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Wednesday, July 18, 2018

A Lesson From Fraport's Success

Fraport Greece, the 14 regional Greek airports which were acquired in 2017, reports records in revenues and earnings. Pre-tax earnings were 20,4 MEUR. Since after-tax earnings were 14,4 MEUR, mathematics would indicate that the Greek state shared in Fraport's success to the tune of 6 MEUR. Total revenues were 233 MEUR and the target for 2018 is 300 MEUR. One doesn't need a calculator to figure out that this is VERY substantial growth!

From the distance, I can visualize my Greek friends, with whom I discussed Fraport on many occasions, blaming the government for having given away such a profitable company on the cheap. I cannot judge this because I don't know the details of the transaction but I would guess that as long as the Greek state shares 30% of Fraport's earnings, it sounds like a reasonable deal.

My point is a different one. The idea of foreign investment is not only to share in the success (albeit it a very important goal!). The principal idea of foreign investment, from the beneficiary's point of view, should be to obtain something which could not have been obtained otherwise (in addition to tax revenues). Things like new investment, new employment, etc. The most important derivative of foreign investment is the transfer of know-how in all respects, above all know-how in management, so that the foreigners' experience can be leveraged-up into domestic progress.

What is Fraport doing differently than before? Is it really only the access to capital? Very unlikely. Access to capital can be destructive when that capital is invested and managed poorly. One of the great secrets of China is that they acquire (and often steal) foreign know-how. When investments are managed well and profitably, capital will come on its own.



    As we can see except from the 1.234bn also 22.9 million as a guaranteed payable annual lease as
    well as a fluctuating variable remuneration calculated by year 28.6% of the Earnings before Tax,
    Interest and Depreciation of the airports.

    1. Hey, this sounds like a rich deal!!! So for this past year, Greece gets a 23 MEUR lease payment, 6 MEUR in income taxes and another 28% of the EBITDA of 117 MEUR, which would be another 24 MEUR. In total that comes to 54 MEUR. What are the arguments that this was a give-away based on?

      I think the main argument is that first the price was to low (although the advisors of greek republic in the deal estimated the price around 600 mil which is half of what fraport paid) and secondly that the company didnt have the funds for the deal so it borrowed money from alpha bank which is a greek bank that got recapitalised during crisis with taxpayers money and from Black Sea Trade and Development Bank which is a fund that greece is a member (along with other countries) and has paid a lot of money.

  3. agreed....

    To bad we didn't give the marina's as well.