Abstract:
In 2013, Rio de Janeiro's main international airport, Galeão, was set to be privatized through a 25-year term concession. The Brazilian government set a minimum bid value of $4.8 billion for the airport. Five consortia submitted bids, surpassing the minimum bid value by at least 36 percent. The winning consortium of Singapore's Changi Airport and the Brazilian construction company Odebrecht surprised everyone by offering to pay R$19 billion, almost four times the minimum bid. The case lays out the assumptions used in arriving at the minimum bid value and discusses where the additional value might be coming from.
Learning Objective:
To think about different approaches of valuing a public sector infrastructure, through the specific example of an airport. Students should be able to unpack assumptions driving the financial valuation. Students can also be guided to construct or review one of the following financial valuation methods: Free Cash Flow (FCF) or Equity Cash Flow (ECF).
