COMMERCIALIZING MONTERREY'S PRIVATE AIRPORT: A

UNCLAS SECTION 01 OF 03 MONTERREY 000122

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR EB/TRA/AVP

E.O. 12958: N/A
TAGS: EAIR ECON EINT BTIO MX
SUBJECT: COMMERCIALIZING MONTERREY'S PRIVATE AIRPORT: A
HIGHLY-POLITICIZED VENTURE

REF: MONTERREY 076

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1. (SBU) SUMMARY. With an influx of new airlines, Monterrey's
International Airport has built new passenger and cargo
terminals in a bid to become a regional and international
aviation hub. However, this expansion may be limited by
Monterrey's high aviation fees and limited number of runways.
Moreover, the Monterrey International Airport faces potential
competition from Monterrey's private Aeropuerto del Norte. This
small, private airport is owned and managed by a member-owned
cooperative that for over thirty years has utilized the airport
for the benefit of Monterrey's largest and most influential
companies. Although there has been a move to open the airport
to commercial carrier and shipping operations, the move has
apparently been blocked by an influential member of the airport.
This backroom maneuvering demonstrates how deals are made in
the clubby Monterrey business world, and how private interests
could limit Monterrey's aviation ambitions. END SUMMARY.

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MONTERREY'S AIRPORT SEEKS TO EXPAND
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2. (U) Aeropuerto Internacional de Monterrey (AIM),formally
known as General Mariano Escobedo International Airport, is
touted as one of the most modern in North America, but is also
one of the most expensive. Built in the early 1970s, it came
under the control of Grupo Aerportuario Centro Norte S.A. (OMA)
in 1998 after the Mexican airport system was deregulated and
opened up to private investment. OMA operates and manages
thirteen international airports in northern and central Mexico,
the largest of which is Monterrey. According to the airlines,
OMA made a very expensive bid to control the Monterrey
International Airport, far higher than its competitors, and OMA
has sought to recoup its investment through expensive landing
fees and other aviation services.


3. (U) According to OMA Airport Administrator Raul Zabre, AIM
serviced over 5.5 million passengers flew in 2006, the highest
number on record, but still far lower than the airport's 7.5
million passenger capacity. Eighty percent of Monterrey's
flights are for domestic travel, while the other 20% are headed
for U.S. destinations. Overall, domestic traffic was up 18% in
2006, but December saw a 31% increase in domestic passengers
over December 2005. This growth reflects nine new domestic
routes offered by the new Monterrey-based low-cost airline,
VivaAerobus, which began operating on November 30, 2006
(reftel),as well as several other new carriers, and may well
reflect a trend of substantially increasing domestic travel due
to increased aviation competition.


4. (SBU) According to Zabre, OMA is trying to further develop
the airport's capacity to handle the inevitable increase in
demand as Monterrey becomes an international hub for Mexico.
The airport is scheduled to open a new passenger terminal in
2008, which will increase AIM's capacity by 2 million.
Similarly, OMA built a new 60,000 square meter cargo facility in

2004. However, less than half of that space is currently being
utilized, according to UPS Monterrey's General Manager, in part
due to high aviation costs. To date, only FedEx and UPS have
leased any part of the cargo terminal. OMA is negotiating with
AeroMexico to move the airline's maintenance facility from
Guadalajara to Monterrey, and if the deal goes through,
AeroMexico maintenance will utilize a majority of the new cargo
facility. However, AIM's plans appear constrained by a lack of
runways. AIM only has two runways and, according to airline
directors, they are close to capacity. They believe that AIM
needs to build at least one more runway to become an
international passenger and cargo hub. OMA disagrees on the
need for more runways, and Airport Administrator Zabre stated
that OMA does not currently plan to build any.

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ANOTHER COMMERCIAL AIRPORT?
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5. (SBU) Just thirty miles from AIM lies Aeropuerto del Norte
(ADN),a private facility that originally served as Monterrey's
commercial airport until the early 1970s. Since then, ADN has
been owned by a cooperative ("cooperativa") of private
individuals, most of whom represent Monterrey's largest and most
influential companies. The co-op is democratically controlled
and returns any margins or profits to members on the basis of
patronage. EconOff met with Gabriel Cavazos, a former official
from the Nuevo Leon state Secretariat for Economic Development
(SEDEC),who worked closely with the ADN co-op in 2006. As

MONTERREY 00000122 002.2 OF 003


Cavazos explained, co-ops in Mexico are plentiful, but most are
formed with a social agenda in mind. According to him, this
co-op was established in order to avoid the high taxes normally
levied on both private and commercial airports. "It has become
a running joke in Monterrey," lamented Cavazos, "Its nickname is
the 'cooperativa for golfers'".


6. (SBU) While almost every airport in Mexico has been granted
a concession by the Mexican civil aviation authority (DGAC) to
operate legally, ADN only has a simple, highly restrictive
"authorization" from the DGAC. Under a simple authorization
scheme, only members of the ADN co-op can utilize the existing
hangars and store their private planes at the airport. However,
over the last thirty years, various co-op members have been
collecting fees from third parties who rent hangar space, but
haven't paid any taxes on the income. According to Cavazos, the
Mexican federal government has "turned a blind eye" to the
co-op's obvious tax evasion because its members are such
influential businessmen.


7. (SBU) When new low-cost airlines began emerging in Mexico in
2005, seven members of the cooperativa, each of whom own tracts
of land that surround ADN, agreed that the airport was worth a
lot of money if opened up to commercial aviation. These seven
members privately commissioned Lufthansa Consulting to conduct a
preliminary survey on the potential for opening up Aeropuerto
del Norte to commercial aviation. Lufthansa concluded that
there was an enormous potential for ADN to act as Monterrey's
second international airport, particularly if opened up to
low-cost carriers and cargo operators. Their report also found
that, with the proper investment in infrastructure, ADN could
successfully compete with Laredo, Texas, for cargo traffic.
NOTE. According to SEDEC statistics, more Monterrey-bound cargo
goes through Laredo airport and is trucked in to Monterrey than
arrives directly to AIM. The historical reason for this is the
high cost associated with flying cargo planes into
OMA-controlled AIM. END NOTE.


8. (SBU) When the seven co-op members suggested opening the
airport to commercial traffic, they met with fierce resistance
from the other members of the cooperative. According to one of
the seven members supporting the airport, the others "were
against it because they would lose their thirty year-long
privileges and because they have a narrow minded mercantilist
perspective." The seven co-op members then approached the Nuevo
Leon state government directly and asked them to dissolve the
cooperativa to make way for a new, invigorated airport. The
other members of the cooperative complained to Nuevo Leon that
the seven co-op members pushing the change were not simply
altruistic public citizens, but would financially benefit
because they owned the surrounding land that the airport would
acquire. After initial resistance, the Nuevo Leon state
government persuaded the cooperative members to support opening
the airport to commercial traffic by guaranteeing that the
members' personal access privileges would not be infringed if
they agreed to give up control of the airport. According to
Mexican federal law, a state or municipal government must form a
corporation in which they hold the majority stake in order to
obtain a DGAC concession to operate an airport. As such, the
government of Nuevo Leon incorporated a new public agency in
March 2006 called the Corporation for Strategic Projects (CSP).
NOTE. The legal engineering for CSP was based on the City of
Toluca's experience with Licenciado Adolfo Lopez Mateos
International Airport outside of Mexico City. END NOTE.


9. (SBU) Nuevo Leon applied for an airport operator's
concession with the Mexican Ministry of Communications and
Transport (SCT) shortly following CSP's incorporation. To date,
SCT has not rendered a decision on the application because, as
Cavazos explained, Nuevo Leon Governor Natividad Gonzalez Paras
"suddenly put the brakes on the whole thing" in late 2006.
Several industry insiders told EconOff that, although SEDEC had
engineered an agreement with the members of the Aeropuerto del
Norte cooperativa, one of the co-op's most influential members
backed out of the agreement in mid-2006. It is rumored that
this particular member, the co-owner of Monterrey's leading
newspaper El Norte, threatened the Governor with intense
scrutiny and journalistic retribution should the plan go
forward. It is then that Governor Gonzalez Paras, who has
Presidential aspirations, withdrew his support.

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COMMENT & ANALYSIS
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10. (SBU) Comment. Although Nuevo Leon has made development of
the aviation industry a strategic goal, its opportunity has been
undercut by other decisions. Nuevo Leon received a very high
price when it contracted with OMA to run the international
airport, but now OMA's high fees have discouraged aviation
development in Nuevo Leon. Nuevo Leon also persuaded
VivaAerobus, the latest RyanAir family venture, to make
Monterrey its hub (see reftel),but although OMA is expanding
the airline terminals, OMA has no plans to increase the number
of runways, which may hamper further growth. Finally, although
Nuevo Leon would benefit as a whole if Aeropuerto del Norte
expanded commercial and cargo operations, the threat of negative
newspaper publicity on the Governor may well doom the whole
project. We expect the Mexican aviation industry to take off
with new airlines and more competition, but Nuevo Leon's
aspirations to become a regional aviation hub may be stunted if
it cannot overcome parochial interests. End Comment.
MORENO