TCI Issues Statement On AENA, The Spanish Airports Operator

-- TCI warns against illegal actions of the CNMC, which may cause material harm to AENA and damages investor confidence in Spanish capital markets

LONDON, May 27, 2015 /PRNewswire/ -- The Children's Investment Fund Management (UK) LLP ("TCI"), a London-based investment firm managing in excess of $10 billion in assets, released the below statement regarding AENA, S.A. (AENA.MC) ("AENA"), the Spanish airports operator. TCI is the second largest shareholder of AENA, with over 7.7%, behind the Spanish government, which owns 51%.

"International investors were fundamental to the Spanish government's effort to sell 49% of AENA to the public in one of the largest eurozone privatizations. The Spanish government actively encouraged foreign investment through this process, and because of the support of TCI and other international investors, the IPO of AENA in February 2015 was a major success.  It was the largest IPO in Spain since the financial crisis, and signaled that Spain was able to attract foreign investment to drive economic growth.

"Investors thoroughly evaluated AENA, including the regulatory framework and agreements related to how airport costs are allocated to AENA and the airlines in the 46 airports AENA manages throughout Spain. Both the regulatory framework and the cost allocation agreements were well established, and factored materially into how the IPO was priced and sold. According to the existing framework (Act 18/2014), the tariff charges paid by airlines to AENA to reimburse AENA for the airline's share of airport costs, will be frozen for the next 10 years.   

"Now, just two months after the IPO, the Spanish Comision Nacional de los Mercados y la Competencia ("CNMC") (National Markets and Competition Commission) issued a resolution seeking to change the allocation of airport costs materially, shifting costs from the airline companies onto AENA, which is likely to cause economic damage to AENA exceeding €1 billion. 

"This resolution is arbitrary and unexpected as the CNMC, which is not a regulatory body, has no legal or regulatory authority over the way by which airport costs are allocated. The Direccion General de Aviacion Civil (General Directorate on Civil Aviation) stated that the CNMC criteria were illegal when the CNMC published information on its intention to apply a new methodology. Further, TCI has commissioned two leading Spanish law firms to study this issue and both have come unequivocally to the same conclusion.

"Separately, the cost methodology in the CNMC's resolution is logically flawed and has no international precedent in the airport sector. It departs from established global methods for allocating costs between airline companies and airport operators, as recommended by the International Civil Aviation Organization ("ICAO"). The CMNC's methodology also departs from the established methodology currently in use between AENA and the airlines in Spain, and approved by all regulators in preceding years.  

"Finally, the tariffs AENA charges to airlines are already below industry averages. The 10-year freeze established by law in 2014 will result in an annual decrease in the tariff on an inflation-adjusted basis, as compared to most airport tariffs which automatically rise based on inflation. What the CNMC is seeking to do would result in boosting the profits of foreign airline companies at the expense of AENA, harming AENA's owners including the Spanish government, and impacting AENA's resources and international competitiveness, which the government sought to improve through the IPO.    

"The CNMC's surprise action creates legal uncertainty not only for investors in AENA, but in all Spanish regulated entities. Just as Spain is emerging from its economic downturn, the CNMC's proposed actions damage confidence in Spanish capital markets by raising questions over whether the rule of law will be upheld.

"On 13 May, AENA, which continues to be majority owned by the Spanish government, filed a judicial claim before Spain's Audiencia Nacional (National Court) against the CNMC's resolution.  On 18 May, a TCI fund subsidiary filed an additional and complementary judicial claim with the Audiencia Nacional. Both claims ask that the effects of the CNMC's resolution be suspended until the Audiencia Nacional is able to rule on the matter."

Background Information:

• AENA, S.A. ("AENA") is the largest operator of airport terminals. The Madrid-based company operates 46 terminals in Spain and 15 outside of Spain.
• The Children's Investment Fund Management (UK) LLP ("TCI") is a London-based investment firm that manages in excess of $10 billion.
• In 2014, the Spanish government initiated a process to sell 49% of AENA to outside investors in order to help AENA take advantage of its leading position to grow internationally.
• The IPO was completed on 11 February 2015. It was a major success for Spain, raising €4.3 billion, and was the largest IPO in Spain since the financial crisis, and the largest IPO in Europe since 2011.
• According to the existing framework (Act 18/2014) the tariff charges paid by airlines to AENA to reimburse AENA for the airline's share of airport costs, will be frozen for the next 10 years until 2025. This mechanism offers strong visibility to airlines, as most other international airports have tariffs which are indexed to the CPI and therefore increase yearly. In Spain, tariffs will be frozen for 10 years, representing an annual reduction on an inflation-adjusted basis.
• On 23 April 2015, the Spanish Comision Nacional de los Mercados y la Competencia ("CNMC") (National Markets and Competition Commission) issued a resolution directing a change in the tariff structure that would have the effect of decreasing AENA tariffs and therefore allocating more airport costs away from airlines.
• The CNMC's responsibilities involve monitoring price setting discussions to ensure fair and transparent processes, and resolving disputes with the users, but the CNMC does not have the authority to regulate or dictate prices.
• In May 2015, both AENA and a TCI fund subsidiary filed judicial claims with Spain's National Court, the Spanish Audiencia Nacional, challenging the CNMC resolution, and seeking additionally to have the resolution suspended until the Audiencia Nacional is able to rule on the matter.
• Should the CNMC succeed in its efforts, AENA and its shareholders, including the Spanish government which owns 51% of AENA, would suffer material damages that could exceed €1 billion. The CNMC's proposed methodology would boost airline profits at the expense of AENA.
• As the CNMC monitors regulated price setting discussions across Spain, the potential that it exceeds its mandate and attempts similar tactics in other regulated activities creates uncertainty for investors in Spanish companies and damages investor confidence in Spanish capital markets at a time when Spain is emerging from its economic downturn.