Polishing up Poland's airports

By bne IntelliNews July 30, 2008

Matthew Day in Warsaw -

Along with aircraft, fat cheques could soon be arriving at Poland's regional airports. Across the country, airports have readied themselves to receive funding, and spend lavishly in return, in a massive overhaul of Poland's aviation infrastructure.

This summer has already seen the European Commission approve €300m in state aid for the construction of a new airport in the eastern city of Lublin and a revamp of Gdansk's. In addition to this, Poland's other airports, and developers hoping to build on green-field sites, are salivating at the prospect of money from EU structural funds.

With additional cash expected from private investors, one study by Polish Market Review estimates that between 2007 and 2013, the sector should see around €1.2bn in total investment.

Reasons to be cheerful

The reason why money's expected to pour in has much to do with Poland's dynamic aviation market, powered by a thriving economy, Poles' growing appetite for travel and the growth of low-cost carriers. "In 2007, there was passenger growth in Poland of more than 11% and the same is forecast for the coming years," says Nadine Gilles, a board member at Meinl Airport Managers, a firm that became one of the first foreign players in the Polish airport sector when it bought an initial 24.9% stake in Bydgoszcz airport this year. "In comparison, the European average has been 5.6%, so you are seeing more than double that in Poland. It's the most dynamic market in the world, even more so than China, and therefore it's an attractive market for us."

Meinl, which has committed €23.5m to Bydgoszcz and will also put money into the Sochaczew airport development near Warsaw, estimates that passenger numbers at Bydgoszcz should soar from the 200,000 seen in 2007 to 300,000 in 2008, and adds that 1m is an attainable figure.

Such confidence may not be misplaced. Conservative estimates from Poland's Civil Aviation Authority, which in the past has underestimated the volume of passenger growth, show that passenger numbers may grow from 18.4m in 2008 to 63.8m by 2030.

At the same time as passengers flood in, the pressing need to build new facilities and upgrade existing facilities has also spurred investment. With 3.2m inhabitants per airport in comparison to the EU15 average of 460,000, the Polish airport sector has room for growth, while the existing facilities, like much of Polish infrastructure, have suffered from years of neglect that has rendered them shoddy and limited in capacity. "Take Warsaw's Etuda terminal," says Sebastian Gosciniarek, senior manager for transport infrastructure at PricewaterhouseCoopers in Warsaw. "There are no decent facilities, even to meet the standards of a low-cost terminal. There is a similar situation at most regional airports; they are uncomfortable and offer poor quality for both arriving and departing passengers. So there is still a lot to be done in terms of both quality and capacity."

Gosciniarek also dismisses fears that the catalogue of problems surrounding the construction of Warsaw's Terminal 2 might restrain investor enthusiasm.

Delivered late and over budget, and characterised by a bitter argument – now being fought in the courts – between the airport's operator, the state owned PPL, and Grupo Ferrovial, the parent company of the general contractors, Terminal 2 undermined and tarnished efforts to improve Poland's infrastructure, but Gosciniarek says no precedent has been set.

"Yes, the Terminal 2 case came with an unacceptable two-year delay and a lesson to be learnt," he explains. "There are different opinions over who was guilty and one such opinion is that it was not the fault of PPL but the contactor. But anyway, the case will not make investors reluctant to enter the market. The business is really attractive, there is a lot of money to be spent and there is a lot to be earned. Maybe some investors may be more conservative because of Terminal 2 in their assumptions and in their projections and approach, but I'm sure that this will not result in a lack of investment or interest."

Meinl is one investor unperturbed by the problems in Warsaw. Gilles describes the company's relationship with PPL, and the state sector in general, in glowing terms, stressing that they have never experienced problems. She adds that the company is also planning further investment in Poland's airports. This, she explains, underlines the Meinl's belief that when it comes to Poland, airports are the place to be.

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