20-F 1 tm2037704d1_20f.htm 20-F

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2020
Commission File Number 1-15132

 

Grupo Aeroportuario del Sureste, S.A.B. de C.V.

(Exact name of registrant as specified in its charter)

 

Southeast Airport Group United Mexican States
(Translation of registrant’s name into English) (Jurisdiction of incorporation or organization)

 

 

 

Bosque de Alisos No. 47A – 4th Floor
Bosques de las Lomas
05120 Ciudad de México
Mexico
(Address of principal executive offices)

 

 

 

Adolfo Castro Rivas

CEO

Grupo Aeroportuario del Sureste, S.A.B. de C.V.

Bosque de Alisos No. 47A – 4th Floor
Bosques de las Lomas
05120 Ciudad de México
México
Telephone: + 52 55 5284 0408

acastro@asur.com.mx 

(Name, telephone, e-mail and/or facsimile number
and address of company contact person)

 

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class: Trading Symbol(s): Name of each exchange
on which registered
Series B Shares, without par value, or shares   New York Stock Exchange, Inc.*
American Depositary Shares, as evidenced by American
Depositary Receipts, or ADSs,
each representing ten Series B shares

 

ASR

 


New York Stock Exchange, Inc.

 

*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and
Exchange Commission.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Series B Shares, without par value: 277,050,000

 

Series BB Shares, without par value: 22,950,000

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No ¨

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. Yes ¨ No x

 

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act, (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Emerging growth company ¨

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨    IFRS x    Other ¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

 

 

 

 

 

Item 1. Identity of Directors, Senior Management and Advisers   1 
Item 2. Offer Statistics and Expected Timetable   1 
Item 3. Key Information   1 
Selected Financial Data   1 
Risk Factors   5 
Forward Looking Statements   45 
Item 4. Information on the Company   46 
History and Development of the Company   46 
Business Overview   53 
Mexican Regulatory Framework   87 
Puerto Rican Regulatory Framework   107 
Colombian Regulatory Framework   118 
Organizational Structure   125 
Property, Plant, And Equipment   125 
Item 4A.   Unresolved Staff Comments   126 
Item 5. Operating and Financial Review and Prospects   126 
Item 6. Directors, Senior Management and Employees   170 
Item 7. Major Shareholders and Related Party Transactions   178 
Major Shareholders   178 
Related Party Transactions   179 
Item 8. Financial Information   181 
Dividends   182 
Item 9. The Offer and Listing   183 
Trading Markets   183 
Item 10. Additional Information   184 
Material Contracts   199 
Exchange Controls   200 
Taxation   200 
Documents On Display   208 
Item 11. Quantitative and Qualitative Disclosures About Market Risk   209 
Item 12. Description of Securities Other Than Equity Securities   210 
Item 13. Defaults, Dividend Arrearages and Delinquencies   217 

 

i

 

 

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds   217 
Item 15. Controls and Procedures   217 
Item 16. Reserved   218 
Item 16A. Audit and Corporate Practices Committee Financial Expert   218 
Item 16B. Code of Ethics   218 
Item 16C. Principal Accountant Fees and Services   219 
Item 16D. Exemptions from the Listing Standards for Audit and Corporate Practices Committees   219 
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers   220 
Item 16F. Change in Registrant’s Certifying Accountant.   220 
Item 16G.Corporate Governance   221 
Item 16H. Identity of Directors, Senior Management and Advisers   223 
Item 17. Financial Statements   224 
Item 18. Financial Statements   224 
Item 19. Exhibits   225 

 

ii

 

 

PART I

 

Item 1.Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

Item 2.Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3.Key Information

 

SELECTED FINANCIAL DATA

 

We publish our financial statements in Mexican pesos. The financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Pursuant to IFRS, financial data in the financial statements included in Items 3, 5 and 8 and, unless otherwise indicated, throughout this Form 20-F are stated in Mexican pesos. Our financial statements for the year ended December 31, 2020 were approved by our Board of Directors by recommendation of the Audit Committee and are subject to approval by our shareholders at the next annual stockholders’ meeting.

 

This Form 20-F contains translations of certain Mexican peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the Mexican peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps.19.892 to U.S.$1.00, the exchange rate for pesos on December 31, 2020 as published by the U.S. Federal Reserve Board. On April 2, 2021, the noon buying rate for Mexican pesos, as published by the U.S. Federal Reserve Board was Ps.20.305 per U.S.$1.00.

 

The following tables present a summary of our consolidated financial information and that of our subsidiaries for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, our financial statements, including the notes thereto.

 

References in this annual report on Form 20-F to “dollars,” “U.S. dollars” or “U.S.$” are to the lawful currency of the United States of America. References in this annual report on Form 20-F to “pesos,” ‘Mexican pesos” or “Ps.” are to the lawful currency of the United Mexican States. References to “Colombian pesos” or “COP$” are to the lawful currency of the Republic of Colombia. We publish our financial statements in Mexican pesos.

 

This annual report on Form 20-F contains references to “workload units,” which are units measuring an airport’s passenger traffic volume and cargo volume. A workload unit currently is equivalent to one terminal passenger or 100 kilograms (220 pounds) of cargo.

 

1

 

 

The summary financial and other information set forth below reflects our financial condition, results of operations and certain operating data since the year ended December 31, 2016. On May 26, 2017, we acquired an additional 10.0% interest in our former joint venture, Aerostar Airport Holdings, LLC (“Aerostar”), the operator of Luis Muñoz Marín International Airport (“LMM Airport”), increasing our participation to 60.0%. The acquisition is considered a business combination as of May 31, 2017, and as of June 1, 2017, we began to consolidate the results of Aerostar into our financial statements. On October 19, 2017, we acquired 92.42% of the capital stock of Sociedad Operadora de Aeropuertos Centro Norte, S.A. (“Airplan”). As of October 19, 2017, we began to consolidate the results of Airplan into our financial statements. On May 25, 2018, we increased our ownership stake in Airplan to 100% by acquiring an additional 7.58% of Airplan’s capital stock. The financial information included in the table below is derived from our audited consolidated financial statements, with the exception of the amounts presented in U.S. dollars, information regarding ADSs and other operating data.

 

       As of and for the year ended December 31, 
       2016       2017       2018       2019       2020 
                                         
Consolidated Income
Statement Data:
        (thousands of Mexican pesos)(1)                         (thousands of dollars) (2)  
                                                 
Revenue:                                                            
Aeronautical services(3)   Ps.    4,532,194    Ps.    6,484,219    Ps.    8,942,910    Ps.    9,596,975    Ps.    5,412,418    U.S.$    272,090 
Non-aeronautical services(4)        3,104,343         4,261,383         5,531,557         5,988,470         3,555,227         178,726 
Construction services(5)        2,116,954         1,844,216         935,774         1,236,193         3,657,086         183,847 
Total revenue        9,753,491         12,589,818         15,410,241         16,821,638         12,624,731         634,663 
Operating costs and expenses:                                                            
Cost of services        (1,336,385)        (2,309,625)        (3,549,628)        (3,830,853)        (2,971,655)        (149,389)
Construction expenses        (2,116,954)        (1,898,550)        (935,774)        (1,236,193)        (3,657,086)        (183,847)
Administrative expenses        (204,843)        (204,418)        (235,264)        (250,183)        (232,935)        (11,710)
Technical assistance fee(6)        (288,111)        (346,487)        (386,249)        (404,086)        (175,615)        (8,828)
Government concession fee(7)        (344,939)        (468,695)        (898,253)        (986,850)        (535,379)        (26,914)
Depreciation and amortization        (529,660)        (1,166,114)        (1,760,741)        (1,836,897)        (1,934,766)        (97,264)
Goodwill impairment(8)        ---         (4,719,096)        ---         ---         ---         --- 
Total operating costs and expenses        (4,820,892)        (11,112,985)        (7,765,909)        (8,545,062)        (9,507,436)        (477,953)
Other income(9)        ---         ---         134,637         204,719         158,881         7,987 
Operating Profit        4,932,599         1,476,833         7,778,969         8,481,295         3,276,176         164,697 
    Interest income        184,569         245,787         280,623         343,612         262,370         13,190 
    Interest expense        (126,186)        (618,831)        (1,230,651)        (1,084,293)        (926,312)        (46,567)
    Exchange gain on foreign currency        738,648         761,782         462,218         278,641         334,150         16,798 
    Exchange loss on foreign currency        (842,500)        (620,572)        (374,460)        (357,518)        (89,074)        (4,478)
Comprehensive financing result        (45,469)        (231,834)        (862,270)        (819,558)        (418,866)        (21,057)
Participation in the results of joint ventures accounted for by the equity method(10)        144,248         112,345         ---         ---         (1,618)        (81)
Gain from business combinations        ---         7,029,200         ---         ---         ---         --- 
Net income before taxes        5,031,378         8,386,544         6,916,699         7,661,737         2,855,692         143,560 
Income tax        (1,402,116)        (1,636,379)        (1,796,893)        (1,978,102)        (729,155)        (36,656)
Net income        3,629,262         6,750,165         5,119,806         5,683,635         2,126,537         106,904 

 

2

 

 

Net income for the year attributable to controlling interest        ---         5,834,484         4,987,601         5,465,822         1,972,319         99,151 
Non-controlling interest        ---         915,681         132,205         217,813         154,218         7,753 
Basic and diluted earnings per share(11)        12.1         19.45         16.63         18.22         6.57         0.3 
Basic and diluted earnings per ADS(12)        120.98         194.5         166.25         182.19         65.74         3.3 
Dividends per share(13)        5.6         6.16         6.78         10         -         - 
Other Operating Data:                                                            
Total passengers (thousands of passengers)        28,407.05         37,534         52,269         55,662         25,589         25,589 
Colombia(14)        ---         1,906         10,648         12,052         4,215         4,215 
Mexico        28,407.05         31,053         33,247         34,192         16,529         16,529 
Puerto Rico(15)        ---         4,575         8,374         9,448         4,845         4,845 
Total air traffic movements (thousands of movements)        316.24         328.8         342.1         335.5         205.6         205.6 
Colombia        ---         ---         ---         ---         ---         --- 
Mexico        316.24         328.8         342.1         335.5         205.6         205.6 
Puerto Rico        ---         ---         ---         ---         ---         --- 
Total revenues per passenger        343.3         335.4         294.8         302.2         493.4         24.8 
Colombia        ---         252.9         186.5         172.1         188.1         9.5 
Mexico        343.3         341.7         312.8         334.9         540.2         27.2 
Puerto Rico        ---         327.3         261.3         349.9         599.0         30.1 
Consolidated Balance Sheet Data:                                                            
                                                             
Cash and cash equivalents   Ps.    3,497,635    Ps.    4,677,454    Ps.    4,584,507    Ps.    6,192,679    Ps.    5,192,628    U.S. $    261,041 
Total current assets        4,233,018         5,787,862         6,000,912         7,845,856         7,716,049         387,897 
Account receivable from joint venture        1,886,546         ---         ---         ---         -         - 
Investments in joint ventures accounted for by the equity method        2,489,302         ---         ---         ---         8,466         426 
Intangible assets, airport concessions and goodwill - Net        20,284,126         50,353,003         49,586,322         49,126,038         52,182,311         2,623,281 
Total assets        29,216,091         56,614,103         56,181,821         57,515,881         60,411,211         3,036,960 
Current liabilities        593,183         2,408,649         2,408,222         2,560,020         2,767,087         139,106 
Total liabilities        6,462,137         22,925,802         19,500,432         18,744,704         18,718,005         940,982 
Capital stock        7,767,276         7,767,276         7,767,276         7,767,276         7,767,276         390,472 
Net equity/stockholders’ equity        22,753,954         33,688,301         36,681,389         38,771,177         41,693,206         2,095,979 
Consolidated Cash Flow Data:                                                            
                                                             
Cash flow provided by operating activities        4,509,387         6,031,135         7,696,320         8,501,692         2,937,143         147,654 
Cash flow generated (used) in financing activities        (1,789,873)        81,533         (6,476,664)        (4,427,870)        (1,142,310)        (57,426)
Cash flows used in investing activities        (1,366,696)        (4,961,153)        (1,311,957)        (2,390,173)        (2,876,000)        (144,581)
(Decrease) Increase in cash and cash equivalents        1,352,818         1,151,515         (92,301)        1,683,649         (1,081,167)        (54,352)

 

 

 

(1)Except for operating data. Per share and per passenger Mexican peso amounts are expressed in pesos (not thousands of pesos).
(2)Except for operating data. Translated into dollars at the rate of 19.892 per U.S. dollar, the Federal Reserve Board exchange rate for Mexican pesos at December 31, 2020. Per share and per passenger dollar amounts are expressed in dollars (not thousands of dollars). Figures expressed in U.S. dollars are unaudited.
(3)Revenues from aeronautical services include those earned from passenger charges, landing charges, aircraft parking charges, charges for airport security services and charges for use of passenger walkways.

 

3

 

 

(4)Revenues from non-aeronautical services are earned from the leasing of space in our airports, access fees collected from third parties providing services at our airports and miscellaneous other sources.
(5)Revenues from construction services includes construction services and expenses related to the improvements of assets under concession, are recognized in accordance with the methods (input method) prescribed for measuring progress towards completion of each project, as approved by the grantor. Since the Company hires third-party vendors to provide construction services, the revenue related to those services is equal to the fair value of the services received.
(6)Since April 19, 1999, we have paid Inversiones y Técnicas Aeroportuarias, S.A.P.I. de C.V. (“ITA”) a technical assistance fee under the technical assistance agreement entered into in connection with the purchase by ITA of its Series BB shares. This fee is described in “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Arrangements with ITA.”
(7)Each of our Mexican subsidiary concession holders is required to pay a concession fee to the Mexican government under the Mexican Federal Duties Law. The concession fee is currently 5.0% of each Mexican concession holder’s gross annual regulated revenues from the use of public domain assets pursuant to the terms of its concession.
(8)Reflects a Ps.4,719.1 million impairment that was determined while carrying out a deterioration test of long-term assets as a result of the effects of Hurricane Maria in Puerto Rico in September 2017.
(9)Reflects insurance recovery during 2018 in connection with damage to airport infrastructure caused by Hurricane Maria.
(10)Reflects our equity participation in the net income (loss) of Aerostar Airport Holdings, LLC, the operator of LMM Airport. We increased our participation in Aerostar to 60% as of May 26, 2017 and starting June 1, 2017, began to consolidate Aerostar’s results into our financial statements.
(11)Shares outstanding for all periods presented were 300,000,000.
(12)Based on the ratio of 10 Series B shares per ADS.
(13)Dollar amounts per share were U.S.$0.2716 in 2016, U.S.$0.3136 in 2017, U.S.$0.3453 in 2018 and U.S.$0.5302 in 2019 and per ADS were U.S.$2.716 in 2016, U.S.$3.136 in 2017, U.S.$3.453 in 2018 and U.S. $5.302 in 2019. No dividends were distributed in 2020. Per share dollar amounts are expressed in dollars (not thousands of dollars).
(14)We began to consolidate the results of our Colombian airports as of October 19, 2017.
(15)We began to consolidate the results of Aerostar as of June 1, 2017.

 

4

 

 

RISK FACTORS

 

Risks Related to Our Operations

 

The COVID-19 pandemic has had and could continue to have a negative impact on our operations.

 

The outbreak of the coronavirus disease 2019 (“COVID-19”) began in December 2019, and on January 30, 2020, the World Health Organization (“WHO”) designated the outbreak a public health emergency of international concern. Travel advisories and restrictions were issued for people traveling to and from certain areas and countries, including, in some cases, the closure of international borders. Airlines, in many cases, temporarily suspended or reduced flights to and from those areas and countries. In addition, on March 8, 2020, the U.S. Department of Health and Human Services’ Center for Disease Control and Prevention (“CDC”) issued traveler advice recommending that travelers postpone cruise ship travel worldwide and that older adults and travelers with underlying health issues avoid, among other things, non-essential long plane trips. On March 11, 2020 the WHO designated the outbreak of COVID-19 a pandemic.

 

On March 19, 2020, the United States issued a travel advisory recommending that citizens avoid all international travel. The following day, on March 20, 2020, the United States closed its land border with Mexico, except to permit essential travel and trade and commerce. The closure has been extended to at least April 21, 2021.

 

On March 23, 2020, the United States Federal Aviation Authority (“FAA”) approved a request by the Governor of the Commonwealth of Puerto Rico (“Puerto Rico”) to redirect all commercial flights bound for Puerto Rico through LMM Airport and that all passengers be screened by representatives of the Puerto Rico Health Department. On March 30, 2020, the Governor of Puerto Rico, through an executive order of indefinite term, imposed a two-week quarantine on all passengers arriving at the LMM Airport. Starting on July 15, 2020, the Governor of Puerto Rico began implementing the following additional measures: all passengers must wear a mask, complete a mandatory flight declaration form from the Puerto Rico Health Department and submit negative results of a PCR molecular COVID-19 test taken 72 hours prior to arrival to avoid having to undergo the two-week quarantine. The LMM Airport has remained open and operating throughout the COVID-19 pandemic, albeit with substantially reduced flight and passenger volumes.

 

Beginning on January 26, 2021, by CDC order, within three days of departure to the United States, air passengers entering the United States are required to obtain a viral test and provide the airline on which they are traveling written documentation of their negative test result or documentation that evidences that they have recovered from COVID-19. Additionally, passengers must get tested again 3 to 5 days after arrival in the United States and self-quarantine for 7 days after their arrival. Beginning on January 7, 2021, Canada established similar testing requirements for air passengers travelling to Mexico. Subsequently, the Canadian government suspended flights between Canada, Mexico and the Caribbean until April 30, 2021. Additionally, foreign nationals may not enter Canada for non-essential reasons including leisure, visits, weddings or upkeep of property. As of April 2, 2021, CDC guidelines specify that fully vaccinated travelers and those who recovered from COVID-19 in the past 3 months do not need to get tested before or after travel unless their destination requires and that such travelers do not need to self-quarantine. Unvaccinated travelers must still get tested before and after travel and self-quarantine. Several Mexican airports have implemented COVID-19 test sites certified by the government, which are operated by third parties, who have been granted the space to provide this service at the airports of Cancun, Cozumel, Mérida, Veracruz and Oaxaca.

 

5

 

 

There are currently no travel restrictions from the United States related to COVID-19 specific to Colombia. However, Colombia temporarily barred entry of passengers into its territory beginning on March 23, 2020, including to its own citizens, and on March 24, 2020, Colombia began a nationwide quarantine, which was initially scheduled to last until April 13, 2020. The quarantine was subsequently extended several times through August 31, 2020. All incoming international flights, including connecting flights in Colombia, were suspended by the Colombian government starting March 23, 2020. This suspension was extended through September 21, 2020, with certain exceptions for humanitarian emergencies and transportation of cargo and goods, among others. Similarly, domestic air travel in Colombia was suspended starting March 25, 2020. Consequently, our commercial aviation operations in Colombia were suspended starting as of such dates. Starting September 1, 2020, several of our Colombian airports reestablished passenger commercial flights under the initial phase of the gradual connectivity plan announced by the Civil Aviation Authority in Colombia, and by October 2, 2020, all of our Colombian airports had reestablished passenger commercial flights. International flights to Colombia resumed on September 21, 2020, albeit on a limited basis, as part of the gradual reactivation. Beginning on January 7, 2021, Colombia re-introduced a negative test requirement for entry into its territory, and passengers on incoming international flights to Colombia must submit negative results of a PCR molecular COVID-19 test taken within 96 hours of their departure to Colombia (subject to certain exemptions which permit entry for passengers who verbally state their difficulty in obtaining or receiving the results of a PCR molecular COVID-19 test within the required time period to either take the test in Colombia and remain isolated until receiving a negative test result or forego taking the test and remain in preventative isolation for at least 14 days).

 

Starting on March 15, 2020, Mexico asked its citizens to avoid non-essential international travel, and on March 28, 2020, Mexican health authorities asked residents to reduce their activities and stay at home until April 30, 2020. Mexico’s General Health Council (Consejo de Salubridad General), which reports directly to the Mexican President, has recognized COVID-19 as a disease that requires “priority attention” and on March 30, 2020, declared a national health emergency in response to the COVID-19 pandemic. The Mexican government has implemented various measures to control the spread of COVID-19, including extraordinary actions, such as school closures and the suspension of non-essential activities, in the regions most affected. For purposes of these measures, airports are considered essential and our Mexican airports have remained operational. In June 2020, the Mexican federal government implemented a four-color stoplight system to indicate the risk and restrictions, if any, imposed in each of Mexico’s 32 states. Under “red” in the stoplight system, only essential activities are allowed. As of April 6, 2021, Mexico City is orange, and of the rest of the Mexican states which our airports serve, Yucatan is orange, Oaxaca, Quintana Roo and Tabasco are yellow and Chiapas and Veracruz are green. The stoplight system is updated every fifteen days. We cannot guarantee that any areas currently classified as green, yellow or orange will not turn to red in the future, which could result in restrictions on, among other things, access to beaches and reductions in permissible hotel capacity.

 

6

 

 

The pandemic has decreased overall demand for air travel. The spread and persistence of COVID-19 (and any related travel advisories and restrictions) to regions in which we operate or to regions from which a significant portion of our international passengers or international flights originate has and could continue to disrupt our operations or significantly affect passenger and cargo traffic levels. We experienced a significant reduction in passenger traffic in Puerto Rico, Mexico and Colombia starting in March 2020 as a result of the actions taken by Mexican, U.S., Colombian and other governments and from the broader reduction in demand for air travel caused by the COVID-19 pandemic. Passenger traffic continued to decline sharply across our airport network in the subsequent months, although year over year declines have been lower since June 2020. We took a number of actions in response to the decrease in demand for air travel and passenger traffic, including (a) the temporary closure of terminals 2 and 3 in our Cancún airport, (b) cost reduction initiatives, although most of our cost structure is fixed and (c) the Company entered into new agreements with several airline and commercial clients to extend their payment terms by signing promissory notes, including for any past due amounts, with a maturity of not more than one year in Mexico and Colombia. Most of our cost structure is fixed, and the impact from these cost reduction measures is not expected to be significant vis à vis the potential decline in revenues resulting from the disruption in passenger traffic across the Company’s operations.

 

Several COVID-19 vaccines have been developed or are being developed. the United States has approved three for use, Mexico has approved five for use and Colombia has approved four for use. Access to and distribution of the vaccines varies by area and country, and it appears that the long-term efficacy of the vaccines is still under study. While the development of such vaccines could allow both international and domestic passengers to travel more freely to, from and within the countries and areas in which we operate, vaccination programs are still ongoing and the effect of the vaccines on our operations, including the timing of such effect, cannot be predicted at this time. Even where formal advisories and restrictions have been lifted or reduced, the increased spread or resurgence of COVID-19 could result in the reintroduction of or increase in such formal advisories and restrictions. We expect that the COVID-19 pandemic will continue to severely impact the countries and regions where we operate in 2021. We have established health and safety protocols aimed at enhancing the well-being of passengers and essential operating personnel across the airports we operate. Protective gear is required for staff working on the premises, and sanitization practices in accordance with the guidelines of local health authorities are in place. We have also implemented a remote working policy for staff where possible.

 

The COVID-19 pandemic still affects the industry, recording a high number of cases. To date, the consequences it might have on our business and results remain uncertain. The Company continues assessing this impact, controlling its commitments and implementing actions in response to possible events relating to the COVID-19 contingency that, to date, cannot be estimated.

 

7

 

 

International events, including acts of terrorism, wars and global epidemics, could have a negative impact on international air travel.

 

International events such as the terrorist attacks on the United States on September 11, 2001, wars and public health crises such as the Influenza A/H1N1 pandemic of 2009-2010 and the COVID-19 pandemic have disrupted the frequency and pattern of air travel worldwide in recent years.

 

The terrorist attacks on the United States on September 11, 2001 had a severe adverse impact on the air travel industry, particularly on Unites States’ carriers and carriers operating international service to and from the United States. Airline traffic in the United States fell precipitously after the attacks. In Mexico, airline and passenger traffic decreased substantially, although the decrease was less severe than in the United States. Our airports experienced a significant decline in passenger traffic following September 11, 2001. Any future terrorist attacks, whether or not involving aircraft, will likely adversely affect our business, results of operations, prospects and financial condition.

 

Historically, a majority of our revenues have been from aeronautical services, and our principal source of aeronautical revenues is passenger charges. Passenger charges are payable for each passenger (other than diplomats, infants, transfer and transit passengers) departing from the airport terminals we operate, collected by the airlines and paid to us. In 2020, passenger charges represented 26.1% of our consolidated revenues.

 

On February 1, 2016, the WHO designated the Zika virus and its suspected complications in newborns an international public health emergency. The CDC has issued a travel advisory for people traveling to regions within the Zika virus outbreak, which include popular destinations in Mexico, Colombia and Puerto Rico. While we do not believe these travel advisories to Mexico, Colombia and Puerto Rico have negatively affected the frequency and pattern of travel to our airports, any future public health crises and related travel advisories could disrupt our operations or significantly affect passenger and cargo traffic levels.

 

The COVID-19 outbreak has had and could continue to have a negative impact on our operations. See “Item 3. Key Information—Risk Factors— Risks Related to Our Operations—The COVID-19 pandemic has had and could continue to have a negative impact on our operations.”

 

Because our revenues are largely dependent on the level of passenger traffic in our airports, any general increase of hostilities relating to reprisals against terrorist organizations, further conflict in the Middle East, pandemics or outbreaks of health epidemics such as Influenza A/H1N1, SARS, avian influenza, COVID-19 or other events of general international concern (and any related economic impact of such events) could result in decreased passenger traffic and increased costs to the air travel industry and, as a result, could cause a material adverse effect on our business, results of operations, prospects and financial condition.

 

8

 

 

Hurricanes and other natural disasters have adversely affected our business in the past and could do so again in the future.

 

The southeast region of Mexico and Puerto Rico, like other Caribbean destinations, experience hurricanes, particularly during the third quarter of each year. Portions of the southeast region of Mexico, the Caribbean region of Colombia and Puerto Rico also experience earthquakes from time to time. Natural disasters may impede operations, damage infrastructure necessary to our operations and/or adversely affect the destinations served by our airports. Any of these events could reduce our passenger traffic volume. The occurrence of natural disasters in the destinations we serve has adversely affected, and could in the future adversely affect, our business, results of operations, prospects and financial condition. Some experts believe that climate change due to global warming could increase the frequency and severity of hurricanes in the future. We have insured the physical facilities at our airports against damage caused by natural disasters, accidents or other similar events, but do not have insurance covering losses due to resulting business interruption. Moreover, should losses occur, there can be no assurance that losses caused by damages to the physical facilities will not exceed the pre-established limits on the policies.

 

On October 21, 2005, Hurricane Wilma struck the Yucatán Peninsula, causing severe damage to the infrastructure of the Cancún and Cozumel airports and to our administrative office building in Cancún. The hurricane also inflicted extensive damage on the hotel and tourist infrastructure in Cancún, the Mayan Riviera region and Cozumel, which led to a sharp, short-term reduction in air passenger traffic at our Mexican airports that lasted three fiscal quarters.

 

On September 20, 2017, Hurricane Maria struck Puerto Rico, damaging LMM Airport in San Juan, Puerto Rico and causing significant damage to the entire island. Operations at LMM Airport were suspended at 7:30 pm on September 19, 2017 and resumed on a limited basis on September 21, 2017 with 10 flights, increasing progressively to 41 daily flights by the end of September 2017. Operations at LMM Airport returned to a regular schedule during the fourth quarter of 2017. Terminal buildings of LMM Airport suffered minor damage in sections that were out of operation before the airport was closed. Airport infrastructure was insured against these events. The hurricane inflicted extensive damage on the hotel and tourist infrastructure in Puerto Rico, which led to sharply reduced air passenger traffic at LMM Airport, especially during the third and fourth quarters of 2017. During the third and fourth quarters of 2017, our passenger traffic in Puerto Rico decreased 15.8% relative to the same period in 2016. Our passenger traffic in Puerto Rico also decreased 0.4% in 2018 relative to 2017.

 

In September 2017, a series of earthquakes shook central and southern Mexico. On September 7, 2017, an 8.1 magnitude earthquake struck Chiapas, Oaxaca, killing at least 98 people, injuring over 300 persons, causing the issuance of a tsunami warning for the entire Pacific coast of Central America by the Pacific Tsunami Warning Center, and damaging buildings and roads in Mexico City. On September 19, 2017, a 7.1 magnitude earthquake affected the states of Puebla and Morelos as well as the Greater Mexico City area, killing 370 people and injuring over 6,000 people. The earthquake caused at least 44 buildings in Mexico City to collapse and temporarily shut down Mexico City International Airport. Finally, on September 23, 2017, a 6.1 magnitude earthquake hit Oaxaca, causing six deaths and injuring seven others, resulting in total damage of Ps.9.4 billion. Neither the Mexico City earthquake nor the earthquake in Oaxaca caused substantial damage to our facilities or resulted in material interruptions to our operations.

 

9

 

 

Between December 2019 and February 2020, a series of earthquakes shook Puerto Rico. The first earthquake in the series, a 4.7 magnitude earthquake, struck on December 28, 2019. The last earthquake in the series, a 5.0 magnitude earthquake, struck on February 4, 2020. The largest earthquake in the series was a 6.4 magnitude earthquake that struck on January 7, 2020. The Governor of Puerto Rico declared a state of emergency in response on January 7, 2020. The series of earthquakes caused power and water outages across Puerto Rico and estimates of financial losses exceed U.S. $3 billion. LMM Airport remained open throughout the series of earthquakes. The series of earthquakes did not cause substantial damage to LMM Airport and did not result in material interruptions to our operations.

 

The effects of oil spills could adversely affect our business.

 

The Gulf of Mexico is the site of widespread deep-water oil drilling and extraction. Deep-water oil drilling inherently carries a number of significant risks. On April 21, 2010, there was an explosion on the “Deepwater Horizon” drilling platform operated by BP in the Gulf of Mexico. The oil-drilling platform was located 41 miles from the coast of Louisiana. The explosion and sinking of the platform caused a huge oil spill that spread along the U.S. coast in the Gulf of Mexico, and reached parts of Florida, Louisiana, Mississippi, Alabama and Texas. BP made several attempts to try to contain the spill and capture the oil. On September 19, 2010, the well was successfully plugged and declared “effectively dead.”

 

The oil spill did not affect the destinations served by our Mexican airports. However, if oil spills or similar disasters occur in the future, these destinations could be adversely affected, thereby reducing our volume of passenger traffic. Oil spills or other similar disasters in or around the destinations served by our airports could adversely affect our business, operating results, prospects and financial condition.

 

Our business could be adversely affected by a downturn in the economies of the United States, Mexico or Colombia.

 

The air travel industry, and consequently, our results of operations, are substantially influenced by economic conditions in Mexico, Colombia and the United States. In 2018, 2019 and 2020, 58.4%, 55.7% and 66.2%, respectively, of the international passengers in our Mexican airports arrived or departed on flights originating in or departing to the United States. 53.8%, 52.5% and 45.5% of our revenues from Mexican passenger charges in 2018, 2019 and 2020, respectively, were derived from charges imposed on international passengers. Similarly, in 2018, 2019 and 2020, 47.7%, 48.8% and 55.9%, respectively, of passengers in our Mexican airports traveled on Mexican domestic flights. 46.2%, 47.5% and 54.5% of our revenues from Mexican passenger charges in 2018, 2019 and 2020, respectively, were derived from Mexican domestic passenger charges. When the economies of either the United States or Mexico are in recession, as they were when the gross domestic products of both countries declined in the fourth quarter of 2008 and again in 2009, the number of international passengers in our Mexican airports that arrive or depart on flights originating in or departing to the United States have been adversely affected. Similarly, a recession of the Colombian economy could cause the number of Colombian domestic passengers in our Colombian airports to decline. In 2018, 2019 and 2020, 43.9%, 41.8% and 41.1%, respectively, of our revenues from Colombian passenger charges were derived from Colombian domestic passenger charges.

 

10

 

 

We believe that the results of operations for our Mexican airports were affected differently by the U.S. and Mexican recessions of 2008 and 2009. Because of the perception of Cancún, Cozumel and the Mayan Riviera as more economical vacation destinations, we believe that our Mexican airports were well-placed to take advantage of the economic recovery in the United States following the 2008-2009 recession. We cannot predict how economic conditions in the United States may develop in the future or how these conditions will affect tourism and travel decisions. In addition, whether destinations served by our airports will be viewed as adequate substitutes for other tourist destinations depends on a number of factors, including the perceived violence and security, attractiveness, affordability and accessibility of Cancún, Cozumel and the Mayan Riviera as desirable vacation destinations. We are unable to control many of these factors and, therefore, we cannot assure you that this substitution effect would occur again if the United States were to experience another recession.

 

The outbreak of COVID-19 has adversely affected the economies and financial markets of many countries, including the United States, Mexico and Colombia. The extent to which the COVID-19 outbreak continues to impact these economies will depend on future developments, which are highly uncertain and cannot be predicted, including the duration and scope of the COVID-19 outbreak and the actions taken to contain or treat such outbreak, including the development, access to and distribution of vaccines, within the United States, Mexico and Colombia and around the world. As a result, it is possible that the United States, Mexico and Colombia will experience a significant economic downturn, and the United States, Mexico and Colombia have technically entered into recessions in 2020 following the outbreak of COVID-19. The extent and effect of these recessions is difficult to predict, including whether these recessions and any recovery, will be similar to past periods of recession and recovery.

 

In Mexico, the 2008-2009 recession resulted in an overall decrease in levels of Mexican domestic passenger traffic as compared to historical passenger traffic levels, although Mexican domestic passenger levels have increased in recent years as the economy has continued to recover. In 2019, Mexican domestic passenger traffic increased 5.3% from 2018. In 2020, Mexican domestic passenger traffic decreased 44.6% from 2019. Among Mexican leisure travelers, destinations served by our airports are generally not perceived as economical vacation destinations, and as a result, they did not benefit, and are unlikely to benefit in the future, from the substitution effect that we believe occurred with respect to passengers traveling to and from the United States. In addition, a portion of our Mexican domestic passengers are business travelers, whose demand for travel was adversely affected by the 2008-2009 recession. In recent years, there has been an uptick in Mexican domestic travel to certain destinations, such as Cozumel, Huatulco, Mérida, Oaxaca and Cancún (Cancún in particular experienced 12.4% and 2.3% increases in Mexican domestic passenger traffic in 2018 and 2019, respectively, but experienced a 39.3% decrease in 2020). So far, our other Mexican airports have continued to experience fluctuations in their passenger traffic, but, prior to the spread of COVID-19, nearly all of them had returned to traffic levels at or above those prior to the 2008-2009 recession.

 

11

 

 

Further, Mexican, Colombian and U.S. political and social developments, over which we have no control, may affect the economic environment in Mexico, Colombia and the United States, and consequently, may contribute to economic uncertainty. Such conditions may adversely affect our business and results of operations.

 

The economy of Puerto Rico has been in a recession since 2006 and conditions have worsened in recent years, particularly as a result of Hurricanes Irma and Maria in 2017. Following the failure of several Puerto Rico government instrumentalities to make debt service payments on their outstanding debt obligations, on June 30, 2016, United States President Barack Obama signed the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) into law. PROMESA provides Puerto Rico with access to bankruptcy-like tools and creates a fiscal oversight framework containing measures that include, among others, the establishment of a seven-member Oversight Board to oversee the development of budgets and fiscal plans for Puerto Rico’s government and instrumentalities. In particular, PROMESA allowed the Oversight Board to petition U.S. courts to restructure debt on behalf of Puerto Rico’s central government on May 3, 2020, Puerto Rico’s Highways and Transportation Authority and Government Retirement System on May 21, 2017 and the Puerto Rico Electric Power Authority (“PREPA”) on July 2, 2017.

 

In September of 2019, the Oversight Board submitted a joint plan of adjustment to the United States District Court for the District of Puerto Rico. However, in late December 2019 and January 2020, a series of earthquakes and their aftershocks caused extensive damage to parts of Puerto Rico’s infrastructure. In addition, Puerto Rico was significantly impacted by the COVID-19 pandemic that began in early 2020, which has had a substantially adverse effect on the health of its population and economic activity. On May 27, 2020, the Oversight Board announced its certification of a revised fiscal plan for Puerto Rico which includes updated forecasts of the Puerto Rico economy following the events described above. The combined impact of Hurricanes Irma and Maria, the earthquakes and aftershocks, and the pandemic significantly hampered the Oversight Board’s timeline and efforts to restructure Puerto Rico’s debt and could continue to have substantially adverse effects on Puerto Rico’s economy and restructuring efforts. In addition to diverting funds to relief and recovery efforts, Puerto Rico is expected to lose revenue as a result of decreased tourism and general business operations. There can be no assurances that Puerto Rico will receive the necessary aid to rebuild from the damage caused by Hurricanes Irma and Maria, the earthquakes and aftershocks, and the pandemic, and it is not currently possible to predict the long-term impact that these and other natural disasters and public health crises may have. On February 23, 2021, the Oversight Board announced it had reached a new debt restructuring agreement with holders of a substantial portion of the central government’s bonds and would submit a revised plan of adjustment to the United States District Court for the District of Puerto Rico. It is uncertain what impact the foregoing developments will have on the future business and economic conditions of Puerto Rico. Further, a prolongation of Puerto Rico’s fiscal crisis, or a worsening of the crisis, could have an adverse effect on the Puerto Rico economy. Aerostar Airport Holdings, LLC, our joint venture with the Public Sector Pension Investment Board (“PSP Investments”), in which we possess a 60% ownership interest and whose results we have consolidated into our financial statements, has operated the LMM Airport in Puerto Rico since February 27, 2013. The worsening economic conditions in Puerto Rico may adversely affect the LMM Airport’s business and results of operations.

 

12

 

 

Changes in U.S. immigration and border policy could adversely affect passenger traffic to and from Mexico and Colombia.

 

The results of presidential and congressional action in the United States could result in significant changes in, and uncertainty with respect to, immigration and border policy. Immigration reform, especially with respect to Mexico, continues to attract significant attention in the public arena and U.S. Congress. If new federal immigration legislation is enacted, such laws may contain provisions that could make it more difficult for Mexican and Colombian citizens to travel between Mexico and Colombia, respectively, and the United States. In addition, new immigration, border and trade legislation could lead to uncertain economic conditions in Mexico that may affect leisure or business travel, including travel to and from Mexico. Such restrictions could have a material adverse effect on our passenger traffic results.

 

Fluctuations in international petroleum prices could reduce demand for air travel.

 

Fuel represents a significant cost for airlines. International prices of fuel have experienced significant volatility in recent years. Most of our airline customers use kerosene-based jet fuel, the price of which is based upon the U.S. spot prices for that fuel plus the cost of transportation to each airport. Although the U.S. Gulf Coast spot price for jet fuel has decreased from its high of U.S.$4.81 per gallon on September 12, 2008, it has continued to fluctuate in 2020, with a high of U.S.$1.97 per gallon on January 3, 2020 and a low of U.S.$0.41 per gallon on April 27, 2020, according to the Energy Information Administration of the U.S. Department of Energy. As of April 5, 2021, the U.S. Gulf Coast spot price for jet fuel was U.S.$1.582 per gallon. The price of fuel may be subject to further fluctuations resulting from a reduction or increase in output of petroleum, voluntary or otherwise, by oil-producing countries, other market forces, a general increase in international hostilities or any future terrorist attacks. In addition, a number of airlines have engaged in hedging strategies with respect to fuel prices. Because of the decline in fuel prices, there have been reports suggesting that these hedging strategies have resulted in those airlines incurring derivative-related liabilities. Increases in airlines’ costs may result in higher airline ticket prices and may decrease demand for air travel generally, thereby having an adverse effect on our revenues and results of operations.

 

The loss or suspension of operations by one or more of our key customers could result in a loss of a significant amount of our revenues.

 

The global airline industry has recently experienced and continues to experience significant financial difficulties, marked by the filing for bankruptcy protection of several carriers and recent warnings regarding industry profitability. In November 2020, the International Air Transport Association, or IATA, issued its 2021 financial forecast for the global commercial airline industry, estimating a net post-tax loss of about U.S.$38.7 billion, due to the effects of COVID-19. The forecast also indicated that net loss margins were expected to decrease to -8.4% in 2021. The forecast assumes that there is some opening of borders by mid-2021, which may or may not happen; see “Item 3. Key Information—Risk Factors—Risks Related to Our Operations—The COVID-19 pandemic has had and could continue to have a negative impact on our operations.” On February 21, 2021, updating previous analysis, the IATA announced that it did not expect the airline industry to be cash positive until 2022. The IATA may further reduce its forecasts and the short-term and long-term effects of the COVID-19 outbreak on the global airline industry is still uncertain. The economic shock from the COVID-19 outbreak, which has been felt more acutely by airlines, has and may continue to trigger additional insolvencies within the global airline industry.

 

13

 

 

Our business and results of operations could be adversely affected if we do not continue to generate comparable portions of our Mexican regulated revenue from our key customers, including American Airlines (which accounted for 9.9% of our revenues in 2018, 9.4% in 2019 and 11.8% in 2020), United Airlines (which accounted for 9.3% of our revenues in 2018, 9.0% in 2019 and 8.6% in 2020) and ABC Aerolineas, S.A. de C.V. (“Interjet”) (which accounted for 10.4% of our revenues in 2018, 10.6% of our revenues in 2019 and 5.0% of our revenues in 2020). As of December 11, 2020, Interjet has stopped all flights, and it is not clear whether Interjet will resume operations.

 

On August 2, 2010, Mexicana, then one of Mexico’s two largest carriers and previously the airline which accounted for the largest share of our Mexican passenger traffic, filed for bankruptcy protection in Mexico and in the United States. On August 28, 2010, Mexicana, Mexicana Click, formerly known as Aerovías Caribe, and Mexicana Link (which we refer to collectively as “Grupo Mexicana”) ceased operations. On April 4, 2014, a Mexican court declared Grupo Mexicana to be officially bankrupt and ordered the sale of its assets to repay its creditors. Other airlines that serve our Mexican, Colombian and Puerto Rican airports, including American Airlines, United Airlines, Delta Air Lines and Avianca have also undergone bankruptcies over the past 20 years.

 

During 2020, Avianca Holdings, S.A. and certain of its subsidiaries and affiliates (on May 12, 2020), LATAM Airlines Group, S.A. and certain of its subsidiaries and affiliates (on May 26, 2020) and Grupo Aeromexico, S.A.B. de C.V. and certain of its subsidiaries and affiliates (on June 30, 2020) filed for bankruptcy protection in the United States, and all cited the pressure on their respective businesses from the COVID-19 pandemic.

 

With respect to the LATAM and Avianca proceedings, we have continued to be paid by Avianca and LATAM for amounts that have become due after their respective filings for bankruptcy protection. There has not been an assumption or rejection of the relevant agreements with Avianca and LATAM. We have not filed proofs of claims in either proceeding. In the LATAM proceedings, LATAM scheduled a contingent, unliquidated, and disputed claim on behalf of Aeropuerto de Cancún, S.A. de C.V. for an unknown amount, with no current claim value. In the Avianca proceedings, Avianca did not schedule any claims with respect to airports we operate.

 

14

 

 

With respect to the Aeromexico bankruptcy proceedings, we entered into two deferral agreements, one in April 2020 and the other in July 2020, deferring the remittance of Ps.213.4 million in passenger charges due to us, and requiring Aeromexico to remit those amounts in installments through April 2021. As of December 31, 2020, the amount outstanding was Ps.76.1 million. As of the date of this filing, Aeromexico has paid the remaining amounts outstanding in full. We have filed proofs of claim in the Aeromexico bankruptcy proceedings. Aeromexico has not opted to exercise their right in the bankruptcy proceedings to assume or reject our executory contracts or unexpired non-residential real property leases. If Aeromexico elects to assume our executory contracts and unexpired non-residential property leases, Aeromexico will continue performing under such contracts and leases and will have the obligation to cure all defaults under such contracts and leases. If Aeromexico elects to reject our executory contracts and unexpired non-residential property leases, Aeromexico’s obligations under such contracts and leases will terminate and will provide us with a claim in the bankruptcy proceedings. We do not know at this time whether Aeromexico intends to assume or reject any or all of our executory contracts (rejection of any executory contract constitutes a breach of that contract as of the date of Aeromexico’s filing for bankruptcy). Aeromexico will have until the bankruptcy court confirms a plan of reorganization in its bankruptcy proceedings to decide whether to assume or reject our executory contracts. Aeromexico requested an extension of the deadline to assume or reject nonresidential real property leases through and including April 26, 2021, which the bankruptcy court granted. As a result, we do not know at this time whether Aeromexico intends to assume or reject any or all of our nonresidential real property lease agreements (rejection of any lease constitutes a breach of that agreement). If Aeromexico rejects any executory contract or nonresidential real property lease, we would be entitled to assert a claim for damages related to such rejection as part of Aeromexico’s bankruptcy proceedings, which claim would be subject to compromise pro rata with other similarly situated claims under a plan of reorganization.

 

During late March 2019, Interjet experienced a series of flight delays and cancellations resulting in part from a shortage of employees to serve all of Interjet’s scheduled flights for the period. On December 11, 2020, Interjet suspended all flights and has not resumed operations.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in the United States, which provided, among others, financial assistance to United States based airlines and airports. Several of our customers participated in the relief provided by the CARES Act. Despite the ongoing effects of the COVID-19 pandemic on airlines, additional relief may not be provided in the future, nor may similar government relief be made available to our customers based outside of the United States.

 

None of our contracts with our principal airline customers obligate them to continue providing service to our airports and we can offer no assurance that competing airlines would seek to increase their flight schedules if any of our key customers reduced their use of our airports. Our current agreements with our principal airline customers at our Mexican airports have been renewed, except for our agreement with Interjet. We do not have any contracts that will expire before April 30, 2021. With respect to our Colombian airports, our subsidiary Airplan, charges airlines various fees (relating to domestic routes, international routes and development). The tariffs are established by the Special Administrative Unit of Civil Aeronautics (Unidad Administrativa Especial de Aeronáutica Civil), or Aerocivil, through Resolution 04530 of 2007. As of December 31, 2020, the following airlines at our Colombian airports were subject to such tariffs: Avianca, Aerorepública (COPA), Wingo, Viva Air, LATAM, American Airlines, EasyFly, Spirit, Aeroméxico, Jet Blue, Satena, Iberia, Avior, Interjet, Air Europa, Tampa Cargo, LAN Cargo, Sky Lease, among others.

 

15

 

 

We expect that we will continue to generate a significant portion of our revenues from a relatively small number of airlines in the foreseeable future. Our business and results of operations could be adversely affected if we do not continue to generate comparable portions of our revenue from our key customers.

 

In addition, Mexican law prohibits an international airline from transporting passengers from one Mexican location to another (unless the flight originated outside Mexico), which limits the number of airlines providing domestic service in Mexico. Accordingly, we expect to continue to generate a significant portion of our revenues from Mexican domestic travel from a limited number of airlines.

 

Moreover, some of our commercial clients may face difficulties making their payments to our airports, including during the COVID-19 outbreak and the resulting decrease in air traffic.  Any such difficulties could result in attempts to renegotiate our commercial clients’ lease and payment terms, but we cannot guarantee that any attempted renegotiations would be successful.  In the event of unsuccessful renegotiations, some commercial clients may choose to vacate our commercial spaces.  We cannot guarantee that we will be able to re-lease any vacated commercial spaces.  Any renegotiation process, cancellation of commercial leases or attempt to re-lease vacant space could lead us to incur costs and have a negative effect on our revenues.

 

We could be subject to fines, penalties and other adverse consequences pending the outcome of our appeal against the Mexican government’s tax treatment of airport concessions at Cancún Airport.

 

When bidding was concluded for the shares of the Mexican airport group that became ASUR, the Ministry of Communications and Transportation agreed that the concessionaire could amortize the value of the concession at an annual rate of 15.0% for tax purposes.  Contrary to this decision, in February 2012, the Ministry of Finance and Public Credit determined that this agreement was invalid and that the rate should instead be 2.0%. We filed an appeal in April 2012 to reverse this determination.  In May 2013, while our appeal was pending, the Mexican federal government implemented a tax amnesty program for federal taxes, which we participated in by paying Ps.128.3 million to settle the claim with the Ministry of Finance and Public Credit solely with respect to income taxes. Our participation in the tax amnesty program, however, had no impact on our separate appeal of the amount of distributions owed by the Company under the mandatory employee statutory profit sharing regime established by Mexican federal labor laws. As of April 6, 2021, our appeal is still pending resolution with respect to such distributions. If we were to lose the appeal, we estimate that we would be required to pay an additional Ps.116.0 million.

 

The FAA could downgrade Mexico’s air safety rating again, which could result in a decrease in air traffic between the United States and our airports.

 

On July 30, 2010, the FAA announced that, following an assessment of Mexico’s civil aviation authority, it had determined that Mexico was not in compliance with international safety standards set by the International Civil Aviation Organization (“ICAO”), and, as a result, downgraded Mexico’s aviation safety rating from “Category 1” to “Category 2.” Under FAA regulations, because of this downgrade, Mexican airlines were not permitted to expand or change their current operations between the United States and Mexico except under certain limited circumstances, code-sharing arrangements between Mexican and United States’ airlines were suspended and operations by Mexican airlines flying to the United States were subject to greater FAA oversight. These additional regulatory requirements resulted in reduced service between our airports and the United States by Mexican airlines or, in some cases, an increase in that cost of service, which resulted in a decrease in demand for travel between our airports and the United States. 3.2%, 3.0% and 1.2% of the passengers that traveled through our airports traveled on flights to or from the United States operated by Mexican airlines in 2018, 2019 and 2020, respectively.

 

The FAA restored Mexico’s Category 1 rating on December 2, 2010. The FAA may downgrade Mexico’s air safety rating in the future, although we are unaware of any current plans to do so. We cannot predict what impact the downgrade of the Mexican aviation safety rating would have on our Mexican passenger traffic or results of operations, or on the public perception of the safety of Mexican airports.

 

16

 

 

Our business is highly dependent upon revenues from Cancún International Airport.

 

In 2020, Ps.6,326.1 million (including construction services) or 50.1% of our revenues were derived from operations at Cancún International Airport. During 2018, 2019 and 2020, Cancún International Airport represented 75.8%, 74.6% and 74.2%, respectively, of our passenger traffic in Mexico and 55.6%, 54.8% and 51.9%, respectively, of our air traffic movements in Mexico. The desirability of Cancún as a tourist destination and the level of tourism to the area are dependent on a number of factors, many of which are beyond our control. For example, some media outlets continue to report an increase in the level of drug-related violence in Mexico. Although these reports generally indicate that this increase in violence affects mostly cities in northern Mexico and the west coast of Mexico and is generally not directed at tourists, the reports may have created a perception that Mexico has become a less safe and secure place to visit. In turn, we believe that it is possible that this perception has adversely affected the desirability of Cancún as a tourist destination. This perception may have been fueled further by travel advisories issued by the U.S. State Department on August 22, 2017, January 10, 2018 and December 17, 2019 that listed Cancún as a place in Mexico where visiting tourists must be cautious. In addition, in March 2018, the U.S. State Department issued a security alert for Playa del Carmen, a popular destination that attracts U.S. citizens and is served by Cancún International Airport. Additionally, during 2018 and 2019, the presence of gulfweed on beaches in the state of Quintana Roo reduced tourism to the area and caused a reduction in passengers during certain seasons, principally summer. The Presidential Commission on the Arrival of Gulfweed in the Mexican Caribbean estimated that gulfweed caused Ps.5,286 million in economic damage in 2018. In 2019, the presence of gulfweed caused an almost 30% reduction in tourism to beaches on the Yucatan Peninsula. The reasons behind the record amount of gulfweed and its sharp decline after September 2019 have not been determined. On September 8, 2020, the U.S. State Department issued a Level 3 travel advisory to reconsider travel to Mexico due to COVID-19, and recommended exercising increased caution in Mexico due to crime and kidnapping, as some areas have increased risk. None of the Mexican states in which we operate were cited as “do not travel to” or “reconsider travel to” zones in the September 8, 2020 travel advisory. We cannot assure you that tourism in Cancún will not decline in the future. Any event or condition affecting Cancún International Airport or the areas that it serves could have a material adverse effect on our business, results of operations, prospects and financial condition.

 

Increases in prevailing interest rates could adversely affect our financial condition.

 

An increase in prevailing interest rates could adversely affect our financial condition. As of December 31, 2020, we had U.S.$698.8 million in outstanding indebtedness, U.S.$338.2 million of which was floating rate. Any increased interest expense associated with increases in interest rates affects our ability to service our debt absent the benefit from any hedging arrangements. Accordingly, an increase in the prevailing interest rates applicable to our loans would increase our debt service costs, which in turn would negatively affect our results of operations. For further details regarding our indebtedness, see “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”

 

17

 

 

Security enhancements have resulted in increased costs and may expose us to greater liability.

 

The air travel business is susceptible to increased costs resulting from enhanced security and higher insurance and fuel costs. Following the events of September 11, 2001, we reinforced security at our airports. For a description of the security measures that we adopted, see “Item 4. Information on the Company—Business Overview—Non-Aeronautical Services—Airport Security.” While enhanced security at our airports has not resulted in a significant increase in our operating costs to date, we may be required to adopt additional security measures in the future. Since October 2001, we carry a U.S.$150.0 million insurance policy covering liabilities resulting from terrorist acts at our Mexican airports. The insurance premiums we pay may be increased in the future, which would increase our costs of operation and affect our business results. Since 2018, we also carry a U.S.$250.0 million insurance policy for our Puerto Rico airport. Because our insurance policies do not cover losses resulting from war in any amount or from terrorism for amounts greater than U.S.$150.0 million, we could incur significant costs if we were to be directly affected by events of this nature. While governments in other countries have agreed to indemnify airlines for liabilities they might incur resulting from terrorist attacks, the Mexican government has not done so and has given no indication of any intention to do the same. In addition, fuel prices and supplies, which constitute a significant cost for airlines using our airports, may be subject to increases resulting from any future terrorist attacks, a general increase in international hostilities or a reduction in output of fuel, voluntary or otherwise, by oil producing countries. Such increases in airlines’ costs have resulted in higher airline ticket prices and decreased demand for air travel generally, thereby having an adverse effect on our revenues and results of operations. In addition, because a substantial majority of our international flights involve travel to the United States, we may be required to comply with security directives of the FAA, in addition to the directives of Mexican and Colombian aviation authorities.

 

On May 1, 2014, the Mexican Bureau of Civil Aviation published mandatory circular CO SA-17.2/10 R3, which requires that all airlines screen checked baggage and that all airports have screening equipment that complies with specified guidelines.  Each of our airports is outfitted with appropriate screening equipment, but compliance with CO SA-17.2/10 R3 could require us to purchase, install and operate additional equipment, if, among other possibilities, the specified guidelines are modified or if the new screening procedures were to fail to detect or intercept any attempted terrorist act occurring or originating at our airports. We cannot estimate the cost to us of any such liability, if any were to arise. In addition, because a substantial percentage of our international flights involve travel to and from the United States, we may be required to comply with security directives of the FAA in addition to the directives of Mexican aviation authorities.  Security measures taken to comply with future security directives of the FAA or the Mexican Bureau of Civil Aviation or in response to a terrorist attack or threat could reduce passenger capacity at our airports due to increased passenger screening and slower security checkpoints and increase our operating costs, which would have an adverse effect on our business, results of operations, prospects and financial condition.

 

Furthermore, under the Mexican Airport Law, we are currently responsible for inspecting passengers and their carry-on luggage before they board any aircraft.  Under Mexican law, we may be liable to third parties for personal injury or property damage resulting from the performance of such inspection.  In addition, we may be required to adopt additional security measures in the future or undertake capital expenditures if security measures for carry-on luggage are required to be enhanced, which could increase our liability or adversely affect our operating results.

 

As a result of the COVID-19 pandemic, airlines and airports have had to implement additional security and compliance measures to comply with local health and safety regulations, which could increase costs. We have, among other things, installed disinfectant gel dispensers and air purifiers, mandated facemasks, installed preventative barriers, instituted spacing and flow of movement measures, and provided training to our employees. These enhanced measures have not resulted in a significant increase in our operating costs to date, we may be required to adopt additional safety measures in the future.

 

18

 

 

Interruptions in the proper functioning of information systems or other technologies could disrupt operations and cause unanticipated increases in costs and/or decreases in revenues.

 

The proper functioning of our information systems is important to the successful operation of our business. If critical information systems fail or are otherwise unavailable, our ability to provide airport services at our airports, collect accounts receivable, pay expenses and maintain our security and customer data, could be adversely affected. In addition, incidents such as cyber-attacks, viruses, other destructive or disruptive software or activities, process breakdowns, outages or accidental release of information could adversely affect our technological systems and result in a disruption to our operations, the improper disclosure of personal, privileged or confidential information, or unauthorized access to our digital content or any other type of intellectual property. Currently, our information systems are protected with backup systems, including physical and software safeguards and a cold site to recover information technology operations. These safety components reduce the risk of disruptions, failures or security breaches of our information technology infrastructure and are reviewed periodically by external advisors. Nonetheless, any such disruption, failure or security breach of our information technology infrastructure, including our back-up systems, could have a negative impact on our operations.

 

To date we have not experienced any major incidents related to cybersecurity or our information systems. Any such incident could cause damage to our reputation and may require us to expend substantial resources to remedy the situation, and could therefore have a material adverse effect on our business and results of operations. In addition, there can be no assurance that any efforts we make to prevent these incidents will be successful in avoiding harm to our business.

 

19

 

 

Our revenues are highly dependent upon levels of passenger and cargo traffic volumes and air traffic, which depend in part on factors beyond our control.

 

Our revenues are closely linked to passenger and cargo traffic volumes and the number of air traffic movements at our airports. These factors directly determine our revenues from aeronautical services and indirectly determine our revenues from non-aeronautical services. Passenger and cargo traffic volumes and air traffic movements depend in part on many factors beyond our control, including economic conditions in Mexico, Colombia and the United States, the political situation in Mexico, Colombia and elsewhere in the world, the attractiveness of our airports relative to that of other competing airports, fluctuations in petroleum prices (which can have a negative impact on traffic as a result of fuel surcharges or other measures adopted by airlines in response to increased fuel costs) and changes in regulatory policies applicable to the aviation industry. Reports suggesting an increase in the level of violent crime in Mexico may have had an adverse impact on passenger traffic to our Mexican airports, even though such airports serve areas of Mexico that have been less affected by violent crime. Similarly, reports suggesting an increase in the level of violence or political instability in Colombia may have an adverse impact on passenger traffic to our Colombian airports. Any decreases in air traffic to or from our airports as a result of factors such as these could adversely affect our business, results of operations, prospects and financial condition.

 

Our business is highly dependent upon the operations of certain airports, including Mexico City and Bogotá Area airports.

 

In 2018, 2019 and 2020, 59.9%, 59.3% and 56.8%, respectively, of our Mexican domestic passengers flew to or from our airports via Mexico City International Airport. As a result, our Mexican domestic traffic is highly dependent upon the operations of Mexico City International Airport. We cannot assure you that the operations of the Mexico City International Airport will not decrease or be adversely affected by construction of additional airports in the future. In 2020, overall Mexican domestic passenger traffic to and from Mexico City decreased 46.9%.

 

Additionally, Toluca International Airport, which is located 64 km from Mexico City, at some point emerged as a complementary airport to Mexico City International Airport, but has recently reduced air traffic operations due to the transfer of low-cost airline operations to the Mexico City International Airport. Toluca International Airport is largely served by low-cost airlines that cater to Mexican domestic passengers. Traffic to and from Toluca represented 0.6% of Mexican domestic passengers traveling through our airports in 2018, 0.8% in 2019 and 0.4% of Mexican domestic passengers in 2020.

 

In 2020, 42.5% of our Colombian domestic passengers flew to or from our airports via El Dorado International Airport in Bogotá, Colombia. As a result, our Colombian domestic traffic is highly dependent upon the operations of El Dorado International Airport. Any event or condition that adversely affects Mexico City and Bogotá area airports could adversely affect our business, results of operations, prospects and financial condition.

 

20

 

 

Competition from other tourist destinations could adversely affect our business.

 

One of the principal factors affecting our results of operations and business is the number of passengers using our airports. The number of passengers using our airports may vary as a result of factors beyond our control, including the level of tourism in Mexico, Colombia and Puerto Rico. In addition, the passenger traffic volume at our Mexican airports and LMM Airport may be adversely affected by the attractiveness, affordability and accessibility of competing tourist destinations in Mexico, such as Acapulco, Puerto Vallarta and Los Cabos, or elsewhere, such as Florida, Cuba, Jamaica, the Dominican Republic and other Caribbean islands and Central American destinations. The attractiveness of the destinations we serve is also likely to be affected by perceptions of travelers as to the safety and political and social stability of Mexico, Colombia and Puerto Rico. There can be no assurance that tourism levels in the future will match or exceed current levels.

 

Revenues from Mexican passenger charges are not secured, and we may not be able to collect amounts invoiced in the event of the insolvency of one of our principal airline customers.

 

In recent years, many airlines have reported substantial losses. Our revenues from passenger charges from our principal airline customers are not secured by a bond or any other collateral. Furthermore, Mexican passenger charges, which accounted for 11.3% of our revenues in 2020, are collected by airlines from passengers on our behalf and are later paid to us 30 to 115 days following the date of each flight. If any of our key customers were to become insolvent or seek bankruptcy protection, we might not be able to recover the full amount of such charges. For example, as a result of the Grupo Mexicana bankruptcy, we estimate that Ps.128.0 million in accounts receivable could be at risk of not being recovered, which represented 7.5% of our total accounts receivable as of December 31, 2020. With respect to the Avianca proceedings, Avianca has treated unpaid prepetition passenger charges as taxes and fees, which, pursuant to an order entered by the United States Bankruptcy Court for the Southern District of New York, Avianca has the authority (but not the obligation) to pay.

 

In terms of the Aeromexico proceedings, pursuant to an order entered by the United States Bankruptcy Court for the Southern District of New York, Aeromexico is permitted (but not directed), upon notice to the Official Committee of Unsecured Creditors (the “Creditors’ Committee”), to pay the prepetition passenger charges. In the Aeromexico proceedings, we filed an objection and reservation of rights, which asserted that passenger charges are a trust fund fee collected and held for the benefit of the airport, are not property of Aeromexico’s estate, and we reserved our right to take any action should Aeromexico attempt to cap remittance of the passenger charges to us. The Creditors’ Committee also filed a statement and reservation of rights, which reserved the committee’s right to argue that the passenger charges are property of Aeromexico’s estate. Aeromexico took no formal position on the status of the passenger charges. The bankruptcy court, in authorizing Aeromexico to pay the prepetition passenger charges, expressly declined to make any finding or conclusion of law with respect to the status of the passenger charges at that time. As a result, it is possible the Creditors’ Committee or other creditors may in the future assert that the passenger charges are property of Aeromexico’s estate, leaving the airports we operate with only a general unsecured claim that would be subject to compromise.

 

In addition, in the Aeromexico proceedings, the airport terminals we operate filed proofs of claims with respect to the agreements between the airlines and the airports, including agreements related to the passenger charges. Aeromexico and other creditors have the right to object to the proofs of claims, and any future recoveries arising from the proofs of claims are unknown at this time. We are an unsecured creditor with respect to these amounts, and we cannot assure you how much, if any, of these amounts we will be able to recover.

 

On December 11, 2020, Interjet stopped all flights and has not resumed operations. As of December 31, 2020, we are owed Ps.74.8 million from Interjet, which is included in our allowance for doubtful accounts, and we might not be able to recover the full amount owed to us.

 

21

 

 

If a change in relations with our labor force should occur, such a change could have an adverse impact on our results of operations.

 

Although we currently believe we maintain good relations with our labor force, if any conflicts with our employees were to arise in the future, including with our unionized employees (which accounted for 24.8% of our total employees as of December 31, 2020), resulting events such as strikes or other disruptions that could arise with respect to our workforce could have a negative impact on our business or results of operations.

 

The operations of our airports may be disrupted due to the actions of third parties beyond our control.

 

As is the case with most airports, the operation of our airports is largely dependent on the services of third parties, such as air traffic control authorities, airlines, energy suppliers and suppliers of fuel to aircraft at our airports.

 

On September 20, 2017, 730 of Colombian flagship airline carrier Avianca’s 1,300 pilots walked off the job, demanding higher wages and benefits. The strike lasted 51 days and caused Avianca to ground hundreds of flights and contract foreign-based crews to serve its important long-haul routes to the United States and Europe. As a result, our passenger traffic in our Colombian airports decreased 13.0% in October 2017, 13.7% in November 2017, and 12.3% in December 2017 relative to the same monthly periods in 2016.

 

We are also dependent upon the Mexican government or entities of the government for provision of services such as immigration services for our international passengers. We are not responsible for and cannot control the services provided by these parties. Additionally, under the Mexican Airport Law, we are required to provide complementary services at each of our airports if there is no third party providing such services. As a result, any disruption in or adverse consequence resulting from the services of third parties, including a work stoppage or other similar event, may require us to provide these services personally or find a third party to provide them, and either event may have a material adverse effect on the operation of our airports and on our results of operations.

 

22

 

 

Fernando Chico Pardo and Grupo ADO, S.A. de C.V., through their own investment vehicles and their interests in Inversiones y Técnicas Aeroportuarias, S.A.P.I. de C.V., (“ITA”), have a significant influence as stockholders and over our management, and their interests may differ from those of other stockholders.

 

CHPAF Holdings, S.A.P.I. de C.V. (“CHPAF”), an entity directly or indirectly owned and controlled by Fernando Chico Pardo, who is also the chairman of our Board of Directors, owns 14.5% of our total capital stock. In addition, Inversiones Productivas Kierke, S.A. de C.V. (“Inversiones Kierke”), an entity owned and controlled by Grupo ADO, S.A. de C.V. (“Grupo ADO”), owns 12.3% of our total capital stock. Further, ITA, an entity which is owned 50.0% by entities directly owned and controlled by Mr. Fernando Chico Pardo and 50.0% by Inversiones Kierke, holds Series BB shares representing 7.65% of our capital stock. These Series BB shares provide it with special management rights. For example, pursuant to our bylaws, ITA is entitled to present to the Board of Directors the name or names of the candidates for appointment as chief executive officer, to remove our chief executive officer and to appoint and remove one half of the executive officers, and to elect two members of our Board of Directors. Our bylaws also provide ITA veto rights with respect to certain corporate actions (including some requiring approval of our shareholders) so long as its Series BB shares represent at least 7.65% of our capital stock. Mr. Fernando Chico Pardo and Grupo ADO have entered into a shareholders’ agreement that requires their unanimous consent to cause ITA to exercise certain of these rights. Special rights granted to ITA are more fully discussed in “Item 10. Additional Information” and “Item 7. Major Shareholders and Related Party Transactions.”

 

Therefore, Mr. Fernando Chico Pardo and Grupo ADO are each able to exert a significant influence over our management and matters requiring the approval of our stockholders. The interests of Mr. Fernando Chico Pardo, Grupo ADO and ITA may differ from those of our other stockholders, and there can be no assurance that any of Mr. Fernando Chico Pardo, Grupo ADO or ITA will exercise its rights in ways that favor the interests of our other stockholders. In particular, Grupo ADO is a Mexican bus company that may directly or indirectly compete with our key airline customers in the Mexican transportation market. Furthermore, the concentration of ownership by Mr. Fernando Chico Pardo, Grupo ADO and the special rights granted to ITA may have the effect of impeding a merger, consolidation, takeover or other business combination involving ASUR.

 

Some of our board members and stockholders may have business relationships that may generate conflicts of interest.

 

Some of our board members or stockholders may have outside business relationships that generate conflicts of interest. For example, Fernando Chico Pardo, the chairman of our Board of Directors and one of our principal indirect stockholders, is a member of a number of other boards of directors that from time to time may have interests that diverge from our own. In addition, Grupo ADO, whose executives sit on our Board of Directors and which is one of our principal stockholders, operates a bus transportation business and has other interests that may be different than ours. Conflicts may arise between the interests of these or other individuals in their capacities as our shareholders and/or directors, on the one hand, and their outside business interests on the other. There can be no assurance that any conflicts of interest will not have an adverse effect on our shareholders.

 

23

 

 

Our operations are at greater risk of disruption due to the dependence of most of our airports on a single commercial runway.

 

As is the case with many other domestic and international airports around the world, all of our airports (except for our Cancún and Mérida Airports) have only one commercial aviation runway. While we seek to keep our runways in good working order and to conduct scheduled maintenance during off-peak hours, we cannot assure you that the operation of our runways will not be disrupted due to required maintenance or repairs. In addition, our runways may require unscheduled repair or maintenance due to natural disasters, aircraft accidents and other factors that are beyond our control. The closure of any runway for a significant period of time could have a material adverse effect on our business, results of operations, prospects and financial condition.

 

We are exposed to risks related to construction projects.

 

The building requirements under our master development programs in Mexico could encounter delays or cause us to exceed our budgeted costs for such projects, which could limit our ability to expand capacity at our Mexican airports, increase our operating or capital expenses and adversely affect our business, results of operations, prospects and financial condition. Such delays or budgetary overruns also could limit our ability to comply with our Mexican master development programs. If we do not comply with our Mexican master development programs, we may be subject to fines or the loss of our Mexican concessions. Our current master development programs in Mexico are in effect until December 31, 2023. Renegotiation of our Mexican master development programs could lead to uncertainty regarding construction projects at our Mexican airports.

 

In addition, in November 2008, as part of our purchase of 130 hectares of land in the bay of Huatulco for Ps.286.3 million from the National Tourism Fund, or FONATUR, we agreed to construct at least 450 and up to 1,300 hotel rooms. In connection with the construction of these hotel rooms, we had agreed to meet a series of construction milestones, including presentation of a master development plan, submission of architectural plans, application for environmental permits, commencement of construction and substantial completion of construction. We had completed and presented a master development plan and FONATUR had granted us an extension of time to submit architectural plans, which were due on May 15, 2013. However, on March 26, 2013, FONATUR relieved us of the obligation to submit the architectural plans and complete the construction projects within a specific timeframe. On October 28, 2020, FONATUR agreed to purchase back the land for Ps.286.3 million. On February 19, 2021, we received the initial payment of Ps.50 million from FONATUR, at which point the obligations under the purchase agreement no longer had legal effect. Going forward, FONATUR is obligated to make the remaining payment of Ps.236.3 million before July 1, 2021 and we are obligated to deliver the land once FONATUR has paid in full. In the event of FONATUR’s nonpayment, we would have the right to demand FONATUR’s compliance with the repurchase and withhold conveying the land until payment is made. For more information on the development in the bay of Huatulco, please see “Item 4. Information on the Company—Business Overview—Other Properties.”

 

In 2014 and 2016, our subsidiary Airplan reached agreements with the Colombian government with respect to investment commitments for certain airports, including José María Córdova International Airport, Enrique Olaya Herrera Airport, Los Garzones Airport and El Caraño Airport. Under the 2014 and 2016 agreements, Airplan committed to completing the modules connecting the terminal building with the parking lot at José María Córdova Airport. As of March 6, 2020, all projects under the 2014 and 2016 agreements have been completed.

 

24

 

 

We are exposed to risks related to other business opportunities.

 

In the spring of 2017, we, through our Cancún airport subsidiary, entered into agreements to acquire a controlling interest in Airplan and Aeropuertos de Oriente S.A.S. (“Oriente”). In October 2017, we received the necessary approvals from the Colombian regulatory authorities to conclude the acquisition of a 92.42% stake in Airplan. Airplan has concessions to operate the following airports in Colombia: the Enrique Olaya Herrera Airport in Medellín, the José María Córdova International Airport in Rionegro, the Los Garzones Airport in Montería, the Antonio Roldán Betancourt Airport in Carepa, the El Caraño Airport in Quibdó and the Las Brujas Airport in Corozal. On May 25, 2018, we increased our ownership stake in Airplan to 100% by acquiring an additional 7.58% of Airplan’s capital stock. We terminated our agreement to purchase Oriente in 2018.

 

We purchased the initial 92.42% interest in Airplan for an aggregate price of approximately U.S.$201.6 million, subject to pricing adjustments and pursuant to a series of agreements with the respective shareholders of Airplan. We paid U.S.$69.6 million of the purchase price with cash on hand, and obtained an unsecured loan of Ps.4,000.0 million from BBVA Bancomer in April 2017 to pay the balance of the purchase price. The loan had a term of one year and an interest rate calculated on the basis of the 28-day Tasa de Interés Intercambiaria de Equilibrio, or Interbank Equilibrium Interest Rate (“TIIE”) plus 0.60% from July 31 to October 31, 2017; TIIE plus 0.85% from October 31, 2017 to January 31, 2018; TIIE plus 1.10% from January 31 to April 30, 2018 and TIIE plus 1.60% from April 30 to July 31, 2018. This loan was paid in October 2017, and we, through our Cancún airport subsidiary, concurrently incurred two loans of Ps.2,000.0 million each, one with BBVA Bancomer and the other with Banco Santander.

 

We may also explore other business opportunities from time to time, which may result in risks and uncertainties similar to those described above. Our inability to successfully manage the risks and uncertainties related to such business opportunities could have a material adverse effect on our revenues, expenses and net income.

 

In July 2012, the Puerto Rico Ports Authority (“PRPA”) granted Aerostar, our Puerto Rican subsidiary, a concession to operate the Luis Muñoz Marín International Airport under the United States FAA’s Airport Privatization Pilot Program. On February 27, 2013, the transaction was finalized and Aerostar began operating the LMM Airport. Our Cancún airport subsidiary pledged its membership interests in Aerostar, as collateral for debt incurred by Aerostar to fund a portion of the concession fee and contingent liabilities related to the concession. Our Cancún airport subsidiary’s incurrence of debt and pledge of assets may limit our ability to obtain financing for future acquisitions or transactions. Other risks and uncertainties relate to our 2017 acquisition of a majority interest in Aerostar. We may be unable to fully implement our business plans and strategies for the integration of Aerostar’s business into ours. The business growth opportunities, revenue benefits and other benefits expected to result from this acquisition may be delayed or not achieved as expected. To the extent that we incur higher integration costs or achieve lower revenue benefits or fewer cost savings than expected, our results of operations and financial condition may be adversely affected.

 

We may also explore other business opportunities from time to time, which may result in risks and uncertainties similar to those described above. Our inability to successfully manage the risks and uncertainties related to such business opportunities could have a material adverse effect on our revenues, expenses and net income.

 

25

 

 

Our LMM Airport business is conducted through Aerostar, which has a minority shareholder.

 

On May 26, 2017 we acquired an additional 10% interest in Aerostar from our former joint venture partner, Oaktree Capital Management, L.P. (“Oaktree Capital”), increasing our total interest to 60.0%. The minority shareholder in Aerostar is PSP Investments, which acquired a 40.0% ownership interest in Aerostar from Oaktree Capital. We received all regulatory approvals for this transaction and, starting June 1, 2017, began to consolidate Aerostar’s results into our financial statements. All operating and management decisions relating to Aerostar, except for major decisions, require the approval of the majority of the votes of the managers. However, major decisions, including requiring the members to make additional capital contributions, setting Aerostar’s annual budget and approving distributions to Aerostar’s members, require a supermajority vote of Aerostar’s managers (a supermajority defined as a majority consisting of at least one manager designated by each member). Due to our 60% interest in Aerostar, we are entitled to designate a majority of members to the board of managers.

 

Our interest and strategies in Aerostar’s operation of the LMM Airport may differ from those of PSP Investments given that our Cancún airport subsidiary made a subordinated shareholder loan to Aerostar in addition to its equity investment, because of the different nature of our respective businesses and for other reasons. These diverging interests may impair our ability to reach agreement with PSP Investments on certain major decisions. In the event that the managers appointed by each of our Cancún airport subsidiary and PSP Investments cannot reach an agreement on certain major decisions and there is a deadlock, any manager may refer the deadlock to the Chief Executive Officers of ASUR or AviAlliance Canada Inc., a wholly-owned subsidiary of PSP Investments (“AviAlliance”). If the Chief Executive Officers are unable to resolve the deadlock, then the matter will be referred to a non-binding mediation process. Finally, if the matter is not resolved through mediation, then either member can submit the dispute to final and binding arbitration. In the event that we do not reach an agreement with PSP Investments on an issue that requires the supermajority approval of the managers, the delay and cost resulting from a deadlock could adversely affect the operations of the LMM Airport and in turn could have a material adverse effect on our business, financial condition, results of operations, cash flows, prospects and/or the market prices of our membership interests in Aerostar.

 

For a discussion of Aerostar’s operating agreement and how it governs our involvement in Aerostar, see “Item 4. Information on the Company—Business Overview—Aerostar’s Operating Agreement.”

 

26

 

 

We are exposed to risks inherent to the operation of airports.

 

We are obligated to protect the public at our airports and to reduce the risk of accidents. As with any company dealing with members of the public, we must implement certain measures for the protection of the public, such as fire safety in public spaces, design and maintenance of car parking facilities and access routes to meet road safety rules. We are also obligated to take certain measures related to aviation activities, such as maintenance, management and supervision of aviation facilities, rescue and fire-fighting services for aircraft, measurement of runway friction coefficients and measures to control the threat from birds and other wildlife on airport sites. These obligations could increase our exposure to liability to third parties for personal injury or property damage resulting from our operations.

 

Our insurance policies may not provide sufficient coverage against all liabilities.

 

While we seek to insure all reasonable risks, we can offer no assurance that our insurance policies would cover all of our liabilities in the event of an accident, terrorist attack or other incident. The markets for airport insurance and construction insurance are limited, and a change in coverage policy by the insurance companies involved could reduce our ability to obtain and maintain adequate or cost-effective coverage. A certain number of our assets cannot, by their nature, be covered by property insurance (notably aircraft movement areas, and certain civil engineering works and infrastructure). In addition, we do not currently carry business interruption insurance.

 

Risks Related to the Regulation of Our Business

 

The price regulatory system applicable to our Mexican airports imposes maximum rates for each airport.

 

The price regulatory system does not guarantee that our consolidated results of operations, or that the results of operations of any Mexican airport, will be profitable.

 

The system of price regulation applicable to our Mexican airports establishes an annual maximum rate for each airport, which is the maximum annual amount of revenues per workload unit (which is equal to one passenger or 100 kilograms (220 pounds) of cargo) that we may earn at that airport from services subject to price regulation. The maximum rates for our Mexican airports have been determined for each year through December 31, 2023. For a discussion of the framework for establishing our maximum rates and the application of these rates, see “Item 4. Information on the Company—Mexican Regulatory Framework—Price Regulation” and “Item 4. Information on the Company—Puerto Rican Regulatory Framework—Price Regulation.” Under the terms of our Mexican concessions, there is no guarantee that the results of operations of any airport will be profitable.

 

Our Mexican concessions provide that an airport’s maximum rates will be adjusted periodically for inflation. Although we are entitled to request additional adjustments to an airport’s maximum rates under certain circumstances, including the amendment of certain provisions of the Mexican Airport Law, our concessions provide that such a request will be approved only if the Ministry of Communications and Transportation determines that certain events specified in our Mexican concessions have occurred. The circumstances under which we are entitled to an adjustment are described under “Item 4. Information on the Company—Mexican Regulatory Framework—Price Regulation—Special Adjustments to Maximum Rates.” There can be no assurance that any such request would be made or granted. If our request is not submitted in a timely manner, or if the adjustment is not approved by the Ministry of Communications and Transportation, our business, financial condition and results of operations may be adversely affected.

 

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Our results of operations may be adversely affected by required efficiency adjustments to our Mexican maximum rates.

 

In addition, our Mexican maximum rates are subject to annual efficiency adjustments, which have the effect of reducing the maximum rates for each year to reflect projected efficiency improvements. For the five-year term ending December 31, 2023, an annual efficiency adjustment factor of 0.70% was established by the Ministry of Communications and Transportation. Future annual efficiency adjustments will be determined by the Ministry of Communications and Transportation in connection with the setting of each airport’s maximum rates every five years. For a description of these efficiency adjustments, see “Item 4. Information on the Company—Mexican Regulatory Framework—Price Regulation—Methodology for Determining Future Maximum Rates.” We cannot assure you that we will achieve efficiency improvements sufficient to allow us to maintain or increase our operating income as a result of the progressive decrease in each airport’s maximum rate. Additionally, on October 29, 2020, we filed a request with the Ministry of Communications and Transportation for an extraordinary review of the Mexican maximum rates, which was approved on April 7, 2021, and resulted in a reduction in committed investments and an increase in the Mexican maximum rates in the master development plans for the years 2021 to 2023.

 

Changes to Mexican laws, regulations and decrees applicable to us could have a material adverse impact on our results of operations.

 

The Mexican government has in the past implemented changes, and may in the future implement additional reforms, to the tax laws applicable to Mexican companies including ASUR. In addition, changes to the Mexican constitution or to any other Mexican laws could also have a material adverse impact on our results of operations and cash flows. For example, on May 23, 2014, Mexico’s Federal Economic Competition Law (Ley Federal de Competencia Económica) (“LFCE”) was enacted.  The LFCE grants broad powers to the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) (“COFECE”), including the abilities to investigate and regulate essential facilities, investigate companies, eliminate barriers to competition in order to promote access to the market and order the divestment of assets. The LFCE also sets forth important changes in connection with mergers and anti-competitive behavior, increases liabilities that may be incurred for violations of the law, increases the amount of fines that may be imposed for violations of the law and limits the availability of legal defenses against the application of the law.

 

If the COFECE determines that a specific service or product is an essential facility, it has the ability to regulate access conditions, prices, tariffs or technical conditions for or in connection with the specific service or product. The COFECE has previously determined that certain elements of the infrastructure at Mexico City International Airport may be considered essential facilities. Should the COFECE determine that all or part of the services we render in our Mexican airports are considered an essential facility, we may be required to implement significant changes to the way we currently do our business, which could have a material adverse impact on our results of operations.

 

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In connection with tax matters, the terms of our concessions do not exempt us from any changes to the Mexican tax laws. Should the Mexican government implement changes to the tax laws that result in our having significantly higher income tax liability, we will be required to pay the higher amounts due pursuant to any such changes, which could have a material adverse impact on our results of operations.

 

In December 2019, the Mexican government published several amendments to the Income Tax Law, Value Added Tax Law, Excise Tax Law and the Federal Tax Code, most of which became effective on January 1, 2020. This set of tax reforms is one of the most important in the past few years and its main purpose is to tackle tax evasion by strengthening tax authorities’ control mechanisms. These amendments imposed stringent restrictions on the deductibility of certain expenses, such as a new earnings-stripping rule applicable to net interest, and the non-deductibility of payments to related parties that are deemed subject to preferential tax regimes or by means of structured arrangements, introduced regulations regarding hybrid mismatches and added amendments to the tax treatment applicable to tax transparent foreign entities or arrangements, all of which could affect our operating results. None of these amendments significantly impacted our operating results in 2020.

 

The 2020 tax reform also introduced a new mandatory disclosure regime aimed at tax advisors, for purposes of reporting and monitoring specific tax schemes listed under article 199 of the Federal Tax Code.

 

On November 12, 2020, the Mexican President submitted to the Mexican Congress an initiative on outsourcing schemes. The Mexican Congress’s approval of the outsourcing initiative could enable certain tax and labor provisions that could materially affect our results of operations, including the characterization of certain subcontracting arrangements as aggressive tax schemes, the creation of the need to obtain an authorization from the Mexican Ministry of Labor and Social Security (Secretaría del Trabajo y Previsión Social) for the provision of specialized subcontracting services, the non-deductibility of considerations paid for the subcontracting of personnel and a substantial increase in the Statutory Employee Profit Sharing (Participación de los Trabajadores en las Utilidades de la Empresa), commonly known as the “PTU”.

 

For more information on this and other changes to Mexican tax law, see “Item 5. Operating and Financial Review and Prospects—Taxation.”

 

Our Mexican concessions may be terminated under various circumstances, some of which are beyond our control.

 

We operate each of our Mexican airports under 50-year concessions granted as of 1998 by the Mexican government. Any of the Mexican concessions may be terminated for a variety of reasons. For example, a concession may be terminated if we fail to make the committed investments required by the terms of that concession. In addition, in the event that we exceed the applicable maximum rate at an airport in any year, the Ministry of Communications and Transportation is entitled to reduce the applicable maximum rate at that airport for the subsequent year and assess a penalty. Violations of certain terms of a concession (including violations for exceeding the applicable maximum rate) can result in termination only if sanctions have been imposed for violation of the relevant term at least three times. Violations of other terms of a concession can result in the immediate termination of the concession. We would face similar sanctions for violations of the Mexican Airport Law or its regulations. Although we believe we are currently complying with the principal requirements of the Mexican Airport Law and its regulations, we may not be in compliance with certain requirements under the regulations. These violations could result in fines or other sanctions being assessed by the Ministry of Communications and Transportation, and are among the violations that could result in termination of a concession if they occur three or more times. For a description of the consequences that may result from the violation of various terms of our Mexican concessions, the Mexican Airport Law or its regulations, see “Item 4. Information on the Company—Mexican Regulatory Framework—Penalties and Termination and Revocation of Concessions and Concession Assets.” Under applicable Mexican law and the terms of our concessions, our concessions may also be subject to additional conditions, which we may be unable to meet. Failure to meet these conditions may also result in fines, other sanctions and the termination of the Mexican concessions.

 

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In addition, the Mexican government may terminate one or more of our concessions at any time through reversion (rescate), if, in accordance with applicable Mexican law, it determines that it is required by national security or in the public interest to do so. In the event of a reversion (rescate) of the public domain assets that are the subject of our concessions, such assets would revert to the Mexican government and the Mexican government under Mexican law would be required to compensate us, taking into consideration investments made and depreciation of the relevant assets, but not the value of the assets subject to the concessions, based on the methodology set forth in a reversion (rescate) resolution issued by the Mexican Ministry of Communications and Transportation. There can be no assurance that we will receive compensation equivalent to the value of our investment in our concessions and related assets in the event of such a reversion (rescate).

 

In the event of war, natural disaster, grave disruption of the public order or an imminent threat to national security, internal peace or the economy, the Mexican government may carry out a requisition (requisa — step-in rights) with respect to our airports. The step-in rights may be exercised by the Mexican government as long as the circumstances warrant. In all cases, except international war, the Mexican government is required to indemnify us for damages and lost profits (daños y perjuicios) caused by such requisition, calculated at their real value (valor real); provided that if we were to contest the amount of such indemnification, the amount of the indemnity with respect to damages (daños) shall be fixed by expert appraisers appointed by us and the Mexican government, and the amount of the indemnity with respect to lost profits (perjuicios) shall be calculated taking into consideration the average net income during the year immediately prior to the requisition. In the event of requisition due to international war, the Mexican government would not be obligated to indemnify us.

 

In the event that any one of our Mexican concessions is terminated, whether through reversion (rescate), requisition (requisa) or otherwise, our other Mexican concessions may also be terminated. Thus, the loss of any of our concessions would have a material adverse effect on our business and results of operations. For a discussion of events which may lead to a termination of a Mexican concession, see “Item 4. Information on the Company—Mexican Regulatory Framework—Penalties and Termination and Revocation of Concessions and Concession Assets.” Moreover, we are required to continue operating each of our nine Mexican airports for the duration of our concessions, even if one or more of them are unprofitable.

 

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The Mexican government could grant new concessions that compete with our airports, including the Cancún International Airport.

 

The Mexican government could grant additional concessions to operate existing government managed airports, or authorize the construction of new airports, that could compete directly with our airports. We may be denied the right to participate in the bidding processes to win these concessions.

 

Currently, the Mayan Riviera is served primarily by Cancún International Airport. We are unable to predict the effect that a new Mayan Riviera airport would have on our passenger traffic or operating results if the Mexican government decides to move forward with the project.

 

In October 2020, the Mexican President announced that as part of an effort to develop the southeast of Mexico, the Mexican Army will build and operate a new airport in the City of Tulum, State of Quintana Roo, with plans to commence operations in 2023. The Mexican government had previously secured a piece of land measuring approximately 1,500 acres where it will build the new airport, and has announced that the airport’s inauguration will coincide with the inauguration of the Mayan Train. The Mayan Train is a proposed intercity railway project that is set to connect airports and historic Mayan tourist sites in Mexico, with rail coverage in the States of Chiapas, Yucatán and Quintana Roo. Construction of the new airport in Tulum is set to start in 2021. We cannot assure you that the construction of the airport in Tulum will not impact the passenger traffic at Cancún airport.

 

In addition, in certain circumstances, the Mexican government can grant concessions without conducting the public bidding process. Furthermore, the COFECE has the power, under certain circumstances, to reject awards of concessions granted by the government. Please see “Item 4. Information on the Company—Mexican Regulatory Framework—Grants of New Concessions” below. Grants of new concessions could adversely affect our business, results of operations, prospects and financial condition.

 

We provide a public service regulated by the Mexican government and our flexibility in managing our aeronautical activities is limited by the regulatory environment in which we operate.

 

Our aeronautical fees charged to airlines and passengers are, like most airports in other countries, regulated. In 2018, 2019 and 2020, 57.4%, 55.4% and 34.9%, respectively, of our total revenues were earned from aeronautical services at our Mexican airports, which were subject to price regulation under our maximum rates in Mexico. In 2020, 42.9% of our total revenues were earned from aeronautical services at all of our airports. These Mexican maximum rate regulations may limit our flexibility in operating our aeronautical activities, which could have a material adverse effect on our business, results of operations, prospects and financial condition. In addition, several of the regulations applicable to our operations that affect our profitability are authorized (as in the case of our master development programs in Mexico) or established (as in the case of our maximum rates in Mexico) by the Ministry of Communications and Transportation for five-year terms. Except under limited circumstances, we generally do not have the ability unilaterally to change our obligations (such as the investment obligations under our Mexican master development programs or the obligation under Mexican concessions to provide a public service) or increase our maximum rates applicable under those regulations should our passenger traffic or other assumptions on which the regulations were based change during the applicable term. In addition, there can be no assurance that this price regulation system will not be amended in a manner that would cause additional sources of our revenues to be regulated. On October 29, 2020, we filed a request with the Ministry of Communications and Transportation for an extraordinary review of the Mexican maximum rates, which was approved on April 7, 2021 and resulted in an increase in the Mexican maximum rates.

 

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We cannot predict how the Mexican regulations governing our business will be applied.

 

Although Mexican law establishes ranges of sanctions that might be imposed should we fail to comply with the terms of one of our Mexican concessions, the Mexican Airport Law and its regulations or other applicable law, we cannot predict the sanctions that are likely to be assessed for a given violation within these ranges. We cannot assure you that we will not encounter difficulties in complying with these laws, regulations and instruments. Moreover, there can be no assurance that the laws and regulations governing our business will not change.

 

If we exceed the maximum rate at any Mexican airport at the end of any year, we could be subject to sanctions.

 

Historically, we have set the prices we charge for regulated services at each Mexican airport as close as possible to the prices we are allowed to charge under the maximum rate for that airport. We expect to continue to pursue this pricing strategy in the future. For example, in 2020, our revenues subject to maximum rate regulation represented 99.7% of the amount we were entitled to earn under the maximum rates for all of our Mexican airports. There can be no assurance that we will be able to establish prices in the future that allow us to collect virtually all of the revenue we are entitled to earn from services subject to price regulation.

 

The specific prices we charge for regulated services are determined based on various factors, including projections of passenger traffic volumes, the Mexican producer price index (excluding petroleum) and the value of the peso relative to the U.S. dollar. These variables are outside of our control. Our projections could differ from the applicable actual data, and, if these differences occur at the end of any year, they could cause us to exceed the maximum rate at any one or more of our Mexican airports during that year.

 

If we exceed the maximum rate at any airport at the end of any year, the Ministry of Communications and Transportation may assess a fine and may reduce the maximum rate at that airport in the subsequent year. The imposition of sanctions for violations of certain terms of a concession, including for exceeding the airport’s maximum rates, can result in termination of the concession if the relevant term has been violated and sanctions have been imposed at least three times. In the event that any one of our Mexican concessions is terminated, our other concessions may also be terminated.

 

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Depreciation of the Mexican peso may cause us to exceed our maximum rates.

 

We aim to charge prices that are as close as possible to our maximum chargeable rates, and we are entitled to adjust our specific prices only once every six months (or earlier upon a cumulative increase of 5.0% in the Mexican producer price index (excluding petroleum)). However, we generally collect passenger charges from airlines 30 to 115 days following the date of each flight. Such tariffs for the services that we provide to international flights or international passengers in our Mexican airports are generally denominated in U.S. dollars but are paid in Mexican pesos based on the average exchange rate for the month prior to each flight. Accordingly, depreciation of the peso, particularly late in the year, could cause us to exceed the maximum rates at one or more of our airports, which could lead to the imposition of fines and the termination of one or more of our concessions. From December 31, 2019 to December 31, 2020, the peso depreciated by 5.5%, from Ps.18.86 per U.S.$1.00 on December 31, 2019 to Ps.19.89 per U.S.$1.00 on December 31, 2020, and experienced intra-year volatility. In the event that any one of our Mexican concessions is terminated, our other concessions may also be terminated.

 

The price regulatory system applicable to our Colombian airports does not guarantee that our consolidated results of operations, or that the results of operations of any Colombian airport, will be profitable.

 

Our Colombian airports receive two kinds of remuneration for their operations, depending on the types of activities carried out in each airport. First, as a result of aeronautical operations at each airport (excluding fuel supply), Airplan charges airlines regulated tariffs for activities such as aircraft parking rights, subject to annual caps set by Aerocivil. These regulated tariffs are adjusted on an annual basis based on the Colombian consumer price index (Índice de Precios al Consumidor), or the IPC. Airplan also charges non-regulated tariffs for commercial activities, including leases and vehicle parking services, that may be set by the concession holder based upon supply and demand.

 

Although we are entitled to request additional adjustments to the regulated tariffs, any modification or amendment is subject to the approval of Aerocivil. If our request is not submitted in a timely manner, or if the adjustment is not approved by Aerocivil, our business, financial condition and results of operation may be adversely affected. For additional information, see “Item 4—Business Overview—Our Colombian Airports—Aeronautical Revenues.”

 

Our Colombian concessions may be terminated under various circumstances, some of which are beyond our control, and such termination could have a material adverse effect on our business and results of operations.

 

In the event of noncompliance with the terms of the Colombian concession agreement, the National Infrastructure Agency (Agencia Nacional de Infraestructura), or ANI may rescind the agreement and assess a penalty, the amount of which varies depending on the stage of the concession. Airplan was subject to a maximum penalty of U.S.$20 million during the adaptation and modernization stage of the Colombian concession. Airplan completed the adaptation and modernization stage on March 6, 2020 and is currently in the maintenance stage which it expects to end in April 2032. During the maintenance stage of the concession, this maximum penalty may be reduced by 30.0%, 50.0% or 70.0%, depending on when the breach occurs.

 

Under applicable Colombian laws and the terms of the concession, a concession may be terminated upon certain events, including but not limited to: reaching the expected revenues set forth in the concession agreement; dissolution or bankruptcy of our subsidiary Airplan; and a failure to pay fines imposed due to noncompliance with the concession agreement. In addition, the Colombian government may terminate one or more of our concessions if it determines that it is required by national security or in the public interest to do so. The loss of our Colombian concessions could have a material adverse effect on our business and results of operations. For additional information, see “Item 4—Colombian Regulatory Framework—Penalties and Termination of Colombian Concession.”

 

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Changes in existing or new laws and regulations in Mexico, Colombia, the United States and Puerto Rico, including tax laws, or regulatory enforcement priorities could adversely affect our businesses or investments.

 

Laws and regulations at the local, regional and national levels, in Mexico, Colombia, the United States and Puerto Rico, change frequently, and the changes can impose significant costs and other burdens of compliance on our businesses or investments. Any changes in regulations, the interpretation of existing regulations, the internal criteria of the governmental institutions executing such regulations, the imposition of additional regulations or the enactment of any new legislations that affect the airport sector in matters of employment/labor, transportation/logistics, energy costs, tax or environmental issues, could have an adverse impact, directly or indirectly, on our financial condition and results of operations.

 

The technical and specialization level of the environmental regulations in Mexico has significantly deepened and increased in recent years, and the enforcement of environmental laws is becoming substantially more stringent. Considering the global context, we would expect this trend to continue and to be stimulated by international agreements between Mexico and the United States, and other countries or international organizations. In any case, there can be no assurances that environmental regulations or their enforcement will not change in a manner that could have a material adverse effect on our business, results of operations, prospects or financial conditions.

 

In addition, our subsidiary Aerostar as operator of the LMM Airport is subject to the United States’ federal aviation laws and regulations issued by the FAA and by the Transportation Security Administration, or TSA. However, because the LMM Airport is the first airport to be privatized under the Airport Privatization Pilot Program, it is unclear how the FAA will apply to Aerostar and the LMM Airport existing and future laws and regulations applicable to airport operators in the United States. If Aerostar fails to comply with existing or future laws and regulations, it could be subject to fines or be required to incur expenses in order to bring the LMM Airport into compliance. This and any other future changes in existing laws and changes in enforcement priorities by the governmental agencies charged with enforcing existing laws and regulations, as well as changes in the interpretation of these laws and regulations, can increase our businesses and investments’ compliance costs.

 

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Risks Related to Mexico

 

Appreciation, depreciation or fluctuation of the peso relative to the U.S. dollar could adversely affect our results of operations and financial condition.

 

In 2020, the peso depreciated by 5.5% against the U.S. dollar. From 2015 to 2018, the peso decreased substantially in value against the U.S. dollar, and if this depreciation were to resume, it could (notwithstanding other factors) lead to a decrease in Mexican domestic passenger traffic that may not be offset by any increase in international passenger traffic. Any future significant appreciation of the peso could impact our aggregate passenger volume by increasing the cost of travel for international passengers. Depreciation of the peso could impact our aggregate passenger traffic volume by increasing the cost of travel for Mexican domestic passengers, which may adversely affect our results of operations. In addition, there can be no assurance that any depreciation of the peso in the future will result in an increase to international passenger traffic.

 

In addition, depreciation of the peso against the U.S. dollar may adversely affect the dollar value of an investment in the ADSs and the Series B shares, as well as the dollar value of any dividend or other distributions that we may make.

 

Although we currently intend to fund the investments required by our business strategy through cash flow from operations and from peso-denominated borrowings and as of December 31, 2020, our Mexican airports did not have dollar-denominated liabilities, we may incur dollar-denominated debt to finance all or a portion of these investments. A devaluation of the peso would increase the debt service cost of any dollar-denominated indebtedness that we may incur and result in foreign exchange losses.

 

Severe devaluation or depreciation of the peso, or government imposition of exchange controls, may also result in the disruption of the international foreign exchange markets and may limit our ability to transfer or to convert pesos into U.S. dollars and other currencies.

 

Economic developments in Mexico may adversely affect our business and results of operations.

 

Although a substantial portion of our revenues is derived from foreign tourism, Mexican domestic passengers in recent years have represented approximately half of the passenger traffic volume in our Mexican airports. In addition, a significant amount of our assets are located, and a significant segment of our operations are conducted, in Mexico. As a result, our business, financial condition and results of operation could be adversely affected by the general condition of the Mexican economy, by a devaluation of the peso, by inflation and high interest rates in Mexico, or by political developments in Mexico.

 

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Mexico has experienced, and may in the future experience, adverse economic conditions.

 

In the past, Mexico has experienced economic crises, caused by internal and external factors, characterized by exchange rate instability (including large devaluations), high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment rates. We cannot assume that such conditions will not return or that such conditions will not have a material adverse effect on our business, financial condition or results of operations.

 

In 2015, Mexican GDP increased 2.5% and inflation decreased to 2.1%. In 2016, Mexican GDP increased 2.8% and inflation increased to 3.4%. In 2017, Mexican GDP increased 2.3% and inflation increased to 6.8%, its highest level in 16 years. In 2018, Mexican GDP increased 2.0% and inflation decreased to 4.8%. In 2019, Mexican GDP decreased 0.1% and inflation decreased to 2.8%. In 2020, Mexican GDP decreased 8.5% and inflation increased to 3.2%. In 2020, the outbreak of COVID-19 adversely affected the economy and financial markets of Mexico and its trading partners. While Mexican GDP did increase quarter-over-quarter in both the third and fourth quarters of 2020, the extent to which the COVID-19 outbreak will continue to impact the Mexican economy is uncertain, as is the extent of further Mexican economic recovery, if any.

 

If the Mexican economy does not continue to recover, if inflation or interest rates increase significantly or if the Mexican economy is otherwise adversely impacted, our business, financial condition or results of operations could be materially and adversely affected.

 

Political developments in Mexico could adversely affect our operations.

 

Our financial condition and results of operation may be adversely affected by changes in Mexico’s political climate to the extent that such changes affect the nation’s economic policies, growth, stability, outlook or regulatory environment.

 

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy and state-owned enterprises could have a significant effect on Mexican private-sector entities in general, and us in particular, as well as on market conditions, prices and returns on securities, including our ADSs.

 

The most recent presidential and congressional elections took place in July 2018. Andrés Manuel López Obrador, presidential candidate for the National Regeneration Movement Party (Movimiento de Regeneración Nacional) (“Morena”), was elected President and took office on December 1, 2018, ending the Institutional Revolutionary Party’s (Partido Revolucionario Institucional) (“PRI”) hold on the presidency. During the presidential campaign, Andrés Manuel López Obrador expressed, among other things, his intentions to modify and/or terminate certain structural reforms.

 

Indeed, before taking office, López Obrador submitted to a national referendum the question of whether to continue construction of a new international airport in Mexico City, one of Mexico’s most important infrastructure projects. Construction of the new international airport to replace Mexico City International Airport began in 2015 and was projected to be completed in 2020. The referendum was carried out by a private company contracted by Morena and through mechanisms not necessarily envisioned in the Constitution. The result of the referendum, announced on October 28, 2018, was to discontinue construction on the new international airport and, in its stead, build a new airport network consisting of three airports near the Mexico City metropolitan area. On December 27, 2018, the López Obrador administration formally terminated work at the new international airport in Mexico City. The López Obrador administration instead plans to continue to use Mexico City International Airport, to add additional runways to the military air base at Santa Lucia and to upgrade Toluca International Airport to handle Mexico City air traffic. Our Mexican domestic passenger traffic is highly dependent upon the operations of the Mexico City International Airport. We cannot assure you that any future uncertainty surrounding construction of a new Mexico City airport will not adversely affect the operations of the Mexico City International Airport.

 

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Then on November 24 and 25, 2018, López Obrador and Morena held another such referendum. During this second referendum, voters approved the construction of a railway, labeled the Mayan Train, that would link Mayan archaeological and tourist sites in five southeastern states—Campeche, Chiapas, Quintana Roo, Tabasco and Yucatan. The Mayan Train was envisaged to be a four-year project costing U.S.$7.4 billion which will connect Palenque with Cancún. A series of protests and legal challenges have slowed the completion of the Mayan train, which the Mexican government now expects to complete in 2023. We cannot assure you that the construction of the Mayan Train or any uncertainty around its construction will not impact the passenger traffic at our Mexican airports.

 

In his statements after the announcement of the referendum results, López Obrador expressed his intention to, during his term as president, to carry out more such referendums on matters, that in his judgment and that of his administration, are of national interest, and that the results of such referendums will be adopted without taking into account the economic impact they could have on financial markets. We cannot predict if and to what degree such a policy could generate economic instability in Mexico, nor if our operations or the legal framework under which we operate could be affected.

 

The Mexican government could implement significant changes in laws, policies and regulations, which could affect the economic and political situation in Mexico. We cannot predict how the new government will be managed, and the current or new administration could implement substantial changes in law, policy and regulations in Mexico, which could negatively affect our business, financial condition, results of operations, cash flows, prospects and/or the market price of our ADSs. There is no guarantee that the relatively stable political environment in Mexico will continue in the future.

 

Mexican congressional elections also took place in July 2018, and Morena obtained an absolute majority as a result of its strategic coalition with the Labor Party (Partido del Trabajo) and the Social Encounter Party (Partido Encuentro Social). The coalition was known as “Together we will make history” (Juntos Haremos Historia). Mexico’s next federal legislative election will be in June 2021. Morena may gain an absolute majority of the legislature, which could result in further reforms and secondary legislation of key sectors of the Mexican economy, such as the energy sector.

 

On March 9, 2021, certain amendments to the Mexican Power Industry Law (Ley de la Industria Eléctrica) (“LIE”) were enacted into law (the “LIE Decree”), pursuant to an initiative submitted by the Mexican President on January 29, 2021 (the “LIE Initiative”). The LIE Decree was approved by the Mexican Congress in almost the exact same terms as submitted by the LIE Initiative. The LIE Initiative sought to reverse the “Energy Reform” implemented since December 2013, which the LIE Initiative argued left the Mexican Federal Electricity Commission (Comisión Federal de Electricidad) (“CFE”) “fractured” and “almost in ruins,” and therefore in need of strengthening by Mexico’s Federal Executive Branch.

 

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On this basis, the LIE Decree established, among others, the following amendments to the LIE: (i) the elimination of the obligation of the CFE Basic Services Supplier (CFE Suministrador de Servicios Básicos) to enter into power hedging agreements exclusively through public bids (subastas); (ii) an order directing the Energy Regulatory Commission (Comisión Reguladora de Energía) (“CRE”) to revoke self-supply permits, in cases in which they were obtained through acts constituting fraud, which, in the opinion of the Federal Executive Branch of Mexico, include permits granted not for the production of power for self-consumption, but for satisfying the energy needs of third parties and creating a parallel electricity market; and (iii) a review of the legality and profitability for the Mexican federal government of the Power Generation Capacity Commitments and Power Purchase Agreements entered into by the CFE with independent power producers under the Public Power Service Law (Ley del Servicio Público de Energía Eléctrica) (“LSPEE”).

 

On March 11, 2021, the Second District Court for Administrative Matters Specialized in Economic Competition, Broadcasting and Telecommunications, with residence in Mexico City and jurisdiction throughout Mexico, reviewed a legal challenge against acts of authority called an “amparo proceeding” and granted to a plaintiff the provisional suspension, with general effects, of the LIE Decree. Over 80 similar legal challenges have also resulted in suspensions of the LIE Decree with general effects. Accordingly, the effects and consequences of the LIE Decree will not be produced and it cannot be temporarily implemented by the authorities of the sector.

 

As a result, for purposes of legal certainty in Mexico, per the request of such Second District Court for Administrative Matters Specialized in Economic Competition, Broadcasting and Telecommunications, on March 24, 2021, the Mexican Ministry of Energy (Secretaría de Energía) published in the Federal Official Gazette (DOF) an official resolution to (i) suspend all effects and consequences derived from the LIE Decree, and (ii) provisionally reestablished the validity of certain provisions and articles, as well as the transitory regime, of the LIE prior to the entry into force of the amendments contained in the LIE Decree.

 

As with other measures aimed at reversing the Energy Reform, the Mexican government continues to issue new rules that may be challenged as unconstitutional and could disproportionately benefit the CFE to the detriment of its competitors.

 

Developments in other countries may affect the prices of securities issued by Mexican companies.

 

The Mexican economy may be, to varying degrees, affected by economic and market conditions in other countries. Although economic conditions in other countries may differ significantly from economic conditions in Mexico, investors’ reactions to adverse developments in other countries may have an adverse effect on the market value of securities of Mexican issuers. In October 1997, prices of both Mexican debt and equity securities decreased substantially as a result of the sharp drop in Asian securities markets. Similarly, in the second half of 1998 and in early 1999, prices of Mexican securities were adversely affected by the economic crises in Russia and Brazil. The Mexican debt and equities markets also have been adversely affected by ongoing developments in the global credit markets.

 

In addition, in recent years, economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of the North American Free Trade Agreement, or NAFTA, and revised NAFTA (also called the United States - Mexico - Canada Agreement, or USMCA), and increased economic activity between the two countries. Therefore, adverse economic conditions in the United States, the termination of USMCA or other related events could have a material adverse effect on the Mexican economy. We cannot assure you that events in other emerging market countries, in the United States or elsewhere will not materially and adversely affect our business, financial condition or results of operations.

 

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The election of President of the United States may create uncertainty for relations between Mexico and the United States, and could have a material adverse effect on our business, financial condition and results of operations.

 

On January 20, 2021, Joseph R. Biden was sworn into office as the President of the United States. President Biden’s predecessor expressed an intention to make changes related to immigration and trade, including the renegotiation of NAFTA. While President Biden has expressed different intentions than his predecessor and has reversed certain of the enforcement efforts implemented by his predecessor in connection with immigration policy, the effect of the change in President of the United States on relations between Mexico and the United States is not clear. The United States is Mexico’s primary trading partner, and receives over 80 percent of Mexico’s total exports. Weakened trading ties between Mexico and the United States could hurt industrial growth in the Mexican economy.

 

Negotiators for Mexico, the United States and Canada announced an agreement in September 2018, whereby certain aspects of NAFTA would be modified. The modifications include, among others, minimum wages rules for the automotive sector, greater access to Canadian dairy markets, and extension of copyright protections to 70 years beyond the life of the author. In addition, the revised NAFTA updates (for US and Mexico only) NAFTA’s Chapter 11 investor-state dispute settlement procedures. The revised NAFTA was ratified by the United States, Mexico and Canada, and came into effect on July 1, 2020. The revised NAFTA includes a 16-year “sunset” clause, meaning the terms of the agreement expire after a set period of time, as well as being subject to a review every six years, at which point the United States, Mexico, and Canada can decide to extend the revised NAFTA or not. If the revised NAFTA or USMCA is terminated or otherwise modified, such termination or modification could materially impact Mexico’s aviation sector. While it is difficult to predict their scope and effect, such changes could have a material adverse effect on our business, financial condition, results of operations, cash flows, prospects and/or the market price of our ADSs.

 

The election of President Biden in 2020 and any attempt by him to implement changes to United States-Mexico policy, including actions to withdraw from or materially modify NAFTA or USMCA, and to implement immigration reform, could have a material adverse effect on our business, financial condition or results of operations.

 

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Differences between the corporate disclosure requirements of Mexico and the United States may not adequately reflect our business and results of operations.

 

A principal objective of the securities laws of the United States, Mexico, and other countries is to promote full and fair disclosure of all material corporate information, including accounting information. However, there may be different or less publicly available information about issuers of securities in Mexico than is regularly made available by public companies in countries with highly developed capital markets, including the United States.

 

In addition, accounting standards and disclosure requirements in Mexico differ from those of the United States. In particular, our financial statements are prepared in accordance with IFRS which differs from United States GAAP in a number of respects. Items on the financial statements of a company prepared in accordance with IFRS may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with United States GAAP.

 

Mexican law and our bylaws restrict the ability of non-Mexican shareholders to invoke the protection of their governments with respect to their rights as shareholders.

 

As required by Mexican law, our bylaws provide that non-Mexican shareholders shall be considered as Mexicans in respect of their ownership interests in ASUR and shall be deemed to have agreed not to invoke the protection of their governments in certain circumstances. Under this provision, a non-Mexican shareholder is deemed to have agreed not to invoke the protection of his own government by asking such government to interpose a diplomatic claim against the Mexican government with respect to the shareholder’s rights as a shareholder, but is not deemed to have waived any other rights it may have, including any rights under the United States securities laws, with respect to its investment in ASUR. If you invoke such governmental protection in violation of this agreement, your shares could be forfeited to the Mexican government.

 

It may be difficult to enforce civil liabilities against us or our directors, officers and controlling persons.

 

ASUR is organized under the laws of Mexico, with its principal place of business (domicilio social) in Mexico City, and most of our directors, officers and controlling persons reside outside the United States. In addition, all or a substantial portion of our assets and their assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under the United States federal securities laws. There is doubt as to the enforceability against such persons in Mexico, whether in original actions or in actions to enforce judgments of United States courts, of liabilities based solely on the United States federal securities laws.

 

The protections afforded to minority shareholders in Mexico are different from those in the United States.

 

Under Mexican law, the protections afforded to minority shareholders are different from those in the United States. In particular, the law concerning fiduciary duties of directors is not as fully developed as in other jurisdictions and there are different procedural requirements for bringing shareholder lawsuits. As a result, in practice it may be more difficult for minority shareholders of ASUR to enforce their rights against us or our directors or controlling shareholders than it would be for shareholders of a company incorporated in another jurisdiction, such as the United States.

 

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Security risks in Mexico could increase, which could adversely affect our operations.

 

In recent years, Mexico has experienced a period of increased criminal activity and violence, primarily due to organized crime. Increasing violence among criminal organizations, particularly drug traffickers, and clashes between these and Mexican civilian and military personnel, or increases in other types of crime, are a risk to our business and could negatively impact our performance. In addition, perceptions about crime in Mexico and violence related to drug trafficking may also have an adverse effect on our business as they may decrease the international passenger traffic directed to Mexico or the domestic passenger travel using our airports in affected states.

 

On September 8, 2020, the U.S. State Department issued a Level 3 travel advisory to reconsider travel to Mexico due to COVID-19, and recommended exercising increased caution in Mexico due to crime and kidnapping, as some areas have increased risk. Historicallly, the regions in which we operate have not experienced the violence experienced in other parts of Mexico and none of the Mexican states in which we operate were cited as “do not travel to” or “reconsider travel to” zones in the September 8, 2020 travel advisory. However, we cannot guarantee that violence will not increase in, or that the U.S. State Department will not issue travel advisories for, the Mexican states in which we operate.

 

Risks Related to Colombia

 

Colombian government policies may significantly affect the economy, and, as a result, our business and operations in Colombia.

 

Our business and results of operations at our Colombian airports are dependent on the economic conditions prevailing in Colombia. The Colombian government has historically exercised substantial influence on its economy, and is likely to continue to implement policies that will have an impact on the business and results of operations of entities in the country. Potential changes in laws, public policies and regulations may cause instability and volatility in Colombia, which could have a material adverse impact on our business and results of operations.

 

Although Colombia has maintained stable economic growth since 2003 and an inflation rate below 8.0% during the decade, in the past, economic growth has been negatively affected by lower foreign direct investment and high inflation rates and the perception of political instability. We cannot assure you that growth achieved in recent years by the Colombian economy will continue in future periods. If the perception of improved overall stability in Colombia deteriorates or if foreign direct investment declines, the Colombian economy may face a downturn, which could impact international and domestic traffic at our Colombian airports, and negatively affect our results of operations.

 

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Colombia has experienced several periods of violence and political instability, which could affect the economy and our operations.

 

Colombia has experienced several periods of criminal violence over the past four decades, primarily due to the activities of guerilla, paramilitary groups and drug cartels. In remote regions of the country, where governmental presence is minimal, these groups have exerted influence over the local population and funded their activities by protecting and rendering services to drug traffickers. In response, the Colombian government has implemented security measures and has strengthened its military and police forces, including the creation of specialized units. Despite these efforts, drug-related crime and guerrilla and paramilitary activity continue to exist in Colombia. Any possible escalation in the violence associated with these activities may have a negative impact on the Colombian economy in the future.

 

In the context of any political instability, allegations have been made against members of the Colombian government concerning possible ties with paramilitary groups. These allegations may undermine the Colombian government’s credibility, which could in turn negatively impact the Colombian economy and tourism and our operations there in the future. In November 2016, the Colombian government signed a revised peace agreement with the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia or “FARC”) guerillas that sought their demobilization and the end of the decades-long armed conflict. That same month, the revised peace agreement was ratified by both houses of Congress and the Colombian government formally entered into the peace agreement with FARC without submitting the agreement to the voters for their approval. On January 18, 2019, President Ivan Duque announced the end of negotiations for a peace agreement with the National Liberation Army (Éjercito de Liberación Nacional or “ELN”), the second-largest guerilla group in the country. This decision was the result of a terrorist attack on a police station based in Bogotá, perpetrated by the ELN. The Colombian government has had military confrontations with the ELN and with dissident groups that a peace agreement had been signed with. Conflicts between guerrilla and paramilitary fighters for control of the territory vacated by former groups who reintegrated into civil society has caused outbreaks of violence in the country, which have also been met with responses by the Colombian government. In addition, some ex-guerrilla members continue to carry out illegal activities, including micro-drug trafficking and robbery, leading to the establishment of criminal bands in the Antioquia, Cauca and Valle del Cauca regions. As a result, local and national authorities have increased the presence of military and police forces, particularly in border zones and major cities such as Medellín.

 

In addition, Colombia has recently experienced substantial migration from Venezuela, leading to strained relations between the nations, including with respect to commercial relations. Air transport between Colombia and Venezuela has slowed in part due to political and economic instability in Venezuela.

 

In June 2018, Ivan Duque, a center-right politician, was elected president of Colombia, and took office in August 2018. It is uncertain how the Duque government will impact certain policies, particularly with respect to guerrilla and paramilitary groups. In addition, beginning in November 2019, Colombia has experienced civic unrest in the form of a national strike and anti-government protests. Demonstrators have protested for a variety of reasons, including opposition to certain economic and political reforms proposed by the Duque administration, corruption, the implementation of the peace agreement and the lack of safety and security provided to human rights defenders, and have demanded reforms related to pensions, access to education, environmental protection and inequality, among others. While protests were dampened during 2020, it is not clear if the protests will resume if COVID-19 restrictions or concerns are weakened. As such, our Colombian operations could be adversely impacted by rapidly changing economic, political and social conditions in Colombia and by the Colombian government’s response to such conditions. Additionally, any changes in the ruling government, regulations or policies relating to aeronautical services or investment, or shifts in political attitudes in Colombia are beyond our control.

 

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Risks Related to Our ADSs

 

You may not be entitled to participate in future preemptive rights offerings.

 

Under Mexican law, if we issue new shares for cash as part of a capital increase, we generally must grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in ASUR. Rights to purchase shares in these circumstances are known as preemptive rights. We may not legally be permitted to allow holders of ADSs in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the U.S. Securities and Exchange Commission, or SEC, with respect to that future issuance of shares, or the offering qualifies for an exemption from the registration requirements of the Securities Act of 1933, as amended.

 

At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important to determine whether we will file such a registration statement.

 

We cannot assure you that we will file a registration statement with the SEC to allow holders of ADSs or shares in the United States to participate in a preemptive rights offering. In addition, under current Mexican law, sales by the depository of preemptive rights and distribution of the proceeds from such sales to you, the ADS holders, is not possible. As a result, your equity interest in ASUR may be diluted proportionately.

 

Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary.

 

Under Mexican law, a shareholder is required to deposit its shares with the Secretary of the Company, the S.D. Indeval Institución para el Depósito de Valores, S.A. de C.V. (“Indeval”), a Mexican or foreign credit institution or a brokerage house in order to attend a shareholders’ meeting. A holder of ADSs will not be able to meet this requirement, and accordingly is not entitled to attend shareholders’ meetings. A holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs, in accordance with the procedures provided for in the deposit agreement and in accordance with Mexican law, but a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so.

 

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Future sales of shares by us and our stockholders may depress the price of our Series B shares and ADSs.

 

On August 17, 2010, JMEX B.V., which held 16.1% of our capital stock, disposed of 100.0% of its holdings or 47,974,228 Series B shares, in an underwritten public offering at a price of U.S.$4.48 per Series B share. On January 4, 2012, Fernando Chico Pardo consummated the sale of 49.0% of ITA and 37,746,290 of his Series B shares to Grupo ADO for an aggregate purchase price of U.S.$196.6 million.

 

Future sales of substantial amounts of our common stock or the perception that such future sales may occur, may depress the price of our ADSs and Series B shares. Although we and JMEX B.V. were subject to a lock-up in connection with the August 2010 sale, our other stockholders, directors and officers were not subject to any lock-up agreements, and as a result, they were able to freely transfer their Series B shares immediately following the offering. We, our stockholders, directors and officers may not be subject to lock-up agreements in future offerings of our common stock. Any such sale may lead to a decline in the price of our ADSs and Series B shares. We cannot assure you that the price of our ADSs and Series B shares would recover from any such decline in value.

 

We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could subject U.S. investors in shares of our common stock or ADSs to adverse tax consequences, which may be significant.

 

We will be classified as a passive foreign investment company (a “PFIC”) in any taxable year in which, after taking into account our income and gross assets (and the income and assets of our subsidiaries pursuant to applicable “look-through rules”) either (i) 75% or more of our gross income for the taxable year consists of certain types of “passive income” or (ii) 50% or more of the average quarterly value of our assets is attributable to “passive assets” (assets that produce or are held for the production of passive income). We believe that we were not a PFIC for U.S. federal income tax purposes in 2020 and do not expect to be a PFIC in the current year or the reasonably foreseeable future. PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets. Because our belief is based in part on the expected market value of our equity, a decrease in the trading price of our common stock and ADSs may result in our becoming a PFIC.

 

If we were to be or become classified as a PFIC, a U.S. Holder, as defined in “Item 10.E. Taxation — United States Federal Income Tax Considerations,” that does not make a “mark-to-market” election may incur significantly increased U.S. income tax on gain at ordinary income tax rates recognized on the sale or other disposition of shares of our common stock or ADSs and on the receipt of distributions on the shares of our common stock or ADSs to the extent such distribution is treated as an “excess distribution” under the U.S. federal income tax rules. We do not intend to provide holders with the information necessary to make a “QEF election” (as described in “Item 10.E. Taxation — United States Federal Income Taxation — Passive Foreign Investment Company”). Thus, a U.S. Holder seeking to mitigate the potential adverse effects of the PFIC rules should consider making a mark-to-market election. Additionally, if we were to be or become classified as a PFIC, a U.S. Holder of shares of our common stock or ADSs will be subject to additional U.S. tax form filing requirements, and the statute of limitations for collections may be suspended if the U.S. Holder does not file the appropriate form. See “Item 10.E. Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.” 

 

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FORWARD LOOKING STATEMENTS

 

This Form 20-F contains forward-looking statements. We may from time to time make forward-looking statements in our periodic reports to the SEC on Forms 20-F and 6-K, in our annual report to shareholders, in offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees to analysts, institutional investors, representatives of the media and others. Examples of such forward-looking statements include:

 

·projections of operating revenues, operating income, net income (loss), net income (loss) per share, capital expenditures, dividends, capital structure or other financial items or ratios,

 

·statements of our plans, objectives or goals,

 

·statements about our future economic performance or that of Mexico or other countries in which we operate, and

 

·statements of assumptions underlying such statements.

 

Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

 

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors, some of which are discussed above under “Risk Factors,” include material changes in the performance or terms of our Mexican, Colombian and Puerto Rican concessions, developments in legal proceedings, economic and political conditions and government policies in Mexico, Colombia, Puerto Rico or elsewhere, inflation rates, exchange rates, regulatory developments, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements.

 

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments.

 

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Item 4.Information on the Company

 

HISTORY AND DEVELOPMENT OF THE COMPANY

 

Grupo Aeroportuario del Sureste, S.A.B. de C.V., or ASUR, is a corporation (sociedad anónima bursátil de capital variable) organized under the laws of Mexico. We were incorporated in 1998 as part of the Mexican government’s program for the opening of Mexico’s airports to private-sector investment. The duration of our corporate existence is indefinite. We are a holding company and conduct all of our operations through our subsidiaries. The terms “ASUR,” “we” and “our” in this annual report refer both to Grupo Aeroportuario del Sureste, S.A.B. de C.V. as well as Grupo Aeroportuario del Sureste, S.A.B. de C.V. together with its subsidiaries. Our registered office is located at Bosque de Alisos No. 47ª-4th Floor, Bosques de las Lomas, 05120 México, D.F., México, telephone (5255) 5284 0408.

 

Investment by ITA

 

As part of the opening of Mexico’s airports to investment, in 1998, the Mexican government sold a 15.0% equity interest in us in the form of 45,000,000 Series BB shares to ITA pursuant to a public bidding process.

 

ITA paid the Mexican government a total of Ps.1,165.1 million (nominal pesos, excluding interest) (U.S.$120.0 million based on the exchange rates in effect on the dates of payment) in exchange for:

 

·45,000,000 Series BB shares representing 15.0% of our outstanding capital stock (as of the date hereof, Series BB shares represent 7.65% of our outstanding capital stock following the conversion described below),

 

·three options to subscribe for newly issued Series B shares, all of which have expired unexercised, and

 

·the right and obligation to enter into various agreements with us and the Mexican government, including a participation agreement, a technical assistance agreement and a shareholders’ agreement under terms established during the public bidding process. These agreements are described in greater detail under “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”

 

Under the technical assistance agreement, ITA provides management and consulting services and transfers industry “know-how” and technology to ASUR in exchange for a technical assistance fee. This agreement is more fully described in “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.” The agreement provides us a perpetual and exclusive license in Mexico to use all technical assistance and “know-how” transferred to us by ITA or its stockholders during the term of the agreement. The agreement had an initial 15-year term which expired in 2013, and is automatically renewed for successive five-year terms, unless one party provides the other a notice of termination within a specified period prior to a scheduled expiration date. The agreement was renewed on June 29, 2018. Although Copenhagen Airports A/S (“Copenhagen Airports”) sold its stake in ITA to Mr. Fernando Chico Pardo in October 2010, this technical assistance agreement continues in force. ITA provides us assistance in various areas, including strategic planning, financial analysis and control, development of our commercial activities, preparation of marketing studies focusing on increasing passenger traffic volume at our airports, political and regulatory issues, assistance with the preparation of the master development plans that we are required to submit to the Ministry of Communications and Transportation with respect to each of our airports, construction programming, exploring and analyzing new business opportunities, and the improvement of our airport operations.

 

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The technical assistance fee is equal to the greater of U.S.$2.0 million, adjusted for United States inflation, or 5.0% of our annual consolidated earnings before comprehensive financing cost, income taxes and depreciation and amortization (determined in accordance with financial reporting standards applicable in Mexico and calculated prior to deducting the technical assistance fee under this agreement). The agreement was amended in 2012 to provide for quarterly payments of the fee. The fixed dollar amount decreased during the agreement’s initial five years. The fixed dollar amount was U.S.$5.0 million in 1999 and 2000, and U.S.$3.0 million in 2001 and 2002. Since 2003, the fixed dollar amount is U.S.$2.0 million before the annual adjustment for inflation (measured by the United States consumer price index) as from the first anniversary of the technical assistance agreement. In 2020, the fixed amount was U.S.$3.1 million. We believe that this structure creates an incentive for ITA to increase our annual consolidated earnings before net comprehensive financing cost, income and asset taxes and depreciation and amortization. ITA is also entitled to reimbursement for the out-of-pocket expenses it incurs in its provision of services under the agreement. In 2018, 2019 and 2020, the technical assistance costs were Ps.386.2 million, Ps.404.1 million and Ps.175.6 million, respectively, greater than the fixed costs of Ps.59.4 million, Ps.58.4 million, and Ps.62.4 million respectively, for the same periods.

 

The technical assistance agreement allows ITA, its stockholders and their affiliates to render additional services to ASUR only if the Acquisitions and Contracts Committee of our Board of Directors determines that these related persons have submitted the most favorable bid in a public bidding process involving at least three unrelated parties. For a description of this committee, see “Item 6. Directors, Senior Management and Employees—Committees.”

 

Under our bylaws and the technical assistance agreement, ITA has the right to elect two members of our Board of Directors (which currently consists of nine members) and their alternates, and to present the Board of Directors the name or names of the candidates for appointment as our chief executive officer, to remove our chief executive officer and to appoint and remove half of our executive officers. As the holder of the Series BB shares, ITA’s consent is also required to approve certain corporate matters so long as ITA’s Series BB shares represent at least 7.65% of our capital stock. In addition, our bylaws and the technical assistance agreement contain certain provisions designed to avoid conflicts of interest between ASUR and ITA. The rights of ITA in our management are explained in “Item 6. Directors, Senior Management and Employees—Committees.”

 

The remaining 85.0% of our outstanding capital stock, which at that time (prior to the conversion in June 2007 by ITA of 22,050,000 Series BB shares into 22,050,000 Series B shares) consisted of 255,000,000 Series B shares, was sold by the Mexican government to a Mexican trust established by NAFIN. This trust subsequently sold the shares it held in us to the public. To our knowledge, the Mexican government no longer holds any of our shares.

 

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ITA was restricted from transferring any of its remaining Series BB shares until December 18, 2008. From December 18, 2008 until December 17, 2013, ITA could sell in any year up to 20.0% of its remaining ownership interest in us represented by Series BB shares. These selling restrictions ended when the participation agreement expired on December 17, 2013. Our bylaws provide that Series BB shares must be converted into Series B shares prior to transfer. For a more detailed discussion of ITA’s rights to transfer its stock, see “Item 10. Additional Information—Registration and Transfer.”

 

As required under the participation agreement entered into in connection with the Mexican government’s sale of the Series BB shares to ITA, ITA transferred its Series BB shares to a trust, the trustee of which is Banco Nacional de Comercio Exterior, S.N.C (“Bancomext”). Under the terms of the participation agreement and the trust agreement, ITA’s majority shareholder, currently Fernando Chico Pardo, was required to, directly or indirectly, maintain an ownership interest in ITA of a minimum of 51.0% unless otherwise approved by the Ministry of Communications and Transportation. To the extent that Mr. Fernando Chico Pardo acquired shares of ITA in excess of a 51.0% interest, this additional interest could be sold without restriction. This ownership requirement expired on December 18, 2013. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—ITA Trust” for a further description of these provisions. If ITA or its stockholders default on any obligation contained in the trust agreement, or if ITA defaults on any obligation contained in the technical assistance agreement, after specified notice and cure provisions, the trust agreement provides that the trustee may sell 5.0% of the shares held in the trust and pay the proceeds of such sale to ASUR as liquidated damages.

 

Pursuant to the terms of the trust, ITA may direct the trustee to vote the Series BB shares, currently representing 7.65% of our capital stock, regarding all matters other than capital reductions, payment of dividends, amortization of shares and similar distributions to our shareholders, which are voted by the trustee in accordance with the vote of the majority of Series B shares. The trust does not affect the veto and other special rights granted to the holders of Series BB shares described in “Item 10. Additional Information.”

 

Currently, Fernando Chico Pardo, our Chairman, directly holds 50.0% of ITA’s shares. The other 50.0% is held by Inversiones Kierke, an entity owned and controlled by Grupo ADO. Mr. Fernando Chico Pardo became a stockholder in ITA in April 2004 when he acquired the 24.5% ownership stake of the French group Vinci, S.A. in ITA and a 13.5% ownership stake of the Spanish group Ferrovial Aeropuertos, S.A. in ITA. At the same time, Copenhagen Airports acquired Ferrovial Aeropuertos, S.A.’s 11.0% ownership interest in ITA, thereby increasing its participation in ITA from 25.5% to 36.5%. Mr. Fernando Chico Pardo acquired an additional 25.5% ownership stake in ITA through the exercise of his right of first refusal following the auction of such shares by NAFIN, a Mexican national credit institution and development bank controlled by the Mexican government. On April 29, 2005, Copenhagen Airports increased its participation in ITA from 36.5% to 49.0% through the purchase of shares from Mr. Fernando Chico Pardo.

 

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In connection with the tender offers and other transactions undertaken by Mr. Fernando Chico Pardo in June 2007, ITA converted 22,050,000 Series BB shares representing 7.35% of our total outstanding capital stock into Series B shares and transferred such shares to Agrupación Aeroportuaria Internacional, S.A. de C.V. by means of a spin-off. As a result of this transaction, ITA currently holds 22,950,000 Series BB shares representing 7.65% of our total outstanding capital stock. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Capital Stock Structure.”

 

On October 13, 2010, Copenhagen Airports consummated the sale of its 49.0% stake in ITA to Mr. Fernando Chico Pardo. As a result of this transaction, Mr. Fernando Chico Pardo became the direct or indirect owner of 100% of the shares of ITA. On January 4, 2012, Fernando Chico Pardo consummated the sale of an entity that owns and controls 49.0% of the shares of ITA, Corporativo Galajafe, S.A. de C.V. (“Corporativo Galajafe”) (formerly Remer Soluciones), to Grupo ADO. On November 11, 2013, Corporativo Galajafe merged into Remer Soluciones, the total capital stock of which is 99% owned by Grupo ADO. On April 27, 2015, Remer Soluciones exercised its option to acquire an additional 1.0% interest in the outstanding shares of ITA for a purchase price of U.S.$4.6 million. On June 4, 2018, Remer Soluciones merged into Consorcio SAFIJ, S.A. de C.V. (“Consorcio SAFIJ”) the total capital stock of which was 99% owned by Grupo ADO. Then, on August 7, 2018, Consorcio SAFIJ merged into Compañía Inmobiliaria y de Inversiones del Noroeste, S.A. de C.V. (“Noroeste”) the total capital stock of which was 99% owned by Grupo ADO. On October 15, 2018, Noroeste merged into Inversiones Kierke the total capital stock of which is 99% owned by Grupo ADO. Finally, on December 3, 2018, Servicios de Estrategia Patrimonial, S.A. de C.V. and Agrupación Aeroportuaria Internacional III, S.A. de C.V. merged into CHPAF, the total capital stock of which is 99% owned by Mr. Fernando Chico Pardo. In light of the foregoing, Inversiones Kierke and Fernando Chico Pardo, through CHPAF, each own 50.0% of ITA. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—ITA Trust.”

 

Mr. Fernando Chico Pardo is the founder and President of Promecap, S.C. since 1997. He was appointed by ITA as a member of our Board of Directors and has been Chairman of the Board since April 28, 2005. He has also served as a board member of, among others, Grupo Financiero Inbursa, Condumex, Grupo Carso, Sanborns Hermanos, Sears Roebuck de México, Grupo Posadas de México and Grupo Saltillo.

 

Investment in Luis Muñoz Marín International Airport

 

On July 11, 2012, Aerostar, a joint venture between our Cancún airport subsidiary and Oaktree Capital, submitted a successful bid for a concession to operate the LMM Airport. On February 27, 2013, the transaction was completed and Aerostar began operating the LMM Airport. On May 26, 2017, we acquired an additional 10% membership interest in Aerostar, pursuant to a Membership Interest Purchase Agreement, giving us a majority stake in the joint venture. In addition, Oaktree Capital sold its remaining 40.0% interest in Aerostar to PSP Investments, through its wholly-owned subsidiary AviAlliance, pursuant to a separate Membership Interest Purchase Agreement. Our Cancún airport subsidiary owns 60.0% of Aerostar’s outstanding membership interests, which it has pledged on a non-recourse basis to secure up to U.S.$410.0 million of indebtedness incurred by Aerostar to pay the upfront leasehold fee, fund capital expenditures and for working capital purposes. As member of Aerostar, our Cancún airport subsidiary is entitled to distributions. However, pursuant to the terms of Aerostar’s debt, distributions are permitted only when Aerostar is in compliance with certain conditions. Additionally, our Cancún airport subsidiary made a U.S.$100.0 million subordinated shareholder loan to Aerostar on February 22, 2013 to partially fund the cost of acquiring the concession to operate the LMM Airport and it is entitled to cash interest payments on this loan whenever certain conditions are met, including that dividends are permitted to be paid. Cash interest on the shareholder loan is paid in preference to any dividends that may be payable. When cash interest payments are not permitted, interest on this loan is capitalized. As of December 31, 2020, the remaining balance on this loan was U.S.$5.2 million, including capitalized interest.

 

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Acquisition of Colombian Airports

 

In the spring of 2017, we, through our Cancún airport subsidiary, entered into agreements to acquire a controlling interest in Airplan and Oriente. In October 2017, we received the necessary approvals from the Colombian regulatory authorities to conclude the acquisition of a 92.42% stake in Airplan. Airplan has concessions to operate the following airports in Colombia: the Enrique Olaya Herrera Airport in Medellín, the José María Córdova International Airport in Rionegro, the Los Garzones Airport in Montería, the Antonio Roldán Betancourt Airport in Carepa, the El Caraño Airport in Quibdó and the Las Brujas Airport in Corozal. On May 25, 2018, we increased our ownership stake in Airplan to 100% by acquiring an additional 7.58% of Airplan’s capital stock. We terminated our agreement to purchase Oriente in 2018.

 

We purchased the initial 92.42% interest in Airplan for an aggregate price of approximately U.S.$201.6 million, subject to pricing adjustments and pursuant to a series of agreements with the respective shareholders of Airplan. We paid U.S.$69.6 million of the purchase price with cash on hand, and obtained an unsecured loan from BBVA Bancomer in April 2017 to pay the balance of the purchase price. The loan had a term of one year and an interest rate calculated on the basis of the 28-day TIIE plus 0.60% from July 31 to October 31, 2017; TIIE plus 0.85% from October 31, 2017 to January 31, 2018; TIIE plus 1.10% from January 31 to April 30, 2018 and TIIE plus 1.60% from April 30 to July 31, 2018. This loan was paid in October 2017, and we, through our Cancún airport subsidiary, concurrently incurred two loans of Ps.2,000.0 million each, one with BBVA Bancomer and the other with Banco Santander.

 

Master Development Programs in Mexico

 

Under the terms of our Mexican concessions, each of our subsidiary concession holders is required to submit an updated master development plan for approval by the Ministry of Communications and Transportation every five years. Each master development plan covers a 15-year period and includes investment commitments for the regulated part of our business (including certain capital expenditures and improvements) for the succeeding five-year period and investment projections for the regulated part of our business (including certain capital expenditures and improvements) for the remaining 10 years (indicative investments). Once approved by the Ministry of Communications and Transportation, these commitments become binding obligations under the terms of our Mexican concessions. Committed investments are minimum requirements, and our capital expenditures may exceed our investment commitments in any period. In June 2018, the Ministry of Communications and Transportation approved each of our current updated master development plans. These plans are in effect from January 1, 2019 to December 31, 2023. In September 2020, the Ministry of Communications and Transportation approved the deferral of Ps.2,292.4 million of committed investments for projects contained in the master development plans and authorized for 2020 to the year 2021, due to the health emergency generated by COVID-19. Additionally, on October 29, 2020, we filed a request with the Ministry of Communications and Transportation for an extraordinary review of the Mexican maximum rates, which was approved on April 7, 2021, and resulted in a reduction in committed investments and an increase in the Mexican maximum rates in the master development plans for the years 2021 to 2023.

 

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The following table sets forth our committed investments for the regulated part of our business for each Mexican airport pursuant to the terms of our current master development plans for the periods presented. Even though we have committed to invest the amounts in the table, those amounts could be lower or higher depending on the cost of each project.

 

Committed Investments

 

   Committed Investments 
   Year ended December 31, 
Airport  2019   2020   2021   2022   2023   Totals 
                         
   (millions of constant Mexican pesos as of December 31, 2020)(1) 
Cancún   1,243.4(2)   1,772.1(2)   1,387.6(2)   849.1(2)   213.0(2)   5,465.2(2)
Cozumel   36.8    67.4    111.6    66.5    23.3    305.6 
Huatulco   210.2    100.5    76.2    92.0    87.6    566.5 
Mérida   426.8    656.6    736.2    386.0    14.4    2,220.0 
Minatitlán   37.4    25.3    51.4    18.1    8.4    140.6 
Oaxaca   89.9    183.7    121.8    57.4    20.4    473.2 
Tapachula   13.9    9.4    264.4    231.4    34.2    553.3 
Veracruz   104.9    130.6    155.4    58.0    28.4    477.3 
Villahermosa   119.3    126.8    159.6    35.3    27.7    468.7 
Total   2,282.6    3,072.4    3,064.2    1,793.8    457.4    10,670.4 

 

 

(1)Based on the Mexican construction price index in accordance with the terms of our master development plan.
(2)As of December 31, 2020, we have invested Ps.3,072.4 million (which is included in the investment commitments for this period shown above).

 

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The following table sets forth our committed and indicative investments for the regulated part of our business for each Mexican airport pursuant to the terms of our current master development plans for the periods presented.

 

   Committed Investments   Indicative Investments 
Airport  January 1, 2019-December
31, 2023
   January 1, 2024-December
31, 2028
   January 1, 2029-December
31, 2033
 
             
   (millions of constant Mexican pesos as of December 31,2020)(1) 
Cancún   5,462.2(2)   6,639.6    5,067.8 
Cozumel   305.6    377.1    222.0 
Huatulco   566.5    388.3    246.1 
Mérida   2,220.0    892.1    387.5 
Minatitlán   140.6    207.2    85.6 
Oaxaca   473.2    291.4    204.8 
Tapachula   553.3    135.9    151.4 
Veracruz   477.3    465.4    372.2 
Villahermosa   468.7    432.9    360.5 
Total   10,670.4    9,829.9    7,097.9 

 

 

(1)Based on the Mexican construction price index in accordance with the terms of our master development plan.
(2)As of December 31, 2020, we have invested Ps.3,072.4 million (which is included in the investment commitments for this period shown above).

 

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BUSINESS OVERVIEW

 

We hold concessions to operate, maintain and develop nine airports in the southeast region of Mexico for fifty years from November 1, 1998. As operators of these airports, we charge airlines, passengers and other users fees for the use of the airports’ facilities. We also derive rental and other income from commercial activities conducted at our airports, such as the leasing of space to restaurants and retailers. Our Mexican concessions include the concession for Cancún International Airport, which was the second busiest airport in Mexico in 2020 in terms of passenger traffic, and the busiest in terms of international passengers in regular service, according to the Dirección General de Aeronáutica Civil, or General Office of Civil Aviation, Mexico’s federal authority on aviation. We also hold concessions to operate the airports in Cozumel, Huatulco, Mérida, Minatitlán, Oaxaca, Tapachula, Veracruz and Villahermosa.

 

We own a controlling interest in Airplan. Airplan has concessions to operate the following airports in Colombia: the Enrique Olaya Herrera Airport in Medellín, the José María Córdova International Airport in Rionegro, the Los Garzones Airport in Montería, the Antonio Roldán Betancourt Airport in Carepa, the El Caraño Airport in Quibdó and the Las Brujas Airport in Corozal.

 

In addition, our subsidiary Aerostar holds a lease to operate, maintain and develop the LMM Airport, in San Juan, Puerto Rico, for an initial term of forty (40) years from February 27, 2013 (the “LMM Lease”).

 

Mexico

 

Mexico is one of the main tourist destinations in the world. Mexico has historically ranked in the top 10 countries worldwide in terms of foreign visitors, with approximately 44 million visitors in 2019, and 24.8 million visitors in 2020, according to the Mexican Ministry of Tourism. Within Latin America and the Caribbean, Mexico ranked first in 2019 and first in 2020 in terms of number of foreign visitors and income from tourism, according to the World Tourism Organization. The tourism industry is one of the largest generators of foreign exchange in the Mexican economy. Within Mexico, the southeast region (where our airports are located) is a principal tourist destination due to its beaches and cultural and archeological sites, which are served by numerous hotels and resorts.

 

Cancún and its surroundings were the most frequently visited international tourism destination in Mexico in 2020, according to the Mexican Ministry of Tourism. Cancún International Airport represented 75.8%, 74.6% and 74.2% of our Mexican passenger traffic volume and 81.4%, 77.1% and 70.8% of our Mexican revenues in 2018, 2019 and 2020, respectively. As of December 31, 2020, Cancún had 35,075 hotel rooms, according to the Mexican Ministry of Tourism. We believe that Cancún International Airport benefits from its proximity to the Mayan Riviera, a 129-kilometer (80-mile) stretch of coastal resorts and hotels that is among Mexico’s most rapidly developing tourism areas. According to the Mexican National Trust for Tourism Development, the Mayan Riviera had 45,658 hotel rooms as of December 31, 2020.

 

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Our Mexican airports served approximately 33.2 million passengers in 2018, approximately 34.2 million passengers in 2019 and approximately 16.5 million passengers in 2020. For year-by-year passenger figures, see “Item 4. Information on the Company—Business Overview—Our Mexican Airports.”

 

The United States currently is a significant source of passenger traffic volume in our Mexican airports. In 2018, 2019 and 2020, international passengers represented 52.3%, 51.2% and 44.1% respectively, of the total passenger traffic volume in our Mexican airports. In 2018, 2019 and 2020, 58.4%, 55.7% and 66.2%, respectively, of the international passengers in our Mexican airports traveled on flights originating in or departing to the United States. As of December 31, 2020, 3 Mexican and 15 international airlines, including United States-based airlines such as American Airlines and United Airlines, operated flights, directly or through code-sharing arrangements (where one aircraft has two or more flight numbers of different, allied airlines), that originated from or departed for the United States at our Mexican airports.

 

The following table sets forth our revenues from our Mexican operations for the period presented.

 

   Year ended December 31, 
   2018   2019   2020 
             
   (thousands of Mexican pesos) 
Revenues:            
Aeronautical Services  Ps.5,965,545   Ps.6,334,890   Ps.3,115,335 
Non-Aeronautical Services   4,170,319    4,380,821    2,517,816 
Construction Services   263,395    725,047    3,296,482 
Total   10,399,259    11,440,758    8,929,633 

 

Aeronautical Services

 

General

 

Aeronautical services represent the most significant source of our revenues at our Mexican airports. All of our revenues from aeronautical services are regulated under the “dual-till” price regulation system applicable to our Mexican airports. For more information on the “dual-till” price regulation system, see “Item 4. Information on the Company—Mexican Regulatory Framework—Price Regulation—Regulated Revenues.”

 

Our revenues from aeronautical services are derived from: passenger charges, landing charges, aircraft parking charges, charges for the use of passenger walkways and charges for the provision of airport security services. Charges for aeronautical services generally are designed to compensate an airport operator for its infrastructure investment and maintenance expense. Aeronautical revenues are principally dependent on three factors: passenger traffic volume, the number of air traffic movements and the weight of the aircraft. In 2018, 2019 and 2020, 58.0%, 57.1% and 42.9% of our consolidated revenues, respectively, were derived from aeronautical services.

 

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Passenger Charges

 

At our Mexican airports, we collect a passenger charge for each departing passenger on an aircraft (other than diplomats, infants and transfer and transit passengers). We do not collect passenger charges from arriving passengers. Passenger charges are automatically included in the cost of a passenger’s ticket and generally collected twice monthly from each airline. As of January 2021, the charge for international passengers was U.S.$22.52, U.S.$29.48, U.S.$25.86, U.S.$27.93, U.S.$24.40, U.S.$23.28, U.S.$25.86, U.S.$25.00and U.S.$25.00 for the Cancún, Cozumel, Huatulco, Mérida, Minatitlán, Oaxaca, Tapachula, Veracruz and Villahermosa Airports, respectively. As of January 2021, the charge for Mexican domestic passengers was Ps.153.45, Ps.181.90, Ps.353.45, Ps.370.26, Ps.428.02, Ps.425.86, Ps.462.07, Ps.375.86 and Ps.366.38 for the Cancún, Cozumel, Huatulco, Mérida, Minatitlán, Oaxaca, Tapachula, Veracruz and Villahermosa Airports, respectively. International passenger charges are currently dollar-denominated, but generally collected in Mexican pesos based on the average exchange rate during the month prior to the flight. Mexican domestic passenger charges are peso-denominated. In each of 2018, 2019 and 2020, passenger charges at our Mexican airports represented 53.7%, 53.1% and 45.4%, respectively, of our aeronautical revenues and 31.2%, 30.3% and 19.5%, respectively, of our total consolidated revenues. From time to time, including in 2020, we have offered discounts on passenger charges at certain of our airports.

 

Aircraft Landing and Parking Charges, Passenger Walkway Charges and Airport Security Charges

 

At our Mexican airports, we collect various charges from carriers for the use of our facilities by their aircraft and passengers. For each aircraft’s arrival, we collect a landing charge that is based on the average of the aircraft’s maximum takeoff weight and the aircraft’s weight without fuel. We also collect aircraft parking charges based on the time an aircraft is at an airport’s gate or parking position. Parking charges at several of our Mexican airports vary based on the time of day that the relevant service is provided (with higher fees generally charged during peak usage periods at certain of our airports). We collect aircraft parking charges the entire time an aircraft is on our aprons. Airlines are also assessed charges for the connection of their aircraft to our terminals through a passenger walkway. We also assess an airport security charge, which is collected from each airline based on the number of its departing passengers. We provide airport security services at our airports through third-party contractors. We also provide firefighting and rescue services at our airports.

 

Non-aeronautical Services

 

General

 

At our Mexican airports, non-aeronautical services have historically generated a proportionately smaller portion of our revenues, but have become an increased source of revenues in recent years. Our revenues from non-aeronautical services are derived from commercial activities (such as the leasing of space in our airports to retailers, restaurants, airlines and other commercial tenants) and access fees charged to providers of complementary services in our airports (such as catering, handling and ground transport). In 2018, 2019 and 2020, 33.1%, 33.0% and 25.4% of our consolidated revenues, respectively, were derived from commercial revenues from our Mexican airports as defined under the Mexican Airport Law and from our international airports (Puerto Rico and Colombia) since June 1, 2017 and October 29, 2017, the dates on which we began consolidating the results of Puerto Rico and Colombia, respectively.

 

Currently, the leasing of space in our Mexican airports to airlines and other commercial tenants represents the most significant source of our revenues from non-aeronautical services. Although certain of our revenues from non-aeronautical services are regulated under our “dual-till” price regulation system, our revenues from commercial activities (other than the lease of space to airlines and other airport service providers that is considered essential to an airport) are not regulated.

 

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Commercial Activities

 

Leading international airports generally generate an important portion of their revenues from commercial activities. An airport’s revenues from commercial activities are largely dependent on passenger traffic, its passengers’ level of spending, terminal design, the mix of commercial tenants and the basis of fees charged to businesses operating in the airport. Revenues from commercial activities also depend substantially on the percentage of traffic represented by international passengers due to the revenues generated from duty-free shopping. We believe that revenues from commercial activities account for 25.0% or more of the consolidated revenues of many leading international airports. Accordingly, a significant part of our business strategy is focused on increasing our revenues from commercial activities in Mexican our airports.

 

In 2013, we opened 27 commercial spaces, including 21 in Cancún, two in Villahermosa, one in Veracruz, one in Cozumel and two in Oaxaca. In 2014, we opened 52 commercial spaces, including 32 in Cancún, four in Mérida, three in Villahermosa, two in Veracruz, five in Cozumel, three in Oaxaca, two in Huatulco and one in Minatitlán. In 2015, we opened 19 commercial spaces, including 14 in Cancún, one in Mérida, one in Veracruz, one in Oaxaca, one in Huatulco and one in Minatitlán. In 2016, we opened 21 commercial spaces, including 10 in Cancún, two in Mérida, one in Villahermosa, six in Veracruz and two in Huatulco. In 2017, we opened 67 commercial spaces, including 64 in Cancún, one in Oaxaca and two in Huatulco. In 2018, we opened 22 commercial spaces, including 15 in Cancún, 3 in Cozumel, 3 in Oaxaca, and one in Tapachula. In 2019, we opened 7 commercial spaces, all in Cancún. In 2020, we opened four commercial spaces, including one in Cancún, one in Mérida and two in Oaxaca.

 

Within our nine Mexican airports, we leased 615 commercial premises through 281 contracts with tenants as of December 31, 2020, including restaurants, banks, retail outlets (including duty-free stores), currency exchange bureaus and car rental agencies. Our most important tenants in terms of occupied space and revenue in 2020 were Aldeasa and Controladora Mera and its affiliates.

 

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Access Charges

 

At each of our Mexican airports, we earn revenues from charging access fees to various third-party providers of complementary services, including luggage check-in, sorting and handling, aircraft servicing at our gates, aircraft cleaning, cargo handling, aircraft catering services and assistance with passenger boarding and deplaning. Our revenues from access charges are regulated under our “dual-till” price regulation system. Under current regulations, each of these services may be provided by the holder of a Mexican airport concession, by a carrier or by a third party hired by a concession-holder or a carrier. Typically, these services are provided by third parties, whom we charge an access fee based on a percentage of revenues that they earn at our Mexican airports. Under the Mexican Airport Law, third-party providers of complementary services are required to enter into agreements with the respective concession holder at that airport. Nine different contractors provide handling services at our nine Mexican airports.

 

Consorcio Aeroméxico, the parent company of Aeroméxico, owns Administradora Especializada en Negocios, S.A. de C.V., or Administradora Especializada, the successor company to Servicios de Apoyo en Tierra, or SEAT, a company that provides certain complementary services, such as baggage handling, to various carriers at airports throughout Mexico. SEAT operated at our Mexican airports prior to our commencement of operations under our Mexican concessions and continues to do so through its successor company.

 

Under the Mexican Airport Law, we are required to provide complementary services at each of our Mexican airports if there is no third party providing such services. Each of our Mexican airports has more than one third party provider of complementary services. Minatitlán Airport has the least third party providers of complementary services with four.

 

Automobile Parking and Ground Transport

 

Each of our Mexican airports has public car parking facilities consisting of open-air parking lots. The only Mexican airport at which we do not charge parking fees is Cozumel. Revenues from car parking at our Mexican airports currently are not regulated, although they could become regulated upon a finding by the COFECE that there are no competing alternatives. On August 21, 2019, the Board of Commissioners of COFECE in Mexico notified our Cancún airport subsidiary of a decision issued on July 25, 2019, which provides for: (i) administrative liability for monopolistic practices (as described in Article 56, Section V of the LFCE (refusal of access)) and (ii) a fine of Ps.73 million. We believe we have sufficient grounds for defense and have appealed COFECE’s decision.

 

We collect revenues from various commercial vehicle operators, including taxi, bus and other ground transport operators.  Our revenues from permanent providers of ground transport services, such as access fees charged to taxis, are regulated activities, while our revenues from non-permanent providers of ground transport services, such as access fees charged to charter buses, are not regulated revenues.  

 

Airport Security

 

The Dirección General de Aeronáutica Civil, or General Office of Civil Aviation, Mexico’s federal authority on aviation, and the Office of Public Security issue guidelines for airport security in Mexico. At each of our Mexican airports, security services are provided by independent security companies that we hire. In recent years, we have undertaken various measures to improve the security standards at our Mexican airports. These measures included increasing the responsibilities of the private security companies that we hire, the implementation, in accordance with regulations issued by ICAO, of integrated computer tomography and baggage detection system for international and domestic flights to detect explosive traces, the modernization of our carry-on luggage scanning and security equipment, the implementation of strict access control procedures to the restricted areas of our Mexican airports and the installation of a closed-circuit television monitoring system in some of our Mexican airports.

 

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In response to the September 11, 2001 terrorist attacks in the United States, we have taken additional steps to increase security at our Mexican airports. At the request of the Transportation Security Administration of the United States, the General Office of Civil Aviation issued directives in October 2001 establishing new rules and procedures to be adopted at our airports. Under these directives, these rules and procedures were to be implemented immediately and for an indefinite period of time.

 

To comply with these directives, we reinforced security by:

 

·increasing and improving the security training of Mexican airport personnel,

 

·increasing the supervision and responsibilities of both our security personnel and airline security personnel that operate in our Mexican airports,

 

·issuing new electronic identification cards to Mexican airport personnel,

 

·reinforcing control of different access areas of our Mexican airports, and

 

·physically changing the access points to several of the restricted areas of our Mexican airports.

 

Airlines have also contributed to the enhanced security at our Mexican airports as they have adopted new procedures and rules issued by the General Office of Civil Aviation applicable to airlines. Some measures adopted by the airlines include adding more points for verification of passenger identification, inspecting luggage prior to check-in and reinforcing controls over access to airplanes by service providers (such as baggage handlers and food service providers).

 

In response to the COVID-19 pandemic, we have implemented, among others, the following measures:

 

·installed disinfectant gel dispensers based on alcohol at a minimum of 70% in public areas and strategic points,

 

·mandated the use of facemasks in all areas,

 

·installed temperature checkpoints at entry points for passengers and airport personnel,

 

·provided personal protection equipment (PPE) (facemasks, gloves, face shields) to all our airport personnel,

 

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·installed ozone air purifiers at key locations to minimize airborne viruses,

 

·installed disinfectant mats to eliminate viruses and bacteria on footwear at the entrances to the terminals and offices,

 

·installed floor markings to aid social distancing, added decals in our passenger benches to ensure safe spacing, and displayed COVID-19 and hygiene information throughout our airports,

 

·installed protective acrylics to minimize the transmission routes of COVID-19 between passengers and personnel in the airport facilities, including at information modules and commercial areas, such as stores and rental companies,

 

·installed acrylic screens at our offices as barriers to protect our workers and clients,

 

·implemented periodic inspections through all areas to ensure that sanitary protocols are being followed and to identify additional areas of opportunity,

 

·installed physical barriers to ensure entry only and exit only flows,

 

·distributed the questionnaire for the “Identification of Risk Factors in Travelers” in paper and electronic form,

 

·increased the cleaning and sanitation cycles in all areas of our facilities, including through the increased use of disinfectants and the daily cleaning of transport equipment,

 

·installed trash cans for the exclusive deposit of waste PPE,

 

·established guidelines for effective, efficient and recurrent supervision of compliance with health measures to prevent the spread of COVID-19,

 

·reduced capacity within all business premises to allow for appropriate physical spacing,

 

·displayed COVID-19 information, including national and international regulations regarding the pandemic and other relevant information, on all our airport information screens,

 

·instituted work from home and staggered activity policies in certain departments,

 

·circulated to airport personnel informational materials on preventive measures and questionnaires to detect health risks,

 

·limited meetings and gatherings in our airports, and

 

·required COVID-19 trainings and courses for all ASUR personnel.

 

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Fuel

 

As part of the amendments that opened Mexico’s airports to private investment, all airport property and installations related to the supply and storage of aircraft fuel were retained by the Mexican Airport and Auxiliary Services Agency (Aeropuertos y Servicios Auxiliares) considering that concession holders were forbidden to provide such services. Pursuant to our Mexican concessions, the Mexican Airport and Auxiliary Services Agency entered into several agreements, under which it was obligated to pay to each of our subsidiary concession holders a fee for access to our facilities equivalent to 1.0% of the service charge for fuel supply. As of January 1, 2015, and as a result of certain structural reforms in Mexico’s constitutional and regulatory framework in connection with, among other things, the energy sector, private parties are now eligible to store, commercialize, distribute and supply fuel in airports to air carriers and third-party service providers of non-aeronautical services. In order to store, commercialize, distribute and supply fuel in airports, the eligible private parties are required to obtain the relevant permit from the Energy Regulatory Commission (Comisión Reguladora de Energía). In addition, third-party service providers of non-aeronautical services are required to obtain a favorable opinion from the Mexican Ministry of Energy (Secretaría de Energía), the Mexican Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes) and the office of Mexico’s attorney general in order to be able to acquire such fuel. As of April 6, 2021, one third-party service provider is currently selling fuel at our Mexican airports.

 

Construction Services Revenue

 

Under IFRS, an operator of a service concession that is required to make capital improvements to concessioned assets, such as us, is deemed to provide construction or upgrade services. Revenues from construction services are recognized in accordance with the methods prescribed (input method) for measuring progress towards completion of each project, as approved by the grantor. Improvements made are expected to complement the infrastructure of the airports operated by the Company. Revenues from construction services are not subject to regulation under our dual-till price regulation system in Mexico, Colombia and Puerto Rico.

 

Our Mexican Airports

 

In 2020, our Mexican airports served a total of 16.5 million passengers, 44.1% of which were international passengers. In 2020, Cancún International Airport accounted for 74.2% of our Mexican passenger traffic volume and 70.8% of our Mexican revenues.

 

All of our Mexican airports are designated as international airports under Mexican law, which indicates that they are equipped to receive international flights and have customs and immigration facilities.

 

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The following table sets forth the number of passengers served by our Mexican airports based on flight origination or destination.

 

   Passengers by Flight Origin or Destination(1) 
   Year ended December 31, 
   2016   2017   2018   2019   2020   Percentage of total 2020 
                         
   ( in thousands ) 
Región                        
Mexico(2)   13,330    14,755    16,269    17,112    9,423    57.1%
United States   9,441    10,087    10,165    9,741    4,818    29.1%
Canada   2,071    2,244    2,449    2,701    1,110    6.7%
Europe   1,764    1,912    2,043    2,102    454    2.7%
Latin America   1,801    2,055    2,321    2,506    724    4.4%
Total   28,407    31,053    33,247    34,162    16,529    100.0%

 

 
(1)Figures exclude passengers in transit and private aviation passengers.
(2)Figures include international passengers on domestic flights; in 2020, such passengers accounted for 2.4% of all Mexican domestic passengers.

 

In 2018, 2019 and 2020, 59.9%, 59.3% and 56.8%, respectively, of our Mexican domestic passengers traveled to or from Mexico City.

 

The following table sets forth the total traffic volume and air traffic movements in our nine Mexican airports for the periods presented.

 

   Airport Traffic 
   Year ended December 31, 
   2016   2017   2018   2019   2020 
                     
   ( in thousands ) 
Passengers:                    
Total   28,407.0    31,052.6    33,247.3    34,161.9    16,528.7 
Air Traffic Movements                         
Total   316.2    328.8    342.1    335.5    205.6 

 

The following table sets forth the passenger traffic volume for each of our Mexican airports during the periods indicated:

 

   Passenger Traffic 
   Year ended December 31, 
   2016   2017   2018   2019   2020 
                     
   ( in thousands ) 
Cancún   21,415.8    23,601.5    25,202.0    25,482.0    12,259.1 
Mérida   1,944.8    2,148.5    2,451.6    2,790.7    1,297.3 
Veracruz   1,315.9    1,368.0    1,488.6    1,475.6    721.2 
Villahermosa   1,240.8    1,260.3    1,227.7    1,245.0    638.5 
Oaxaca   746.9    862.3    951.0    1,196.3    590.8 
Huatulco   662.8    776.6    819.3    892.3    402.7 
Cozumel   538.1    541.6    579.7    546.4    268.3 
Tapachula   308.8    292.6    330.6    385.5    280.5 
Minatitlán   233.2    201.2    196.8    148.2    70.3 
Total   28,407.1    31,052.6    33,247.3    34,162.0    16,528.7 

 

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The following table sets forth the air traffic movements in each of our Mexican airports during the periods indicated:

 

   Air Traffic Movements by Airport(1) 
   Year ended December 31, 
   2016   2017   2018   2019   2020 
Cancún   171,979    181,105    190,187    183,840    106,678 
Mérida   37,050    43,362    50,091    52,341    33,662 
Veracruz   27,528    24,659    27,200    24,662    14,624 
Villahermosa   21,615    21,372    18,246    18,849    14,049 
Oaxaca   17,312    19,276    18,635    20,834    11,804 
Cozumel   15,858    15,092    15,065    12,624    9,285 
Tapachula   9,373    9,749    8,867    8,603    7,983 
Huatulco   8,892    9,486    9,356    10,098    5,178 
Minatitlán   6,631    4,747    4,405    3,613    2,329 
Total   316,238    328,848    342,052    335,464    205,592 

 

 

(1)Includes departures and landings.

 

The following table sets forth the air traffic movements in our Mexican airports for the periods indicated in terms of commercial, charter and general aviation:

 

 

 

   Air Traffic Movements by Aviation Category 
   Year ended December 31, 
   2016   2017   2018   2019   2020 
Commercial Aviation   264,293    277,504    285,163    280,635    162,859 
Charter Aviation   5,895    3,323    3,606    2,534    1,650 
General Aviation(1)   46,050    48,021    53,283    52,295    41,083 
Total   316,238    328,848    342,052    335,464    205,592 

 

 

(1)General aviation generally consists of small private aircraft.

 

Cancún International Airport

 

Cancún International Airport is our most important airport in terms of passenger volume, air traffic movements and contribution to revenues. In 2020, Cancún International Airport was the second busiest airport in Mexico in terms of passenger traffic and the busiest in terms of international passengers in regular service, according to the General Office of Civil Aviation, Mexico’s federal authority on aviation. The airport is located approximately 16 kilometers (10 miles) from the city of Cancún, which has a population of 911,503. A substantial majority of the airport’s international passengers (58.2% in 2018, 55.6% in 2019 and 66.5% in 2020) began or ended their travel in the United States. The airport’s most important points of origin and destination are Mexico City, Monterrey, Guadalajara, Dallas and Chicago. Due to the airport’s significant number of passengers from the United States, its traffic volume and results of operations are substantially dependent on economic conditions in the United States. See “Item 3. Key Information—Risk Factors—Risks Related to Our Operations—Our business could be adversely affected by a downturn in the economies of the United States or Mexico” and “Item 3. Key Information—Risk Factors— Risks Related to Our Operations—The COVID-19 pandemic has had and could continue to have a negative impact on our operations.”

 

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During 2020, approximately 12.3 million passengers traveled through Cancún International Airport, principally through Terminal 2, Terminal 3, which was opened in May 2007 and Terminal 4, which was opened in Nov 2017. After having closed in October 2005 following Hurricane Wilma, Terminal 1 was reopened in November 2013 to service an increased flight schedule of low-cost airlines such as VivaAerobus and MagniCharters.

 

Cancún is located in the state of Quintana Roo. Cancún and its surroundings were the most visited international tourism destination in Mexico in 2020, according to the Mexican Ministry of Tourism. According to the Mexican National Trust for Tourist Development, the Cancún area had 35,075 hotel rooms as of December 31, 2020. Although Cancún may be reached by land, sea or air, we believe most tourists arrive by air through Cancún International Airport. By air, Cancún is approximately one and a half to five hours from most major cities in the United States and 10 to 13 hours by air from most major European cities.

 

Cancún is located near beaches, coral reefs, ecological parks and Mayan archeological sites. Cancún International Airport serves travelers visiting the Mayan Riviera, which stretches from Cancún south to the Mayan ruins at Tulum, and includes coastal hotels and resorts in the towns of Playa del Carmen, Tulum and Akumal. According to the Mexican National Trust for Tourism Development, the greater Cancún area (including the Mayan Riviera) was estimated to have an aggregate of 80,733 hotel rooms as of December 31, 2020.

 

Since most of the airport’s passengers are tourists, the airport’s traffic volume and results of operations are influenced by the perceived attractiveness of Cancún as a tourist destination. See “Item 3. Key Information—Risk Factors—Risks Related to Our Operations—Our business is highly dependent upon revenues from Cancún International Airport.”

 

The airport’s facilities include a total of 66 aircraft parking stands, 18 of which are remote aircraft parking stands. Terminal 1 (the charter and low-cost airline terminal), Terminal 2 (the old main terminal, which includes a wing referred to as the satellite wing), Terminal 3 (the terminal that commenced operations in May 2007 as described below), Terminal 4 (the terminal that commenced operations in November 2017 as described below) and a general aviation building that handles private aircraft. The airport has 66 gates, 38 of which are accessible by passenger walkways. Terminal 1 has 7 contact gates. Terminal 2 has 9 gates accessible by passenger walkways, 3 contact gates and 10 remote gates. Terminal 3 has 17 boarding gates accessible by passenger walkways and 6 remote gates. Terminal 4 has 12 boarding gates accessible by passenger walkways and 2 remote gates. The airport has 558 retail outlets located throughout Terminals 1, 2, 3 and 4 and one bank branch located in Terminal 2.

 

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Terminal 1 in Cancún International Airport, which we acquired on June 30, 1999, has an area of 20,383 square meters (approximately 234.0 thousand square feet).

 

As part of our commercial strategy, in the fourth quarter of 2005 we completed an expansion of 8,224 square meters (approximately 88.6 thousand square feet) and a remodeling of 1,387 square meters (approximately 14.4 thousand square feet), giving us a total of 52,522 square meters (approximately 563.3 thousand square feet) in Cancún Airport’s Terminal 2. As part of our Mexican Master Development Program, we remodeled Terminal 2 in 2014. Specifically, we added security checkpoints and remodeled the space to improve passenger traffic. The remodel freed up space on the ground floor and upper level of Terminal 2 and, as a result, we were able to add new commercial spaces to the terminal.

 

On December 6, 2005, we began construction on Terminal 3, which we opened on May 17, 2007, and which began operations on May 18, 2007. With a total investment of approximately U.S.$100.0 million, Terminal 3 constitutes our most ambitious investment project to-date. Terminal 3 doubled international passenger capacity at Cancún International Airport. The new building, measuring a total area of 45,263 square meters (approximately 487.2 thousand square feet), has capacity for 84 check-in counters and 11 boarding gates with boarding bridges and four remote boarding gates served by buses, as well as 27 retail outlets and one bank branch. The terminal features state-of-the-art passenger information systems and security equipment, including the first CT scanning system (a system that uses x-rays to form a three-dimensional model of the contents of a piece of luggage) in Mexico for all checked baggage.

 

Furthermore, in order to accommodate expected increases in passenger traffic and operations, the expansion of Terminal 3 was completed in 2015 as part of our master development program in Mexico. As part of the expansion, we carried out a remodeling of the security checkpoints, including the installation of additional security lines with X-ray equipment and more waiting areas, an expansion of the baggage reclaim area by approximately 1,800 square meters and the construction of additional carousels with larger flow space, an expansion of the customs area by approximately 1,400 square meters, a remodeling of the check-in area, including an expansion by approximately 700 square meters and the addition of approximately 30 new service counters, and the redesign of the boarding lounge to accommodate six additional contact stands and a mezzanine level for arrivals.

 

Terminal 4 opened in November 2017. Equipped with a total of 12 boarding gates, Terminal 4 can cater to up to nine million domestic and international passengers a year. As of December 31, 2020, the terminal has increased the airport's passenger handling capacity to 32 million passengers per year. While full completion of the terminal will further increase the capacity to 40 million passengers per year, the timing of full completion will depend on whether our request to the Ministry of Communications and Transportation for an extraordinary review of the Mexican maximum rates is approved. On April 7, 2021, the extraordinary review of the Mexican maximum rates was approved, and consequently, the Airport's passenger handling capacity is now 34.6 million.

 

Terminal 4 is located to the west of the existing airport facilities, between runway ends 12L and 12R.  The terminal building currently has a surface area of more than 64,000 square meters, as well as 10 security filters and 12 aircraft parking stands, each with its own boarding bridge.  Terminal 4 has been designed to be easily expandable when capacity increases are required, without causing disruption in day-to-day operations, and will maintain separate passenger flows for domestic and international passengers.  In addition, the terminal has a multi-level floor plan, with the upper level reserved for departing passengers and the mezzanine and lower levels for arriving passengers. The new terminal consists of ten buildings with two-level double height spaces and a mezzanine level. The international terminal, which partners with Mexican domestic airline AeroMéxico, was moved to Terminal 2 on October 15, 2020, and features 2,540 square meters of retail space with seven duty-free stores.

 

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Cancún International Airport currently has two runways. The first runway has a length of 3,500 meters (2.2 miles). The second runway, which was completed in 2009, has a length of 2,800 meters (1.7 miles). Along with the second runway, we also built a new control tower at Cancún airport in 2009.

 

In April 2006, we obtained a license to develop cargo facilities at Cancún International Airport, which are currently being operated by our subsidiary Caribbean Logistics, S.A. de C.V. (previously Asur Carga, S.A. de C.V.).

 

Due to the health emergency due to COVID-19, Terminal 2 closed on April 14, 2020 and reopened on July 14, 2020 and Terminal 3 closed on April 18, 2020 and reopened on October 27, 2020.

 

Mérida International Airport

 

Mérida International Airport serves the inland city of Mérida, which has a population of 995,129 , and surrounding areas in the state of Yucatán. Mérida International Airport ranked second among our Mexican airports in 2020 in terms of passenger traffic. The substantial majority of this airport’s passengers are domestic. The airport’s primary point of origin and destination is Mexico City. In 2020, approximately 1.3 million passengers traveled through Mérida International Airport.

 

Mérida International Airport attracts a mix of both business travelers and tourists. The city of Mérida is an established urban area with numerous small and medium-sized businesses. The city is approximately 120 kilometers (75 miles) by highway from Chichen Itza and approximately 80 kilometers (50 miles) from Uxmal, pre-Columbian archeological sites that attract a significant number of tourists.

 

The airport has two perpendicular runways, one with a length of 3,200 meters (2.0 miles) and another with a length of 2,300 meters (1.4 miles). The airport has one terminal, with four gates accessible by passenger walkways and six boarding positions without walkways.

 

In 2018, 2019 and 2020, 22,648, 22,444 and 20,074 metric tons of cargo, respectively, were transported through Mérida International Airport, making it our leading airport in terms of cargo volume. In 2018, 2019 and 2020, Mérida represented 32.6%, 34.7% and 42.9%, respectively, of our total cargo volume.

 

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There are currently 47 businesses operating at Mérida International Airport. One business is operated by Grupo de Desarrollo del Sureste, S.A. de C.V. (“GDS”) pursuant to a long-term lease contract that terminated on January 1, 2009. This lease allowed GDS to construct and develop the airport’s air cargo terminal. Because GDS continued operating the business notwithstanding the termination of the lease, we initiated legal proceedings to have them evicted. In February 2017, a final judgment was issued in the case between Aeropuerto de Mérida, S.A. de C.V. and GDS, terminating the lease agreement and ordering the return of 80,000 leased square meters to us.

 

In December 2017, an area of 78,000 square meters was judicially delivered to us as part of the final judgment. Then in May 2018, we recovered full possession of the building leased to customs agents. However, despite two judgments in our favor, as of April 6, 2021, the return of 14,000 square meters currently in the possession of GDS remains pending.

 

On December 15, 2020, we petitioned the District Court of Mérida regarding the failure of voluntary delivery by GDS of the remaining property. On January 14, 2021, the District Court of Mérida published an opinion stating that the remaining property had not been delivered to us. We subsequently petitioned the Ninth Civil Court of Mexico City to order the forced delivery of the remaining property to us. The Ninth Civil Court of Mexico City is currently considering our request.

 

In addition to the business formerly operated by GDS, we opened a retail store in the terminal in August 2007 and a car rental company was opened in October 2009. Our concession provides us the right to collect landing charges and parking charges for aircraft using the cargo terminal.

 

Cozumel International Airport

 

Cozumel International Airport is located on the island of Cozumel in the state of Quintana Roo. The airport primarily serves foreign tourists. During 2020, 268,290 passengers traveled through Cozumel International Airport, most of which were international passengers. Cozumel is the most frequently visited destination for cruise ships in Mexico, hosting approximately 4.3 million, 4.6 million and 1.1 million cruise ship visitors in 2018, 2019, and 2020 respectively. Cozumel has one of the world’s largest coral reserves, and many passengers traveling to Cozumel are divers. The airport’s most important points of origin and destination are Dallas and Mexico City. The island of Cozumel has a population of 88,626.

 

The airport has a commercial runway with a length of 2,700 meters (1.7 miles). The airport has one main commercial terminal with six boarding positions and a total area of 12,071 square meters (approximately 129.93 thousand square feet). The airport also has a general aviation building for small private aircraft. There are currently 40 businesses operating at Cozumel International Airport.

 

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Villahermosa International Airport

 

Villahermosa International Airport is located in the state of Tabasco, approximately 75 kilometers (46.9 miles) from Palenque, a Mayan archeological site. The city of Villahermosa has a population of 1,141,713. Oil exploration is the principal business activity in the Villahermosa area, and most of the airport’s passengers are businesspeople working in the oil industry. During 2020, the airport served approximately 638,477 passengers, substantially all of which arrived on domestic flights. The airport’s most important points of origin and destination are Mexico City and Monterrey.

 

As a result of a modernization project carried out in 2006, the airport’s commercial aviation apron was extended by a total of 12,521 square meters (approximately 134.6 thousand square feet), representing an increase of 87.0%. The terminal building was expanded from 5,463 square meters (approximately 58.7 thousand square feet) to 9,584 square meters (approximately 103.2 thousand square feet), representing an increase of 77.0%. There are currently 28 businesses operating at Villahermosa International Airport.

 

The airport has one runway with a length of 2,200 meters (1.4 miles), which was repaired in 2010. The airport’s terminal has eight contact positions, including four with telescopic corridors for the direct boarding and deplaning of passengers between the aircraft and the terminal building.

 

In February 2014, the Palenque International Airport opened in the city of Palenque, 46.9 miles from Villahermosa. We do not believe the Palenque International Airport has had an impact on passenger traffic at the Villahermosa International Airport and we estimate that any impact that may be experienced in the future would not be significant.

 

Oaxaca International Airport

 

Oaxaca International Airport serves the city of Oaxaca, which is the capital of the state of Oaxaca. The city of Oaxaca, located 390 kilometers (243.8 miles) from the Pacific coast, has a population of 459,392. The airport served 590,778 passengers in 2020, most of which were domestic. The airport’s passengers are primarily Mexican businesspeople and tourists, thus its passenger volume and results of operations are dependent on Mexican economic conditions. Oaxaca is a picturesque colonial city located near several tourist attractions, including the archeological ruins of Monte Alban and Mitla. The airport’s most important point of origin and destination is Mexico City and Tijuana.

 

The airport has one runway with a length of 2,450 meters (1.5 miles) and a terminal building with six contact positions. The airport also includes a general aviation building for small private airplanes with 38 positions and two additional positions for helicopters. There are currently 27 businesses operating at Oaxaca International Airport.

 

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Veracruz International Airport

 

Veracruz International Airport is located in the city of Veracruz along the Gulf of Mexico. The city of Veracruz has a population of 751,759. Veracruz is one of the busiest ports in Mexico, accounting for 14.8% of all commercial traffic in Mexican ports, and is the location of the country’s largest container terminal. According to the Mexican Bureau of Ports, Veracruz accounted for 9.8% of all waterborne cargo handled by Mexican ports in 2020. In 2020, the airport served approximately 721,159 passengers. Because the airport’s passengers are primarily Mexican business people, its passenger volume and results of operations are dependent on Mexican economic conditions. The airport’s most important points of origin and destination are Mexico City, Monterrey and Cancún.

 

The original 4,065 square meters (43,700 square feet) of the terminal building at the airport were remodeled in 2005, and an extension of 2,000 square meters (21,500 square feet) was added, representing an increase of 49.0%. In addition, special collapsible jetways were built to protect passengers during boarding and disembarking, along with a new international baggage claim facility and bigger, newer offices and facilities for federal authorities. There are currently 35 businesses operating at Veracruz International Airport.

 

At the end of 2015, we concluded an extensive remodeling and expansion project in the terminal building at the Veracruz International Airport, as foreseen in our Master Development Program in Mexico. In response to increased passenger numbers and with the aim of maintaining service standards, the surface area of the terminal building was expanded by 174% to over 17,500 square meters, with the installation of three new boarding gates with passenger boarding bridges, for a total of 9 gates. The expansion project has created increased capacity in baggage-screening facilities, queuing areas and counters for check-in, security filters, boarding lounges, luggage-reclaim areas, and public car parking, among other functional areas of the terminal-building complex. The new design of the terminal building also improves the separation of domestic and international passenger flows.

 

The airport has one perpendicular runway with a length of 2,400 meters (1.5 miles). The airport has one main commercial terminal. The airport also has a general aviation building for small private aircraft with 10 positions and five additional positions for helicopters.

 

Huatulco International Airport

 

Huatulco International Airport serves the Huatulco resort area in the state of Oaxaca on Mexico’s Pacific coast. Huatulco has a population of 50,862, and was first developed as a tourist resort in the late 1980s. The airport served 402,728 passengers in 2020, most of which were domestic. The substantial majority of the airport’s passengers are international tourists, although the majority arrive through domestic flights and are classified as domestic passengers because of their connection in Mexico City. The airport’s most important point of origin and destination is Mexico City.

 

The airport has one runway with a length of 3,000 meters (1.9 miles). It was extended from a previous length of 2,700 meters (1.7 miles). The airport’s terminal has seven remote positions. The airport has a general aviation building for small private airplanes with 22 positions. There are currently 35 businesses operating at Huatulco International Airport.

 

Tapachula International Airport

 

Tapachula International Airport serves the city of Tapachula, which has a population of 353,706, and the state of Chiapas. In 2020, the airport served 280,475 passengers, substantially all of which were domestic. The airport’s passenger volume and results of operations are dependent on Mexican economic conditions since virtually all of its passengers are domestic. The airport’s most important point of origin and destination is Mexico City.

 

The airport has one runway with a length of 2,000 meters (1.3 miles). The airport has one terminal with four remote boarding positions. The airport also has a general aviation building for small private aircraft with 19 positions. There are currently 23 businesses operating at Tapachula International Airport.

 

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Minatitlán International Airport

 

Minatitlán International Airport is located near the Gulf of Mexico, 13 kilometers (8.1 miles) from the city of Coatzacoalcos in the state of Veracruz, 11 kilometers (6.9 miles) from the city of Cosoleacaque and 26 kilometers (16.2 miles) from the city of Minatitlán. The metropolitan area comprised of these three cities has a population of 455,474. In 2020, the airport served 70,295 passengers. In recent years, the airport’s passenger traffic has decreased due to lower oil and petrochemical industry activity in Coatzacoalcos and Cosoleacaque. The airport’s passengers are principally domestic business people drawn by the area’s petrochemical and agriculture businesses. Because the airport’s passengers are primarily Mexican travelers, its passenger volume and results of operations are dependent on Mexican economic conditions. The airport’s most important point of origin and destination is Mexico City.

 

The airport has one runway with a length of 2,100 meters (1.3 miles). The airport’s main terminal has four remote parking positions. The airport has a general aviation building for small private airplanes with 11 boarding positions and two additional positions for helicopters. There are currently 12 businesses operating at Minatitlán International Airport.

 

Other Mexican Properties

 

In October 2008, we purchased 130 hectares of land on the bay of Huatulco from FONATUR for Ps.286.3 million. We won the right to purchase the land through a public bidding process that was part of a program launched by the Mexican government to accelerate the development of Huatulco as a flagship city for Mexican tourism. Pursuant to the terms of the purchase agreement, we are required to construct at least 450, and no more than 1,300 hotel rooms. We will be considered to have satisfied our obligations under the purchase agreement when at least 80.0% of the construction on 450 hotel rooms is completed. On March 26, 2013, FONATUR relieved us of the obligation to submit architectural plans and begin and complete construction within a specific timeframe. On October 28, 2020, FONATUR agreed to purchase back the land for Ps.286.3 million. On February 19, 2021, we received the initial payment of Ps.50 million from FONATUR, at which point the obligations under the purchase agreement no longer had legal effect. Going forward, FONATUR is obligated to make the remaining payment of Ps.236.3 million before July 1, 2021 and we are obligated to deliver the land once FONATUR has paid in full. In the event of FONATUR’s nonpayment, we would have the right to demand FONATUR’s compliance with the repurchase and withhold conveying the land until payment is made.

 

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Principal Air Traffic Customers of our Mexican Airports

 

As of December 31, 2020, 6 Mexican airlines and 57 international airlines operated flights at our nine airports (including airlines operating solely on a code share basis). A code share arrangement means that airlines that do not fly their own aircraft into our airports arrange to share the passenger space in another airline’s aircraft, with both airlines booking passengers through the same code.

 

VivaAerobus is the Mexican airline that operates the most flights at our Mexican airports. Among foreign airlines, American Airlines and United Airlines operate the greatest number of flights to and from our Mexican airports. In 2020, American Airlines and United Airlines accounted for 11.8% and 8.6%, respectively, of our revenues.

 

During late March 2019, Interjet experienced a series of flight delays and cancellations resulting in part from a shortage of employees to serve all of Interjet’s scheduled flights for the period. On December 11, 2020, Interjet stopped all flights and has not resumed operations.

 

The following table sets forth our principal air traffic customers at our Mexican airports based on the percentage of regulated revenues they represented for the years ended December 31, 2018, 2019 and 2020:

 

Principal Air Traffic Customers of our Mexican Airports

 

   Percentage of ASUR Mexico Revenues 
   Year ended December 31, 
   2018   2019   2020 
Customer               
American Airlines, Inc.   9.9%   9.4%   11.8%
Aeroenlaces Nacionales, S. A. de C. V. (VivaAerobus)   7.0%   8.2%   11.1%
Concesionaria Vuela Compañía de Aviación SAPI de CV (Volaris)   7.6%   8.1%   10.3%
United Airlines, Inc.   9.3%   9.0%   8.6%
Delta Air Lines Inc.   7.6%   6.8%   7.8%
Aerolitoral, S. A. de C. V. (Aeromexico Connect)   6.0%   5.5%   6.5%
Aerovías de México, S. A. de C. V. (Aeromexico)   4.9%   4.4%   5.5%
ABC  Aerolíneas, S. A. de C. V. (Interjet)   10.4%   10.6%   5.0%
Southwest Airlines Co.   4.6%   4.2%   3.2%
Other   32.7%   33.8%   30.2%
Total   100.0%   100.0%   100.0%

 

The COVID-19 outbreak began in December 2019 and caused a significant reduction in passenger traffic at our Mexican airports starting in March 2020. During the second, third and fourth quarters of 2020, our passenger traffic in Mexico decreased 66.6% relative to the same period in 2019.

 

Seasonality

 

Our business is subject to seasonal fluctuations. In general, demand for air travel is typically higher during the summer months and during the winter holiday season, particularly in international markets, because there is more vacation travel during these periods. Our results of operations generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal, including economic conditions, war or threat of war, weather, air traffic control delays and general economic conditions, as well as the other factors discussed above. As a result, our operating results for a quarterly period are not necessarily indicative of operating results for an entire year, and historical operating results are not necessarily indicative of future operating results.

 

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Competition

 

Since our business is substantially dependent on international tourists, the principal competition to our Mexican airports is from competing tourist destinations. We believe that the main competitors to Cancún are vacation destinations in Mexico, such as Acapulco, Puerto Vallarta and Los Cabos, and elsewhere such as Florida, Cuba, Jamaica, the Dominican Republic and other Caribbean islands and Central American resorts. In March 2000, a new airport opened in Chichen Itza. This airport is operated by the state of Yucatán.

 

In addition, on May 11, 2010, the Mexican government announced the commencement of a bidding process for the construction of a new airport in the Mayan Riviera. Three companies, including ASUR, participated in the bidding process. On January 31, 2011, the COFECE issued an unfavorable decision regarding our participation in the bidding process for the construction, maintenance and operation of the Riviera Maya airport. We disagreed with the decision and the views expressed by the COFECE and on March 11, 2011, we initiated legal proceedings pursuant to established Mexican legislation to defend our right to participate in the bidding process. On May 20, 2011, we were notified by the Ministry of Communications and Transportation, through the Mexican Civil Aviation Authority, that the international public bidding process was cancelled because none of the technical bids presented by the participants complied with the requirements established in the bidding documents. As a result, these legal proceedings were cancelled and have therefore terminated. No party was declared the winner of these legal proceedings. If a new bidding process is started and we decide to participate, we may again be denied the right to participate.

 

Currently, the Mayan Riviera is served primarily by Cancún Airport. In the context of the 2010 bidding process for the new Mayan Rivera airport, the Ministry of Communications and Transportation committed to adjust the master development plans and maximum rates for our airports within three months of the granting of a concession for the Mayan Riviera airport. We are unable to predict the effect that a new airport may have on our Mexican passenger traffic or operating results and the extent of any revisions to our master development plans or maximum rates if a new project is successfully carried out.

 

In October 2020, the Mexican President announced that as part of an effort to develop the southeast of Mexico, the Mexican Army will build and operate a new airport in the City of Tulum, State of Quintana Roo, with plans to commence operations in 2023. The Mexican government had previously secured a piece of land measuring approximately 1,500 acres where it will build the new airport, and has announced that the airport’s inauguration will coincide with the inauguration of the Mayan Train. The Mayan Train is a proposed intercity railway project that is set to connect airports and historic Mayan sites in Mexico, with rail coverage in the States of Chiapas, Yucatán and Quintana Roo. Construction of the new airport in Tulum is set to start in 2021.

 

The Mexican Airport and Auxiliary Services Agency currently operates six small airports in Mexico’s southeast region and Grupo Aeroportuario de Chiapas (“GAC”) operates two. The Mexican Airport and Auxiliary Services Agency estimates that its airports collectively account for less than 4.3% of passenger traffic in the region and GAC estimates that its airports account for less than 4.2% of passenger traffic in the region.

 

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Luis Muñoz Marín International Airport

 

We, through our Cancún airport subsidiary, own a 60.0 % interest in Aerostar, which was awarded the forty-year LMM Lease for the LMM Airport with an initial term beginning on February 27, 2013. The LMM Airport is located three miles outside of San Juan, Puerto Rico. It is the Caribbean’s largest and busiest airport, offering leisure and business travel to over 46 destinations. The LMM Airport serves the capital of San Juan and it is the primary gateway from Puerto Rico to international destinations and the mainland United States. The LMM Airport is ranked as the 19th largest medium hub facility and the 48th largest airport in the United States by the FAA based on number of enplanements, as of December 31, 2020. According to the PRPA, in 2018, 2019 and 2020, approximately 8.4 million passengers, 9.4 million passengers and 4.8 million passengers, respectively, traveled through the LMM Airport.

 

The LMM Airport site covers approximately 1,300 acres of land. It does not face competition from other forms of surface transportation given its island location. The largest competing airport on the island is nearly two hours away by car from San Juan. The LMM Airport is a short driving distance from the largest hotels in Puerto Rico.

 

The LMM Airport has an estimated capacity to handle up to 10 million enplanements annually, which is more than double its current usage. The LMM Airport is comprised of two runways and five terminals (Terminals A through E). Terminal A, which is the newest facility at the LMM Airport, opened in June 2012. Terminals B through E were constructed in various stages beginning with Terminals D and E in the late 1950s, then Terminal B in the 1980s and Terminal C in the 1990s. Terminal B was closed in November 2013 for remodeling, and we reopened the terminal during the fourth quarter of 2014. Terminal E is not currently in use and Terminal D is partially closed.

 

In 2017, LMM Airport opened eight commercial spaces. In 2018, eight commercial spaces were opened. In 2019, sixteen commercial spaces were opened. In 2020, no commercial spaces were opened.

 

Principal Air Traffic Customers of LMM Airport

 

As of December 31, 2020, 19 domestic and 12 international airlines were operating directly or through code-sharing arrangements, where two or more airlines share the same flight and each airline publishes and markets the flight under its own flight number, at LMM Airport. Some airlines serve both international and domestic destinations.

 

As of December 31, 2020, scheduled passenger air services at LMM Airport were provided by 27 airlines (together with regional affiliates and other partners).

 

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The following table sets forth our principal air traffic customers at LMM airport based on the percentage of Puerto Rico regulated revenues they represented for the year ended December 31, 2020.

 

Principal Air Traffic Customers of LMM Airport

 

   Percentage of ASUR Puerto Rico Revenues 
   Year ended December 31, 
   2018   2019   2020 
Customer               
JetBlue Airways   29.0%   30.0%   24.0%
American Airlines   13.0%   11.0%   11.0%
Spirit Airlines   3.0%   6.0%   11.0%
Southwest Airlines   9.0%   8.0%   8.0%
Delta Air Lines Inc.   6.0%   6.0%   6.0%
United Airlines   5.0%   6.0%   6.0%
Frontier Airlines   3.0%   4.0%   5.0%
Fedex   3.0%   2.0%   4.0%
Copa Airlines   4.0%   4.0%   3.0%
Seaborne Virgin Islands   3.0%   3.0%   3.0%
United Parcel Services   2.0%   2.0%   3.0%
Other   20.0%   18.0%   16.0%
Total   100.0%   100.0%   100.0%

  

On September 20, 2017, Hurricane Maria struck Puerto Rico, causing extensive damage to the hotel and tourist infrastructure on the island, which led to sharply reduced air passenger traffic at LMM Airport, especially during the third and fourth quarters of 2017. During the third and fourth quarters of 2017, our passenger traffic in Puerto Rico decreased 15.8% relative to the same period in 2016. Our passenger traffic in Puerto Rico also decreased 0.4% in 2018 relative to 2017. Our passenger traffic in Puerto Rico increased 12.8% in 2019 relative to 2018.

 

The COVID-19 outbreak began in December 2019 and caused a significant reduction in passenger traffic at LMM Airport starting in March 2020. During the second, third and fourth quarters of 2020, our passenger traffic in Puerto Rico decreased 63.0% relative to the same period in 2019.

 

In 2020, passengers at LMM Airport traveling to and from the mainland United States represented 93% of total passenger traffic. The LMM Airport’s passenger segments are primarily divided among leisure, visiting friends and relatives and business.

 

Aerostar’s Operating Agreement

 

In order to participate in the bidding process for the LMM Airport, our Cancún airport subsidiary entered into a joint venture with two of Oaktree’s infrastructure funds, Highstar Capital IV, L.P. (Highstar IV) and Highstar Aerostar Prism/IV-A Holdings, L.P. (Highstar Aerostar) and created Aerostar on March 14, 2012 for the purpose of leasing, developing, operating and managing the LMM Airport pursuant to the LMM Lease, the Airport Use Agreements and the terms of the contracts related to the LMM Airport assumed by Aerostar as of February 27, 2013.

 

On February 22, 2013, our Cancún airport subsidiary made a U.S.$100.0 million subordinated shareholder loan to Aerostar to partially fund the cost of acquiring the concession to operate the LMM Airport. This subordinated shareholder loan is now treated as an intercompany loan as we have consolidated Aerostar’s financial results into ASUR’s financial results. As of December 31, 2020, the remaining balance on this loan was U.S.$5.2 million, including capitalized interest.

 

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In May 2017, Highstar Aerostar sold a 10.0% interest in Aerostar to Aeropuerto de Cancún, our Cancún subsidiary, pursuant to a Membership Interest Purchase Agreement. As a result of this transaction, Aeropuerto de Cancún holds a 60.0% equity interest in Aerostar. In addition, Highstar Aerostar sold its remaining 40.0% interest in Aerostar to PSP Investments, pursuant to a separate Membership Interest Purchase Agreement. Following the closing of both transactions, we now hold a 60.0% equity interest in Aerostar through our Cancún airport subsidiary, and PSP Investments holds a 40.0% equity interest through AviAlliance, a wholly-owned subsidiary. Starting June 1, 2017, we began to consolidate Aerostar’s financial results into ASUR’s financial results. We intend to continue operating Aerostar and the LMM Airport in a manner substantially consistent with prior operations.

 

Concurrently with the closing of these transactions, ASUR (through Aeropuerto de Cancún), Aerostar and PSP Investments agreed to amend and revise the Operating Agreement for Aerostar.

 

The Amended and Restated Operating Agreement prohibits any member from directly or indirectly selling, exchanging, transferring, pledging, assigning or otherwise disposing of its membership units to any person, with the exception of transfers (i) between investment funds where, following such transfer, the ownership interests remain under common ownership management or control or (ii) of shares of any member or any parent of such member that is publicly traded on a national or international stock exchange, whether or not the transfer occurs on such stock exchange. Restrictions on transfers include, among others, that (i) the proposed transferee must execute and deliver to the management board an instrument agreeing to be bound by the terms of the Amended and Restated Operating Agreement, (ii) each other member has been consulted as to any transferee becoming a member of Aerostar, (iii) the transferee (a) may not be a strategic airport competitor of ASUR, (b) is not and has not been involved in corrupt activities, (c) has not publicly stated it is insolvent, (d) is able to pay its debts as they become due and (e) has not filed for or is subject to bankruptcy and (f) the transfer otherwise complies with the Amended and Restated Operating Agreement.

 

As a member of Aerostar, our Cancún airport subsidiary was required to make an initial capital contribution equivalent to (x) its proportionate share of the Leasehold Fee required under the LMM Lease, minus (y) any anticipated net cash proceeds of any debt financing incurred for the purpose of paying the Leasehold Fee, multiplied by (z) its membership percentage at least two business days prior to the Closing. Our Cancún airport subsidiary’s membership percentage at that time was 50.0%. Under the Amended and Restated Operating Agreement, our Cancún airport subsidiary is not required to make any additional capital contributions to Aerostar unless it is required to do so by the Amended and Restated Operating Agreement or such additional capital contributions are approved by the operating board of managers by supermajority vote. Additionally, if (i) during the terms of either the LMM Lease or the Airport Use Agreements, Aerostar requires additional financing to meet its obligations under these agreements or to ensure that it is not insolvent, and Aerostar is not able to obtain financing on terms acceptable to the managers, or (ii) Aerostar’s President and Chief Financial Officer reasonably determine that within thirty (30) days Aerostar will not have enough working capital to meet its current expenses, and the managers fail to agree by supermajority vote (a supermajority defined as a majority consisting of at least one manager designated by each member) that additional capital contributions are required, then the members are required to make such additional capital contributions, in proportion to their respective membership percentages, without the need for further action by the managers. If the managers agree or the President and CFO determine that additional capital contributions are needed, then the members must make such contribution within seven business days after the managers make the determination. To date, no additional capital contributions have been required. Our Cancún airport subsidiary is not entitled to receive interest on any capital contribution made to Aerostar.

 

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Our Cancún airport subsidiary is entitled to distributions in accordance with its membership percentage, subject to the adequacy of projected cash flows after giving effect to any distribution, any capital expenditure requirements, any financial covenants contained in any financing documents or other agreements to which Aerostar is a party and the need to maintain a reasonable level of working capital for Aerostar.

 

Aerostar’s property, business and affairs are managed by an operating board, and certain strategic decisions are left to a members board.

 

The operating board is comprised of eight managers, which are appointed by the members in proportion to their respective membership units. Each member that holds at least a 12.5% membership interest in Aerostar (each, an “Electing Member”) will be entitled to appoint, remove and replace one manager for each 12.5% interest it holds; any managers not elected by the Electing Members will be elected by a vote of the majority of membership interests. Accordingly, our Cancún subsidiary is entitled to designate four members of the board of managers and, because it has the majority of membership interests, is able to elect a fifth member. AviAlliance is entitled to elect three members of the board of managers.

 

All operating and management decisions relating to Aerostar, except for major decisions, require the approval of the majority of the votes of the managers. Senior officers, including the President, Chief Financial Officer, and Chief Operating Officer, may be removed or replaced at any time and for any reason by a majority of the board of managers, which we control. Certain major decisions require the supermajority vote of the operating board. These decisions include:

 

·determining the amount of cash available for distributions and approving any distributions to be made to the members;

 

·amending in a material way the LMM Lease to operate the LMM Airport, the Airport Use Agreements governing the Signatory Airlines’ use or the LMM Airport financing documents to which Aerostar is a party;

 

·approving and implementing any incentive compensation, option or similar plan for officers or other employees of Aerostar;

 

·approving Aerostar’s annual budget or any deviations from the set budgets by more than 5.0%, and the capital expenditure budget, any single capital expenditure in the budget greater than U.S.$2.5 million and any single deviation from the capital expenditure budget in excess of the lesser of 5.0% or U.S.$500,000;

 

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·material borrowings from third parties and material encumbrances;

 

·affiliate transactions;

 

·changing Aerostar’s corporate structure, business or business plans;

 

·settle any material litigation;

 

·sales of assets having a market value in excess of U.S.$50,000 or U.S.$500,000 in aggregate in any 12-month period;

 

·the determination of the contents of, and approval of, a final “strategy document” for the company’s capacity enhancement plan;

 

·making calls for additional capital contributions by the members;

 

·any transaction to merge or consolidate Aerostar with another Person, any transaction to sell, transfer, assign, convey or otherwise dispose of all or substantially all of the assets or rights of Aerostar or any transaction to purchase all or substantially all of the assets or rights of any Person by Aerostar;

 

·any proposal to liquidate or dissolve Aerostar or have it file for bankruptcy or initiate similar proceedings;

 

·raising capital rights issues; and

 

·commencing any legal proceedings on behalf of Aerostar against a member.

 

The Amended and Restated Operating Agreement provides that if there is a deadlock between the managers or the member representatives on any issue to which agreement by a supermajority of managers is required, and the deadlock is not resolved within 30 days following the giving of written notice of the existence of the deadlock by one manager to another manager, any manager may refer the deadlock to the Chief Executive Officers of ASUR or AviAlliance for resolution. If such persons are unable to resolve the deadlock within 21 days of being requested to resolve the matter, then the matter will be referred to a non-binding mediation process. Finally, if the matter is not resolved through mediation within 45 days (unless ASUR and AviAlliance agree otherwise) after a mediator is appointed, then either member can submit the dispute to final and binding arbitration.

 

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Our Colombian Airports

 

Our subsidiary Airplan, of which we own 100.0% of the capital stock, holds a concession to administer, operate, develop and maintain six airports in Colombia. The overall duration of the concession depends on the revenues generated by the Colombian airports. In particular, the concession remains in effect until the date on which any of the following events occur: (i) the regulated revenues generated are equal to expected regulated revenues, provided that the concession agreement has been in force for at least 24 years or (ii) the concession agreement has been in force for at least 40 years, regardless of whether the regulated revenues generated are equal to the expected revenues. If our Colombian airports generate regulated revenues that are equal to the expected revenues before the end of the 24-year period, the concession agreement will remain in effect until the end of such period. Thus, management considers such factors in determining the final year of the concession term, which is 2032; however, in accordance with legal guidelines, the concession term may be extended until 2048 as long as the aforementioned requirements established by the grantor are met. Our Colombian airports include José María Córdova International Airport in Rionegro and Enrique Olaya Herrera Airport in Medellín, Los Garzones Airport in Montería, Antonio Roldán Betancourt Airport in Carepa, El Caraño Airport in Quibdó, and Las Brujas Airport in Corozal.

 

Colombia

 

Prior to the outbreak of COVID-19, Colombia was growing as an increasingly popular tourist destination in Latin America, while it attracted approximately 1.38 million international visitors in 2020, a 69.5% decrease compared to the same period in 2019, it attracted approximately 4.5 million international visitors in 2019, a 2.7% increase compared to the same period in 2018, according to the Colombian Ministry of Commerce, Industry and Tourism. In particular, Medellín and its outskirts, where we operate José María Córdova International Airport and Enrique Olaya Herrera Airport, is one of the most-visited cities in Colombia.

 

Our Colombian airports served approximately 10.6 million passengers in 2018, approximately 12.1 million passengers in 2019 and approximately 4.2 million passengers in 2020. For year-by-year passenger figures, see “—Our Colombian Airports.”

 

Aeronautical Services

 

General

 

Pursuant to Airplan’s 2008 concession agreement, the revenues from our Colombian airports are divided into two categories: regulated and non-regulated. Regulated revenues consist of revenues derived from aeronautical services. Regulated revenues are regulated by the concession agreement managed by the National Infrastructure Agency (Agencia Nacional de Infraestructura), or ANI, and are listed in certain resolutions issued by the Special Administrative Unit of Civil Aeronautics (Unidad Administrativa Especial de Aeronáutica Civil), or Aerocivil. Each aeronautical service is subject to a maximum tariff, established by Aerocivil. In addition, Aerocivil establishes the methodology and mechanisms to update and collect the tariffs. All tariffs are updated annually based on the Colombian consumer price index (Índice de Precios al Consumidor), or the IPC, and a formula set forth in Aerocivil Resolution 04530 of 2007. The tariffs on aeronautical services related to international flights, including international passenger charges, are denominated in U.S. dollars and updated annually based on the change in the U.S. consumer price index and a formula set forth in Aerocivil Resolution 04530 of 2007. Our revenues from aeronautical services are primarily derived from passenger charges for the use of terminals, takeoff, landing and aircraft movement charges, charges for boarding bridges and aircraft parking charges.

 

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Passenger Charges

 

We collect a passenger charge for each departing passenger on an aircraft. Passenger charges are established and regulated by Aerocivil pursuant to Resolution 04530 of 2007. Pursuant to Aerocivil regulations and the concession agreement, José María Córdova, Montería and Quibdó Airports apply the same domestic passenger charge, Enrique Olaya Herrera Airport has its own domestic passenger charge and Carepa and Corozal apply the same domestic passenger charge. José María Córdova and Enrique Olaya Herrera Airports apply the same international passenger charge. International passenger charges are U.S. dollar denominated. As of January 15, 2021, the charge for international passengers was U.S.$42 for the José María Córdova and Enrique Olaya Herrera Airports. Colombian domestic passenger charges are Colombian peso denominated. As of January 15, 2021, the charge for Colombian domestic passengers was COP$17,200, COP$21,800, COP$17,200, COP$8,600, COP$17,200 and COP$8,600 for the José María Córdova, Enrique Olaya Herrera, Montería, Carepa, Quibdó and Corozal Airports, respectively.

 

Other Charges

 

We collect various charges from carriers for the use of our facilities by their aircraft. For each aircraft’s departure and arrival, we collect charges based on the rates set forth in Articles 5, 6 and 7 of Resolution 04530 of 2007, issued by Aerocivil. This resolution sets forth the maximum tariffs charged to domestic and international airlines for their respective flights. We also collect aircraft parking charges based on the time an aircraft is stationed at an airport’s gate or parking position. After two hours have elapsed from the moment an aircraft enters one of our Colombian airports, we collect an hourly parking charge, equal to 5.0% of the maximum tariff established by Aerocivil, for the entire time the aircraft is on our aprons. Airlines are also subject to charges for the connection of their aircraft to our terminals through a boarding bridge. Pursuant to Airplan’s concession agreement and Aerocivil regulations, we are required to provide (without additional charge) firefighting and rescue services at our airports. However, we collect charges from carriers for performing certain activities that require firefighting services, such as the use of firefighting cars for the supply of fuel and for cleaning fuel from platforms.

 

Non-aeronautical Services

 

General

 

Pursuant to Airplan’s concession agreement, revenues from non-aeronautical services are not regulated. Our revenues from non-aeronautical services are derived from commercial activities, automobile parking and ground transport fees.

 

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Commercial Activities

 

Within our six Colombian airports, we leased 649 commercial premises through 433 contracts with local tenants as of December 31, 2020. Our most important tenants in terms of occupied space and revenue in 2020 were Aerovías del Continente Americano, S.A., AVIANCA, Duty Free Partners Colombia, S.A.S, Tampa Cargo, S.A.S, Organización Terpel, S.A., Marketmedios Comunicaciones, S.A., Mera Medellín, S.A.S, LASA, S.A., Global Lounge Colombia, S.A.S, Federal Express Corporation, SAPIA CI, S.A.S., EASYFLY S.A., GIRAG DE AVIACIÓN, S.A., LONGPORT COLOMBIA, LTDA, AEROSAN, S.A.S., among others. In some cases, we provided support to tenants in 2020 by extending payment terms to 180 days.

 

Automobile Parking and Ground Transport

 

Each of our Colombian airports has public car parking facilities, which are provided either directly by us or by a third party. We provide public parking directly at Enrique Olaya Herrera Airport in Medellín, Los Garzones Airport in Montería, Antonio Roldán Betancourt Airport in Carepa, El Caraño Airport in Quibdó and the José María Córdova Airport in Rionegro. Pursuant to the concession agreement, we may charge third parties for the operation of our public parking and ground transport facilities; these charges are not regulated. We and the third party may negotiate freely on the price for the third party’s operation of the parking or ground transport facilities. For those of our airports that do assess parking fees, we or a third party charge a fee for each individual vehicle entering the airport. Although parking and ground transport services are not directly regulated, the fee charged to each individual vehicle that enters parking or ground transport facilities at our Colombian airports cannot exceed a certain limit established by city authorities. We do not charge parking fees at Corozal.

 

Airport Security

 

Pursuant to the Colombian concession agreement, Airplan is responsible for security at each of the terminals comprising the concession. Airplan is also obligated to coordinate with Aerocivil and other security authorities, including the national police, to adopt procedures and measures aimed at guaranteeing the safety of the facilities and of airport users.

 

Fuel

 

Fuel access for our Colombian airports and related vehicles and aircrafts is governed by the concession agreement. Fuel supply is a service that constitutes part of our non-regulated revenue. We are required to ensure the delivery of fuel to the aircrafts at our Colombian airports, including facilitating access between private suppliers and third parties, but we are not directly responsible for supplying the fuel. Fuel supply operations at our Colombian airports must comply with certain Colombian regulations, including Annex 6 of the International Civil Aviation Organization and Decree 1521 of 1998. Notwithstanding our role in facilitating access to fuel, we are not involved in commercial relationships among the airlines and third parties supplying the fuel. We may assign space on our airport premises to fuel suppliers in exchange for a monthly payment. Moreover, we may charge fuel suppliers a tariff on the volume of fuel provided to aircraft. We have agreements with fuel suppliers Terpel and Energizar.

 

In the event it is not feasible to reach an agreement with the current fuel suppliers of the corresponding airport, we may enter into an agreement with a third party that will be in charge of operating the fuel distribution system. Under such an agreement, the third party operator makes a monthly payment to us in exchange for the space we grant it on our airport premises. The third party must also pay a tariff on the volume of fuel supplied to the aircrafts.

 

Aerocivil establishes safety guidelines and requirements with respect to fuel supply at our Colombian airports.

 

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Our Colombian Airports

 

In 2020, our Colombian airports served a total of 4.2 million passengers, excluding passengers in transit and private aviation passengers. In 2020, José María Córdova International Airport accounted for 72.9% of our passenger traffic and 80.0% of our revenues, in each case from our Colombian airports.

 

José María Córdova International Airport in Rionegro and Enrique Olaya Herrera Airport in Medellín are designated as international airports under Colombian aeronautical regulations, which indicates that they are equipped to receive international flights and have customs and immigration facilities.

 

José María Córdova International Airport

 

José María Córdova International Airport is the second-busiest airport in Colombia in terms of passenger traffic. The airport is located in Rionegro, approximately 30 minutes from Medellín. Medellín has a population of approximately 2.5 million as of December 31, 2020, and is situated in a valley in the mountainous Antioquia department. The city is an urban center that is home to various businesses, museums, universities and parks. In addition, Medellín hosts an annual flower festival that attracts visitors.

 

The airport’s most significant points of origin and destination are Bogotá, Cartagena, Cali, Santa Marta, Panama City, Barranquilla, Miami, San Andres, Fort Lauderdale and Madrid. During 2020, approximately 3.1 million passengers traveled through José María Córdova International Airport, including 590,000 international passengers and 2.5 million domestic passengers.

 

The following table sets forth the number of international passengers (excluding passengers in transit and private aviation passengers) at José María Córdova International Airport by flight origin or destination.

 

   International Passenger Traffic
   Year ended December 31,
   2018  2019  2020
          
   ( in thousands )
City:         
Panama City  557.1  552.5  165.9
Miami  316.6  336.9  153.9
Fort Lauderdale  191.1  202.3  91.6
Madrid  140.9  183.6  47.6
Lima  93.8  153.0  33.1
Mexico City  94.9  151.0  47.9
Other  189.1  241.4  50.1
Total  1,583.5  1,820.7  590.1

 

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The following table sets forth the number of Colombian domestic passengers (excluding passengers in transit and private aviation passengers) that traveled through José María Córdova International Airport by flight origin or destination.

 

   Domestic Passenger Traffic
   Year ended December 31,
   2018  2019  2020
          
   ( in thousands )
City:         
Bogotá  4,042.8  4,501.8  1,436.5
Cartagena  841.3  922.3  285.9
Cali  369.5  428.2  196.7
San Andrés  367.1  388.1  124.1
Barranquilla  306.9  368.8  159.8
Santa Marta  240.4  521.5  182.6
Other  280.6  278.7  96.3
Total  6,448.6  7,409.4  2,481.9

 

The airport’s facilities include spaces for cargo operations. These spaces may be operated by third parties. José María Córdova International Airport currently has one runway, with a length of 3,440 meters (2.1 miles). José María Córdova International Airport was built in 1985 and currently has two terminals (passenger and cargo terminals).

 

There are currently 180 businesses operating in José María Córdova International Airport.

 

Enrique Olaya Herrera Airport

 

Enrique Olaya Herrera Airport also serves the city of Medellín, and was the city’s main airport until the opening of José María Córdova International Airport in 1985. The airport is conveniently located within Medellín city limits and serves domestic flights to cities such as Bogotá, Bucaramanga and Pereira. The airport’s primary points of origin and destination are Quibdó, Apartadó, Bogotá, Montería, Pereira and Bucaramanga. In 2020, approximately 460,000 passengers traveled through Enrique Olaya Herrera Airport.

 

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The following table sets forth the number of Colombian domestic passengers (excluding passengers in transit and private aviation passengers) that traveled through Enrique Olaya Herrera Airport by flight origin or destination.

 

   Domestic Passenger Traffic
   Year ended December 31,
   2018  2019  2020
          
   ( in thousands )
City:         
Quibdó  218.3  231.8  96.2
Apartadó  168.5  190.5  77.0
Bogotá  127.3  113.7  39.6
Montería  97.2  103.6  43.4
Pereira  93.2  107.9  41.0
Bucaramanga  54.2  64.6  23.3
Corozal  41.7  29.9  9.5
Manizales  32.1  52.3  17.7
Other  119.6  201.0  116.9
Total  952.1  1,095.3  464.6

 

The airport’s facilities include spaces for cargo operations. These spaces may be operated by third parties. The airport has one runway, with a length of 1,800 meters (1.1 miles). Enrique Olaya Herrera Airport was built in 1932.

 

There are currently 143 businesses operating at Enrique Olaya Herrera Airport.

 

Los Garzones Airport

 

Los Garzones Airport serves the city of Montería, Colombia. The city of Montería is located in the northern region of Colombia and has a population of 498,858 as of December 31, 2020. The city is located approximately 30 miles from the Caribbean Sea and has an inland seaport connected to the Caribbean Sea by the Sinú River. During 2020, 420,000 passengers traveled through Los Garzones Airport, including only Colombian domestic passengers. The airport’s primary points of origin and destination are Bogotá and Medellín. The airport serves domestic flights to cities such as Bogotá, Medellín, Cartagena and Barranquilla.

 

The following table sets forth the number of Colombian domestic passengers (excluding passengers in transit and private aviation passengers) that traveled through Los Garzones Airport by flight origin or destination.

 

   Domestic Passenger Traffic
   Year ended December 31,
   2018  2019  2020
          
   ( in thousands )
City:         
Bogotá  654.8  705.1  289.8
Medellín  249.5  285.7  121.2
Barranquilla  25.4  29.7  5.1
Other  11.4  7.8  1.9
Total  941.1  1,028.3  418.0

 

The airport’s facilities include spaces for cargo operations. These spaces may be operated by third parties. The airport has one runway, with a length of 2,298 meters (1.4 miles). Los Garzones Airport was built in 1974.

 

There are currently 38 businesses operating at Los Garzones Airport.

 

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Antonio Roldán Betancourt Airport

 

Antonio Roldán Betancourt Airport serves the city of Carepa, Colombia. The city of Carepa has a population of 49,659 as of December 31, 2020. During 2020, 90,205 passengers traveled through Antonio Roldán Betancourt Airport. The airport’s primary point of origin and destination is Medellín. The airport serves domestic flights to cities such as Bogotá, Medellín and Quibdó.

 

The following table sets forth the number of Colombian domestic passengers (excluding passengers in transit and private aviation passengers) that traveled through Antonio Roldán Betancourt Airport by flight origin or destination.

 

   Domestic Passenger Traffic
   Year ended December 31,
   2018  2019  2020
          
   ( in thousands )
City:         
Medellín  181.4  204.4  82.2
Bogotá  10.3  17.5  6.5
Quibdó  5.4  4.7  1.0
Other  ---  0.3  0.5
Total  197.1  226.9  90.2

 

The airport’s facilities include spaces for cargo operations. These spaces may be operated by third parties. The airport has one runway, with a length of 1,964 meters (1.2 miles). Antonio Roldán Betancourt Airport was built in 1989.

 

There are currently 14 businesses operating at Antonio Roldán Betancourt Airport.

 

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El Caraño Airport

 

El Caraño Airport serves the city of Quibdó, Colombia, located on the Atrato River in the western region of the country. The city of Quibdó has a population of 130,042 as of December 31, 2020. During 2020, 148,938 passengers traveled through El Caraño Airport. The airport’s primary points of origin and destination are Medellín and Bogotá. The airport serves domestic flights to cities such as Bogotá, Medellín and Cali.

 

The following table sets forth the number of Colombian domestic passengers (excluding passengers in transit and private aviation passengers) that traveled through El Caraño Airport by flight origin or destination.

 

   Domestic Passenger Traffic
   Year ended December 31,
   2018  2019  2020
          
   ( in thousands )
City:         
Medellín  223.8  241.8  100.5
Bogotá  79.8  82.1  23.8
Calí  14.1  22.6  6.8
Bahía Solano  1.5  20.2  9.6
Other  7.7  17.8  8.2
Total  326.9  384.5  148.9

 

The airport’s facilities include spaces for cargo operations. These spaces may be operated by third parties. The airport has one runway, with a length of 1,800 meters (1.1 miles). El Caraño Airport was built in 1957.

 

There are currently 49 businesses operating at El Caraño Airport.

 

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Las Brujas Airport

 

Las Brujas Airport serves the city of Corozal, Colombia. The city of Corozal has a population of 69,268 as of December 31, 2020. During 2020, 21,651 passengers traveled through Las Brujas Airport. The airport’s primary point of origin and destination is Bogotá. The airport serves domestic flights to cities such as Bogotá and Medellín.

 

The following table sets forth the number of Colombian domestic passengers (excluding passengers in transit and private aviation passengers) that traveled through Las Brujas Airport by flight origin or destination.

 

    Domestic Passenger Traffic 
    Year ended December 31, 
    2018   2019   2020 
              
    ( in thousands ) 
City:                
Bogotá     56.8    57.0    12.0 
Medellín    34.3    30.0    9.4 
Other     ---    ---    0.3 
Total    91.1    87.0    21.7 

 

The airport’s facilities include spaces for cargo operations. These spaces may be operated by third parties. The airport has one runway, with a length of 1,800 meters (1.1 miles). Las Brujas Airport was built in 1939.

 

There are currently 9 businesses operating at Las Brujas Airport.

 

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Principal Air Traffic Customers of our Colombian Airports

 

As of December 31, 2020, 13 international and 14 Colombian airlines operated flights at our six Colombian airports.

 

Avianca is the Colombian airline that operates the most flights at our Colombian airports. Among foreign airlines, COPA and LATAM operate the greatest number of flights to and from our Colombian airports.

 

The following table sets forth our principal air traffic customers at our Colombian airports based on the percentage of revenues they represented for the year ended December 31, 2020.

 

Principal Air Traffic Customers at Our Colombian Airports

 

   Percentage of ASUR Colombian Revenues 
   Year ended December 31, 
   2018   2019   2020 
Customer               
Aerovías del Continente Americano (AVIANCA)   26.4%   25.4%   19.7%
AeroRepública S.A. (COPA Airlines)   16.7%   17.4%   15.1%
Fast Colombia SAS (Viva Colombia)   10.4%   11.1%   15.0%
Aerovías de Integración Regional S.A. (LATAM)   7.2%   7.6%   7.5%
American Airlines Inc.   5.7%   5.2%   6.9%
Empresa Aérea de Servicios y Facilitación Logística Integral (EASYFLY)   4.0%   4.4%   5.3%
Spirit Airlines Inc.   3.4%   4.2%   6.7%
Satena   2.9%   2.6%   2.8%
Jet Blue Airways Corporation   2.9%   2.7%   2.4%
Trans American Airlines (TACA)(1)   3.6%   ---    --- 
Others   16.8%   19.4%   18.6%
    100.0%   100.0%   100.0%

 

 

(1)       TACA’s routes were absorbed by Avianca on February 21, 2019.

 

The COVID-19 outbreak began in December 2019 and caused a significant reduction in passenger traffic at our Colombian airports starting in March 2020. During the second, third and fourth quarters of 2019, our passanger traffic in Colombia decreased 83.4% relative to the same period in 2019.

 

Seasonality

 

Our business is subject to seasonal fluctuations. In general, demand for air travel in Colombia is typically higher during December, January and July. Our results of operations generally reflect this seasonality, but may also be impacted by other factors that are not necessarily seasonal, including economic conditions, the threat of violence or war, weather and air traffic control delays.

 

Competition

 

Our principal competition is from competing destinations in Colombia and Latin America. We believe that the main competitors to our José María Córdova International Airport in Rionegro are Bogotá and Cartagena, as well as other destinations in Latin America, such as Panama City and Lima.

 

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MEXICAN REGULATORY FRAMEWORK

 

Applicable Law in Mexico

 

The following are the principal laws, regulations and instruments that govern our business and the operation of our Mexican airports:

 

·the General Law of Commercial Corporations, enacted August 4, 1934,

 

·the Mexican Communications Law, enacted February 19, 1940,

 

·the Federal Labor Law, enacted April 1, 1970,

 

·the Customs Law, enacted December 15, 1995,

 

·the Value Added Tax Law, enacted December 29, 1978,

 

·the Mexican Federal Duties Law, enacted December 31, 1981,

 

·the Mexican Civil Aviation Law, enacted May 12, 1995,

 

·the Social Security Law, enacted December 21, 1995,

 

·the Mexican Airport Law, enacted December 22, 1995,

 

·the regulations to the Mexican Civil Aviation Law, enacted December 7, 1998,

 

·the concessions that entitle our subsidiaries to operate our nine airports, which were granted in 1998 and amended in 1999,

 

·the regulations to the Mexican Airport Law, enacted February 17, 2000,

 

·the Mexican National Assets Law, enacted May 20, 2004,

 

·the Securities Market Law, enacted December 30, 2005,

 

·the Income Tax Law, enacted December 11, 2013, and

 

·the Federal Economic Competition Law, enacted May 23, 2014.

 

The Mexican Airport Law and the regulations to the Mexican Airport Law establish the general framework regulating the construction, operation, maintenance and development of Mexican airport facilities. The Mexican Airport Law’s stated intent is to promote the expansion, development and modernization of Mexico’s airport infrastructure by encouraging investment and competition.

 

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Under the Mexican Airport Law, a concession granted by the Ministry of Communications and Transportation is required to construct, operate, maintain or develop a public service airport in Mexico. A concession generally must be granted pursuant to a public bidding process, except for: (i) concessions granted to (a) entities considered part of “the federal public administration” as defined under Mexican law and (b) private companies whose principal stockholder may be a state or municipal government; (ii) concessions granted to operators of private airports (who have operated privately for five or more years) wishing to begin operating their facilities as public service airports; and (iii) complementary concessions granted to existing concession holders. Complementary concessions may be granted only under certain limited circumstances, such as where an existing concession holder can demonstrate, among other things, that the award of the complementary concession is necessary to satisfy passenger demand. In 1998, the Ministry of Communications and Transportation granted nine concessions to operate, maintain and develop the nine principal airports in Mexico’s southeast region to our subsidiaries. Because our subsidiaries were considered entities of the federal public administration at the time the concessions were granted, the concessions were awarded without a public bidding process. Each of our concessions was amended on March 19, 1999 in order, among other things, to incorporate each airport’s maximum rates and certain other terms as part of the concession.

 

The Mexican National Assets Law among other items establishes regulations relating to concessions on real property held in the public domain, including the airports that we operate. The Mexican National Assets Law requires concessionaires of real property held in the public domain that are used for administrative or other non-public purposes to pay a tax. In addition, the Mexican National Assets Law establishes grounds for revocation of concessions for failure to pay this tax.

 

On February 17, 2000, the regulations to the Mexican Airport Law were issued. Although we believe we are currently complying with the principal requirements of the Mexican Airport Law and its regulations, we are not in compliance with certain requirements under the regulations. These violations could result in fines or other sanctions being assessed by the Ministry of Communications and Transportation, and are among the violations that could result in termination of a concession if they occur three or more times.

 

On May 23, 2014, the LFCE was enacted. The LFCE grants broad powers to the COFECE, including the abilities to investigate and regulate essential facilities, investigate companies, eliminate barriers to competition in order to promote access to the market and order the divestment of assets. The LFCE also sets forth important changes in connection with mergers and anti-competitive behavior, increases liabilities that may be incurred for violations of the law, increases the amount of fines that may be imposed for violations of the law, and limits the availability of legal defenses against the application of the law.

 

If the COFECE determines that a specific service or product is an essential facility, it has the ability to regulate access conditions, prices, tariffs or technical conditions for or in connection with the relevant service or product. The COFECE has previously determined that certain elements of the infrastructure at Mexico City International Airport may be considered essential facilities. As of the date of filing, the COFECE has not made any determination that the services we render in our Mexican airports are considered an essential facility.

 

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On January 26, 2015, an amendment to the Mexican Airport Law was published and enacted. Among other matters, the amendment includes provisions that intend to create a competitive market for the suppliers of complementary services. To this end, the amendment establishes that a concession holder may not limit the number of providers of complementary services in its airport, except in instances in which space, efficiency and/or safety warrant such a limitation. If a concession holder denies entry to any complementary service provider, that service provider may file a complaint before the Ministry of Communications and Transportation.

 

Additionally, on June 8, 2016, an amendment to the Mexican Airport Law was published and enacted, in terms of which additional provisions were included in connection with the granting of concessions or resolutions to extend the term thereof, establishing requirements to be carried out by the Ministry of Communications and Transportation before the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) in case public funds are used to finance an airport project.

 

Role of the Ministry of Communications and Transportation

 

The Ministry of Communications and Transportation is the principal regulator of airports in Mexico and is authorized by the Mexican Airport Law to perform the following functions:

 

·grant, modify and revoke concessions for the operation of airports,

 

·establish air transit rules and rules regulating take-off and landing schedules through the Mexican air traffic control authority,

 

·take all necessary action to create an efficient, competitive and non-discriminatory market for airport-related services,

 

·approve any transaction or transactions that directly or indirectly may result in a change of control of a concession holder,

 

·approve the master development plans prepared by each concession holder every five years,

 

·determine each airport’s maximum rates,

 

·approve any agreements entered into between a concession holder and a third party providing airport or complementary services at its airport,

 

·establish safety regulations,

 

·monitor airport facilities to determine their compliance with the Mexican Airport Law, other applicable laws and the terms of the concessions, and

 

·impose penalties for failure to observe and perform the rules under the Mexican Airport Law, the Mexican Airport Law regulations and the concessions.

 

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In addition, under the Mexican Organic Law of the Federal Public Administration, the Mexican Airport Law and the Mexican Civil Aviation Law, the Ministry of Communications and Transportation is required to provide air traffic control, radio assistance and aeronautical communications at Mexico’s airports. The Ministry of Communications and Transportation provides these services through SENEAM, the Mexican air traffic control authority, which is a division of the Ministry of Communications and Transportation. Since 1978, the Mexican air traffic control authority has provided air traffic control for Mexico’s airports.

 

Scope of Mexican Concessions and General Obligations of Concession Holders

 

As authorized under the Mexican Airport Law, each of the concessions held by our subsidiaries is for an initial 50-year term from November 1, 1998. This initial term of each of our Mexican concessions may be renewed in one or more terms for up to an additional 50 years, subject to the concession holder’s acceptance of any new conditions imposed by the Ministry of Communications and Transportation and to its compliance with the terms of its concession.

 

In order to renew a concession, the Ministry of Communications and Transportation must obtain a favorable opinion from the Tax Ministry, which will analyze the profitability of each of the airports together with the costs and benefits of renewing the concession. Such analysis compares the cash revenues that may be generated from the use, benefit and exploitation of the public domain assets and services subject to the relevant concessions against the associated costs. The Tax Ministry must issue a resolution on the profitability of each airport within 30 days following receipt of all relevant information from the Ministry of Communications and Transportation. If the Tax Ministry does not issue a resolution within the 30-day period, it will be deemed that the Tax Ministry issued favorable opinion. In addition, together with the profitability analysis, the Ministry of Communications and Transportation shall submit a proposal for the concession fee applicable to the renewed period to the Tax Ministry.

 

The Mexican concessions held by our subsidiary concession holders allow the relevant concession holder, during the term of the concession, to: (i) operate, maintain and develop its airport and carry out any necessary construction in order to render airport, complementary and commercial services as provided under the Mexican Airport Law and the Mexican Airport Law regulations; and (ii) use and develop the assets that comprise the airport that is the subject of the concession (consisting of the airport’s real estate and improvements but excluding assets used in connection with fuel supply and storage). These assets are government-owned assets, subject to the Mexican National Assets Law. Upon expiration of a concession, these assets automatically revert to the Mexican government at no charge.

 

Substantially all of the contracts entered into by the Mexican Airport and Auxiliary Services Agency with respect to each of our airports have been assigned to the relevant concession holder for each airport. As part of this assignment, each concession holder agreed to indemnify the Mexican Airport and Auxiliary Services Agency for any loss suffered by the Mexican Airport and Auxiliary Services Agency due to the concession holder’s breach of its obligations under an assigned agreement.

 

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Under the Mexican Federal Duties Law, each of our subsidiary concession holders is required to pay the Mexican government a concession fee based on its gross annual regulated revenues from the use of public domain assets pursuant to the terms of its concession. Currently, this concession fee is set at a rate of 5.0% and may be revised annually by the Mexican Congress. Our Mexican concessions provide that we may request an amendment of our maximum rates if there is a change in this concession fee.

 

Mexican concession holders are required to obtain a certification for the facilities pursuant to the Mexican Airport Law and its regulations, as well as applicable national and international standards.

 

Mexican concession holders are required to provide airport security. If public order or national security is endangered, the competent federal authorities are authorized to act to protect the safety of aircraft, passengers, cargo, mail, installations and equipment.

 

Each Mexican concession holder and any third party providing services at an airport is required to carry specified insurance in amounts and covering specified risks, such as damage to persons and property at the airport, in each case as specified by the Ministry of Communications and Transportation. To date, the Ministry of Communications and Transportation has not specified the required amounts of insurance. We cannot assure you that we will not be required to obtain additional insurance once these amounts are specified.

 

We and our Mexican subsidiary concession holders are jointly and severally liable to the Ministry of Communications and Transportation for the performance of all obligations under the concessions held by our subsidiaries. Each of our subsidiary concession holders is responsible for the performance of the obligations set forth in its concession, including the obligations arising from third-party contracts, as well as for any damages to the Mexican government-owned assets that they use and to third-party airport users. In the event of a breach of one concession, the Ministry of Communications and Transportation is authorized to revoke all of the Mexican concessions held by our subsidiaries.

 

The shares of a Mexican concession holder and the rights under a concession may be subject to a lien only with the approval of the Ministry of Communications and Transportation. No agreement documenting liens approved by the Ministry of Communications and Transportation may allow the beneficiary of a pledge to become a concession holder under any circumstances.

 

A Mexican concession holder may not assign any of its rights or obligations under its concession without the authorization of the Ministry of Communications and Transportation. The Ministry of Communications and Transportation is authorized to consent to an assignment only if the proposed assignee satisfies the requirements to be a concession holder under the Mexican Airport Law, undertakes to comply with the obligations under the relevant concession and agrees to any other conditions that the Ministry may require.

 

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Classification of Services Provided at Mexican Airports

 

The Mexican Airport Law and the Mexican Airport Law regulations classify the services that may be rendered at an airport into the following three categories:

 

·Airport Services. Airport services may be rendered only by the holder of a concession or a third party that has entered into an agreement with the concession holder to provide such services. These services include: —the use of airport runways, taxiways and aprons for landing, aircraft parking and departure, —the use of hangars, passenger walkways, transport buses and automobile parking facilities, —the provision of airport security services, rescue and firefighting services, ground traffic control, lighting and visual aids, —the general use of terminal space and other infrastructure by aircraft, passengers and cargo, and —the provision of access to an airport to third parties providing complementary services (as defined in the Mexican Airport Law) and third parties providing permanent ground transport services (such as taxis).

 

·Complementary Services. Complementary services may be rendered by an airline, by the airport operator or by a third party under agreements with airlines or the airport operator. These services include: —ramp and handling services, —passenger check-in, and —aircraft security, catering, cleaning, maintenance, repair and fuel supply and related activities that provide support to air carriers.

 

·Commercial Services. Commercial services involve services that are not considered essential to the operation of an airport or aircraft, and include: —the leasing of space to retailers, restaurants and banks and —advertising.

 

Third parties rendering airport, complementary or commercial services are required to do so pursuant to a written agreement with the relevant concession holder. All agreements relating to airport or complementary services are required to be approved by the Ministry of Communications and Transportation. The Mexican Airport Law provides that the concession holder is jointly liable with these third parties for compliance with the terms of the relevant concession with respect to the services provided by such third parties. All third-party service providers of complementary services are required to be corporations incorporated under Mexican law.

 

Airport and complementary services are required to be provided to all users in a uniform and regular manner, without discrimination as to quality, access or price. Mexican concession holders are required to provide airport and complementary services on a priority basis to military aircraft, disaster support aircraft and aircraft experiencing emergencies. Airport and complementary services are required to be provided at no cost to military aircraft and aircraft performing national security activities.

 

In the event of force majeure, the Ministry of Communications and Transportation may impose additional regulations governing the provision of services at airports, but only to the extent necessary to address the force majeure event. The Mexican Airport Law allows the airport administrator appointed by a concession holder to suspend the provision of airport services in the event of force majeure.

 

A Mexican concession holder is also required to take all necessary measures to create a competitive market for complementary services. A concession holder may not limit the number of providers of complementary services in its airport, except in instances where space, efficiency and/or safety warrant such limitation. If a concession holder denies entry to any complementary services provider, such service provider may file a complaint before the Ministry of Communications and Transportation. The Ministry of Communications and Transportation shall determine within 60 days of the filing of the complaint whether entry of the service provider into the airport shall be authorized.

 

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Master Development Plans

 

Mexican concession holders are also required to submit to the Ministry of Communications and Transportation a master development plan describing, among other things, the concession holder’s construction and maintenance plans.

 

Each master development plan is for a 15-year period and is required to be updated every five years and resubmitted for approval to the Ministry of Communications and Transportation. Upon such approval, the master development plan is deemed to constitute a part of the relevant concession. Any major construction, renovation or expansion of an airport may only be made pursuant to a concession holder’s master development plan or upon approval by the Ministry of Communications and Transportation. Information required to be presented in the master development plan includes:

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