VZCZCXRO2368
RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHFR #3135/01 1320846
ZNR UUUUU ZZH
R 120846Z MAY 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 7241
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 003135 
 
SIPDIS 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAIR PGOV FR
SUBJECT:  STATE-OWNED AIRPORTS AUTHORITY TO PARTIALLY PRIVATIZE 
 
 
¶1. SUMMARY.  The Paris Airports operator ("Aeroports de Paris" or 
ADP), the second largest European operator, is to launch an initial 
public offering of shares to raise 1.0-1.5 million euros, including 
500-600 million euros by an increase in capital and a similar amount 
by a sale of government shares.  The government may reduce its stake 
to 51% as initially expected, but could also keep a 60-70% stake 
depending on the valuation of ADP.  END SUMMARY 
 
ADP Prepares a Capital Opening 
------------------------------ 
¶2.  Aeroports de Paris (ADP), the 100% state-owned enterprise which 
operates Roissy-Charles De Gaulle, Paris-Orly, Paris-Le Bourget 
airports and 14 other regional airports, filed with the stock market 
regulator ("Autorite des Marches Financiers" - AMF), as the first 
step in an initial public offering (IPO) of some of its shares.  On 
April 23, Finance Minister Thierry Breton said the IPO could take 
place by the end of June, depending on market conditions. 
 
¶3.  In a press release, ADP claims that it is the second largest 
operator in Europe by sales, and the first for freight and mail. 
ADP handles 78.7 million passengers yearly.  It confirmed its 
objective to raise "1.0-1.5 million euros," including 500-600 
million euros by an increase in capital and a similar amount by a 
sale of government shares.  Some 10% of the offering would be 
reserved for ADP's employees in line with a 1986 law.  Employees are 
likely to benefit from a 20% discount and from free shares. 
 
¶4.  The government still has to decide whether to keep a 51% stake 
in the group as initially expected, or if it retains a larger 60-70% 
stake.  The government decision will depend on the valuation of ADP. 
 According to the press, ADP's market value is estimated at more 
than 3 billion euros (excluding debt).  Valuation of more than 3 
billion euros would result in government stake close to 70%.  The 
government could sell ADP's shares later on as it did with Air 
France's shares.  Breton said that funds raised could be used to 
reduce government debt or to reinforce the balance sheets of other 
state-owned companies. 
 
¶5.  On April 25, ADP authorities presented financial data and 
investment plans to analysts.  On this basis, analysts will provide 
an estimate of the value of the group, which will help ADP to set 
final modalities of the capital opening, notably pricing.  The next 
step will be to present ADP's project to potential institutional 
investors - individual shareholders are not the primary targets of 
the IPO.  The last step will be the official announcement of the IPO 
approved by AMF at an assembly of ADP's shareholders on May 22.  ADP 
could be listed on the Euronext stock exchange in the middle of 
June. 
 
ADP is Indebted, but Posted High Profit in 2005 
--------------------------------------------- -- 
¶6.  The opening of capital is intended to reduce ADP's debt ratio 
(debt as a percent of capital) to 70%.  ADP's debt ratio (based on 
international accounting standards) is twice as high (113%) than 
that of European operators, including the British Airports Authority 
BAA (54%).  Standard & Poor's (S&P) announced on April 27 that it 
had placed ADP's "AA" long-term corporate credit rating on 
CreditWatch.  According to an S&P analyst, S&P could downgrade ADP. 
In 2005, ADP posted a 13.8% increase in operating profit to 331.2 
million euros, and a 24.9% increase in net profit (group share) to 
179.9 million euros.  Resources were boosted by rentals of stores 
and fees paid by passengers.  In the economic regulation contract 
signed in February 2006, the government authorized ADP to increase 
airport fees by 5% in 2006 and by a maximum of 3.25% above the 
annual inflation rate in the following four years.  Fees and a 
capital increase will fund operating expenses and investments. 
 
ADP's Investment Program is Ambitious 
------------------------------------- 
¶7.  The delay in ADP's partial privatization, which had been 
initially planned to occur by the end of 2005, allowed chairman 
Pierre Graff to finalize a 5-year development program.  ADP plans to 
invest 2.7 billion euros for the 2006-2010 period to improve and 
expand facilities for passengers.  Investment is necessary for 
modernization of airports.  A large part of investment will go to 
the international Roissy-Charles de Gaulle airport that has suffered 
serious technical problems in recent years.  ADP's objective is to 
increase Roissy's capacity to 66.5 millions passengers in 2010 from 
53.8 million in 2005.  In addition to already launched building 
sites, ADP is planning the construction of a new terminal (T4) at a 
cost of 1.63 billion euros which should have a capacity of 25 
million passengers, and should be partially operational in 2016. 
ADP reportedly wants to reach 100 millions passengers in Roissy in 
2020, which would make it the busiest European airport. 
 
PARIS 00003135  002 OF 002 
 
 
 
ADP Promises High Profitability to Shareholders 
--------------------------------------------- -- 
¶8.  ADP plans to increase its gross operating surplus by "45-50% by 
2010" from 592.4 million euros in 2005, and improve operational 
margins (surplus as a percent of sales) from 30.9% in 2005 to the 
levels of BAA (46.2% in 2005).  Increased airport fees, and strong 
receipts related to a 30% expansion of commercial areas (stores, 
bars and restaurants) by 2010 would help to increase margins.  ADP 
also has 6,600 hectares of property business development it can use 
to expand, or it can rent to get incomes.  ADP also plans to 
increase productivity of employees "by about 15% by 2010."  Of 
special interest for new shareholders, ADP decided to redistribute 
to them 50% of its future net consolidated profit from 2006 compared 
with 35% in 2005.  Regular increases of airport fees over five years 
seemed to please potential investors. 
 
ADP Privatization Raises Some But Not Much Opposition 
--------------------------------------------- -------- 
¶9.  Within ADP, representatives of leftist unions CGT and FO have 
opposed the partial sale of ADP, recently denouncing an agreement 
allowing ADP's employees to transform free days into ADP shares, 
which "makes the agreement null and void."  ADP gave up the project 
"for the moment."  In the press, a French columnist at influential 
daily newspaper Le Monde, Frederic Lemaitre, wrote "the opening of 
ADP's capital raises questions.  At a time when the U.S. refuses to 
trust its New York port assets to foreign interests, it is shocking 
that the debate has not taken place."  Lemaitre also cited 
opposition in the U.K. to the Spanish hostile bid for BAA. 
 
Airport Fees Fuel Global Debate 
------------------------------- 
¶10.  Roissy airport is engaged in litigation with national and 
international carriers for lavish spending and high fees to fund 
improvement in airport structures.  The French National Federation 
of Merchant Aviation filed an appeal to request the elimination of 
ADP's regulation contract.  The International Air Transport 
Association claimed that tariff links are unfair use of ADP's 
monopoly power.  Transportation Ministry officers are unfazed, 
commenting such "problems are part of the daily life of companies." 
The fight over fees has fueled a conflict about who should pay for 
infrastructure, and raised the question whether management of 
airports is best left in public or private hands. 
 
Comment 
------- 
¶11.  Even with the partial privatization, the bottom line is that 
the GOF will retain management control of ADP.  Even if criticisms 
mount against the capital opening, the government is likely to press 
ahead to take advantage of renewed interest in the airport sector in 
Europe.  Neither the unions' discontent nor the pending appeals are 
likely to affect the calendar of the IPO.  ADP's capital opening is 
probably the last significant partial privatization that will take 
place before French presidential elections in 2007.  The government 
is not yet ready to open the capital of the developer and builder of 
nuclear reactors AREVA, which has been delayed several times since 
¶2004. 
STAPELTON