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BUSINESS: Softer Landings Ahead in Bulgaria

06 09 2006  German firm set to overhaul Black Sea airports currently struggling to cope with influx of visitors.

By Desislava Vasileva in Sofia (Balkan Insight, 6 Sept 06)

Passengers flying in to Varna in Bulgaria this summer arrived under somewhat strained circumstances. Rather than following the usual route into the airport’s main terminal, many were shepherded instead from their planes into an old hangar.

This sounds like the beginning of a travel nightmare - hardly what a tourist wants upon arrival at the sparkling Black Sea shore - but it was not.

The 2000 square-metre hangar had been lightly remodelled as a makeshift terminal, helping the beleaguered airport handle traffic overflows caused by a boom in Black Sea holidaymaking.

Together with Burgas, another big arrival point on the coast, Varna handles 62.8 per cent of Bulgaria’s air passenger traffic. The shore attracts many more visitors than Sofia, the inland capital.

The number of beach-bound fliers more than doubled from 2001 to 2005, reaching 3.2 million last year.

But both airports are struggling to cope.

Alarmed by the prospect of major bottlenecks just as Bulgaria comes into its own as an international holiday destination, the government in Sofia scraped together 1.2 million leva (about 615,000 euro) to cover the cost of makeshift terminals, like the converted hangar.

It worked this summer, but a longer term fix will require more money and muscle.

Bulgaria’s effort to convert this mounting dilemma into an opportunity is at last set to take a decisive turn, with the entry of private investors.

Barring a last minute surprise, Fraport, the German operator of Frankfurt International Airport, will sign a contract with state officials on September 11, giving the company concessionary control over both Varna and Burgas in exchange for urgent modernisation.

The date of the planned signing is a grim day in the air business. But the Fraport deal looks like reason for flyers to cheer.

Fraport, working in a consortium with BM Star, a Bulgarian partner, gets concessions at both airports in exchange for whipping them both into shape, quickly, with investments of 403 million euro.

Varna and Burgas get the expertise of a top-drawer international operator, and Bulgaria’s treasury, according to the contract, gets 19.2 per cent of the concessionaire’s receipts.

Fraport’s plan calls for maximising capacity immediately, installing new equipment within existing facilities before high season 2007.

Then by 2011, each airport will be refurbished comprehensively, with new terminals and renovated runways.

Enthusiasm runs high amongst airlines flying to the coast. “These airports will comply with the standards of western European airports, and this will create more traffic,” said Kamen Kichev, regional manager for Austrian Airlines.

The tender won by Fraport/BM Star was a bitter one. An initial tender, in 2004, attracted major players not just from Germany.

Copenhagen Airports, widely acknowledged as a star performer, was initially declared winner. But rankled losers filed a lawsuit, claiming the Danish bidder deserved disqualification for failing to meet key tender requirements.

A court duly did so, ruling that Copenhagen Airports lacked the management criteria called for in the tender rules, including management of more than one airport.

Fraport/BM Star triumphed in the end, but only after legal battles that dragged through 2005 and a new tender this year. The Danish company left, unhappily.

Fraport has what Coperhagen Airports lacks - an international network, with two airports in Frankfurt, one in Hanover, others in Turkey and Peru and a roaring 2.1 billion euro income in 2005.

Yet critics cringe. Tihomir Bezlov, senior analyst at a Sofia-based think tank, the Centre for the Study of Democracy, says the Fraport/BM Star deal is a bad deal for the state.

“The promised investments differ very slightly: 403 million euro from Fraport/BM Star and 399 million euro from Copenhagen Airports, but the winner will pay 10 per cent less to the state,” said Bezlov.

Bezlov is doubly annoyed that, after state officials’ disappointment over Copenhagen Airports’ disqualification on a technicality the first time around, they drafted rules for the second tender which excluded the company’s participation.

Other critics distrust the state’s decision to offer any single concessionaire the 35-year contract Fraport/BM Star will have.

They cite the case of Sofiyska Voda, which after winning a 30-year contract to run Sofia’s water infrastructure has forced price hikes while allowing pipes to deteriorate.

With Varna and Burgas’ substantial share of Bulgaria’s air traffic, especially to the coast, Fraport/BM Star will wield considerable power.

This may all be so much spilt milk after the signing next week.

The airports need work, and Bonin is clearly determined to move ahead swiftly. He predicts that passenger volume through Varna and Burgas will double again by 2015, to 6 million annually.

He adds that 20 per cent of them should be travellers on “regular flights” – repeat customers whose business is more reliable than that of the fickle, one-off tourist.

In fact, Bonin’s forecast may prove conservative. Svetoslav Stanulov, chairman of the Association of Bulgarian Air Carriers, predicts that the current rate of increase in passenger volume - 10-15 per cent per year - can be sustained.

At this rate, Varna and Burgas could see 6 million passengers in 2010. Stanulov argues that tourism development away from the airports is the real driver. “Airports modernisation is only part of the industry,” he said.

If he is right, then Bulgarians may soon see some proof that private enterprise can indeed help rebuild the country’s infrastructure, now 17 years since the collapse of communism. Roads, railways and seaports could be next.


Dessislava Vasileva is a Balkan Insight contributor. Balkan Insight is BIRN`s online publication.