Investing in Lima
We report on the ongoing upgrade and development of Peru’s gateway to the world, Lima’s Jorge Chávez International Airport.
On February 14 this year, Lima Airport Partners (LAP) marked the 20th anniversary of its concession for managing, operating and developing Lima’s Jorge Chávez International Airport (LIM).
Fraport AG, the Frankfurt-based global airport operator, owns 80.1% of LAP, with the remaining 19.99% stake held by International Finance Corporation (IFC) of the World Bank.
Recognising the potential of LIM and its geographic location from the start, Fraport and LAP wasted no time in setting about modernising the gateway’s infrastructure and fine-tuning operations after taking over responsibility for operating it early in the new millennium.
Indeed, LAP invested some $4 million on the airport in the first six months of the concession, focusing on improving passenger services and upgrading the visual appearance of the aging terminal.
That figure had grown to $10 million by the end of 2001, the investment including the start of a number of projects outlined in LAP’s first expansion programme for Lima Airport.
These efforts meant that by February 2005 passengers effectively found themselves entering a new airport that was comfortable and functional, where technology went hand-in-hand with good design, effectively ensuring a better user experience.
The expansion programme included a complete renovation of the existing infrastructure, the installation of LIM’s first boarding bridges, and construction of the new Peru Plaza, a shopping and gastronomy mall that has become a popular attraction for Peruvians and international visitors alike.
In the process, Jorge Chávez International Airport’s key infrastructure was transformed from less than 40,000sqm in 2001 to some 65,000sqm in 2005, then up to more than 89,000sqm in 2018. Outside on the ramp, aircraft parking positions increased from 18 in 2001 to 52 by 2018, by which time LAP had invested more than $455 million on Peru’s gateway to the world.
LAP’s investment in new infrastructure has enhanced LIM’s operational efficiency and customer service standards, and these efforts certainly haven’t gone unnoticed by the Skytrax World Airport Awards, which has recognised Peru’s capital city gateway as the ‘Best Airport in South America’ ten times, most recently in 2020 when aviation was first impacted by the COVID-19 pandemic.
Route network and traffic growth
Thanks to active route development and strong airline relations synergies, LAP has also attracted a growing number of airlines and international destinations.
Prior to COVID-19, Lima Airport’s route network comprised 24 passenger airlines and 10 all-cargo carriers, which between them served more than 60 international and domestic markets.
The combination of airlines and an expanding route network meant that LIM’s passenger numbers reached an all-time high of 23.6 million in 2019, a huge increase on the 4.1 million that passed through its facilities in 2001.
It was a different story last year, of course, with Peru being especially hard hit by the pandemic. Indeed, Lima Airport was forced to close in mid-March 2020, and remained shut to all but emergency medical flights for months. Not surprisingly the enforced closure and new global COVID related travel restrictions led to just seven million passengers passing through the airport in 2020 – 70.2% down on 2019.
The continued impact of COVID on global travel means that 2021 is likely to end up being another tough one for the airport. The latest figures show that around 3.7 million passengers flew via LIM in the first half of 2021 and traffic is not expected to be back to pre-pandemic levels until 2024, followed by renewed growth.
“Looking confidently into the future, LAP is positioning Lima Airport for the future challenges and opportunities in the Latin American aviation industry,” enthuses Juan José Salmon, CEO of Lima Airport Partners.
“With Lima Airport’s multi-faceted expansion programme, we are currently developing one of Peru’s most significant mega projects – to create an agile, high-performance and modular hub for the 21st century.”
The current LIM expansion programme includes extensive airside and landside development phases for the decades to come. Furthermore, LAP has developed the first Latin American Airport City initiative to attract international investors and tenants to the global airport hub.
According to LAP, the expansion programme is strategically important not only for Lima Airport, but also for Peru and South America as a whole, as LIM serves as a major and popular hub to the Latin American market.
Airside development programme
In September 2020, LAP signed a $450 million financing agreement with leading international banks for the airside portion of the expansion programme at Jorge Chávez International Airport.
“Secured in a very challenging environment, this financing agreement sends out a strong and positive message about Lima Airport Partners and the Fraport Group,” states Fraport’s chief finanical offcer, Dr Matthias Zieschang.
“The transaction underscores the interest and demand from capital markets for financing well-managed airports that have a long-term and positive perspective, such as the Lima Airport hub.”
Despite the pandemic, the airside expansion programme has been progressing well under the country’s strict new health measures. The airside programme includes a new 65-metre-high air traffic control (ATC) tower to provide a commanding view of the expanded airport site and new 3,480 metre second runway.
Other airside projects include 10 kilometres of taxiways, beacons and navigation aids, surveillance systems, plus new operational buildings near the ATC tower for fire and rescue services, fauna management and utilities.
Construction of the ATC tower and airfield buildings will be completed before the second quarter of 2022. Both the new runway and the fully equipped ATC tower are expected to be delivered in the fourth quarter of 2022.
The construction of the new tower is the first milestone project of LAP’s airport expansion. “This will lay the groundwork for operating a second runway and for further optimising air traffic control in Peru,” states Salmon.
Landside development phase
The landside phase of LIM’s ongoing development programme began in February 2021 with the launch of a competitive bidding process for the engineering, procurement and construction(EPC) activities required for a new passenger terminal.
In addition, this phase includes access roads, apron areas and utilities. Salmon believes that LAP is maintaining its commitment to the expansion project and Lima Airport concession by initiating the EPC tender.
“We will announce the tender winner in the comings months, with the new terminal expected to be completed by early 2025,” he comments.
LAP insists that the design of the new terminal is based on maximising the efficient use of existing infrastructure to respond to the “new needs of passengers, airlines and the aviation industry”.
The terminal design concept is based on six key principles or objectives – expandability, efficiency, security, sustainability, user-friendliness, and ‘sense of place’.
The airport operator tells Airport World that creating modular and expandable infrastructure is important in the post-pandemic period and beyond to allow for flexible growth as demand changes.
Expanding on the terminal’s design objectives, LAP explains that efficiency refers to maximising LIM’s existing capacities, as well as reducing processes and minimising connection times in the terminal. Security and control processes require biometric solutions and reliable authentication systems.
Sustainability focuses on reducing the energy consumption of the terminal, but also the services that support terminal operations.
According to LAP, an intuitive and simplified terminal concept will optimise user-friendliness and enhance the passenger experience. While sense of place utilises architecture and other characteristics to create something uniquely Peruvian, reflecting the country’s roots, rich cultural heritage and products.
A tangible example of innovative forward planning for the new terminal is the recent collaboration with Lagardère Travel Retail for a pioneering new profit-share agreement for duty free operations at LIM.
Salmon says: “In the context of LAP’s airport expansion programme, we have signed a new duty free concession agreement with Lagardère Travel Retail. We believe that it sends a strong signal to the global aviation and travel retail industries. Our agreement will take us well into the next decade together. We are dedicated to delivering new and unique airport retail experiences in Lima and South America.”
The 13-year duty free concession with Lagardère Travel Retail comes into effect in January 2022 and will begin in the existing terminal and extend to the new one. It is anticipated that the profit-sharing agreement will open up significant revenue potential for both Lagardère and Lima Airport Partners, ultimately benefitting travellers and enhancing the airport experience at the gateway.
The Lima Airport expansion programme also includes the construction of a new fuel farm and hydrant system to serve the new terminal.
The hydrant system of the current terminal and the new one will be connected to the Fuel Farm. The expansion plan foresees that it will receive the fuel by a dedicated pipeline.
Lima Airport City
LAP’s vision for the Lima Airport gateway includes creating one of South America’s first Airport City initiatives for developing cargo and logistics facilities, hotels and offices as well as other aviation and non-aviation related businesses on airport land.
Clustered in various areas around the airport property, the total development potential is large and long-term in nature. Over the next three decades, an area up to the size of one million square metres could potentially be developed on 110 hectares of land.
The first Lima Airport City project was initiated in 2020 when LAP secured a long-term ground lease agreement for developing a world-class logistics centre in the northeast corner of the airport. The developers are LatAm Logistic Properties of Costa Rica and the Peruvian investment firm CAPIA.
The new Parque Logístico Callao will cover approximately 21 hectares and will involve a total investment of about $54 million spread over five development phases. Construction of the first phase is expected to start in early 2022. In keeping with market demand, each phase will take approximately one year to 18 months to be realised.
These logistics facilities will serve the export and import clients of both the airport and the neighbouring Callao ocean cargo terminal, Peru’s national seaport.
Jorge Chávez International Airport is strategically located in the Callao municipality about 10km north of downtown Lima. Indeed, Lima is the only capital city in South America whose airport is located so closely to the country’s main seaport – a compelling logistical advantage with synergies for cargo operators in the future.
Cargo companies will be able to lease warehouse space in a secured environment with eco-friendly EDGE certification from the World Bank’s IFC. Sustainable practices friendly to the environment and local communities are key elements of Parque Logístico Callao.
Other features include uninterrupted 24/7 operations, e-commerce, central monitoring and CCTV, a perimeter and access control, advanced fire protection and waste-water treatment.