Saturday, July 18, 2015

Spain construction boom fact of the day

One of the strongest arguments in favor of private participation in infrastructure is that lender's due diligence will discipline promoters to increase the likelihood of commercial viability. But as we have seen time and time again, financial markets lose their disciplining powers when credit is plentiful and asset markets are booming. 

FT has a nice story of the farcical fate of an airport in Spain,
A Chinese investor bid just €10,000 in an auction to buy the ghost airport of Ciudad RealThe Chinese group, Tzaneen International, was the only bidder for the vast-but-vacant airport built in the thinly populated Castilla-La Mancha region of southern Spain for a reported €1bn. Ciudad Real boasts a 4km runway — long enough to handle an Airbus A380m, the world’s largest passenger jet — and a terminal building designed to accommodate 10m customers a year. Since its completion in 2009 — a year after a decade-long construction boom turned to bust, plunging Spain into its worst recession in recent memory — the airport has been held up as one of the worst excesses of the country’s go-go years. It is seen as a prime example of the reckless ambition that drove local and regional governments to build museums, racetracks, sports arenas and oversized transport hubs up and down the country in the period leading up to the financial crisis... CR Aeropuertos, the operator of the Ciudad Real terminal, went into bankruptcy three years ago.
By any yardstick, Ciudad Real should never had such a large airport,
A provincial capital of just 75,000 inhabitants, Ciudad Real is located in a thinly populated part of Castilla-La Mancha, halfway between Madrid and Cordoba...The city is more than two hours’ drive south of Madrid, the Spanish capital, with little potential for tourism and only negligible commercial activity.  There is no significant industry in the area and the city attracts relatively few visitors, especially from outside the country. According to Spain’s national statistics office, Ciudad Real and the surrounding province typically record only between 1,300 and 5,000 overnight stays by foreign visitors every month. The contrast between the ambition and scale of the airport and the apparent lack of demand for such a terminal in the surrounding region made it an obvious symbol of the folly and excess of Spain’s boom years...The airport was originally named after Don Quixote, the hero of Miguel de Cervantes’s famous novel. The name was quickly changed, but the association with the delusional knight would prove apt: even when it was operational, the airport never handled more than a handful of flights a week.

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