UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact name of registrant as specified in its charter) |
|
Not Applicable |
(Translation of registrant’s name into English) |
Grand Duchy of |
(Jurisdiction of incorporation or organization) |
|
|
(Name, Telephone, E-mail and or Facsimile number and Address Company Contact Person)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange in which registered |
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: None
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
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
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 ☐
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.
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).
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 the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b2 of the Exchange Act.
Large 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. ☐
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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ |
| 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
TABLE OF CONTENTS
|
| Page |
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS | 2 | |
3 | ||
|
| |
4 | ||
|
| |
6 | ||
|
| |
6 | ||
|
| |
6 | ||
|
| |
6 | ||
|
| |
37 | ||
133 | ||
|
| |
133 | ||
|
| |
181 | ||
|
| |
188 | ||
|
| |
191 | ||
|
| |
199 | ||
|
| |
199 | ||
|
| |
QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK | 213 | |
|
| |
213 | ||
|
| |
214 | ||
|
| |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 214 | |
|
| |
214 | ||
|
| |
215 | ||
|
| |
215 | ||
|
| |
215 | ||
|
| |
215 | ||
216 | ||
|
|
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 216 | |
|
|
|
216 | ||
|
|
|
216 | ||
|
|
|
218 | ||
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 218 | |
218 | ||
218 | ||
|
|
|
220 | ||
|
|
|
221 | ||
|
|
|
222 | ||
|
|
|
223 | ||
i
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements about our expectations, beliefs and intentions regarding, among other things, our products and services, development efforts, business, financial condition, results of operations, strategies, plans and prospects. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should,” “could,” “might,” “seek,” “target,” “will,” “project,” “forecast,” “continue” or “anticipate” or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical matters. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors listed below:
| ● | our business strengths and future results of operation; |
| ● | delays or unexpected casualties related to construction under our investment plans and master plans; |
| ● | our ability to generate or obtain the required capital to fully develop and operate our airports; |
| ● | impact of epidemics, pandemics, and public health crises; |
| ● | general economic, political, demographic and business conditions in the geographic markets we serve; |
| ● | decreases in passenger traffic; |
| ● | changes in the fees we may charge under our concession agreements; |
| ● | inflation and hyperinflation, depreciation, and devaluation of the AR$, EUR, BRL, UYU or AMD, against the U.S. dollar; |
| ● | the early termination, revocation, or failure to renew or extend any of our concession agreements; |
| ● | the right of the Argentine Government to buy out the AA2000 Concession Agreement (as defined herein); |
| ● | changes in our investment commitments or our ability to meet our obligations thereunder; |
| ● | existing and future governmental regulations; |
| ● | natural disaster-related losses which may not be fully insurable; |
| ● | the ongoing war events; and |
| ● | cyberterrorism in the international markets we serve. |
We believe these forward-looking statements are reasonable; however, these statements speak only as of the date of this annual report and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from those anticipated by the forward-looking statements. We discuss these risks in this annual report in greater detail under the heading “Risk Factors.” Given these uncertainties, you should not rely upon forward-looking statements as predictions of future events.
Unless required by law, we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or developments or otherwise.
2
CERTAIN CONVENTIONS
Corporación América Airports S.A. (“CAAP”) was incorporated under the laws of the Grand Duchy of Luxembourg (“Luxembourg”) on December 14, 2012. The Company owns no material assets other than its direct and indirect ownership of the issued share capital of other intermediate holding companies for all our operating subsidiaries. Except where the context otherwise requires or where otherwise indicated, all references to the “Company,” “CAAP,” “we,” “us” and “our” refer to Corporación América Airports S.A. and its consolidated subsidiaries, as well as those businesses we account for using the equity method.
In this annual report, unless otherwise specified or the context otherwise requires:
| ● | “U.S.$” and “U.S. dollar” each refers to the United States dollar; |
| ● | “AR$” refers to the Argentine peso; |
| ● | “€,” “EUR” or “euro” each refers to the euro, the single currency established for members of the European Economic and Monetary Union since January 1, 1999; |
| ● | “R$” or “BRL” each refers to the Brazilian real; |
| ● | “$U” or “UYU” each refers to the Uruguayan peso; and |
| ● | “AMD” refers to the Armenian dram. |
We have translated some of the local currency amounts contained in this annual report into U.S. dollars for convenience purposes only. The U.S. dollar-equivalent information presented in this annual report is provided solely for convenience and should not be construed as implying that the amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. See “Item 3. Key Information— Risk Factors— Depreciation or fluctuation of the currencies of the countries where we operate could adversely affect our results of operations and financial condition.”
Certain numbers and percentages included in this annual report have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in various tables or other sections of this annual report may vary slightly, and figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them.
3
PRESENTATION OF FINANCIAL INFORMATION
This annual report contains our audited consolidated financial statements as of December 31, 2023 and 2022 and for our fiscal years ended December 31, 2023, 2022 and 2021 (our “Audited Consolidated Financial Statements”).
We prepare our Audited Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). We have applied all IFRS Accounting Standards adopted by the International Accounting Standards Board (IASB) effective at the time of preparing our Audited Consolidated Financial Statements. Our Audited Consolidated Financial Statements have been audited by Price Waterhouse & Co. S.R.L. (“PwC”), a member firm of the PricewaterhouseCoopers global network, and an independent registered public accounting firm, whose report dated March 20, 2024, is also included in this annual report.
Our Audited Consolidated Financial Statements are presented in U.S. dollars. Our fiscal year ends on December 31 of each year. Accordingly, all references to a particular year are to the year ended December 31 of that year.
Our Segments
As of and for the fiscal year ended December 31, 2023, we have identified six reportable segments: Argentina, Italy, Brazil, Uruguay, Ecuador and Armenia. See Note 4 to our Audited Consolidated Financial Statements and “Adjusted Segment EBITDA and Adjusted Segment EBITDA excluding Construction Services.”
In December 2021, we transferred our 50% ownership interest in Aeropuertos Andinos del Perú S.A. (“AAP”) to Andino Investment Holding S.A. See “Business Overview—Our Airports by Country in Which We Operate—Peru.” The elimination of any intersegment revenues and other significant intercompany operations are included in the “Intrasegment Adjustments” column. AAP was not previously classified as an asset held for sale or as a discontinued operation. All the financial and operational information provided for our Peruvian segment for the year ended December 31, 2021 includes our financial information and results of operation until December 16, 2021, date on which the transfer of our interest in AAP was completed.
Factors Affecting Comparability of Prior Periods
During 2020 and 2021, the Company’s operations were significantly affected due to the impact of the COVID-19 pandemic and the related measures that affected passenger traffic. The significant decrease in our results of operations due to the COVID-19 pandemic and the subsequent rebound in our results of operations after the termination of measures affecting passenger traffic, affected the comparability of the figures reported for the years ended December 31, 2023 and 2022 with the corresponding period in 2021.
Adjusted Segment EBITDA and Adjusted Segment EBITDA excluding Construction Services
“Adjusted Segment EBITDA” is defined, with respect to each segment, as income/(loss) from continuing operations before financial income, financial loss, income tax expense, depreciation, and amortization for such segment. Adjusted Segment EBITDA excludes certain items that are not considered part of our core operating results. Specifically, we do not allocate financial income, financial loss, income tax expense, depreciation, and amortization to our reportable segments. Our management also reviews a metric of performance, denominated “Adjusted Segment EBITDA excluding Construction Services,” which only differs with the Adjusted Segment EBITDA measure by excluding the Construction Services margin.
Although Adjusted EBITDA, and consequently, Adjusted EBITDA excluding Construction Services, are commonly viewed as non-IFRS measures in other contexts, pursuant to IFRS 8, “Segment Information,” these are treated as IFRS measures in the manner in which we utilize them. We use Adjusted EBITDA and Adjusted EBITDA excluding Construction Services for purposes of making decisions about allocating resources to our segments and to internally evaluate their financial performance because we believe they reflect current core operating performance and provide an indicator of the segment’s ability to generate cash.
Non-IFRS Information
Adjusted EBITDA and Adjusted EBITDA excluding Construction Services
“Adjusted EBITDA” is a non-IFRS financial measure defined as net income/(loss) from continuing operations before financial income, financial loss, income tax expense, depreciation, and amortization. “Adjusted EBITDA excluding Construction Services” only differs with the previously mentioned measure by excluding Construction Services margin.
4
Adjusted EBITDA and Adjusted EBITDA excluding Construction Services are not defined under IFRS and have important limitations as analytical tools. You should not consider them in isolation or as a substitute for analysis of our results as reported under IFRS. For example, Adjusted EBITDA and Adjusted EBITDA excluding Construction Services have the following limitations:
| ● | exclude certain tax payments that may represent a reduction in cash available to us; |
| ● | do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future; |
| ● | do not reflect changes in, or cash requirements for, our working capital needs; and |
| ● | do not reflect the significant interest expense, or the cash requirements, necessary to service our debt. |
We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA excluding Construction Services enhances investors’ understanding of our performance. We believe these measures are useful metrics for investors to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We present Adjusted EBITDA and Adjusted EBITDA excluding Construction Services to provide supplemental information that we consider relevant for the readers of our Audited Consolidated Financial Statements included elsewhere in this annual report, and such information is not meant to replace or supersede IFRS measures.
In addition, our management believes Adjusted EBITDA and Adjusted EBITDA excluding Construction Services are useful because they allow us to evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods, capital structure or income taxes more effectively. We exclude the items listed above from income for the year in arriving at Adjusted EBITDA and Adjusted EBITDA excluding Construction Services because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired.
Adjusted EBITDA and Adjusted EBITDA excluding Construction Services should not be considered as alternatives to, or more meaningful than, consolidated net income for the year as determined in accordance with IFRS or as indicators of our operating performance from continuing operations.
Adjusted EBITDA and Adjusted EBITDA excluding Construction Services may not be the same as similarly titled measures used by other companies.
We have included the reconciliation of Adjusted EBITDA and Adjusted EBITDA excluding Construction Services to consolidated net income from continuing operations for all the periods presented. See “Operating and Financial Review and Prospects—Operating Results—Adjusted EBITDA Reconciliation to Net Income/(Loss) from Continuing Operations.”
Capital Increase
As part of the management share compensation plan (see “Item 6. Directors, Senior Management and Employees—Compensation—Management Compensation Plan”), on October 9, 2020, the board of directors of the Company increased the Company’s share capital by the amount of U.S.$3,200,445 through the issuance of 3,200,445 new shares having a nominal value of U.S.$1.00 each. As a result of the issuance of these new shares, which were subscribed by A.C.I. Airports S.à r.l., the Company’s controlling shareholder, the outstanding share capital of the Company as of December 31, 2023 is 163,222,707 shares. The shares were subscribed for a total subscription price of U.S.$6,144,854.40 (i.e., a subscription price of U.S.$1.92 per new share, being the market price per share as of October 8, 2020), and paid for through the incorporation of the corresponding amount which was allocated to the Company’s free distributable reserves. The new shares were, subsequently and on the same date, transferred by the controlling shareholder to the Company to be held in treasury until their allocation to key employees in accordance with the management share compensation plan. As of the date of this annual report, 949,322 shares have been delivered to key employees under the management share compensation plan and the remaining outstanding 2,251,123 shares are still held in treasury.
5
PRESENTATION OF INDUSTRY AND MARKET DATA
In this annual report, we rely on, and refer to, information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and forecasts used in this annual report were obtained from internal surveys, market research, governmental and other publicly available information, and independent industry publications. Industry publications, surveys, and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys, and forecasts are reliable, but we have not independently verified them and cannot guarantee their accuracy or completeness.
Certain market share information and other statements presented herein regarding our position relative to our competitors are not based on published statistical data or information obtained from independent third parties but reflect our best estimates. We have based these estimates upon information obtained from publicly available information from our competitors in the industry in which we operate.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A.Reserved
B.CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C.REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D.RISK FACTORS
You should carefully consider the risks and uncertainties described below, together with the other information contained in this annual report, before making any investment decision. Any of the following risks and uncertainties could have a material adverse effect on our business, prospects, results of operations and financial condition. The market price of our common shares could decline due to any of these risks and uncertainties, and you could lose all or part of your investment. The risks described below are those that we currently believe may materially affect us.
Summary of Risk Factors
The following is a series of concise statements highlighting the principal, but not all, risk factors that we face. The list is followed by a discussion of the Company’s risk factors, including those highlighted below.
Risks Related to Our Business and Industry
| ● | Our concessions may be terminated under various circumstances, some of which are beyond our control. |
| ● | We may be subject to monetary penalties or early termination if we fail to comply with the terms of our concession agreements. |
| ● | Our revenue is highly dependent on levels of air traffic, which depend in part on factors beyond our control, including economic and political conditions in the countries where we operate our airports. |
6
| ● | Outbreaks of diseases as well as any other public health crises that may arise in the future, have had, and may continue to have a negative impact on passenger traffic levels, air traffic operations and in our results of operations, financial position, and cash flows. |
| ● | Geopolitical uncertainties and an increase of trade protectionism could have a material adverse effect on our business, results of operation and financial condition. |
| ● | We are dependent on information and communication technologies, and our systems and infrastructures face certain risks, including cybersecurity risks. |
Risks Related to Argentina and the AA2000 Concession Agreement
| ● | The Argentine Government extended the term of the AA2000 Concession Agreement until 2038 subject to our compliance with certain commitments, which if we fail to comply with, could result in the imposition of fines or the termination or revocation of the AA2000 Concession Agreement. |
| ● | Pursuant to the AA2000 Concession Agreement, since February 2018, the Argentine Government may buy out our concession, which would materially affect our revenues and operations. |
| ● | The Organismo Regulador del Sistema Nacional de Aeropuertos (“ORSNA”) may adjust the fees we charge for aeronautical services, the payments we are required to make to the Argentine Government and our investment plan in a way that is detrimental to us or fail to adjust them to restore the AA2000 Concession Agreement’s economic equilibrium. |
| ● | If the ORSNA does not approve the capital expenditures already made under the AA2000 Concession Agreement, we could be required to make additional capital expenditures, which may affect our cash flows and financial condition. |
Risks Related to Our Other Principal Operations and Other Principal Markets in Which We Operate
| ● | Italy. If the approval process from local and national authorities of the master plan for the Florence Airport is further delayed, our financial results from the operation of such airport will be negatively impacted. |
| ● | Uruguay. A deterioration in the economic conditions of our neighboring markets, particularly Argentina has the potential to affect the number of passengers at our Uruguayan airports mainly Punta del Este airport. |
| ● | Armenia. The ongoing war between Russia and Ukraine has and will likely continue to disrupt or impact the connecting flights between our Armenian Airports and Russia, which could affect our results of operation. |
Risks Related to Our Common Shares
| ● | We issued, and may further issue, options, restricted shares, and other forms of share-based compensation, which have the potential to dilute shareholder value and cause the price of our common shares to decline. |
| ● | A significant portion of our common shares may be sold into the public market, which could cause the market price of our common stock to drop significantly, even if our business is doing well. |
Risks Related to Our Business and Industry
Our concessions may be terminated under various circumstances, some of which are beyond our control.
Our business consists of acquiring, developing and operating airport concessions. These concessions are granted by governmental authorities for a limited period of time and subject to several conditions and obligations.
7
Our concessions may be terminated under various circumstances, some of which are beyond our control. In general, our concession agreements may be terminated at any time by the relevant governments or agencies for public interest reasons. Concession agreements may also be terminated due to our material and repeated breach of the concession terms. The termination of one or more of our concessions could have a material adverse effect on our business, financial condition, and results of operations.
If an applicable governmental authority terminates any of our concessions, with or without cause, we may be entitled to seek claims for compensation from such terminating governmental authority. Although termination payments vary by concession, they usually include a claim for indemnification equal to the value of the non-amortized investments made by us for purposes of operating the airports and rendering the services agreed under the concession agreements. If the applicable governmental authority terminates one of our concessions due to our material and repeated breach or failure to make the committed investments, we may assert claims for indemnification equal to those non-amortized investments we made for purposes of operating the relevant airports and rendering of the services agreed under the relevant concession agreements. If the concession is terminated by the relevant government or agency for public interest reasons or without cause, we may assert claims for indemnification equal to the non-amortized investments plus loss of profits. Collecting on such claims may be difficult and time-consuming, and any amounts collected in respect of such claims may not provide us with the expected level of returns, which could have a material adverse effect on our business, financial condition, and results of operations.
In the AA2000 Concession Agreement, our largest concession operations, the Argentine Government has the right to buy out the concession agreement upon prior notification to us and indemnify us for certain investments we incurred for purposes of operating the airports and rendering the services agreed thereunder. See “Item 3. Key Information—Risk Factors—Risks Related to Argentina and the AA2000 Concession Agreement—Pursuant to the AA2000 Concession Agreement, since February 2018, the Argentine Government may buy out our concession, which would materially affect our revenues and operations.”
We may be subject to monetary penalties or early termination if we fail to comply with the terms of our concession agreements.
We may be subject to monetary penalties if we violate or otherwise fail to comply with the terms of our concessions. Some violations of a concession agreement may provide for cure periods or other remedial action, while other violations, whenever they are substantial and repeated, can result in the immediate termination of the relevant concession. If we experience difficulties, we may encounter problems in satisfying our obligations under our concession agreements and the relevant governmental authorities may impose sanctions on us. For a description of the consequences that may result from the violation of various terms of our concessions, or local laws and regulations related to such concessions, see “Item 4. Company Information—Business Overview—Regulatory and Concessions Framework.” Monetary penalties could negatively affect our results of operations.
In addition, under all our concession agreements, we are required to establish and comply with an investment plan for the airports covered under such concession agreements. If we do not fulfill our investment commitments on a timely basis or obtain necessary financing to complete the projects, such failures could lead to a breach of the relevant concession agreement, which may subject us to monetary fines or the early termination of our concession agreements.
Our revenue and profitability may be affected if we fail to win new concession agreements, acquire companies with existing concession agreements, or otherwise improve or expand our current operations.
Our growth strategy relies upon identifying and winning new concession agreements, acquiring companies with existing concession agreements, or improving and expanding our current operations. Our future growth may also depend on new (greenfield) development projects, which may require significant time and upfront financial commitments for construction and development. While we anticipate having opportunities to bid for concession agreements or purchase existing concessionaires in the future, we cannot predict the frequency or accuracy of such opportunities. We must also strategically identify which concession agreements and existing concessionaires to target based on numerous factors such as number of passengers, size of the relevant airport(s), type, location, and quality of the available airports and subconcession space, rental structure, financial return, regulatory requirements, and the competitive landscape within such market. We may not be able to successfully expand, as we may not correctly analyze the suitability of airport locations, anticipate all the challenges imposed by expanding our operations or succeed in executing our growth plan efficiently. We also may fail to expand within budget, on a timely basis or expand at all. In addition, to win a particular concession contract, we may be required to make investments or incur other expenses that would render such concession less economically attractive.
Our growth strategy and the substantial investment associated with the acquisition of each new concession agreement, existing concessions or expansion of existing concessions may cause our operating results to fluctuate and be unpredictable.
8
Outbreaks of diseases as well as any other public health crises that may arise in the future, have had, and may continue to have a negative impact on passenger traffic levels, air traffic operations and in our results of operations, financial position, and cash flows.
Future outbreaks of existing or future diseases as well as any other public health crises, or the fear of such events and governmental responses to such events, especially after the COVID-19 pandemic, could provoke responses that negatively affect passenger air traffic. The COVID-19 pandemic that resulted in several cities being placed under quarantine, increased travel restrictions from and to several countries, and extended shutdowns of certain businesses in certain regions, also forced airlines to cancel flights and disrupted the frequency and pattern of air travel worldwide. New strains of the COVID-19 virus, as well as, future public health crises similar to the outbreak of the Severe Acute Respiratory Syndrome (known as SARS) between 2002 and 2003, the outbreak of the A/H1N1 virus in 2009, the Ebola outbreak in 2014 and 2015 and the outbreak of the Zika virus in 2018 and 2019, could have a negative impact on our business and our revenue which is largely dependent on the level of passenger traffic in our airports. Any outbreaks of health epidemics could result in decreased passenger traffic and increased costs for the air travel industry and, as a result, could have a material adverse effect on our business revenues and results of operations.
Our business, operating results and growth rates may be adversely affected by current or future unfavorable economic and market conditions and adverse developments in the global economy.
Our business depends on the economic health of the global economy. If the conditions of the global economy remain uncertain or continue to be volatile, or if they deteriorate, including as a result of the impact of military conflict, such as the war between Russia and Ukraine and the conflict between Israel and Hamas, terrorism or other geopolitical events, our business, our operating results and our financial condition may be materially adversely affected.
In the aftermath of the COVID-19 pandemic, the United States and global markets have encountered a material increase in the level of inflation. Increases in inflation rates raise our costs for commodities, labor, materials and services and other costs required to grow and operate our business, and failure to secure these on reasonable terms may adversely impact on our financial condition. Additionally, increases in inflation rates have caused, and may cause in the future, global economic uncertainty and uncertainty about the interest rate environment, which may make it more difficult, costly or dilutive for us to secure additional financing. A failure to adequately respond to these risks could have a material adverse impact on our financial condition, results of operations or cash flows.
There can be no assurance that future credit and financial market instability and a deterioration in confidence in global economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult, more costly, more onerous with respect to financial and operating covenants and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to alter our operating plans. In addition, there is a risk that one or more of our service providers, financial institutions, manufacturers, suppliers and other partners may be adversely affected by the foregoing risks, which could directly affect our ability to attain our operating goals on schedule and on budget.
Geopolitical uncertainties and an increase of trade protectionism could have a material adverse effect on our business, results of operation and financial condition.
Russia’s war against neighboring Ukraine continues to disrupt international travel from and to Russia and Ukraine and other destinations. Additionally, as a response to the ban of flights to Russia by Western countries and the European Union, Russia has closed its skies for carriers registered in Western countries and carriers also avoid overflying the war zone, disrupting global supply chains (including aircraft components), and adversely affecting air travel (including air travel routs and accessibility to airports).
In addition to travel restrictions, in response to Russia’s invasion of Ukraine, the European Union, the U.K. and the U.S. introduced extensive sanctions on Russia (as well as Belarus for its role in Russia’s invasion) comprised of targeted, restrictive measures on certain individuals and entities, export controls, restrictions on economic relations, trade and other financial transactions. These sanctions have had, and are expected to continue to have, a significant disruptive effect on global markets, including oil and gas markets. Geopolitical events may lead to further instability across Europe and worldwide.
9
The imposition of tariffs on certain imported products by the U.S. has triggered retaliatory actions from certain foreign governments and may trigger retaliatory actions by other foreign governments, potentially resulting in a “trade war”. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. Others are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials.
Relatedly, global markets and supply chains have been further disrupted by Hamas attack on October 7, 2023. Hamas, an organization designated by the U.S. as a terrorist organization, launched a series of coordinated attacks from the Gaza Strip onto Israel. On October 8, 2023, Israel formally declared war on Hamas, and the armed conflict is ongoing as of the date of this filing. Hostilities between Israel and Hamas could escalate and involve surrounding countries in the Middle East. To date, we have not experienced any material disruptions and interruptions in our infrastructure, supplies, technology systems, or networks needed to support our operations as a result of the conflict between Israel and Hamas, but cannot discard the possibility of future disruptions and interruptions as a result of this conflict.
We cannot predict the progress, outcome or consequences of the conflicts between Russia and Ukraine, or Israel and Hamas, or their impacts in Ukraine, Russia, Belarus, Europe, the U.S., or the Middle East. The length, impact, and outcome of ongoing military conflicts is highly unpredictable and could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain disruptions, political and social instability, trade disputes or trade barriers, changes in consumer or purchaser preferences, as well as an increase in cyberattacks and espionage. The above geopolitical and trade uncertainty and tensions have resulted in fuel price increases, and have affected, and may continue to affect, our profitability. Sanctions, trade wars between certain countries or blocks of countries, or other governmental action related to tariffs or international trade agreements, could have a material adverse effect on passenger traffic on our airports as well as on our services, costs and suppliers or world economy or certain sectors thereof and, consequently, on our business and financial results.
We could be subject to acts of terrorism or war, which could have a negative impact on air travel and result in increased security requirements.
Our airports operate within a stringent and complex security regime, as required by the relevant governmental authorities, which may impose additional security measures from time to time. The consequences of the Russian and Ukraine war, the Israel and Hamas conflict, as well as any future terrorist action, threat or war may include the cancellation or delay of flights, fewer airlines and passengers using our airports, liability for damage or loss and the costs of repairing damage. If as a consequence of conflict or terrorist attack one of the airports we operate is affected, the airport in question could be closed, in whole or in part, for the time needed to care for victims, investigate the circumstances of the attack, rebuild any damaged areas or otherwise, with a subsequent decrease in the revenue and increase in costs for the reconstruction of the affected areas (to the extent these are not covered by insurance policies).
Moreover, if an accident, act of terrorism or threat affects the safety standard perception on customers thereof or were to occur in a country in which we operate, even if not at our airports, the perception of safety by airport users could decrease, and, consequently, there could be a reduction in passenger air traffic for an indefinite period of time, which could adversely affect our business, financial condition, and results of operations.
Furthermore, the implementation of additional security measures at our airports in the future could lead to additional limitations on airport capacity or retail space, overcrowding, increases in operating costs and delays to passenger movement through the airport, any of which could have a material adverse effect on our business, financial condition, and results of operations.
Our business may also be affected by the outbreak of wars or armed conflicts in any region of the world, including, for example, the Russian and Ukraine war, and the Israel and Hamas conflict. Among other things, wars can lead to increased prices of fuel, supplies, and interest rates for aircraft leases, which could, in turn, lead to increased prices of airline tickets and a decline in demand for air transportation in general. Likewise, the occurrence of armed conflicts could result in increased security measures, thereby increasing security costs.
10
We are dependent on information and communication technologies, and our systems and infrastructures face certain risks, including cybersecurity risks.
The operation of complex infrastructures, such as airports, and the coordination of the many actors involved in its operation require the use of several highly specialized information systems, including both our own information technology systems and those of third-party service providers, such as systems that monitor our operations or the status of our facilities, communication systems to inform the public, access control systems and closed circuit television security systems, infrastructure monitoring systems, passenger ticketing and boarding, automated baggage handling, points of sale, terminals and radio and voice communication systems used by our personnel. In addition, our accounting and fixed assets, payroll, budgeting, human resources, supplier and commercial, hiring, payments and billing systems and our websites are key to the functioning of our airports. The proper functioning of these systems is critical to our operations and business management. These systems may, from time to time, require modifications or improvements as a result of changes in technology, the growth of our business and the functioning of each of these systems.
Attempts to gain unauthorized access to our information technology systems have become more sophisticated over time. The risk of cyber - crime has been increasing, especially as infiltrating technology continues to become increasingly sophisticated. We and certain of our service providers may from time to time be subject to cyberattacks and security incidents. While we have not experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our and our critical third parties’ operations, it could result in material disruptions to our programs, our operations, and ultimately, our financial results. In particular, if we are unable to contain or minimize the effects of a significant cyber - attack, such attack could materially affect the number of passengers at our airports, cause the loss or exposure of information, damage our reputation and lead to regulatory penalties and financial losses. Any security compromise affecting us, our service providers, strategic partners, other contractors, consultants, or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures and lead to regulatory scrutiny. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary or personal information, we could incur liability, including litigation exposure, penalties and fines, we could become the subject of regulatory action or investigation, our competitive position could be harmed and the further development and commercialization of our products and services could be delayed. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our business.
In order to face these issues, we created a global information security department which reports to the Executive Committee. We also hired a global information security manager and reinforced the global information security department with multicultural security specialists in different locations. This new area focuses on cybersecurity, contingency procedures, security governance, access and identity management, infrastructure protection and monitoring, researching and deploying new technology to improve protection of information and communication systems.
Additionally, we are implementing a global security monitoring service (SOC) including a new incident response and threat intelligence service. This service allows us to respond more quickly and efficiently to any potential security breach. On the other hand, we are implementing and strengthening security measures to maintain and improve protection of information, increasing endpoint and perimeter protection, vulnerability management processes in order to improve the global posture of the company in terms of information security. However, these information technology systems cannot be completely protected against certain events such as natural disasters, fraud, computer viruses, hacking, communication failures, equipment breakdown, software errors and other technical problems. The occurrence of any of these events could disrupt our operations, result in an increase in costs and a decrease in revenue and damage our public image and our business in general.
The loss or impairment of our relationship with governments and their agencies in the markets in which we operate could adversely affect our business, future revenues, and growth prospects.
Our principal assets are concession rights granted by governments in the countries in which we operate. Our business depends to a large extent on our ability to manage relationships with the relevant governments and their agencies. During the term of our concessions, we are in continuous communications with the relevant governments and their agencies regarding, among other things, the terms and conditions of the concession, compliance with the concession agreement, the applicable master plan and works to be performed at the airports, including works not specifically required by the terms of the relevant concession, and the establishment of tariffs. Our business, prospects, financial condition, or operating results could be materially harmed if we were suspended or debarred from contracting with any such government or government agency or if our reputation or relationship with any such government or agency is impaired.
11
Our revenue is highly dependent on levels of air traffic, which depend in part on factors beyond our control, including economic and political conditions in the countries where we operate our airports.
Our revenue is closely linked to passenger and cargo traffic volumes and the number of air traffic movements at our airports. These factors directly determine our aeronautical revenue and indirectly determine our commercial revenue. Passenger and cargo traffic volumes and air traffic movements depend, in part, on many factors beyond our control. Such factors include economic conditions and the political situation in the countries where we operate our airports, epidemics, pandemics and other public health crises, terrorism, 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), currency exchange rate fluctuations, hyperinflation, geopolitical considerations and changes in regulatory policies applicable to the aviation industry. The occurrence of any of these risks may result in a reduction of passenger air traffic levels and air traffic movements globally and in the regions in which we operate. A significant decline in passenger and cargo traffic volumes and the number of air traffic movements at our airports could have a material adverse effect on our business, financial condition, and results of operations.
We face risks related to our dependence on the revenue from Ezeiza Airport.
During the years ended December 31, 2023, 2022 and 2021, the Ministro Pistarini International Airport (“Ezeiza Airport”) generated U.S.$253.7 million or 18.2% of our consolidated revenue, U.S.$278.1 million or 20.2 % of our consolidated revenue, and U.S.$123.3 million or 17.4% of our consolidated revenue, respectively, for each of such periods. As a result of the substantial contribution to our revenue from the Ezeiza Airport, any event or condition affecting this airport (in addition to any potential termination or buyout of the AA2000 Concession Agreement) could materially adversely affect our business, financial condition, and results of operations. For example, an economic recession in Argentina, a reduction in the operations of Ezeiza Airport, competition from other airports or a decrease in the number of passengers traveling to Buenos Aires as tourists could cause a decrease in our revenue from this airport which, in turn, could materially adversely affect our business, financial condition and results of operations.
Increases in international fuel prices could reduce demand for air travel.
The price of fuel may be subject to fluctuations resulting from a reduction or increase in output of petroleum, voluntary or otherwise, by oil producing countries, other market forces, any future terrorist attacks, a general increase in international hostilities, including, for example, the Russian and Ukraine war, and the Israel and Hamas conflict. In the past, increased fuel costs were among the factors leading to cancellations of routes, decreases in frequencies of flights and, in some cases, even contributed to filings for bankruptcy by some airlines. Although fuel is a widely traded global commodity, in the event of a significant increase in fuel prices in one or more of the countries in which we operate, or in one or more countries that provide significant numbers of international air passengers to the countries in which we operate, the effects of a localized price increase may be more significant than a general, worldwide increase in fuel prices. Significant fluctuations may result in higher airline ticket prices and in a decrease in demand for air travel generally, both of which could have an adverse effect on our revenues and results of operations.
Extended interruptions or disruptions at the airports where we operate due to natural disasters, prolonged weather conditions and other adverse incidents could affect our business and results of operations.
A significant extended interruption or disruption in service at the airports where we operate could have a material adverse impact on our business, financial condition, and results of operations. Our operations could be impacted by flight cancellations and airport closures caused by weather and natural disasters. Severe weather conditions, particularly heavy snowfall, increases in the frequency, severity, and duration of natural disasters such as hurricanes, tornadoes, volcanic activity, earthquakes, and tsunamis, can significantly disrupt service, cause cancellation of flights and negatively affect passenger traffic at airports, which may result in decreased revenues and increased costs. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business.
Competition from other destinations could adversely affect our business.
The principal factor affecting our business is the number of passengers that use our airports. Our passenger traffic volume may be adversely affected by the attractiveness, affordability, and accessibility of competing destinations. In addition, our passenger traffic volume may be adversely affected by the level of business activity in each destination or the likelihood of airlines using any of those destinations as a hub or base for their operations. If business activity and tourism levels and, therefore, the number of passengers using our airports, is negatively impacted by competing airports and hubs in the geographic regions in which we operate, such development could have an adverse effect on our business, financial condition, or results of operations.
12
We are subject to the risk of union disputes and work stoppages at our locations, which could have a material adverse effect on our business.
Some of our employees are members of labor unions. For example, as of December 31, 2023, approximately 63% and 32.7% (64.8% and 48.9 %, as of December 31, 2022) of our employees in Argentina and Italy, respectively, were members of labor unions. Negotiating labor contracts, either for new locations or to replace expiring contracts, is time consuming or may not be accomplished on a timely basis. In addition, we negotiate some of our collective bargaining agreements on an annual basis. If we are unable to satisfactorily negotiate those labor contracts with the labor unions on terms acceptable to us or without a strike or work stoppage, the effects on our business could be materially adverse. Any strike or work stoppage could disrupt our business, adversely affecting our results of operations and our public image could be materially adversely affected by such labor disputes. In addition, existing labor contracts may not prevent a strike or work stoppage, and any such work stoppage could have a material adverse effect on our business.
The operations of our airports may be adversely affected by actions or inactions of third parties that are beyond our control.
In most of our airports, our operations are largely dependent on the services provided by governments and other third parties who render services to passengers and airlines, such as meteorology, air traffic control, security, electricity, and immigration and customs services. In addition, in some of our airports we are dependent on third-party providers of certain complementary services such as baggage handling, fuel services, catering and aircraft maintenance and repair. While we are responsible for adopting security measures at some of our airports, we do not control the management or operation of security, which is controlled by government agencies or third parties. We are not responsible for, and cannot control, any of these services. Any disruption in, or other adverse situation related to, such services, including work strikes or other similar events, could cause the cancellation of flights and negatively affect passenger traffic at our airports, which may ultimately result in decreased revenues and have an adverse effect on our business, financial condition, or results of operations.
The loss of one or more of our aeronautical customers or the interruption of their operations could result in a loss of a significant amount of our passenger traffic.
None of our agreements with our aeronautical customers obligate them to provide service at or to our airports. If any of our aeronautical customers were to reduce their use of our airports or cease to operate at them for any reason, including merger, bankruptcy, or due to regulatory restrictions or the impact of any disease outbreak, or impacts of the Russia and Ukraine war or the Israel and Hamas conflict, among other factors, the remaining airlines may not increase their flight frequency to replace the flights that our aeronautical customers could no longer operate. Our business and revenue, and our ability to recover receivables, could be adversely affected if we are unable to replace the business of our main aeronautical customers.
Our main aeronautical customers are Aerolíneas Argentinas Group and LATAM Group. For the year ended December 31, 2023, Aerolíneas Argentinas Group and LATAM Group accounted for 11.1% and 13.1% of our consolidated aeronautical revenue, respectively. For the year ended December 31, 2022, Aerolíneas Argentinas Group and LATAM Group accounted for 15.8% and 10.8% of our consolidated aeronautical revenue, respectively. For the year ended December 31, 2021, Aerolíneas Argentinas Group and LATAM Group accounted for 8.7% and 10.1% of our consolidated aeronautical revenue, respectively.
Consequently, we have a significant concentration of aeronautical customers, which may expose us to a material adverse effect if one or more of our large aeronautical customers were to significantly suspend or interrupt payments to us for any reason. Furthermore, a delay in payment or non-payment by a major aeronautical customer could materially and adversely affect the results of our operations.
An aircraft accident or other material factors beyond our control, such as disasters, climate - related catastrophes, among others, may affect the operation of our runways.
Our runways may require unscheduled repair, renovation or reconstruction due to natural disasters, climate - related catastrophes, aircraft accidents and other factors beyond our control. The closure of any runway for a significant period of time could have a material adverse effect on the number of passengers that use our airports, and therefore, a material adverse effect on our operations and financial results.
13
Ongoing and proposed construction, renovation or repair work at our airports could have a negative impact on our revenues.
At any time, we may be in the process of constructing, renovating and/or repairing a number of our airports. These works may sometimes affect the passenger experience, which may ultimately adversely affect our commercial revenue. The operations of our other airports may decrease or be adversely affected by future construction, renovations, or repairs, and this could have an adverse effect on our business, financial condition or results of operations.
We are exposed to certain risks in connection with the use of certain spaces by subconcessionaires at our airports.
We are exposed to risks related to the spaces subconcessioned to third parties, such as non-payment by subconcessionaires of certain fees and other lease arrangements or a weakening demand for the use of the spaces allocated to subconcessionaires. For example, many of our subconcessionaires’ locations are situated beyond the security checkpoints at airports, and they rely heavily on their customers spending a significant amount of time in the terminal and waiting areas of the airport terminals in which they have subconcessioned space. Changes in customers’ travel habits prior to departure, including an increase in the availability or popularity of airline business and first-class lounges, or an increase in the efficiency of ticketing, transportation safety procedures and air traffic control systems could reduce the amount of time that customers spend at such subconcessioned locations, which could materially reduce the revenue they are able to generate and which, in turn, could reduce the amount of fees and rent we can collect from our subconcessionaires. Any material reduction in the fees and lease payments that we are able to charge to our subconcessionaires could adversely affect our business, results of operations and financial condition.
Our insurance policies may not provide sufficient coverage against all liabilities.
We are required to maintain insurance under all our concession agreements, and we seek to ensure all risks for which insurance coverage is available on commercially reasonable terms. We can offer no assurance that our insurance policies will cover all our liabilities in the event of an accident, natural disaster, terrorist attack or other incident. The insurance market for airport liability coverage generally, and for airport construction in particular, is limited and a change in the coverage policy by the insurance companies involved could reduce our ability to obtain and maintain adequate or cost-effective coverage. For example, insurance alternatives in Armenia are limited, therefore, we could incur in higher costs in obtaining insurance policies as required under the concession.
Similarly, for some of our airports, we do not currently carry business interruption insurance or property insurance against terrorism and related risks. Consequently, any substantial interruption of our business or terrorist attacks could have a material adverse effect in our results of operations and our financial condition.
We are exposed to liability to third parties for injuries or damages.
We are obligated to protect the public and to reduce the risk of accidents at our airports. As with any company dealing with the security of individuals, we must implement measures for the protection of the public, such as hiring private security services, maintaining our airports’ infrastructure and fire safety in public spaces, and providing emergency medical services. These obligations could expose us to liability to third parties for personal injury or property damage and, to the extent not adequately covered by insurance, could adversely affect our financial condition and results of operations.
Most of our operations are in emerging markets.
Our existing concessions are mostly in countries with emerging economies and investing in developing economies generally involves risks. These risks include political, social, and economic events, any of which could impact our operations or the market value of our common shares and have a material adverse effect on our business, financial condition, and results of operations. These risks and instability are caused by many different factors, including the following:
| ● | adverse external economic factors; |
| ● | inconsistent fiscal and monetary policies (including currency devaluation); |
| ● | dependence on external financing; |
| ● | changes in governmental economic and tax policies and regulations; |
| ● | high levels of inflation; |
14
| ● | fluctuations in currency values; |
| ● | high interest rates; |
| ● | wage increases and price controls; |
| ● | limitation on imports; |
| ● | exchange rates and capital controls; |
| ● | political and social tensions; |
| ● | fluctuations in central bank reserves; and |
| ● | trade barriers. |
Emerging markets have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability. Adverse economic conditions in any of these countries could have a material adverse effect on our business, financial condition, and results of operations.
Some of the countries in which we operate have experienced, or are currently experiencing, high rates of inflation. In an effort to control inflation, governments of these countries often maintain a tight monetary policy with high interest rates, thereby restricting the availability of credit and retarding economic growth. Inflation, measures to combat inflation and public speculation about possible additional actions have also contributed significantly to economic uncertainty in many of these countries and to heightened volatility in their securities markets. Periods of higher inflation may also slow the growth rate of local economies. Inflation is also likely to increase some of our costs and expenses, which we may not be able to fully transfer to our clients, which could adversely affect our operating margins and operating income in some of the emerging markets in which we operate.
Depreciation or fluctuation of the currencies of the countries where we operate could adversely affect our results of operations and financial condition.
Many of the countries where we operate have experienced volatility in the exchange rate of their currency against the U.S. dollar. Because we present our financial statements in U.S. dollars, this volatility may reduce the revenues we report or increase the expenses we report in any given period. These effects may in turn have an adverse effect on the market of our common shares. In addition, because we have a substantial amount of dollar-denominated indebtedness, exchange rate volatility may result in increased debt service costs. Finally, in some instances we receive revenues in a currency different from that in which we pay expenses, in which case currency volatility can affect the profitability of our operations.
We are subject to various environmental laws, regulations and authorizations that affect our operations and may expose us to significant costs, liabilities, obligations, or restrictions.
We, our subconcessionaires and our aeronautical customers are subject to various environmental laws, regulations and authorizations governing, among other things, the generation, use, transportation, management and disposal of hazardous materials, the emission and discharge of hazardous materials into the ground, air or water, and human health and safety. Failure to comply with these environmental requirements, including the terms of our concession agreements, could result in our being subject to litigation, fines, or other sanctions. We could also incur significant capital or other compliance costs relating to such requirements. We could also be held responsible for contamination, human exposure to hazardous materials or other environmental damage at our airports or otherwise related to our operations. Environmental claims have been asserted against us, and additional claims may be asserted against us in the future. See “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings—Argentine Proceedings—Environmental Proceedings.” We are unable to determine our potential liability under these pending or possible future claims. We only have environmental insurance coverage for environmental damages at a limited number of our airports.
These environmental requirements, and the enforcement and interpretation thereof, change frequently and have tended to become more stringent over time. Future environmental laws, regulations and authorizations may require us to incur additional costs in order to bring our airports into, and maintain, compliance. Our costs, liabilities, obligations, and restrictions relating to environmental matters could have a material adverse effect on our business, results of operations and financial condition.
15
We are subject to review by taxing authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.
Taxes payable by companies in many of the countries in which we operate are substantial and include value-added tax, excise duties, profit taxes, payroll related taxes, property taxes, and other taxes. In certain countries in which we operate, such as Brazil or Argentina, the tax system is highly complex and the interpretation of the tax laws and regulations is commonly controversial, leading to disputes which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In addition, there may be changes that result from enactment of additional tax reforms or changes to the manner in which current tax laws are applied that cannot be quantified and there can be no assurance that any such reforms or changes would not have an adverse effect upon our revenues. For instance, most jurisdictions in which we operate have recently adopted new transfer pricing measures. If tax authorities impose significant additional tax liabilities as a result of transfer pricing adjustments, it could have an adverse effect on us.
Over the past few years, tax administrations around the world have put in place a number of initiatives to facilitate communication and information exchange among each other, have become more rigid in exercising any discretion they may have, and have increased their scrutiny of company tax filings. In this regard, the G20 / OECD Inclusive Framework has been working on addressing a number of tax challenges such as transparency, exchange of information, coherence, and substance, and to this end has proposed numerous tax law changes under its Base Erosion and Profit Shifting (BEPS) Action Plans. Particularly, in December 2021, the OECD released the Pillar Two model rules (the Global Anti-Base Erosion Proposal, or ‘GloBE’ rules) for a new global minimum tax framework introducing a minimum tax regime for multinationals. At the EU level, the European Council formally adopted the directive implementing Pillar Two and Member States were obliged to transpose the directive into national laws before 31 December 2023 (the five Member States that have not done it within the deadline are now expected to do so soon, as penalties from the CJEU can be imposed). The EU has also adopted a number of Directives (namely, the Anti-Tax Avoidance Directives, or ATAD), which seek to prevent tax avoidance by companies and to ensure that companies pay appropriate taxes in the markets where profits are effectively made, and business is effectively performed.
In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws that may be interpreted differently by the competent tax authorities and courts. For example, applying the GloBE rules and determining the impact are likely to be very complex and pose a number of practical challenges. While disclosing quantitatively the full effect of these laws is realistically not possible at this stage, we believe that they could have an adverse effect on us, as the new rules could result in new taxes and/or additional costs for the Company when complying with the new reporting obligations.
In addition, in some jurisdictions where we operate, the interpretations of tax laws by the taxing authorities are sometimes unpredictable and frequently involve litigation, introducing further uncertainty and risk to our tax liability. It is also possible that tax authorities in the countries in which we operate will introduce additional revenue raising measures. If the judgment, estimates and assumptions we use in preparing our tax returns are subsequently determined to be incorrect, there could be a material adverse effect on us, which may ultimately affect our revenues. See “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings—Argentine Proceedings— Tax Proceedings Related to Technical Assistance Agreements.”
Any of these events occurring, alone or jointly, could lead to an increase of our tax burden and have a material adverse effect on our business, financial condition, results of operations and prospects.
Our acquisition strategy could involve additional risks to us, many of which could have an adverse effect on our business, financial condition, and results of operations.
We continue to examine opportunities to acquire or invest in existing or new concessions that complement or expand our business. These opportunities may involve government-owned entities as well as private sector companies. Any future acquisitions may result in a dilutive issuance of equity securities, incurrence of additional debt, reduction of existing cash balances, amortization of expenses related to goodwill and other intangible assets or other charges to operations. Additional leverage could require us to dedicate cash flow to fund debt service requirements, thus decreasing the funds available to us to finance working capital and business operations generally. All of the foregoing factors could have an adverse effect on our business, financial condition, results of operations or prospects.
16
Future concession or acquisitions could involve numerous risks, including that we may recognize lower relative operating margins associated with such acquisitions, and we may recognize impairment charges with respect to future acquired assets due to the performance of such assets. Our results of operations may also be affected by the timing of acquisitions, the timing and amount of integration costs related to such acquisitions and the degree to and the rate at which the economic benefits of integration are realized.
Future growth may also place additional demands on our personnel and other resources, including an increased level of responsibility for management. Our ability to manage growth effectively will require us to continue to improve our operational, management and financial systems and controls and to successfully train, motivate and manage our employees. If our management is unable to manage growth effectively, our business could be adversely affected.
Our inability to raise additional financing may limit our operations.
We may have limited ability to incur additional financing for some of our concession agreements, which may entail important consequences for investors, among them (i) limiting our capacity to satisfy our future investment obligations with respect to the airports we operate pursuant to the terms and conditions of our concession agreements, or other capital expenditures required for the operation of such airports; and (ii) limiting our flexibility to take advantage of opportunities for new business within the markets we operate or potential new markets. Any of these situations may ultimately affect our operations and financial results.
Many of our most significant subsidiaries have substantial non - controlling interests owned by third-parties, and any substantial conflict with minority shareholders may have an adverse effect on our business.
We indirectly own 82.7%, and 51.0% of our principal Argentina and Brazil operating subsidiaries, respectively, which are namely Aeropuertos Argentina 2000 S.A. (“AA2000”) and ICAB. Likewise, we indirectly own 75.0% of Corporación América Italia S.p.A. (“CA Italy”) who owns 62.3% of our principal Italian operating subsidiary, Toscana Aeroporti S.p.A. (“TA”). Because we control these entities, we record all their revenues and expenses and then allocate net income between controlling and non-controlling interest. The other shareholders of these entities, including, in the case of Italy, public shareholders, may have interests different from ours, and any substantial conflict with minority shareholders may have an adverse effect on our business, financial condition or results of operations.
We may have conflicts of interest with ACI Airports S.à r.l., our majority shareholder, and we may not be able to resolve such conflicts on terms favorable to us.
We are currently controlled by A.C.I. Airports S.à r.l., a holding company incorporated in Luxembourg (the “Majority Shareholder”). Conflicts of interest may arise between our Majority Shareholder and us in a number of areas relating to our past and ongoing relationships. Potential conflicts of interest that we have identified include, among others, allocation of business and investment opportunities and/or the acquisition of airport assets outside of our existing corporate structure. Generally, the Majority Shareholder may from time to time make strategic decisions that it believes are in the best interest of the business as a whole, including its ownership interest in our business. These decisions may be different from the decisions that we would have made on our own and may not be aligned with your interests. We may not be able to resolve any potential conflicts and, even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.
We have been advised by the Southern Cone Foundation (“SCF”), our ultimate controlling shareholder, that it does not intend to participate in any significant future acquisitions of airport concession assets or airport-related companies, except through us.
The U.S. Federal Aviation Administration or another regulatory agency could downgrade the aviation safety rating of any of the countries in which we operate, which could have a negative impact on passenger traffic.
Under the U.S. Federal Aviation Administration regulations, the aviation safety rating of any of the countries in which we operate could be downgraded. Airlines from such countries could be prevented from expanding or changing their current operations to and from the United States, except under certain limited circumstances, code-sharing arrangements between such airlines and U.S. airlines could be suspended, and operations by such airlines flying to the United States could be subjected to greater administrative oversight. Any such additional regulatory requirements could result in reduced passenger traffic originating in or with destination to the United States by non-U.S. airlines operating at our airports or, in some cases, in an increase in that cost of service, which could result in decrease in demand for travel. The Federal Aviation Administration may downgrade the air safety rating of any of the countries in which we operate in the future. The European Aviation Safety Agency and other regulatory agencies may take similar actions, either independently or in response to any such action by the U.S. Federal Aviation Administration. Such actions might reduce our revenues and have a negative impact on passenger traffic.
17
We are subject to anti-corruption laws in the jurisdictions in which we operate.
We are subject to and bound by U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the Argentine Anticorruption Law of 2018 (Law No. 27,401), the Italian Corruption Law of 2012 (Law No. 190), the Brazil Clean Company Act of 2013 (Law No. 12,846), the Uruguayan Anticorruption Law of 1998 (Law No. 17.060) and the Criminal Code (Law 9.155) and the Armenia Law on the Committee for Preventing Corruption (Law No. HO-96-N). These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to local and foreign officials for the purpose of obtaining or keeping business and/or other benefits. Many jurisdictions have recently implemented new anti-corruption laws (such as in the case of Argentina and Brazil) or have broadened the scope of existing anti-corruption laws (such as in the case of Italy).
On February 17, 2021, Ecuadorian Organic Law Reformation of the Comprehensive Organic Criminal Code on Anti-Corruption was published, incorporating regulatory compliance and good corporate governance systems as well as new criminal figures related to corruption in the private sector.
The Brazilian Clean Company Act holds companies strictly liable for the corrupt acts of their employees and intermediaries, which means that a company may be held liable for such acts, without a finding of fault on the part of the company. See “Item 3. Key Information—Risk Factors—Risks Related to Our Other Principal Operations and Other Principal Markets in Which We Operate—Brazil— ” and “Item 3. Key Information—Risk Factors—Risks Related to Our Other Principal Operations and Other Principal Markets in Which We Operate—Brazil —” Our business requires that we maintain continuous contact with governments and agencies from the initial bid process for any concession and throughout the entire term of any concession we are awarded. Despite the existence of our compliance program together with our ongoing efforts to ensure compliance with anti-corruption laws, there can be no assurance that our employees, agents, and the companies to which we outsource certain of our business operations, will not take actions in violation of our policies, for which we may be ultimately held responsible. If we are not in compliance with anti-corruption laws and other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could harm our reputation and have a material adverse impact on our business, financial condition, results of operations and prospects. Any investigation of any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition, and results of operations.
Increasing scrutiny from stakeholders on ESG matters, including our ESG reporting, exposes us to reputational and other risks.
There is an increasing focus from certain investors, customers, employees and other stakeholders concerning ESG matters. If our ESG practices fail to meet regulatory requirements or investor, customer, employee or other stakeholders’ evolving expectations and standards for responsible corporate citizenship in areas including environmental stewardship, support for local communities, board of directors and employee diversity, human capital management, employee health and safety practices, service quality, supply chain management, corporate governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers may be unwilling to continue to do business with us. As public interest and legislative pressure related to public companies’ ESG practices continues to grow, the related legislative landscape in the European Union and the United States has been evolving accordingly.
In the European Union, Directive (EU) 2022/2464 (the “CSRD”) entered into force on January 5 2023. This new directive strengthens the rules on the social and environmental information that companies must report. It expands the scope of companies required to report ESG information and increases the depth of required disclosures. The CSRD also introduces a ‘double materiality’ analysis, which requires companies to report on how sustainability issues might create financial risks for the company and on the company’s own impacts on people and the environment. The CSRD applies to large EU companies, EU parent companies of a “large group” and listed EU small or medium-sized companies. It also applies to non-EU companies that meet certain criteria, including an EU turnover threshold and a subsidiary. The specific information to be reported is set out in the European Sustainability Reporting Standards. In our case, the CSRD will apply as of financial year 2025, to be reported in 2026.
18
In the United States, in 2022, the SEC proposed extensive rules aimed at enhancing and standardizing climate-related disclosures in an effort to foster greater consistency, comparability and reliability of climate-related information. The rules were adopted on March 6, 2024 and require domestic registrants and foreign private issuers to include certain climate-related information in their registration statements and annual reports, including data regarding greenhouse gas emissions and information regarding climate-related risks and opportunities and related financial impacts, governance, and strategy. The rules established phased-in compliance dates which, in the case of accelerated filers such as us, will start with the annual report for the fiscal year ending on December 31, 2026, to be filed in early 2027. Further, on several challenges against the new SEC climate disclosure rules were consolidated for review by the U.S. Court of Appeals for the Eighth Circuit. Given the recent adoption of the rules and the several challenges against them, we are still uncertain about the ultimate impact of the rules on our business, which, may result in increased legal, accounting and financial compliance costs and make some activities more difficult, time-consuming and costly.
Moreover, the SEC has also announced that it is working on proposals for mandatory disclosure of certain other ESG-related matters, including with respect to board diversity and human capital management. At this time, there is uncertainty regarding the scope of such proposals or when they would become effective. As regulations develop, we will consider the implications for our business of the overlapping global measures, and how they fit together. Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult, increase the risk that we are subject to enforcement, affect the manner in which we or our portfolio companies conduct our businesses, adversely affect our profitability, require us to incur significant additional costs to comply, and impose increased oversight obligations on our management and board of directors. If we do not adapt to or comply with new regulations, or fail to meet evolving investor, industry or stakeholder expectations and concerns regarding ESG issues, investors may reconsider their capital investment in our Company, we may become subject to penalties, and customers and consumers may choose to stop purchasing our services, which could have a material adverse effect on our reputation, business or financial condition.
Risks Related to Argentina and the AA2000 Concession Agreement
The Argentine Government extended the term of the AA2000 Concession Agreement until 2038 subject to our compliance with certain commitments, which if we fail to comply with, could result in the imposition of fines or the termination or revocation of the AA2000 Concession Agreement.
The Technical Conditions of the Extension approved by Decree No. 1009/2020 (“Technical Conditions of the Extension”) established the following commitments to be complied by AA2000: (i) allocate an amount equal to U.S.$132.0 million (VAT included) as direct investment to complete 2020 and 2021 ongoing works (the “2020/2021 Direct Investment Commitment”); (ii) use its best efforts to obtain the greatest leverage possible, before December 31, 2021, to have an early inflow of up to (a) U.S.$85.0 million in the “Trust Fund for Works of Group A of Airports of the National Airport System” (the “Development Trust”) and (b) U.S.$124.0 million in the “Additional Fund for Substantial Investments in Group A of Airports” (the “Development Trust Leverage Commitment”) (iii) secure, before March 31, 2022, or, provided that there are justified reasons and subject to ORSNA’s approval, before December 2022, certain level of funds available in an aggregate amount of U.S.$406.5 million (VAT included), which shall be applied to: (a) works considered as direct investment, to be carried out preferably during 2022/2023 (the “2022/2023 Commitment”) and (b) the redemption of preferred shares of the Argentine Government to be performed by AA2000 before March 31, 2022 (the “Redemption of the Preferred Shares Commitment”, and jointly with the 2022/2023 Commitment, the “Availability of Funds Commitment”); and (iv) to make direct investments for U.S.$200.0 million (VAT included), between the years 2024 and 2027, at an annual average of U.S.$50.0 million (VAT included), in addition to any direct investment balance carried forward from the 2021/2023 period (the “2024-2027 Commitment). With respect to the capital expenditures to be performed under the 2022/2023 Commitment and the 2024-2027 Commitment, Resolution No. 60/ 2021 of the ORSNA established that AA2000’s capital expenditures under the Technical Conditions of the Extension amount to approximately U.S.$500 million plus VAT, to be performed in two phases: (i) phase 1, approximately U.S.$336 million plus VAT to be performed preferably in 2022 and 2023 (the “Phase 1 Commitment”), and (ii) phase 2, annual investments of approximately U.S.$41 million plus VAT between 2024 and 2027, for a total of approximately U.S.$164 million plus VAT (the “Phase 2 Commitment”). The financial projection of income and expenses attached to the Technical Conditions of the Extension include the estimated dates in which the referred commitments and capital expenditures would need to be performed.
As of the date of this annual report, AA2000 has fully complied with the 2020/2021 Direct Investment Commitment and the Availability of Funds Commitment. Regarding this latter commitment, on May 10, 2022, ORSNA issued Note No. NO-2022-46520010-APN-ORSNA through which it confirmed that AA2000 had fulfilled the Availability of Funds Commitment in the amount of U.S.$406.5 million for its application to the Mandatory Capex Program (including the Redemption of the Preferred Shares Commitment performed in March 2022).
19
With respect to the Development Trust Leverage Commitment, in December 2022 and January 2023, AA2000 informed the ORSNA that it had complied with its best efforts obligation under this commitment. On May 22, 2023, in response to the filing made by AA2000, the ORSNA took note of the best efforts performed by AA2000 in compliance with the Development Trust Leverage Commitment and requested to AA2000 its collaboration so that, if the ORSNA deems it appropriate and the financial landscape improves, other financing options for the Development Trust may be sought. In light of this, on May 23, 2023, AA2000 expressed its agreement to fully collaborate with the ORSNA to that end.
Regarding the Phase 1 Commitment, the Company is currently executing the infrastructure works in the terms provided by the Technical Conditions of the Extension and Resolution No. 60/2021, while the Phase 2 Commitment is pending. With respect to the Phase 1 Commitment, on February 5, 2024, AA2000 informed the ORSNA about the status of the referred commitments as of December 31, 2023. Works amounting to U.S.$262.1 million (VAT included) have been initiated, of which U.S.$190.3 million (VAT included) have been executed. Considering the amount utilized for the Redemption of the Preferred Shares Commitment, totaling U.S.$174.2 million, the total amount committed under the Phase 1 Commitment amounts to U.S.$436.3 million (VAT included), which surpasses the required commitment amount for this phase (U.S.$336 million). As of the date of this report, U.S.$364.5 million (VAT included) (out of the U.S.$436.3 million (VAT included) committed) have been executed. As of the date of this annual report, the ORSNA has not issued a response to the filing made by AA2000.
As of the date of this annual report, AA2000 has substantially complied with the commitments under the Technical Conditions of the Extension. However, failure to fully comply with the pending commitments (in particular, the Phase 2 Commitment) could result in the imposition of fines or the termination or revocation of the AA2000 Concession Agreement. Termination of the AA2000 Concession Agreement would constitute a default under the Argentine Notes Series 2017, the Argentine Notes Series 2020, the Argentine Notes Series 2021, New Money 2021 Notes (as defined herein), the Syndicated Bimonetary Loan (as defined herein) and the ICBC Dubai Loan (as defined herein).
Pursuant to the AA2000 Concession Agreement, since February 2018, the Argentine Government may buy out our concession, which would materially affect our revenues and operations.
Pursuant to the AA2000 Concession Agreement, since February 13, 2018, the Argentine Government has the right to “buy-out” (“rescatar”) the AA2000 Concession Agreement for public interest reasons and upon prior notification to us. In the event that the Argentine Government were to exercise this option, it would be required to indemnify us in an amount equal to the value of the non-amortized aeronautical investments we have made as of the time of the buy-out, multiplied by 1.10, plus the value of all other investments we have made and which have not been amortized. The Argentine Government would not be required to indemnify us for investments that were not included in our investment plan or that were not approved by the ORSNA. The Argentine Government would also not be required to indemnify us for lost revenue or lost profits. The Argentine Government would be required to assume in full any debts incurred by us to acquire goods or services for purposes of providing airport services, except for debts incurred in connection with the investment plan for which we would be compensated as part of the payment made to us by the Argentine Government. Furthermore, the buy-out of the AA2000 Concession Agreement would constitute an event of default under (i) our Argentine Notes Series 2017, Argentine Notes Series 2020, Argentine Notes Series 2021 and the New Money 2021 Notes, (ii) the syndicated bimonetary loan granted by Industrial and Commercial Bank of China (Argentina) S.A., the branch of Citibank N.A. established in the Republic of Argentina, Banco de Galicia y Buenos Aires S.A.U. and Banco Santander Argentina S.A. which provided for disbursements in pesos and/or U.S. dollars (the “Syndicated Bimonetary Loan”), and (iii) the offshore credit facility dated July 25, 2022 entered by and between AA2000 and Industrial and Commercial Bank of China Limited, Dubai Branch (“ICBC Dubai”), as lender, and the Industrial and Commercial Bank of China (“ICBC”), as onshore custodian agent (“ICBC Dubai Loan”), which will result in automatic acceleration of the notes, the Syndicated Bimonetary Loan and the ICBC Dubai Loan. As of December 31, 2023, the total amount outstanding under the Argentine Notes Series 2017, the Argentine Notes Series 2020, the Argentine Notes Series 2021, the Syndicated Bimonetary Loan and the ICBC Dubai Loan is U.S.$58.7 million, U.S.$16.3, U.S.$272.9 million, U.S.$62.0 million, U.S.$9.8 million, and U.S.$10.0 million, respectively. The Argentine Government’s indemnification obligations in combination with the collateral structure under the notes, the Syndicated Bimonetary Loan and the ICBC Dubai Loan may not be adequate to repay the holders of such notes. See “Item 5. Operating and Financial review and Prospects—Liquidity and Capital Resources—Indebtedness.”
During the years ended December 31, 2023, 2022 and 2021, the revenue derived from our operation of the airports under the AA2000 Concession Agreement represented 45.1%, 55.0% and 51.2%, respectively, of our total consolidated revenue. If the Argentine Government exercises its right to buy-out the AA2000 Concession Agreement, such buy-out would have a material adverse effect on our business, financial condition, and results of operations.
20
The ORSNA may adjust the fees we charge for aeronautical services, the payments we are required to make to the Argentine Government and our investment plan in a way that is detrimental to us or fail to adjust them to restore the AA2000 Concession Agreement’s economic equilibrium.
Under the AA2000 Concession Agreement, the ORSNA is required to conduct an annual review of AA2000’s financial projections and, if necessary, to re-establish economic equilibrium by adjusting (i) the fees we charge airlines and passengers for aeronautical services, (ii) certain payments we make to the Argentine Government pursuant to the AA2000 Concession Agreement, and/or (iii) our investment obligations. On January 13, 2021, the ORSNA, through Resolution No. 4/2021, increased the fees that AA2000 may charge to international passengers from U.S.$51.00 to U.S.$57.00. In December 2022, the ORSNA issued Resolution No. 98/2022 by virtue of which a new increase of the use fee charged to domestic passengers was approved, establishing a use fee of AR$1,100 effective as of January 2023. In November 2023, the ORSNA issued Resolution No. 84/2023 by virtue of which a new increase of the use fee charged to domestic passengers was approved, establishing a use fee of AR$2,540 for Category I airports, AR$1,771 for Category II airports and AR$1,551 for Categories III and IV airports, effective as of January 2024. If the ORSNA applies adjustments to the Specific Allocation of Revenues and to the fees we may charge or that we must pay under the AA2000 Concession Agreement in a way that is detrimental to us, or if the ORSNA fails to adjust such fees in order to restore the AA2000 Concession Agreement’s economic equilibrium, or if the ORSNA seeks to modify our rights under the AA2000 Concession Agreement, any of such actions or failures to act may have a material adverse effect on our business, financial condition and results of operations.
If the ORSNA does not approve the capital expenditures already made under the AA2000 Concession Agreement, we would be required to make additional capital expenditures, which may affect our cash flows and financial condition.
The ORSNA reviews our capital expenditures to monitor our compliance with the investment plan under the AA2000 Concession Agreement, and to determine whether it can record such expenditures in the registry maintained by the ORSNA. If a capital expenditure is approved by the ORSNA, it is then entered into its registry. The ORSNA only approves investments that are supported by a certificate that reflects the completion of the relevant works and does not approve investments made in connection with the start of the works.
Accordingly, we may record capital expenditures during a period that has not yet been (and may never be) approved by the ORSNA. If the ORSNA does not approve our capital expenditures under the investment plan of the AA2000 Concession Agreement, we will be required to make additional capital expenditures. This may require us to obtain additional financing, which we may not be able to obtain on terms favorable to us, or at all. Our capital expenditures for the years ended December 31, 2023, 2022, 2021, 2020, 2019 and 2018 are currently under review by the ORSNA. See “Argentina—Our Airports in Argentina—The AA2000 Concession Agreement—Economic Equilibrium.”
Political events occurring, and political measures taken, in Argentina could affect the country’s economy in general, and the aeronautical sector in particular.
Since taking office, the new government has announced various significant economic and political reforms. In this regard, on December 21, 2023, Urgency Decree No. 70/2023 (the “Decree 70/2023”) was published in the Official Gazette, declaring a state of public emergency in economic, financial, fiscal, administrative, social security, tariffs, health and social matters until December 31, 2025. Decree 70/2023 aims to lay the groundwork for a profound state reform, including the privatization of numerous state-owned enterprises. To this end, Decree 70/2023 repeals several laws related to state intervention in the economy, such as the “Gondolas” Law No. 27,545 (and its amendments), the Supply Law No. 20,680 (and its amendments), Observatory of Prices Law No. 26,992 (and its amendments), and State Enterprises Law No. 20,075 (and its amendments), with the goal of liberalizing trade, services, and industry, and eliminating restrictions on the supply of goods and services which distort market prices.
In this line, Decree 70/2023 contemplates significant changes for the country’s aeronautical policy with the objective of further developing the aeronautical industry and promoting free competition in the market. See “Argentina—Our Airports in Argentina—Aeronautical Policy.”
Furthermore, Decree 70/2023 amends various legal frameworks, including the Civil and Commercial Code of the Nation, reinforcing freedom of contract, the principle of party autonomy, and the legality and enforceability of contracts in foreign currency; the Customs Code, liberalizing foreign trade; the Labor Contract Law, flexibilizing individual and collective labor relations; the health system, facilitating the hiring of social works and prepaid health services; and the credit card regime, eliminating the caps applicable to fees and interest rates.
21
Decree 70/2023 came into effect on December 29, 2023. However, in accordance with the provisions of Law No. 26,122, the Permanent Bicameral Commission of the Congress must submit a report to each chamber of congress regarding the validity or invalidity of the Decree 70/2023, assessing the decree’s compliance with the constitutionally established, formal and substantial requirements for its issuance within 10 days. Once this term has expired, if the Bicameral Commission has not issued an opinion, the Chambers of Deputies and Senators may deal with the DNU directly. With the deadline met, on March 14, 2024, Decree 70/2023 was rejected by the Senate. However, in accordance with Law No. 26,122, Decree 70/2023 will only become ineffective if it is expressly rejected by both legislative chambers. To the date of this annual report, the Chamber of Deputies has not set a date for deliberating on the approval or rejection of Decree 70/2023.
In addition, since its issuance by the Executive Branch, Decree 70/2023 has faced numerous challenges regarding its constitutionality, leading to the filing of several injunctions before the national labor courts and the federal courts, among others. As of the date of this annual report, some of these injunctions have been accepted by the relevant courts, and various precautionary measures with diverse effects and scopes have been granted. For example, the Confederación General del Trabajo (“CGT” for its Spanish acronym) and the Central de Trabajadores y Trabajadoras de Argentina (“CTA” for its Spanish acronym) requested the suspension of the applicability of Title IV “Labor” of Decree 70/2023. Both injunctions were granted by the Chamber of Labor Appeals. Additionally, the National Chamber of Appeals in Civil and Commercial Federal accepted an action filed against Decree 70/2023, as a collective injunction. In that case, the claimant seeks to maintain the validity of sections 5, g) and 17 of Law 26,682/2011, linked to the price of the installments of prepaid medicine contracts. As to the date of this report, no measure has been issued yet. Furthermore, the Province of La Rioja requested before the Supreme Court the issuance of a precautionary measure suspending the effects of Decree 70/2023 and instructing the Executive Branch not to apply any of its provisions until the definitive resolution of the present case, which, as of the date of this annual report, has not been granted.
Simultaneously, through Decree 76/2023, the Executive Branch convened extraordinary legislative sessions to address, among other issues, an omnibus bill “Bases y Puntos de Partida para la Libertad de los Argentinos” which proposes to deepen the reforms introduced by Decree 70/2023. In this context, it reaffirms the declaration of the state of public emergency until December 31, 2025, extendable by the Executive Branch for two additional years. Likewise, during the emergency, the project proposes the delegation of legislative powers to the Executive Branch, in accordance with article 76 of the National Constitution. Similar to Decree 70/2023, the bill proposes a comprehensive reform of the state and a strong deregulation of the economy. As of the date of this annual report, the bill has not been passed by the Congress.
As of the date of this annual report, there is uncertainty regarding the impact that these measures and any other future measures of the new government may have on the Argentine economy in general and on the aeronautical and infrastructure sectors in particular. We believe that the effect of economic liberalization will be positive for the country’s business environment, but we cannot predict such effects with certainty.
Several measures proposed by the new government have generated political and social unrest, which may hinder the new administration from implementing these measures as proposed. Since the ruling party does not have its own quorum in either chamber of Congress, the new government will need to seek alliances and political support from other parties, to obtain approval for its proposals. This increases uncertainty regarding the new government’s ability to approve any measures it intends to implement.
The political uncertainty as well as the consequences of the new policies adopted in Argentina concerning the Argentine economy could adversely affect our operating results in Argentina, and, consequently, our financial position.
Our operations in Argentina depend on macroeconomic conditions in Argentina.
Our business and financial results in Argentina depend to a significant degree on macroeconomic, political, regulatory, and social conditions therein. The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation, and may experience further volatility in the future.
Over the last years, Argentina has experienced a period of severe political, economic, and social crises, which have caused a significant economic contraction and have led to radical changes in government policies. Among other things, the crises resulted in Argentina defaulting on its sovereign foreign debt obligations, a significant devaluation of the Argentine peso and ensuing inflation, and the introduction of emergency measures that affected many sectors of the economy. Likewise, the decline in international demand for Argentine products, the lack of stability and competitiveness of the Argentine peso against other currencies, the decline in confidence among consumers and foreign and domestic investors, and the higher rate of inflation and future political uncertainties, among other factors, have affected the development of the Argentine economy.
22
The former administration adopted several economic and policy reforms aimed at stabilizing the economy. For instance, as of the date of this annual report, the Argentine Government has entered into a Stand By Agreement with the International Monetary Fund (“IMF”) for an aggregate outstanding amount of U.S.$40.6 billion.
In March 2023, continuing with the restructuring of the Argentine Government debt, the Ministry of Economy announced a new exchange of bonds and Treasury bills denominated in Argentine pesos with maturities in the short term, which obtained a 64% support.
In June 2023, the renewal of the currency swap between China and Argentina was finalized and a gradual extension to U.S.$10 billion was agreed. In July 2023, the Andean Development Corporation (“CAF”) approved a bridge loan to Argentina in the amount of U.S.$1.0 billion to cover the debt until the IMF board approves the refinancing of the program.
In August 2023, the government announced that Qatar granted a special drawing rights loan to Argentina for the equivalent of U.S.$770 million. In addition, Argentina obtained approval of the fifth and sixth reviews of the agreement signed with the IMF for a U.S.$7.5 billion disbursement. The new administration made a first payment for U.S.$960 million to the IMF through a loan granted by the Development Bank of Latin America. Notwithstanding the foregoing, the new Minister of Economy, Luis Caputo, announced that he intends to renegotiate the terms of the agreement with the IMF.
Although these restructuring and reprofiling processes have been successful, it cannot be assured that Argentina will be able to comply with the commitments assumed with these creditors within the framework of such processes. It is also not possible to assure what the foreign policy of the new administration will be, or what relations with the creditors and foreign investors of the country will look like. Under such terms, if the Argentine Government fails to comply with the agreed covenants and fiscal and economic goals, Argentina might once again fall into default and, in turn, the country’s financial and economic situation might be adversely affected.
The aeronautical policy reforms proposed by the Decree 70/2023 may affect our business and result of operations.
Decree 70/2023 introduces significant changes to the aeronautical policy of the country and attempts to develop the aeronautical industry and promote free competition in the market. The main changes provided by Decree 70/2023 are the following:
| ● | Decree-Law No. 12,507/56 (national policy on aeronautics), Law No. 19,030 (national policy for air transport), and Decree No. 1654/02 (on the emergency of air transport), were repealed; |
| ● | civil commercial aviation is deemed an essential service; |
| ● | the aeronautical authority shall regulate and oversee airport services (defined as all services provided within an airport, excluding air navigation services), based on the principles of ensuring safety, free competition, and market access (however the airport services captured by the AA2000 Concession Agreement and those airport services subject to the supervision of ORSNA are not modified by Decree 70/2023 and remain unchanged as of the date of this annual report); |
| ● | ramp services in general are classified as essential airport services; |
| ● | both manned and unmanned aircrafts are considered devices or mechanisms capable of navigating in airspace and suitable for transporting people or goods; |
| ● | operation of air commercial activities by foreign flag companies would be subject to prior clearance and must comply with international rules and agreements to which the Argentine Republic is a party; |
| ● | air transport services will no longer be subject to concession by the Executive Branch but only to authorization; moreover, the Argentine Aeronautical Code no longer expressly requires a prior public hearing for their granting; |
| ● | individuals operating domestic air transport routes are no longer required to be Argentines (a legal domicile in the country would suffice for these purposes); |
| ● | the requirements established for companies providing domestic air commercial services under which, at least more than 50% of the partners must be Argentine with legal domicile in the country, were abrogated; |
23
| ● | to ensure a proper balance between the interests of passengers and carriers, the aeronautical authorities shall issue regulations regarding passenger rights and their protection; and |
| ● | Laws No. 26,412 and 26,466 were amended enabling the transfer of shares of Aerolíneas Argentinas S.A. and Austral Líneas Aéreas – Cielos del Sur S.A., and their controlled companies, to the employees of these companies under an Employee Ownership Program. |
Additionally, the amendments proposed by Decree 70/2023 require further regulation by the Argentine ANAC (as defined herein), the Secretary of Transportation and other regulatory bodies. We cannot predict what such further regulation may entail. As of the date of this annual report, we cannot predict how the changes proposed by Decree 70/2023 or how further regulation from the aeronautical regulatory bodies may affect our business and our results of operations. Regarding the potential repeal by Congress of Decree 70/2023, please see “Item 3. Key Information—Risk Factors—Risks Related to Argentina and the AA2000 Concession Agreement—Political events and political measures taken in Argentina could affect the country’s economy and the aeronautical sector in particular.”
The emergency declared by Decree 70/2023 and the new measures that the new administration might implement, could adversely affect our business and result of operations.
The emergency declared by Decree 70/2023 is intended to stabilize the economy, achieve significant deregulation of economic activity and minimize government intervention. As of the date of this annual report, we cannot predict the impact of the measures that may be adopted under the state of emergency either at the federal or provincial level, or the effect that such measures may have on the Argentine economy and Argentina’s ability to meet its financial obligations, which could adversely affect our business, financial condition and results of operations. In addition, we can give no assurance that economic, regulatory, social and political developments in Argentina will not affect our business, financial condition or results of operations. Regarding the potential repeal by Congress of Decree 70/2023, please see “Item 3. Key Information—Risk Factors—Risks Related to Argentina and the AA2000 Concession Agreement—Political events and political measures taken in Argentina could affect the country’s economy and the aeronautical sector in particular.”
Current Argentine exchange controls and the implementation of further exchange controls could adversely affect our results of operations.
The prior administration and the Argentine Central Bank implemented certain measures that control and restrict the ability of companies and individuals to access the foreign exchange market. Those measures include, among others: (i) restricting access to the Argentine foreign exchange market for the purchase or transfer of foreign currency abroad for any purpose, including the payment of dividends to non-resident shareholders; (ii) restricting the acquisition of any foreign currency to be held as cash in Argentina; (iii) requiring exporters to repatriate all the proceeds of their exports of goods and services and to settle them in pesos, in the local exchange market; (iv) limitations on the transfer of securities into and from Argentina; (v) restrictions on the payment of imports of goods and services; (see “—AA2000’s foreign financial indebtedness and debt denominated in foreign currency with access to the Foreign Exchange Market could be affected by the mandatory refinancing regime enacted by the Argentine Central Bank”); and (vi) the implementation of taxes on certain transactions involving the acquisition of foreign currency (the so called “PAIS Tax”).
Although the new administration stated its intention to deregulate the economy and allow the free flow of foreign currency, exchange controls on the inflow and outflow of foreign currency funds are still in force, due to the low level of reserves of the Argentine Central Bank (the “BCRA” for its acronym in Spanish). In line with the restrictions in force during the prior administration, the BCRA’s new regulations established limitations on the flow of foreign currency into and out of the Foreign Exchange Market (the “MULC” for its Spanish acronym), with the purpose of stabilizing the Argentine economy.
24
As of the date of this annual report, subject to certain requirements, the BCRA regulations grant access to the MLC to repay principal or interest (at maturity) on foreign financial indebtedness as well as new commercial debt corresponding to imports of goods and services incurred from December 13, 2023, provided that advance payments are subject to BCRA’s prior clearance, unless certain exceptions are met. In turn, the stock of commercial debt corresponding to imports of goods and services is subject to BCRA’s prior clearance, unless certain exceptions are met. Similarly, the BCRA designed a scheme of issuance of dollar-denominated notes (“BOPREAL”) with the intention to regularize the significant level of outstanding commercial debt owed by Argentine importers (which as of January 24, 2024 amounted to U.S.$.42.6 billion). On January 31, 2024, the allocation of BOPREAL Series 1 was completed, reaching the maximum available amount for this series of U.S.$5.0 billion. AA2000 had subscribed an aggregate amount of U.S.$1,083,470 of BOPREAL Series 1. Additionally, on February 22, 2024, the allocation of BOPREAL Series 2 was also completed, reaching the maximum amount of U.S.$2.0 billion offered under this Series. The offering of BOPREAL Series 3 is currently ongoing, which has an offering maximum amount of up to U.S.$3.0 billion.
In addition, the BCRA issued regulations allowing micro, small and medium enterprises registering outstanding commercial debt for an amount less than or equal to U.S.$500,000 to access the MLC to cancel their debts with foreign suppliers according to a schedule to access the MLC subject to certain caps and maximum amounts. The BCRA also established that this micro, small and medium enterprises will have priority to subscribe the BOPREAL Series 2.
There can be no assurance that the BCRA or other government agencies will not increase or relax such controls or restrictions, make modifications to these regulations, impose mandatory refinancing plans related to our indebtedness payable in foreign currency (as established in the past), establish more severe restrictions on currency exchange, or maintain the current foreign exchange regime or create multiple exchange rates for different types of transactions, substantially modifying the applicable exchange rate at which we acquire currency to service our outstanding liabilities denominated in currencies other than the Peso, all of which could affect our ability to comply with our financial obligations when due, raise capital, refinance our debt at maturity, obtain financing, execute our capital expenditure plans, and/or undermine our ability to pay dividends to foreign shareholders. Consequently, these exchange controls and restrictions could materially adversely affect the Argentine economy and our business, financial condition and results of operations.
Government measures, as well as pressure from labor unions, could require salary increases or additional employee benefits, all of which could increase companies’ operating costs.
Most industrial and commercial activities in Argentina are regulated by specific collective bargaining agreements that group together companies according to industry sectors and trade unions. Argentine employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to the high levels of inflation, employees and labor organizations are demanding wage increases. In the past, the Argentine Government enacted laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and to provide specified benefits to employees. Pursuant to Resolution No. 15/2023 of the National Council for Employment, Productivity and the Minimum Adjustable Wage, issued on September 29, 2023, the adjustable minimum wage was increased as follows: (i) on October 1, 2023, to AR$132,000; (ii) in November 2023, to AR$146,00061,953; and (iii) in December 2023, to AR$156,000 (minimum amount to be maintained until a new update is approved).
In the future, the Argentine Government could take new measures requiring salary increases or additional employee benefits, and the labor force and labor unions may demand employers to implement those measures. Increases in wages or employee benefits could result in added costs and adversely affect our results of operations in Argentina.
Increased public expenditures could result in long-lasting adverse consequences for the Argentine economy.
In recent years, the Argentine Government has substantially increased public expenditures. In November 2023, public sector expenditures increased by 113.1% as compared to November 2022, the Argentine Government reported a primary fiscal deficit of 2.9% of the gross domestic product (“GDP”), according to the Argentine Ministry of Treasury. Although the new administration has stated its intention to implement sharp cuts in public expenditures and public debt, there are no assurances that the new administration will not face resistance from Congress, convince stakeholders of its proposed changes, and, consequently, be able to implement its plans and reforms. Future fiscal deficits could negatively affect the Argentine Government’s ability to access the long-term financial markets and could, in turn, result in more limited access to such markets by Argentine companies, including us.
25
The Argentine economy could be adversely affected by economic developments in other global markets and by more general “contagion” effects.
Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the European Union, China, and the United States) could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth.
The Argentine economy continues to be vulnerable to external shocks that may be generated by adverse events in the region or globally.
Changes in social, political, regulatory, or economic conditions in Argentina’s principal trading partners or in foreign trade laws or policies may generate uncertainty in international markets and have a negative effect on standalone economies, including the Argentine economy, which may, in turn, have a negative impact on our operations.
Global economic conditions may also result in depreciation of regional currencies and exchange rates, including the Argentine peso, which would likely also cause volatility in Argentina. The effect of global economic conditions on Argentina could reduce exports and foreign direct investment, resulting in a decline in tax revenues and a restriction on access to the international capital markets, which could, adversely affect our business, financial condition, and results of operations. A new global economic and/or financial crisis or the effects of deterioration in the current international context, could affect the Argentine economy and, consequently, our results of operations and financial condition.
Significant fluctuation in the value of the Argentine peso may adversely affect the Argentine economy as well as our financial condition and results of operations.
The Argentine peso has suffered and may continue to suffer devaluation against the U.S. dollar. Despite the positive effects of the decline of the Argentine peso on the competitiveness of certain sectors of the Argentine economy, it can also have far-reaching negative impacts on the Argentine economy and on businesses and individuals’ financial condition.
Exchange rate uncertainty intensified during the electoral scenario. After the primary elections a 20% depreciation of the peso against the U.S. dollar took place. Among its first measures, the new administration implemented a devaluation of the peso against the U.S. dollar of around 118% approximately (from AR$366 per U.S.$1 to AR$800 per U.S.$1.00) aiming to reduce the significant gap between the official exchange rate and the implicit exchange rate applicable to the blue-chip swap transactions (the alternative mechanism to outflow foreign currency abroad) which by the time the new administration took office was around 157,6% and was reduced to 50% as of January 31, 2024.
As of December 31, 2023, the official exchange rate was AR$808.45 to U.S.$1.00. A significant increase in the value of the peso against the U.S. dollar also presents risks to the Argentine economy. If the peso continues to depreciate, all of the negative effects on the Argentine economy related to such depreciation could resurface, which could result in a material adverse effect on our financial condition and results of operations due to our financial commitments in U.S. dollars. A significant real appreciation of the peso would adversely affect exports, which could have a negative effect on GDP growth and employment, as well as reduce Argentine public sector revenues by reducing tax collection in real terms, given its high dependence on taxes and exports.
A significant further depreciation of the peso against the U.S. dollar could have an adverse effect on the ability of Argentine companies to make timely payments on their debts denominated in or indexed or otherwise connected to a foreign currency, generate very high inflation rates, reduce real salaries significantly, and have an adverse effect on companies focused on the domestic market, such as public utilities and the financial industry. Such potential depreciation could also adversely affect the Argentine Government’s capacity to honor its foreign debt, which could affect AA2000’s capacity to meet obligations denominated in a foreign currency, which, in turn, could have an adverse effect on our financial condition and results of operations.
International and regional passenger use fees are denominated in U.S. dollars and are payable in both U.S. dollars and Argentine pesos. Currency exchange rate volatility directly affects conversions of U.S. dollars into Argentine pesos. Any appreciation in the value of the Argentine peso against the U.S. dollar may reduce our cash flows. Conversely, any depreciation in the value of the Argentine peso against the U.S. dollar may increase our cash flows.
26
The overall cost increase of international travel as a result of fluctuations in currency exchange rates could potentially lead to decreased passenger traffic volume as a result of increases in travel costs. A large decrease in the value of a particular foreign currency relative to the value of the Argentine peso or the U.S. dollar, as applicable, could have an adverse effect on the number of international air passengers originating from nations that use such devalued currency.
Continuing high inflation may impact the Argentine economy and adversely affect our results of operations.
Inflation has materially undermined, and in the future may continue to undermine, the Argentine economy and the Argentine Government’s ability to foster conditions that would permit stable economic growth. In recent years, Argentina has confronted inflationary pressures, evidenced by a significant increase in fuel, energy, and food prices, among other factors. According to the most recent publicly available information, the inflation rate was 50.9% in 2021, 94.8% in 2022 and 211.4% in 2023.
The prior administration, through the Ministry of Economy and the BCRA, adopted several measures to deaccelerate inflation and control the devaluation of the Argentine peso against the U.S. dollar. These measures included, among others: (i) restrictions on the access of individuals and entities to the MLC; (ii) taxation to certain operations which imply acquisition of foreign currency (the PAIS tax); (iii) negotiations with creditors in order to restructure the Argentine external debt; and (iv) price freezes on hundreds of products. Nevertheless, the Argentine economy continued to experience high levels of inflation.
In an attempt to manage inflation, the new administration has eliminated price controls implemented by the prior administration, in order to allow prices in the economy to be determined by supply and demand. However, the foreign exchange controls remain in place due to the lack of BCRA’s reserves. In addition, certain prices, such as public transportation and public services tariffs, will be subject to progressive deregulation, to ease transition and prevent social turmoil.
We cannot predict whether the measures announced by the new administration will reduce high inflation rates. If inflation is not controlled, high inflation could undermine Argentina’s foreign competitiveness by diluting the effects of the depreciation of the Argentine peso, negatively affecting the level of economic activity and employment, and undermining confidence in Argentina’s banking system, which could further limit the availability of domestic and international financing to businesses. Furthermore, a portion of Argentina’s sovereign debt is subject to adjustment by the Stabilization Coefficient (Coeficiente de Estabilización de Referencia), a currency index that is strongly related to inflation. Therefore, any further significant increase in inflation could cause an increase in Argentina’s external debt and, consequently, in Argentina’s financial obligations, which could aggravate pressures on the Argentine economy. If inflation remains high or continues to increase, Argentina’s economy may be negatively affected, and our results of operations could be materially affected.
Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition and, consequently, our business.
A lack of a solid and transparent institutional framework for contracts with the Argentine Government and its agencies and corruption allegations have affected and continue to affect Argen