US embassy cable - 03TEGUCIGALPA2302

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 002302 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN AND EB/TRA 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, EINV, PGOV, HO 
SUBJECT: INTERAIRPORTS AT AGE THREE: A NEW CONTRACT, A NEW 
START? 
 
1. (SBU) Summary: InterAirports, the international consortium 
that operates Honduras' four international airports, has 
recently renegotiated its contract with the GOH.  The new 
contract would resolve many of the issues that have troubled 
InterAirports in its three years of operation, specifically 
the matter of a financing guarantee to allow InterAirports to 
continue work on renovations.  The renegotiated contract has 
been heavily criticized in the press as offering too much to 
InterAirports and not enough to the GOH, but GOH and 
Congressional leaders believe the chances of passage are 
good, indicating there were only a few points of concern. 
End Summary. 
 
2. (SBU) EconOffs have held several meetings in recent weeks 
and months to discuss the ongoing negotiations between 
InterAirports and the GOH.  From InterAirports EconOffs have 
met with the General Manager Elida Howell, a Honduran, and 
Carlos Vidal Ferreira, the leader of the recent negotiations, 
a Portuguese national who works for Soares de Costa, the 
largest partner in the consortium.  From the GOH, EconOff met 
with Vice Minister for Transportation Eduardo Pavon, and 
Ambassador and EconCouns discussed the issue briefly with the 
President of Congress at a mid-September luncheon.  EconOff 
has also received a copy of the renegotiated InterAirports 
contract that is currently awaiting approval by Congress. 
 
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Background 
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3. (SBU) In October 2000, operation of Honduras' four 
international airports (in Tegucigalpa, San Pedro Sula, La 
Ceiba and Roatan) was granted to an international consortium 
called InterAirports.  The consortium is made up of Soares de 
Costa S.A. (of Portugal, with roughly 25 percent ownership), 
Calmaquip Engineering Corporation (USA, 22 percent), SERLIPSA 
Swissport S.A. (Peru, 20 percent), Pacific Architects and 
Engineers, Inc. (USA, 18 percent), San Francisco Airports of 
Honduras (USA/Honduras, 10 percent) and the local businessman 
Raul Torres Lazo (Honduras, 5 percent).  Currently American 
businesses comprise just over 50 percent ownership of the 
consortium, though this will likely fall to 40 percent in the 
months ahead (see paragraph 11 below).  While InterAirports 
is responsible for maintenance and operations at the 
airports, safety and security remain the responsibility of 
the Director General of Civil Aviation (DGAC), currently 
under the leadership of Cesar Vasquez (see septel for an 
overview of airport security issues in Honduras). 
 
4. (SBU) Initial problems faced by InterAirports included a 
sharp increase in cargo and handling fees that was not well 
explained to the public, which led to a public backlash and a 
court case.  In August 2001 the fees were lowered and 
InterAirports secured a public declaration from leading 
private sector figures that the new rates were fair and 
reasonable, but the damage in the court of public opinion was 
already done.  Comment: InterAirports claims the government 
had raised the fees previously but left the blame to the 
consortium.  End comment. 
 
5. (SBU) A further dispute then developed over the 
renovations to the four airports that InterAirports had 
agreed to undertake.  As explained by InterAirports President 
Vidal Ferreira, these renovations were to be funded by three 
sources: equity from InterAirports' shareholders, cashflow 
from their operations, and a bank loan, which was to be 
obtained using the airports concession as collateral. 
However the GOH refused to allow the concession to be used as 
collateral (despite a provision in the contract which, 
according to InterAirports, required the government to 
authorize the financial guarantee).  While the issue remained 
unresolved, InterAirports was prevented from obtaining 
financing and could not proceed with renovations.  As project 
due dates specified in the concession contract passed without 
progress on the renovations, InterAirports found itself 
subject to fines of USD 20,000 per day, which began accruing 
on May 16th.  InterAirports, in the meantime, began 
preparations for submitting the dispute to international 
arbitration in London. 
 
6. (SBU) InterAirports and the GOH subsequently agreed to a 
renegotiation of the concession contract in order to address 
the financial guarantee, to rebalance the responsibilities 
and income attributed to the consortium, and to allow the 
lowering of some fees in order to increase competitiveness. 
These negotiations began in June 2003 and ended in late July, 
though the fact that negotiations were taking place was not 
made public until August.  The GOH was represented in these 
negotiations by Minister of Tourism Thierry Pierrefeu, who 
together with InterAirports General Manager Howell made a 
presentation to Congress in late August on the benefits of 
the new contract.  A vote is expected in the next few weeks. 
 
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What's in the new contract 
-------------------------- 
 
7. (SBU) The new contract resolves the current dispute by 
explicitly stating that InterAirports may use its concession 
as a guarantee to receive financing for the renovation 
projects, something that was not stated in sufficiently clear 
terms in the original contract.  While the new contract does 
not address the punitive fines directly, it effectively 
eliminates the issue by rescheduling the due dates for the 
projects that InterAirports is contracted to undertake. 
(According to the new schedule renovations to the airports in 
San Pedro Sula, La Ceiba and Roatan would be completed in 
2004, and to Toncontin International Airport in Tegucigalpa 
by July 2005.) 
 
8. (SBU) The new contract also reduces, by an average of 45 
percent, the landing and parking fees charged, a change which 
the GOH hopes will make Honduran airports more competitive in 
the region and help the country attract more air traffic. 
(International landing fees are reduced from USD 4 to USD 
2.40 per ton, international parking fees are reduced from USD 
1 to US 40 cents per ton per hour, with somewhat smaller 
reductions in fees for national flights.)  In return, 
however, InterAirports is allowed to keep a larger share of 
its revenue: the percentage paid to the GOH is reduced from 
39.7 percent to 34.4 percent. 
 
9. (SBU) Cargo fees are unchanged from the level that was 
negotiated with the private sector in 2001.  While these fees 
continue to receive criticism, Howell stressed in her 
presentation before Congress that they are lower than the 
fees charged in either El Salvador or Costa Rica, the other 
two Central American countries in which the airports are 
privately owned. 
 
--------------------- 
Goodbye San Francisco 
--------------------- 
 
10. (SBU) Another aspect of the new contract which has 
received significant attention is the requirement that a new 
partner take the place of San Francisco Airports of Honduras 
(a.k.a. SFO Honduras) within two months of the contract's 
approval.  The involvement of SFO Honduras has been 
controversial from the start.  The fact that SFO Honduras is 
a legally separate entity from the San Francisco 
International Airport was interpreted in the Honduran press 
as some kind of trick, in which the GOH had been fooled into 
believing that InterAirports included members with experience 
and expertise in operating a major international airport, 
when in fact this was not the case.  Some critics of 
InterAirports continue to argue that the granting of the 
concession to InterAirports in 2000 was not legally valid, 
since SFO Honduras does not qualify as an "operator" as 
defined by the terms of the concession. 
 
11. (SBU) In reality, Howell said that InterAirports has had 
no problems working with SFO Honduras, and the legal 
separation between SFO Honduras and the San Francisco 
International Airport has been misinterpreted and is typical 
in the industry.  (The company most likely to take San 
Francisco's place in the consortium, Vancouver Airport 
Services, is itself legally separate from the Vancouver 
International Airport Authority.)  Furthermore, San Francisco 
had already decided to pull out of InterAirports, for their 
own reasons, before the contract renegotiations began in 
June.  Thus, InterAirports was able to offer the replacement 
of SFO Honduras as a free bargaining chip in the 
negotiations, presenting as a concession something that was 
going to happen anyway. 
 
--------------------------------------- 
Perceptions of the Public and the Press 
--------------------------------------- 
 
12. (SBU) InterAirports still must contend with consistently 
negative portrayal in the press, fueled by the former 
operators, some members of the business community, and the 
consortium's Honduran "partner".  The press has created the 
public perception that the company has cheated the government 
and the people of Honduras.  Media reaction to the new 
contract has focused on the fact that InterAirports will not 
have to pay the fines for falling behind schedule on 
renovations, and on the reduction of the share of revenues 
that the GOH will receive.  The press does not mention the 
GOH's failings to meet its contractual obligations. 
Headlines such as "They're raising fees, and they won't even 
be punished!" are unfortunately typical - misstating the 
facts (since the new contract doesn't raise fees) while 
indignantly criticizing the government for being too soft on 
a company that ought to be penalized.  In August, a newspaper 
cartoon portrayed InterAirports as a fat, laughing 
businessman, riding on the back of a departing plane, 
carrying a suitcase bulging with U.S. dollars. 
 
----------------------------- 
The New Contract and Congress 
----------------------------- 
 
13. (SBU) In a meeting on September 22nd, Vice Minister of 
Transportation Eduardo Pavon explained that the vote in 
Congress is being delayed so that members of Congress can 
prepare for the negative public reaction that approval of the 
contract will generate.  Pavon said that Congressmen need 
some time to develop justifications and explanations of the 
contract so that they will be able to answer "to the people". 
 However in private meetings, according to Pavon, leaders of 
both major parties (National and Liberal) and several minor 
parties have expressed their support for the new contract, 
and he expressed confidence that it will eventually be 
approved. 
 
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Comment 
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14. (SBU) The GOH and InterAirports appear to have 
successfully stepped back from the brink.  The assignment of 
Minister of Tourism Pierrefeu to repair the relationship and 
sell Congress on the benefits of a revised contract was 
advantageous.  It is finally looking as if a resolution is in 
sight, although, in typical Honduran fashion, the contract's 
progress through Congress is slow.  The Embassy remains 
convinced that success in this concession is vital to pave 
the way for privatization in other important sectors.  End 
comment. 
Palmer