The new owners of Sofia Airport: We have a 100 days plan to change the service

What's the current financial situation of the airport?

D (Déau): As you know, 75% of the traffic has disappeared - which means 75% less revenue. That obviously creates significant losses. But we are prepared for it. We came with the funding and financing to be able to support this loss and deliver the commitment of investment.

Even if traffic were projected to return to normal, we are still expecting a loss. The costs are still the same and we don't have a guarantee that the traffic will revert to previous levels, so we are expecting a loss.

How big will the losses be?

Dozens of millions of euros. But we brought the money from our funds and the banks that are backing us so we are able to support this airport for the next 35 years.

Isn't it too long - the 10-year waiver you have received for regular payments to the state?

When we signed the concession after the first wave (of the pandemic) the whole world believed that things would improve, and the outlook was positive. In the contract there is always a possibility to sit down to renegotiate when we face severe financial force majeure.

So we sat with the government to find the best compromise to be able to save this airport. Because we need financial stability for this essential public service. First, we renounced half of our expected regulated return for the whole period; we kept the upfront payment, the investment The government compromise was to postpone these fees.

Because there is no way to pay a fee with these losses. And since April the government doesn't have the loss on the balance sheet of the state company.

There are possibilities in the future, when we have a clear idea about the real situation and financial forecasts, to sit and renegotiate.

Who will initiate it, when and how?

Both sides can. In the contract it is stipulated that when there is a financial difficulty there is a sit-down process in which to minimize the damage and find the balance. When things go better then both sides talk and decide again.

What are the key indicators you will track in order to make a decision?

T (Tsanova): The contract envisages that the concessionaire provides an annual report outlining all the key items on traffic, on revenues, on costs and also a forecast. Because the financial model that we will be examining is part of the concession agreement.

So you update this financial forecast regularly together with the historical and actual performance.

On that basis we have agreed that at least once a year we'll sit down with the government and review the actual situation and the forecast. In this process the state could say it's time to review the postponement because net income or passenger numbers have improved significantly, so there is a room for us to start getting a payment.

D: This will be every year and it will be transparent.

What part of this will be public? Can we see it?

I don't see why. But what we give to the government becomes a property of the government. So I'm pretty sure that here there are good laws and if you want to enquire you can always ask the government in order to access them.

In Sof Connect the fund Meridiam participates with three entities and 98.98% of shares are held by Meridiam Eastern Europe Investment. Who are the shareholders of this company?

Meridiam Eastern Europe Investment SAS is the main shareholder in SofConnect. It is owned by two Meridiam-run funds: 20% - Meridiam Infrastructure Eastern Europe III SLP with a 100% investment from EBRD and 80% - Meridiam Infrastructure Europe III SLP with other institutional investors.

Those are investment vehicles; they constitute a fund - regulated by the French regulator AMF under the European directives. Every institutional investor is approved by the regulator; it has to go through a screening process.These institutional investors are retirement funds from Sweden, Germany and France, also insurance companies - we have Allianz among them, all of good reputation.

The reason for the two vehicles is because Bulgaria is a country of operation of EBRD. And EBRD is the only investor in Meridiam Eastern Europe Investment. Because if we invest in France, for example, EBRD cannot invest. In the other box - Meridiam Europe III the investors are pension funds, insurers, etc.

And there are no Bulgarian investors in there, if that is your question. No private, corporate or any Bulgarian investor in any of our funds.

Can you change the investors over the course of time?

No. When our investors commit to the fund then they commit until the end of the fund.

Could you name the top 5 investors apart from EBRD?

I don't have the right to name them unless they give me specific approval.

But as I said - Allianz is there, the biggest French life insurer CNP, the pension protection fund in the UK, the Swedish pension fund AP3 and AP4. And nobody holds more than 5% in the funds.

So your victory in this procedure was not connected in any way to figures from Bulgaria like Domuschiev or Peevski?

No! And this is a policy in Meridiam; we never do shady things. We have a very strict policy in terms of compliance, in terms of bids. And the fact that EBRD is investing in this - one of the conditions is that the concession bidding process must be transparent. So it is quite important to understand what the fund regulation imposes on us and who we are exactly. But at the end of the day you are dealing with me and my colleagues.

Why did you choose Strabag?

Strabag is a business partner in many countries in the region, in Poland, in Austria and Germany. You can see the projects we have done with them.

This is a concession - it is not only about money. You have to come with all the best skills available.

We chose an operator partner and we also chose Strabag as a partner because of their technical and construction capability. But their role is limited. They are our usual partner and have very good skills and we wanted to have the strongest bid possible.

But Munich is a partner without a share?

Because of the rules of the bid - you needed to name an operator but it wasn't necessary to be an investor.

But for a shorter period (12 years according to the contract)?

Munich will be there. There is a reason it is complicated for them to be an investor. They are mostly owned by the German government. So as much as they can be an operator, it is a bit more complicated for them to invest. This is the reason.

Photographer: Цветелина Белутова

Strabag does not have the best reputation in Bulgaria, even in connection with the construction of this airport.

Yes, but they will not necessarily build anything for this airport. We brought them in because we needed technical expertise to have a full team in front of the government. When we hand out work projects, we will be having open procedures. And we want to invite small local companies to do a lot of things. It is not for Strabag to have this on a plate. We were very clear about that.

Going forward, our goal is to use local companies.

T: It is important for you to understand that there are more efficient outlets of Strabags in different countries. But the Strabag in this consortium is the HQ in Austria.

Let's see because the way the government does procurement here is not the best possible example.

D: We want to get the best quality for our money. Otherwise we will never recover our investment.

T: We want to develop rules for our own procurement - for design, for everything - above a certain threshold.

Can I ask about the operation of the airport? What are you going to do in the first 5 years - what are you going to change?

T: We have a 100-day plan that was just voted on by the board. We want to improve Wi-fi, public facilities and hygiene, customer support and service, and bring in more space for security checks and passport control. We want to improve Terminal 2 by providing a nice area for the kids to play, and for people to rest and work.

We want to offer a better customer experience - better food, coffee, and a variety of choices. At the moment it is very limited.

Munich Airport said "we want to bring downtown Sofia here" which is beautiful.

This will change very quickly, within 3-4 months.

Until the end of the first year we want to introduce a short-term car park, in order to regulate the drop-off of passengers. It will be in Terminal 2, where you can basically park for 15 minutes and not pay anything.

D: All Ilyana mentioned is also our focus on customer experience. In the long term we are going to make this airport a green airport. We can't, of course, offset the fuel from aircraft, but in terms of efficiency, energy and how to use water - we are creating a plan which will impact everything we do in the future.

We have committed and increased after the compromise (with the government regarding taxes) our commitment, which is north of 650 million euro, and clearly with the building of the new terminal in 10 years. We are fully committed to this and we have the financing to do it, despite reduced traffic and associated losses.

What are you going to do with Terminal 1?

T: We are now researching whether to move the whole traffic from Terminal 1 to Terminal 2, given the low intensity. That would require a redesign of Terminal 2 which can happen in the next 2 years. Terminal 1 will be transformed into a business building.

The investments in the first 3 years will be focused on the two existing terminals, as well as runway and other emergency investments.

And between the 4th and 5th year the design and building of the new terminal will start.

When do you plan to start the design and the tenders?

There are a number of changes to be made. We are already thinking about pre-design and in the next 3-4 years we will be preparing the design.

Speaking of low costs, how are you going to increase air traffic? What is your big plan?

D: Vaccinate everyone (laughs). The board will be very focused on engagement with stake-holders. This means the users, but also neighbors, the public community, and the airlines. We really want to work with low-cost airlines and partner with them. We have started this process with them in order to understand where the bottlenecks are, where the problems are, how we can help and support them to increase traffic, develop new routes, and turn this into a hub. This has to be a dialogue. That is the difference with a government-run airport.

T: Strengthening business development unit will be key. We are already considering which are the underserved destinations, as well as those destinations that are not served at all - and how to cover them. We need to offer airlines incentive schemes for them to use this airport. They are not users of this airport but, rather, partners. We have to be prepared to share financial risk with them because they are at their lowest point and we need to be active.

Which brings us to the question of fees. If you increase them will airlines be deterred?

D: We can always not charge them. Let's await the decision (the government decided after the interview not to raise taxes). We didn't request this increase and I think it is a really bad idea when you have a badly hit industry. We have a responsibility to offer competitive terms because you have so many competitors. Let's see what Belgrade airport is doing, and Istanbul, and many others. We need the traffic.

What is the role of the Supervisory board?

T: It embraces many areas. Setting the strategic objectives for the development of the airport, KPI, monitoring and controlling everything to happen with the plan, ensuring the best management. We need to be transparent in the way we operate; we want to involve the community as much as we can.

People feel emotionally involved in this airport, so we plan to establish a community engagement council. We will invite members of the community, NGOs, indeed everyone interested.

Why did you choose 3 new people in the board?

D: We needed a CEO with airport experience, an experienced CFO, and Munich provided someone on the operational side. This trio was getting us through this transition. For us it's about skills. We will expand this.

There are a few thousand people working here. We want to engage with them.

T: One of our main challenges is changing the mindset of employees. Encouraging them to take responsibility to make this project happen in the best possible way. This cultural change will take some time.

How many employees do you have?

2400.

Can you change something?

D: We are not firing anybody. We are responsible investors, so in a situation like this it is out of the question for us to do this. We are taking the time to change the culture. We want them to engage. It is the key thing for us.

We need time to assess everyone's skills.

T: We are going to hire people from Bulgaria with the right skills to help us.

We are going to have a project display area, where everyone can see what is proposed and what will happen to the airport.