Mexican airport operator Grupo Aeroportuario Del Pacífico S.A.B. de C.V. (PAC 9.55%) released second-quarter 2015 earnings Thursday, which received a significant boost from a recent acquisition. Revenue increased 52% to 2.1 billion Mexican pesos (approximately $136.4 million, based on a June 30, 2015 exchange rate of 15.69 Mexican pesos to one U.S. dollar). Net income jumped 44%, to 622 million pesos ($39.6 million).
"GAP" expands into the Caribbean
Sangster International Airport, aka "Montego Bay Airport." Image source: Sangster Airport.
The company, or "GAP" as it often refers to itself in shorthand, operates 12 airports on the Mexican Pacific Coast. GAP was formed in 1998 when the Mexican government divested 35 of the country's 58 airports, and divided them into four holding groups.
On April 20, the company closed the acquisition of airport operator Desarrollo de Concesiones Aeroportuarias, S.L. from the Spanish company Albertis Airports, S.A. The $190.8 million transaction gave GAP a 74.5% stake in the operations of Sangster International Airport, in Montego Bay, Jamaica.
The deal is important as it expand's GAPs operations out of domestic markets, and fires up the company's financial capability. "Montego Bay" airport drove a significant portion of the revenue and earnings increases described above with less than a full business quarter on the company's ledgers. The airport is already the second-largest revenue generator for GAP, behind Guadalajara Airport. Montego Bay's 347 million peso ($22 million) revenue contribution was responsible for about half of the company's revenue increase of 730 million pesos ($46.5 million).
It should be noted that another quarter of the 52% rise in revenue resulted from non-cash accounting treatments related to capital improvements of the company's various airport concessions, as recorded under International Financial Reporting Standards (IFRS). Peeling away these layers reveals that, without the merger, and without concessions adjustments, GAP would still have posted a fairly strong quarter, with an approximate 13% top line increase.
Indeed, the company's earnings report showed strength in terminal passenger traffic among domestic airports. Led by Guadalajara airport, which witnessed a 12.9% increase, total passenger traffic for GAP's Mexican airports rose by 8.6%, to 6.7 million. GAP tracks "aeronautical revenue" to record fees paid by each passenger transiting through its airports. Aeronautical revenue in Mexican airports increased by 158 million pesos in the quarter ($10.0 million).
The greater number of passengers flowing through Mexican airports, along with investments the company has made in various airport services, helped produce a spike in "non-aeronautical" revenue. For example, revenue from businesses-granted licenses to operate within GAP's Mexican airports jumped 17.4%, to 35 million pesos ($2.2 million). Revenue from businesses run by the airports themselves, such as advertising, VIP lounges, convenience stores, and car-parking fees, climbed 25%, to 27 million pesos ($1.7 million).
Two caveats for the second half of the year
Bringing Montego Bay into GAP's portfolio will certainly augment the company's long-term prospects. But there are at least a couple of details investors will want to watch for during the next few quarters to get a more complete picture of the acquisition's impact.
First, GAP hasn't allocated any capital improvements to Montego Bay yet. The company invests in the maintenance and expansion of its airports in broad five-year plans, called "Master Development Programs." As the Montego Bay transaction occurred just after the beginning of the latest development cycle (2015-2019), it's unclear what amount of improvement capital will be allocated to the airport. We don't yet know whether Montego Bay will require very little in the way of investment, or need extensive capital repair, which could affect the overall profit and loss statement.
In addition, the entire $190.8 million acquisition purchase price was financed with short-term bridge loans, which are being refinanced into short- and long-term debt on the company's balance sheet. Complete disclosure of financing and terms likely won't occur until the company files its next "20-F" annual report with the SEC after the end of the year. Until then, shareholders can monitor interest expense in the second half of 2015 to eyeball the financing cost of this major addition to both the balance sheet, and GAP's earnings power, in general.
