved;
  • Has Obrador called this one right? Other Latin American cities manage with two airports. If he hasn’t, Mexico City could seize up.

At the forefront of his plans is the extension of the Santa Lucia military airbase, where the second runway project will be operational in two years and the parallel runways will operate simultaneously with those of the existing Mexico City Juarez International Airport. What “simultaneously” means is still open to interpretation. The two airports are situated about 30km apart.

Apart from the two runways, a new terminal is planned during the first phase, due to open in 2021. The airbase will reportedly receive an injection of up to MXN15 billion (USD746 million) from the federal government in 2019 for the construction of two runways.

MAP – Juarez Airport and Santa Lucia airbase with regard to Mexico City (the new airport would have been close to Texcoco)Source: Google Maps

Meanwhile, President Obrador confirmed an agreement was reached for the purchase of airport bonds, which “clears the way” to resolve issues regarding airport congestion and “freely” open up redevelopment of the airbase. A “substantial” majority of investors consented to the repurchase of bonds, which President Obrador said will free the government to “make a decision… more convenient for the airport” and alleviate the airport’s saturation problem. Mexico’s army will be responsible for the new airport construction, he added, seeing as “they have the capacity to do it” and were already allocated resources to do so in the 2019 budget.

Earlier, the Ministry of Finance reported the Mexico City Airport Trust (MEXCAT) does not plan to further modify an 11-Dec-2018 bond repurchase offer on the abandoned airport project. “If the revised offer is not successful on the terms currently proposed, MEXCAT and the Mexican government will reconsider what alternatives are available to achieve the government’s objectives”. Mexico launched a buyback offer for USD1.8 billion of the USD6 billion bonds issued to finance the New Mexico City International Airport, but it had been rejected by investor group MexCAT Ad Hoc Bondholder even though the “substantial majority” of series note holders had consented to offers to buy back bonds.

The debate over a new airport dragged on for so long – decades – that it makes you wonder why this solution was not found previously. There will be issues to be resolved of course. As pointed out in a report by CAPA – Centre for Aviation in Nov-2018 (‘New Mexico City Airport cancellation raises issues for the whole region’), the airbase is further out of a congested metropolis than the Texcoco airport would have been, there are questions over public transport accessibility, and how will military operations be accommodated?

This is one of the first decisions taken that runs contrary to the prevailing theory, beloved of many politicians, that there has to be one big new hub airport in every major ‘global’ city. Call it the Istanbul Effect. Obrador is putting his economic reputation on the line if in diverting USD10 billion to other causes including social ones (the UDS13 billion the new airport would have cost minus bond repayments and costs to develop the other airports) his capital city seizes up and starts to lose business investment, conferences, sporting and leisure events and so on. And that doesn’t take into account the sunk costs that have been absorbed already in the abandoned project.

On the other hand, some of South America’s capitals and major cities operate with two or more airports serving them, (São Paulo, Rio de Janeiro, Buenos Aires, Medellín for example), and others will (Cartagena, Bogotá).

The other question is where this leaves Toluca, the partially privately owned and operated airport which was previously overlooked in favour of the construction of the new airport. Its operation is now partly in the hands of Aleatica, a subsidiary of IFM Investors, which took over the 49% shareholding of OHL Concesiones. IFM is an aggressive organisation which will doubtless wish to capitalise on this scenario. It must have a future because in mid Dec-2018 Mexico’s Undersecretary of Finance Arturo Herrera said MXN5000 million (USD248.7 million) will be dedicated to continue the construction of a rail link to the airport.