Toronto, Ontario – August 25, 2005: Aecon Group Inc. (TSX: ARE) today announced the signing of financing documents among Aecon, its concession partners and the project lenders for the new Quito International Airport project.
The signing, completed late yesterday in New York, is an important step for the project. It sets the stage for financial close, the flowing of funds and the start of construction, which will take place upon satisfaction of the final conditions precedent, which are expected in the fourth quarter of this year.
Total cost of the project is US$585 million, which will be provided through sponsor equity contributions from Aecon and its partners, debt raised from the project lenders and by operating profits generated from the existing Quito airport during the construction period.
Aecon has a 45.5% economic interest in the airport concession through its stake in Corporaciσn Quiport S.A. (Quiport), which holds concession rights for the airport.
Aecon's partners in Quiport are: Andrade Gutierrez Concessoes of Brazil; Airport Development Corporation of Toronto; and HAS Development Corporation of Houston, Texas, affiliated with the Houston Airport System. All partners were involved in yesterday's signings as were the grantor of the concession, Corporacion Aeropuerto y Zona Franca del Distrito Metropolitano de Quito (CORPAQ) and the project's senior lenders including: US-based Overseas Private Investment Corporation, Export-Import Bank of the USA and the Inter American Development Bank and Canada's Export Development Corporation (EDC). Also present at the signings was Brian Oak, Canada's Ambassador to Ecuador.
"This project is an excellent opportunity for Aecon. In addition to the construction profits we expect to earn, our role as a developer provides significant value added, making the Quito Airport an annuity-type asset similar to our interest in the Cross Israel Highway," said John M. Beck, Chairman and CEO, Aecon Group Inc. "Our long history of building airports in Canada and internationally, along with our experience in the development of major infrastructure projects, positions us well for this exciting opportunity which we believe will contribute substantial value to Aecon."
"Today is the result of over four years of hard work, not just by Aecon but also by our partners in this project," said Bill Pearson, CEO of Infrastructure Development for Aecon Group. "I would like to thank and congratulate each of them: from Marshall Macklin Monaghan who introduced us to the project; to the Canadian Government who - through the Canadian Commercial Corporation, the Export Development Corporation and the Canadian International Development Agency - did so much to make the project a reality; and to our concession partners and project lenders. Most of all I'd like to congratulate Mayor Paco Moncayo of Quito, whose foresight and creativity in serving his city is the real driving force behind this project."
In 2002, Quiport was awarded a concession by the City of Quito, Ecuador to design, build, finance and operate a new airport to replace the existing smaller airport currently serving the city.
Demand for airport services in Quito - Ecuador's capital city - has been growing steadily over the years, and the existing downtown airport does not have adequate capacity or the expansion capability necessary to accommodate the current traffic of over three million passengers per year.
The existing airport is severely limited in a number of areas including passenger terminal capacity, runway length, ancillary facilities such as car parking and aircraft servicing facilities.
Quiport has been operating the existing Quito airport since November 2002 and will continue to operate it until the new airport is complete, when it will shut down operations at the existing airport and commence operations at the new one. As such, Quiport is already well familiar with the asset, its operating challenges and its traffic patterns.
The new airport will be constructed under a 51-month fixed-price engineer/ procure/ construct contract signed between the City of Quito and the Canadian Commercial Corporation (CCC), a Crown agency of the Canadian government. The CCC, in turn, will subcontract 100% of the approximately US$415 million in construction work to a 50/50 joint venture consisting of Aecon and Andrade Gutierrez Constructores, one of the largest construction companies in Brazil.
Through the 35-year concession contract, Quiport has the right to collect all revenues from airlines, passengers and retail concessions at the Airport until 2040. Some of these revenues, most notably aircraft landing and passenger departure fees, are regulated - others, including commercial revenues such as duty free and other ancillary enterprises, are not.
The regulated revenues, which are expected to account for roughly 80% of total revenue, are collected offshore through the International Air Transportation Association clearing house system. The remaining 20% of revenue is collected in-country and approximately equates to Quiport's operating costs. All revenue and costs on the project will be in US dollars, which is the legal currency of Ecuador.
In the five years since Quiport began collecting traffic data for the existing airport, traffic has grown approximately 9.8% per year, and in the last 10 years, cargo activities have grown by 8.5% per year. In the first six months of 2005, traffic has grown 13.7% compared to 2004.
In addition to its approximately US$34 million equity investment, Aecon is guaranteeing approximately US$20 million of contingent equity.
Similar to its previous investment in the Cross Israel Highway, Aecon will use its expected cash profits from construction-related activities toward financing Aecon's equity investment in the Quito Airport concession.
Aecon will be accounting for this investment using the proportionate consolidation method, meaning that 45.5% of Quiport's revenues, profits, assets and liabilities - including Quiport's project financing - will be reflected in Aecon's results each quarter once financial close for this project has been achieved.
This also means that, in accordance with generally accepted accounting principles, Aecon's share of the construction joint venture's revenue and profits will be reduced by Aecon's 45.5% proportionate interest in Quiport. The revenues and profits eliminated will be recognized over the life of the Quiport Airport concession period. Under Aecon's accounting policy for large multi-year contracts, profit is recognized only when construction progress reaches a stage of completion sufficient to reasonably determine the probable results (generally when the contract is 20% complete), which is expected to occur on the Quito project late in 2006.
Quiport is expected to generate positive accounting income for Aecon in its first year of operation following the 51-month construction period, while from a cash perspective, it is expected that Quiport will be in a position to pay dividends beginning in approximately 2011.
Aecon Group Inc. is Canada's largest publicly traded construction and infrastructure development company. Aecon and its subsidiaries provide services to private and public sector clients throughout Canada and internationally.