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Grupo Aeroportuario del Pacífico, S.A. de C.V.

Grupo Aeroportuario del Pacífico, S.A. de C.V.


1249-B Avenida Mariano Otero
Guadalajara, Jalisco 45140
Mexico
Telephone: (52 33) 3880-1100
Fax: (52 33) 3671-4582
Web site: http://aeropuertosgap.com.mx

Public Company
Incorporated: 1998
Employees: 1,072
Sales: MXN 2.59 billion ($240.26 million) (2005)
Stock Exchanges: Bolsa Mexicana de Valores New York (ADRs)
Ticker Symbols: GAP; PAC
NAIC: 488119 Other Airport Operations; 488190 Other Support Activities for Air Transportation

Grupo Aeroportuario del Pacífico, S.A. de C.V., or GAP, is the largest of the concessionaires of the federal agency that is responsible for the operation of all public airports in Mexico. GAP administers and operates 12 airports, principally in Mexico's Pacific region. Among these airports are several that serve locales familiar to North American tourists, such as Guadalajara, Puerto Vallarta, Los Cabos, and Tijuana. The others are Aguascalientes, Hermosillo, La Paz, Los Mochis, Manzanillo, Mexicali, Morelia, and Silao (Bajío).

PRIVATIZING MEXICO'S AIRPORTS IN 1998

The Mexican government, in 1965, established Airports and Auxiliary Services (ASA), a parastatal firm charged with managing the construction, maintenance, and operation of airports under the control of the government's transportation agency. The ASA imposed the equivalent of a luxury tax on the relatively small number of Mexicans who could afford to travel by air. The ASA also brought money into the federal coffers through the fees imposed on the airlines for landing rights, air traffic control, arrival and departure gates, and ground service.

GAP was established in 1998 in response to the plans by the Mexican government to open the airport system to private investment, in two stages. Those airports that qualified were the 35 public ones, out of 58 overall, that did not require an operating subsidy. These 35 were divided into four geographical groups, with a strategic partner chosen for each to administer and operate designated airports for 50 years. In the case of the Pacific region, the partner chosen was Aeropuertos Mexicanos del Pacífico, S.A. de C.V., which made the winning bid of MXN 2.45 billion (about $261 million) for a 15 percent holding in GAP. The rest of the shares remained in a trust account with Nacional Financiera S.N.C. (Nafin), the federal government's development agency. Some 15.1 million passengers passed through the 12 airports involved in the concession in 1998, 28 percent of the total passenger traffic in Mexico during the year.

Aeropuertos Mexicanos del Pacífico (AMP) was a consortium of four companies. Three were Spanish: Grupo Unión Fenosa, S.A., an energy producer, which assumed 33.5 percent; Dragados Concesiones de Infra-structurales S.A., an industrial construction firm, 29 percent; and Aeropuertos Españoles y Navegación Aérea (AENA), the state-owned operator of 42 Spanish airports, 25.5 percent. The fourth, Grupo Empresarial Ángeles, S.A. de C.V., a private Mexican firm, took the remaining 12 percent of the shares. In order to emphasize Mexican rather than foreign participation in the undertaking, Ángeles's proprietor, Olegario Vázquez Raña, became head of the consortium. Under the concession contract, AMP assumed the responsibility of promoting and developing operational areas, finances, sales, marketing, technology transfer, and training of personnel. It also had the right to name GAP's director general, director of finances, director of operations, and commercial director, plus the right to veto certain GAP decisions, such as the payment of dividends.

CONTROVERSIAL DECISIONS: 200105

Eventually Vázquez Raña came into conflict with Unión Fenosa and Grupo Dragados over the administration of AMP. (According to one anonymous source, the quarrel was over the insistence of the Spanish in collecting dividends without completing all the investments promised.) The two Spanish firms decided to oust him and, in 2001, chose Holdinmex, S.A. de C.V., as the new Mexican partner. As its name indicated, Holdinmex was a holding company with investments in a variety of companies but was said to be controlled by Jugos del Valle, S.A. de C.V. Holdinmex reportedly paid Grupo Empresarial Ángeles $40 million for its share in AMP, thereby allowing Vázquez Raña to pocket a $12 million profit on his investment. The arrangement was structured so that Holdinmex would receive 51 percent and Unión Fenosa 49 percent of a 25.5 percent holding in AMP. The chairmanship and presidency of the consortium subsequently both came under Spanish control, to representatives of Fenosa and Dragados, respectively.

Beginning in 2002, some Mexican politicians, including governors of two states, called on President Vicente Fox to revoke the concession contract. The operators were accused of failing to live up to their promises, and even of fiscal and operational mismanagement. Rumors spread that Unión Fenosa had loaned Holdinmex the money for the acquisition in order to ensure the Spaniards a pliant Mexican partner in the operation. According to an opposition congressman, Fenosa and Dragados actually provided $40 million, while Holdinmex only paid an additional $1.5 million. The controversy delayed plans to sell the federal government's 85 percent holding in GAP to the public.

Some of the rancor related to AMP's pledges to invest more than MXN 200 million (about $22 million) in the first year of operation in order to improve the infrastructure of the airports and MXN 4.3 billion (about $470 million) over the next five years, with almost half the sum going to the Guadalajara and Tijuana airports. Management later claimed that its actual investment of MXN 1.56 billion (about $165 million) from 1999 to 2004 was 149 percent higher than it had agreed on, besides an additional MXN 2 billion (about $210 million) that it claimed it had spent on improvements not specified in the five-year plan. This failed to mollify critics, who also objected to the MXN 447 million (about $47 million) that GAP had paid out in dividends in 1998 and 1999.

COMPANY PERSPECTIVES


Mission: To offer services that contribute to the regional, national, and international transport of Mexico and to raise the airports of Grupo Aeroportuario del Pacífico to the level of the most advanced of its class, by means of competitive administration and operation of the 12 airports that it manages and continual adaptation to demand.

To exploit the airport network in integral form but respecting the peculiarities and managerial autonomy of each airport, giving satisfaction to the needs of the airlines, passengers, and concessionaires and of the served communities, and to obtain an adequate profit.

Much of the ill feeling was related to Tijuana International Airport. GAP executives promised to invest in an air cargo facility and a terminal across the California border in order to attract U.S. air passengers. As of 2004, neither promise had been fulfilled, and a later prospectus did not mention either project. In addition, the Tijuana airport manager was charged with a felony in 2002 for allegedly intimidating and harassing shop and restaurant operators in the terminal. GAP paid $1.5 million to settle the case. Also, members of a communal group stepped up their efforts to receive payment for land expropriated by the government in the 1970s in order to build the airport. The group occupied a portion of the property, posing a security hazard and making it hard to expand airport operations. Still another source of dispute was GAP's refusal to pay MXN 100 million (about $9 million) in back local property tax on airport land; the company insisted that the land belonged to the federal government and that therefore it was not liable to the tax. Finally, passengers were angered by the delay in installing metal detectors and the consequent long waits in passing through to board flights.

There were similar ongoing disputes at Guadalajara's airport. When GAP decided to remodel the terminal in 2002, municipal authorities demanded payment for construction licenses, which the group denied, claiming the airport was on federal land. The city then refused to let the work go forward. This dispute continued into 2006, when GAP won a judicial ruling allowing construction, which would double the amount of space available to airlines and commercial concessionaires, to begin. GAP's management of its third busiest airport, at Puerto Vallarta, apparently did not arouse controversy. In late 2005 the firm was in the process of widening the landing runway at Puerto Vallarta to international standards and was also remodeling and expanding the terminal.

GAP, like other airport operators and the airlines themselves, was set back by the drop in passenger traffic that followed the September 11, 2001 terrorist attacks on the United States. In 2003, the federal government, in order to help revive the struggling commercial aviation industry, reduced by 10 to 12 percent the rates GAP charged to airlines for airport services. This was a blow to GAP, since 90 percent of its revenues were coming from fees regulated by the federal government. The main domestic airlines using the GAP airportsAeroméxico, Mexicana, Aeromar, and Aeroliteralrefused to pay price increases in the user fee between 2000 and mid-2003, when the dispute was resolved. In addition, by the terms of the concession contract, GAP was obliged to pay the Mexican government 5 percent of its annual gross revenues. Nevertheless, the 12 GAP airports served 19.1 million passengers in 2005 (compared to 15.1 million in 1998, before privatization) and GAP reported net income of MXN 658.81 million ($61.11 million) in 2005. This sum represented about one-fourth of the company's revenues for the year.

INITIAL PUBLIC OFFERING: 2006

The Mexican government finally put its 85 percent stake in GAP up for sale in February 2006. The offer for its stock on the Bolsa Mexicana de Valores and of American Depositary Receipts (the equivalent of shares) on the New York Stock Exchange was oversubscribed and fetched $870 million. After options were cashed in within the next 30 days, this sum came to $963.2 million. It was the second highest amount collected for the initial public offering of shares for a Mexican company, trailing only the privatization of Teléfonos de México, S.A. de C.V. (Telmex). Investors then drove the stock up about another 34 percent in the first preceding session of the Bolsa Mexicana (Mexico City) and New York exchanges. In view of this runup, John Lyons of the Wall Street Journal maintained that "Investors who were in on the stock offering profited handsomely, but the shares' debut was less impressive for the underwriter and its client, the government of Mexico. The more the stock climbed, the more money Mexican taxpayers left on the table." Shareholders would receive a fixed annual distribution totaling about $45 million in 2006 and expected to increase gradually in future years. Any cash or temporary investments held in excess of the company's minimum cash balance would also go to investors as a dividend.

GAP's recorded passenger traffic of 19.1 million people in 2005 was 9.2 percent higher than the previous year. The company was earning most of its revenues from fees charged to passengers and airlines for use of the airports. Guadalajara's airport accounted for almost 32 percent of GAP's revenues in 2005. Los Cabos was second, with nearly 17 percent, followed by Puerto Vallarta (nearly 16 percent), and Tijuana (nearly 13 percent). Over the next four years, GAP planned to invest MXN 986 million ($90.46 million, in terms of the average value of the peso against the dollar in 2005).

KEY DATES


1998:
Grupo Aeroportuario del Pacífico, S.A. de C.V. (GAP), is created to run 12 Mexican airports, with a consortium holding a 15 percent stake.
2001:
The Mexican partner in the group sells its stake to another Mexican company.
2002:
Calls to revoke the concession delay the government's plan to sell its 85 percent of GAP.
2005:
Some 19.1 million passengers pass through GAP's airports.
2006:
The government sells its 85 percent stake to public investors for $963.2 million.

By the end of 2005, the proportion of stock within the AMP consortium had shifted somewhat from the original agreement. Holdinmex and AENA each held 25.5 percent of the shares. Grupo Dragados held 28.16 percent, while Unión Fenosa held the remaining 20.84 percent. The latter's holding had dropped to 14.58 percent through a sale to Dragados by May 2006, when it bowed out of the consortium, selling its shares to the other three partners.

The Mexican member of the consortium was no longer Holdinmex, which in January 2006 sold its stake to Controladora Mexicana de Aeropuertos for $75 million. The major figure in this company was Eduardo Sánchez Navarro, the principal investor in hotels and touristic developments valued at $1.5 billion, and centered on the Los Cabos area at the southern tip of Baja California. He became president of GAP. The other major investors in Controladora Mexicana de Aeropuertos were Carlos Laviada Ocejo and his wife, the former Laura Diez Barroso Azcárraga, a member of the family that owned Grupo Televisa S.A. de C.V., Mexico's largest media enterprise. This deal aroused antitrust concerns since Sánchez Navarro was also president of Grupo Aeroportuario del Sureste, S.A. de C.V. (Asur), the consortium that had won the concession to operate the airports in Mexico's southeast. It was, however, approved by the government. Dragados had roughly 33.6 percent of AMP's shares, while AENA had about 32.8 percent and Controladora Mexicana de Aeropuertos, 32.6 percent.

Robert Halasz

PRINCIPAL SUBSIDIARIES

Aeropuerto de Aguascalientes, S.A. de C.V.; Aeropuerto del Bajio, S.A. de C.V.; Aeropuerto de Guadalajara, S.A. de C.V.; Aeropuerto de Hermosillo, S.A. de C.V.; Aeropuerto de La Paz, S.A. de C.V.; Aeropuerto de Los Cabos, S.A. de C.V.; Aeropuerto de Los Mochis, S.A. de C.V.; Aeropuerto de Manzanillo, S.A. de C.V.; Aeropuerto de Mexicali, S.A. de C.V.; Aeropuerto de Morelia, S.A. de C.V.; Aeropuerto de Puerto Vallarta, S.A. de C.V.; Aeropuerto de Tijuana, S.A. de C.V.; Pacífico Cargo, S.A. de C.V.; Servicios a la Infraestructura Aeroportuaria del Pacífico, S.A. de C.V.

FURTHER READING

Aguilar, Alberto, "Alegen socios de GAP pulcritud," Mural, September 2, 2005, p. 2.

Barranco Chavarría, Alberto, "Viva Mexico?" Reforma, June 6, 2000, p. 6.

Carrasco Araizaga, Jorge, "La tajada aeroportuaria," Proceso, January 29, 2006, pp. 3033.

Celis Estrada, Darío, "Tiempo de Negocios," Reforma, October 31, 2005, p. 4.

Cruz, Lilián, "Deja GAP Unión Fenosa," Reforma, February 6, 2006, p. 9.

, "Vende acciones Unión Fenosa," Reforma, May 5, 2006, p. 3.

Jiménez, Roberto, "El camino antes del vuelo," Mural, January 12, 2000, p. 6.

Lindquist, Diane, "Airport IPO Takes Off for Mexico," San Diego Union-Tribune, February 28, 2006.

, "Mexico to Make Airport Operator Available to Public Investors Through IPO," San Diego Union-Tribune, June 17, 2004.

Lyons, John, "Aeroportuario IPO Raises Questions on Pricing of Sale," Wall Street Journal, February 26, 2006, p. A5.

Muria, José M., "Tijuana, con el peor aeropuerto," Siempre! July 17, 2005, p. 44.

Pineda, Miriam, "Ganan españoles de aeropuertos del Pacífico," Mural, August 5, 1999, p. 1.

Romero, Dubraska, "Atiza ampliación pleito entre Tlajomulco y GAP," Mural, November 9, 2006, p. 1.

Velasco, Jorge, "Remodelan aeropuerto tapatio," Mural, October 11, 2006, p. 1.

Velasco, Jorge, and Cinthia Bibian, "Acuerda el GAP bajar tarifas a lineas aeras," Mural, July 17, 2003, p. 1.

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