Aena SME SA
MAD:AENA
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Aena SME SA
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Ladies and gentlemen, thank you for standing by, and welcome to Aena 9 Months 2020 Results Presentation. [Operator Instructions] I must advise you that this conference is being recorded today. And now I would like to hand the conference over to your speaker today, Emilio Rotondo. Please go ahead.
Hi. Good morning to everyone, and welcome to the -- this presentation of 9 months '20 results. Here, we are José Leo, CFO of Aena and myself, Emilio Rotondo. Well, I'll leave the floor to José to start with the presentation. Thank you.
Good morning, everyone, and welcome to the quarter 3 2020 results presentation. I will focus on the key highlights, and then I will leave Emilio to deal with the business trends.As usual, we are showing the main parameters to show the performance over the quarter and till the end of September. The passenger numbers fell by 68.7%. As you can see in the graph, the size of the drop is different for the different airports in the group with Spanish Network being the most severely affected, with a fall close to 70%, whilst the Brazilian group is the one which is facing the mildest decline. That translates into a revenue fall of close to 50%. As you will see later, the relatively smaller decline in revenues is driven by the commercial revenue side of the business. In terms of EBITDA, a very significant reduction, 75.9%, but still healthy and positive EUR 516 million EBITDA given the circumstances. In the net result level, we run losses with the 9-month loss totaling EUR 107.6 million. Finally, the operating cash flows goes down -- go down by 83% as well. And the consequence of that is that the net financial debt-to-EBITDA ratio reaches 5.5x, which is more than double the usual level of this ratio. And we will comment on that later on as well. Moving on to Slide #5. I will go -- I will talk you through the main highlights, the main topics for discussion this quarter. Starting with the traffic, I won't make any more comments on that. This is just reiterating what you have seen in the previous graph. What probably is relevant to you is to understand what are the latest trends, what's going on around us and how we see the future evolution. First of all, the expectation when submitting to the market, the second quarter results was that the summer will show progressive. However, moderate but progressive recovery with every month showing better figures than the previous one. That was the case in July and largely for August as well. But from the end of August onwards that trend was completely broken by the second wave of the pandemic and different restrictions, different actions taken by different governments, particularly across Europe in response to that second wave. So from the end of August, what we have seen is a worst performance in traffic than we expected. And a performance, which is worse than the performance we experienced in August itself. We are running now at around 17% to 20% of the traffic for the same months in 2019. And I'm not, let's say, sharing with you any insider information. This is something that you can see almost with naked eye. That means that we expect the rest of the 2020 -- the rest of the months of 2020 to show clearly an underwhelming performance. And that will lead us to a year-end figure that probably will be not very far from the existing ones. So a total decline of around 70%, give or take. And furthermore that means that there is no sign of recovery in the short term. And there is no visibility at all as to when we can expect that recovery to kick off. It's very dependent on health considerations, on health and medical development, vaccines availability, remedies availability. As a result of that, we don't feel strong enough to anticipate when that recovery can show up. In the meantime, what is clear is that the international agencies that used to follow the -- that are following this evolution are reviewing their expectations down. For instance, the ACI Europe figures or expectations for 2021 that were recently reviewed, I believe it was the 10th of October, are going south. So they are now pointing out a worst-case than -- pessimistic case that could involve potential declines in 2021 vis-à-vis 2019 of up to 63%. So 63%, of course, that's the pessimistic case. I'm sure hopefully that won't be the case. But what I mean is that they are stretching the range of the scenarios to a point that 2021, in some cases, could be potentially as bad as 2020 has been. Of course, on the optimistic side of the spectrum, I think, they are mentioning something like -- from memory, 37%, 38% decline. So my point here is, the point I'm trying to make is that we don't feel we can share with you any meaningful view of 2021 at this stage. And we don't see any visibility as to when the recovery can start. But of course, we will share with you any information that we believe is credible and meaningful if and when we have that information available. The next relevant point here in this slide is the commercial revenue performance. The decrease in the commercial revenue is 19% year-on-year. And that's because we are accounting for the minimum annual guarantee rent revenue in full. That is the way it should be taking into account 2 things: First of all, the way the IFRS 16 leases apply. As long as you have contractual commitments, contractual obligations written with your commercial operators, they have to honor those commitments. And we have reviewed those contracts long and hard and very deeply. So that's the right way of accounting for these revenues. Of course, there are 2 other considerations you have to make when accounting for those amounts. Consideration number one is whether or not the application of different accounting standard, which is the IFRS 9 financial assets that requires the assessment in terms of any receivable in terms of let's say, any impairment, any credit risks associated to that, clearly, you have to provide for that if and when you did -- you are aware of that. Frankly, so far, the credit risks implications in terms of provisions to cover this revenues are relatively small. Of course, they are higher than previous year, and you can see that in the P&L, but they are not material. So there is no reason to provide for those amounts. There is no reason to consider any material credit risks associated to that. Then second consideration is whether or not those minimum guaranteed rents can be -- might be affected by any commercial negotiation, any new commercial deal we can make with the leases, with the operators. And of course, that will be the case for -- in any case, when we achieve any -- an agreement, when we close a deal. But so far, no deal has been achieved with any of the operators. We are in discussions. We are in negotiations. Negotiations are ongoing. I think they are productive. I think, in many cases, the positions are increasingly closed. But so far, we haven't agreed or we haven't signed any single commercial deal. So there is no reason to treat the annual guarantee rents, minimum annual guaranteed rents in any other way that we have treated them in these accounts we are submitting today. Then we can move on to the next slide. In terms of cost savings, I think, we have been successful. We are satisfied with the outcome of the cost cutting plan. In the second quarter, we have achieved savings of EUR 127 million, clearly less than the previous quarter for obvious reasons that we can discuss later on. But we are keeping this plan in place. Clearly, it is being adapted or is being adjusted as the traffic recovers. But for the same token, if there is any setback in terms of the recovery, we will make sure that we keep the tension in the business and we keep saving to the extent that this commensurate with the reality of the activity of the business in the -- on the ground. The investment plan, as you know, was restarted and is ongoing. We keep investing. We believe this is the right decision for the time being. In terms of financing liquidity, just to let you know that we hold cash and credit facilities available for EUR 2.4 billion. Finally, for my section of the presentation, in terms of the debt covenants, as we already announced back in July, we expect to bridge the net debt-to-EBITDA ratio at the end of the year. We have been in discussions with the banks, and the discussions are -- we are making progress. Over the coming weeks, we will -- we are -- we have every expectation that we will give -- we will get the temporary waiver from the banks. And with no other comments, Emilio will deal with the --
Yes. If we move to the next slide, that would be the traffic data. Well, on top of what José has already mentioned, maybe highlight that Luton Airport has had a performance quite similar to what we have seen in Spain. July and August was even more -- was better than the Spanish Network. But once these restrictions and new quarantines were announced, well, mainly in the U.K., the traffic went down and nowadays, we are in similar figures to what we are seeing here in the Spanish Network. Meanwhile, in Brazil, the performance is better than in Luton and in Spain. You may see up to September, the traffic went down just for -- by 53%. And the -- in October, traffic is performing better than that ratio. So we believe that the traffic performance in Brazil would certainly be better than what we are seeing in the Spanish Network and in Luton.Also highlight if we go to and we focus on the Spanish Network, highlight that the domestic traffic is performing better than international. I think that were for obvious reasons. Also in the interest of the international traffic, the European Union traffic is performing also better than long-haul traffic due to all the -- as I've mentioned, the restrictions and limitations we are seeing from traveling from other countries outside the European Union.Moving to the next slide, Slide 9, the performance by business lines. The Aeronautical revenue -- the Aeronautical P&L is showing the performance on traffic. In fact, if we see in terms of revenue, revenues fell by almost 64%. It's slightly lower than the traffic, mainly due to a lower amount of incentives this year and also a higher amount in parking fees. In terms of expenses, you see that the expenses just has gone down by just 6.6%. This is because we have almost EUR 28 million, in fact, EUR 27.5 million of extraordinary expenses related to COVID-19. And we also have included the impairment test of Murcia Airport of roughly EUR 48 million. If we take out these 2 figures, the expenses would be down by 12%, which is a figure similar to what we are seeing in the commercial line. And that's also the reason why we see EBITDA margin that goes down by 9% versus the EBITDA of commercial that keeps -- and remains 81%, not only because of the cut of expenses, but also because of the revenues coming from the accounting of the minimum annual guarantees that have been already mentioned by José.International areas also impacted by the traffic performance of Luton and Brazil. And on the EBITDA level also by the EUR 73 million impairment test impact on Brazil ran last quarter, that has impacted on the EBITDA. That's the reason why it was down to minus EUR 62.2 million. In fact, Brazil during the last quarter had a very slight positive impact. Real estate services, going down by 14% on revenues, 7% in expenses and 19% in EBITDA is an activity that is a lot less impacted by the traffic performance, let's say, it's more independent on that part.Moving to the Slide #10, the commercial business. Just highlight 2 ideas here. First of all, the activities that are -- that have minimum annual guarantees, namely Duty Free, food and beverage, specialty shops, mainly have a lot lower impact in revenues than the rest of the activities just because these minimum annual guarantees that have been accounted during the period. That is also seen in this table that the amount of minimum guarantees is EUR 456 million. And also leads to an average commercial revenue per passenger of EUR 11.72 per pax, which clearly is impacted by this minimum annual guarantees and the lower number of passengers managed during the period versus last year. On the international holdings, I think, the most important areas have already been mentioned. Luton impacted by the traffic performance. Also the worse traffic performance we are seeing now in October, that has impacted both revenue and EBITDA. And in this case, as you remember from June results, we don't have any impairment test impact. In the case of Brazil, we have a lower impact coming from the traffic performance, just minus 53% in terms of passengers. As is clear, last year, we didn't have any -- these concessions we are not accounting for in revenues and EBITDA, which is coming in this year 2020, and EBITDA being impacted by the EUR 73 million impairment test run in June. In terms of the Colombian assets and the Mexican assets, all the main performance comes from the traffic evolution. Well, we end the presentation in this slide, and we move now to the Q&A session. So please, operator, if you can open the line. Thank you.
[Operator Instructions] And the first question comes from the line of Nicolò Pessina from Mediobanca.
First question is on the regulation. I'd like to know if you can give us an update on the talks with the regulator about DORA 2. In particular, will you discuss the review as planned maybe in the next month? And if so, what should we expect in terms of tariff and CapEx evolution?Second question on the K factor. Looking at the reported per passenger numbers, it seems like regulated aviation revenues are overperforming. But stronger growth of domestic traffic would suggest the opposite. So can you give us an idea of the deviation in the regulated revenues? And what should we expect for the K factor in 2022? And last question on the renegotiation of the commercial contract. I understand that you haven't reached any final agreement yet. I'm wondering if it's in line with your expectations? And if you can confirm that renegotiations will be NPV neutral for the company?
Yes, Nicolò. Well, starting with the question on the DORA 2. The DORA 2 process is expected to be followed in accordance with the regulations and the law, which means that we have to submit our proposal by the end of the year. There will be consultations over the first quarter of 2021. Consultations with the airlines supervised by the regulator and the supervisor, the CAAi -- sorry, the [Foreign Language]. And then there will be, as you may expect, let's say, different views and discussions around it. But I think it's premature to say where this discussion will lead us. It's premature first of all, because if normally this is a process that requires a number of iterations, this year, this is probably going to be more so. The starting point is always the passenger forecast. And I'm sure that will be a key element for the discussion. So I would stop short of telling you where this can end up. What is true is that the passenger forecast will be, in any case, completely different and significantly lower in terms of passenger numbers than it would have been one year ago. Secondly, that the investment plan no doubt will be less ambitious. Well, ambitious is probably not the right word. It will be commensurate with the reality of the traffic. So it's likely that the EUR 1 billion per year plan that we had in mind and we discussed with yourselves a number of times, won't be anymore on the table. Some of the key projects that were contemplated in that plan will go ahead because sooner or later, they will be required, but probably the timing will be different. The phasing will be different.And very little else I can tell you because there is no even draft of any paper yet. So we are now in the process of pulling together information and submitting the plan by the end of the year. In the meantime, what is ongoing is the discussion on the -- or the consultation on the 2021 tariffs. And that's ongoing and progressing.And with regard to the question on the K factor for '22, clearly, the K factor in 2020, which is the relevant one for the 2022 tariff setting is going the other way around, is showing concentration. The yield in 2020 is being undergoing concentration rather than dilution. Until the end of September, we have accumulated EUR 95 million of yield concentration that we will have to return back, we will have to give back to the airlines through the tariffs in 2022. And that's not a surprise. When you have very little traffic, the decrease in operations is less than the decline in traffic. And there are some other elements of the airport charges that are still in place, the consequence is that the revenue per passenger you achieve exceeds the one which is allowed by the regulations. So it's the natural consequence of that. So there is no surprise on that. With regard to the commercial discussions, they are progressing, but clearly, they are not easy. The conversations are difficult and there is a need to settle the dust, and that takes time. But I feel that both sides, generally-speaking, because this is a case-by-case situation, you cannot take a general view on that. Every operator is different, and every one of them have their own interests and their own views. But generally-speaking, the discussions are productive and I expect over the coming weeks, but frankly, it's difficult to commit because you have -- it takes 2 to Tango. You have to -- I expect that we will be reaching agreement. And of course, as a result of those agreements, some of the elements of the contracts will be tweaked.Whether or not we will achieve the NPV neutral objective? Well, it's a tough thing. It's a very tough thing, particularly when you have -- when -- today, the situation has deteriorated further. So the expectations today are not the expectations 3 months ago because the pandemic evolution is worse than we expected, and the traffic evolution is worse than we expected. So that's the challenge to say the least.
And the next question comes from the line of Elodie Rall from JPMorgan.
First of all, on the MAG quarterly reporting, you have already reported about, I mean, accounted for EUR 456 million and I think you guided for EUR 800 million for the year. So can you help us understand what we should expect for the last quarter of this year, if it's EUR 200 million or EUR 400 million, providing that traffic stays as it is now? I think a little bit of explanation on the quarterly reporting would be helpful. So that's my first question. Second, I'm not sure I got cut a little bit, but I think you talked about tariffs from '22, but what about tariffs discussions for '21? Last time, I think you said you expected flat tariffs for next year. Is it still your base case?And last question on testing. What is your view basically on implementing the predeparture COVID test, given that it's being adopted at all the airports at the moment? Do you think it could make a difference on traffic?
Okay. Well, starting with the MAGs, the EUR 800 million -- well, EUR 800-and-something million MAG figure was meant to be the 100% of the MAGs for the 2020 -- for 2020 for the year as a whole. Clearly, you only account for MAGs to the extent that they are not somehow replaced by actual sales, by the variable element of the royalty of the fee. Clearly, in quarter 1, we had significant revenues coming from the underlying sale activity. So there is no need to account for the MAGs for that particular period of the year. Well, there is an element of MAGs, but this is quite limited. So the bulk of the MAG revenue accounting is driven by the quarter 2 and quarter 3 lack of activity, so to speak. If you look at the '20, at the quarter 4, without giving you any particular figure that we can give you later on if you wish in a more precise way, you can give or take, you can look at the same figure that in quarter 2, more or less. So clearly, you can reach something in the range of EUR 600 million or -- but the precise figure can be given to you by the IR team later on. Let's say, EUR 600-plus million and that's the amount of MAGs that we are likely to end up accounting for recording. And then invoicing and collecting, unless there is an agreement with the different operators to rearrange the contractual decencies. With regard to 2021, yes, the discussions are ongoing, and I still believe there will be a flat tariff on that. That's my expectation. We need to wait and see because ultimately, that's the regulators' call. It's not ours, but that's my expectation. And then with regard to the predeparture COVID tests. Honestly, I will stop short of making comments on health processes and procedures or health decisions. Of course, we have our view. But the most important part of our view is that we believe they should be consistent and common procedures applied, at least, by the different European Union countries. That's where -- what exactly is the solution in medical terms? We -- I'm not going to comment on that. I might have my own view, but that's not relevant to this. But what is important is to make sure that we contribute to build the confidence of the passenger. We contribute to show the passengers that anyone, he or she travels across Europe, in particular, they will find the same rules and the same routines. I know that recently, the European -- the Council of the European Union released paper recommending exactly the same. And we are waiting for some instructions that, my understanding is that they have be -- they should be developed by EASA and the European body in charge of the pandemics. And I don't remember now the precise name, but -- so they will be -- supposedly, they will be issuing more detailed instructions but we keep waiting for that.
And the next question comes from the line of Cristian Nedelcu from UBS.
Two from my side, if I may. So first of all, your -- you are positive on an operating cash flow level in Q3, and this is before any cash inflows from March. But could you help us understand at what level of traffic you would expect to reach free cash flow breakeven, having in mind your current CapEx plans for 2021? So any type of indication there that could help us better measure that. And secondly, a technical question on MAGs. Some of your terminals are closed. Is it fair to assume that in this case you are not entitled to receive any MAGs related to the shops in these terminals? And if that is the case, out of the EUR 600 million of MAGs for this year, how much is related to shops in closed terminals?
Okay. Cristian, with regard to the first question, no matter how easy you think the mathematics are, I would ask you to wait and the IR team will give you the precise numbers that I don't have in my -- from memory now. What is clear is that we are at a very low level of traffic. We are able to generate positive cash from the operations standpoint, clearly. And that means that let me dwell on that. That means that if the traffic levels remain really subdued over the coming months, the cash burn will be entirely driven by CapEx. That's -- I don't mean that we are minded to stop investing. But what I mean is that, that can give us much more flexibility than we would have otherwise.And then the answer to your question on those MAGs that were accrued over a period of time in which the facilities were shutdown. We have reviewed our contracts very -- in detail. Our conclusion is that we are entitled to invoice and to charge and to collect all the monies regardless of the closure. So that's a contractual, contractual right. On the back of that, we are accounting for those revenues. And believe me, that's the discussion, very, very deep internal discussion and a discussion with the auditors. And so that -- we are doing what is meant to be the right thing under the accounting rules. But of course, that doesn't mean we are, I would say, people minded to ruin the life of our operators. We are discussing with them different avenues. So we are minded to help them to help us. But in the meantime, those revenues are legitimately recorded, and we are entitled to recover then in full.
And the next question comes from the line of Siobhan Lynch from Deutsche Bank.
Just a couple from me, please. So firstly, the winter season is now due to be, I guess, weaker than was expected back at the half year. In terms of kind of cost savings, and the opening and closing of infrastructure, traffic at somewhere of, I guess, the smaller airports and winter is usually low, but probably going to be much, much lower this time around. Could we see any closure of some of the smaller assets in Spain? And then, I guess, similar on the bigger airports in Madrid and Barcelona, could you just run us through the kinds of operations you have currently? And if you're channeling passengers through kind of only 1 or 2 terminals? And just kind of your thought from that perspective on cost savings? And then kind of next question on cost savings. In Q3, I think we can see that you've made some good progress. I think specifically on other operating expenses, they seem to be down quite a lot for Q3. We don't get the split at the 9 months in terms of what's driving that. So any kind of color you could give on that would be great. And then just finally, on MAG. Is there anything you'd be able to comment on whether the movement towards a kind of per passenger basis of MAG is something that you're considering? Are you negotiating that at all at the moment? And what could that mean in terms of your ability to kind of collect the MAGs that you've recognized?
Well, starting with different actions we are taking or we could potentially take on the cost saving side. Clearly, we don't rule out anything without commenting on any particular measure, any particular decision. We remain vigilant. If there is a need to tackle really poor scenario, such as the existing traffic levels remaining in place for many months to come, we don't rule out anything, anything at all, from closing facilities to clearly -- well, addressing again our suppliers to move backwards. And I believe that we have proven that we are able to achieve the savings we target. As you are mentioning in your second part of the question, particularly in terms of the other expenses, the other general expenses, which is the universe of costs that we are targeting -- we have been targeting mainly more than internal costs or staff costs, as you know. So we have been able to deliver that. So we remain absolutely confident that we will be able to do it again.On the other hand, I want to mention that in some of the contractual -- in some of the new tender processes that we are now conducting, we are introducing in the tenders, in the tender conditions, new features, new conditions along the lines of being able to suspend partially or totally the services provided by any particular supplier when the traffic goes down by a certain amount. So we are introducing elements of variability. Of course, that will come with a cost because nobody will take more risks for free. But that will help us going forward because some of those contracts are being awarded as we speak. Some of them are very, very big ones like the security contracts. So as a combination of our, let's say, pretested cost-cutting experience plus the new features in the contract, we believe that we'll be in good shape to deal with a very protracted, let's say, worst-case scenario, but hopefully won't be the case. I don't know if I'm missing something else on that. Let me know otherwise.And then on the MAGs. The MAGs -- the discussions on the contractual terms and conditions are dealing with everything. We are not closing the door to anything that can help to the operator to commit long-term and to make sure that long term, the conditions are not impacted, and they really keep committed to the contract. So short term, we can contemplate all sort of solutions, including, I don't deny that, potentially the application of per passenger max on the short term, only on the short term.
Sorry to jump in. Just to highlight that in the report we published, the management report on Page 28, you have the detail on the evolution of the different lines under the other operating expenses. In any case that after reading that part if you have any other doubt or additional doubt, please contact us.
And the next question comes from the line of Arthur Truslove from Crédit Suisse.
Arthur Truslove from Crédit Suisse. First question from me, just on the debt covenants. Obviously, you've been sort of consistently optimistic that you will achieve a temporary waiver on those. I guess my question is really, at what point would you become more concerned if you're unable to reach agreements? Second question, on the minimum annual guaranteed revenues again. You clearly had EUR 456 million of revenues year-to-date. Are you able to give us any idea of sort of how much cash you are actually expecting to receive in respect to that? And if you do reach agreement with your concessionaires, is it realistic to believe that you'll then be impairing the receivables that you have put on your balance sheet so far? And then third one from me. I think from your management report that you have incurred EUR 28 million of COVID-specific safety and security costs. At what point are you able to start adding those back to the tariffs?
Okay. With regard to the waiver, I have every confidence that we will get the waiver in place. Simply, these things take time. Believe me, I don't have any concern about it. It's clear that banks are now dealing with waiver requests, let's say, in every corner of the globe, I will say. So they are busy. But there is no doubt at Aena. If they are agreeing to waivers with much more complicated animals, you can imagine that Aena that will have no trouble at all in dealing with the maturities and that service won't be an exception. So I'm absolutely confident that we'll achieve -- we will achieve that over the coming weeks.In terms of the MAGs, let me let me tell you because probably the terminology here is relevant, particularly from the accounting point of view. We are accounting for the MAGs, and we expect to collect them in full. And when we expect to face any problem with collections, any credit risks. In that case, we will impair that particular amount, which is what we have done in quarter 3 already. But if you look at the figures, the total provisions in the P&L are EUR 15 million -- EUR 15.2 million. That means that the result of that impairment exercise is not very material. We will do the same again at the end of the year with any minimum guarantee rents, which is about to be invoiced and collected. So that will be what you call impairing the receivables.Different story is in those cases in which we reach a commercial agreement, a commercial deal. I wouldn't call that impairment. That will be a restructuring of the contract and as a result of that, there will be a need to rearrange the accounting of the revenues. Under IFRS 16, that can be relatively complicated. Relatively complicated in the sense that, let's say, for the sake of argument, if we agree as part of a particular deal to waive a certain amount of minimum guarantee rents that will be hitting 100% 2019 -- sorry, 2020. That will be probably, probably and I don't want to anticipate any particular information, that could be probably spread across the life of the contract. So that won't be an impairment, that would be a contractual restructuring. And as a result of that, let's say, the accounting will be adjusted accordingly. But this is just, once again, academic. The important point now is we have the right to collect those minimum guarantee rents. And every month, we will be assessing whether there is a need to impair any of those amounts. So far, the conclusion is that the need for impairment is limited to a relatively minor amount of rents.And then I'm sure I'm missing something.
COVID expenses.
Okay. The COVID expenses, my understanding is that they will start being -- clearly, as they are incurred in 2020, clearly, they will be affecting the tariffs of the second next year. That will be 2022. So certainly that will mean that those costs will be contemplated in the DORA 2 discussions. But we are protected by a law in that regard. So we are absolutely relaxed and confident.
Great. Just following up very quickly on the MAGs again. So what you're really saying is that there might be a period of time in subsequent years for which the amounts of revenue accrued could be less than the cash that you received on the basis that you've already accrued some of the revenue in 2020, but you're probably not going to get paid for it for a little while. Is that fair?
No. Well, do you mean after a commercial agreement has been reached or just -- because any minimum guaranteed rent --
I mean, after a commercial agreement is reached. So do you obviously recognize the revenue in the second and third quarter, and you then reach commercial agreements, which brings that sort of down, if you like. My question then is, given that you're not writing that revenue off, does that then mean that you'll sort of recognize less revenue in respect of 2021 or 2022 or whichever year? And then receive more cash at that time?
Yes. Certainly, this accounting will give rise to a divergence. I don't know whether that will be material or not, but a divergence between revenues and cash, definitely. You know what I mean, no? Do you know what I mean? Okay.
Yes. Yes.
Thank you. That's not helpful, obviously, from an intuitive point of view.
And the next question comes from the line of Marcin Wojtal from Bank of America.
So firstly, since the last conference call in Q2, have there been perhaps any discussions with airlines in terms of potentially granting further commercial discounts or incentives to airlines, given the deterioration in traffic outlook? And do you think it could be in the interest of the company to perhaps incentivize traffic in the recovery phase? Number two is on CapEx. It looks like CapEx is now much more normalized. So do you expect traffic for Q4 and for 2021 to be roughly in line with what was in the DORA 1 determination? And thirdly, apologies. Just following up on MAGs, my understanding was that you will receive a significant amount of cash typically for MAGs for your partners in Q1. So is that the case? And on that basis, would you expect to have some progress in those negotiations about MAGs, so that there is better clarity on cash to be received by 2021?
Okay. Thank you, Marcin. Well, your first question is absolutely on time. Because yesterday, the Board of Directors approved and I think today has been published in a number of papers, a change in our incentive scheme. I don't know if you are familiar with the scheme we approved some 3 months ago -- 2 months ago, where what we were trying -- clearly, the previous incentive schemes made no sense in the COVID environment. So we approved the scheme involving incentives to operations. Regardless the number of passengers, we were incentivizing the airlines to add capacity, to add aircraft in operation with a number of thresholds. So we were committing incentives provided they reach a number of thresholds.Okay. That scheme has been in place -- was meant to be in place until the 31st of March 2021 covering both the summer 2020 and the winter 2020 season. The reality is that we have realized that in the current circumstances this scheme would be completely useless. Whilst they managed to earn some EUR 15 million in incentives until the end of August, in September and indeed, in October, we were heading for close to nothing. So we changed this scheme. And yesterday, we approved a new scheme in which we are providing incentives to operations regardless with no thresholds, no thresholds at all, to the extent that they get over the 20%. So they put in place more than 20% of the operations of the same month in 2019, they will start earning the incentive.The incentive roughly means that if they -- any airline operating 30% of the total number of operations they run in the same month of 2019, will earn 30% of the incentive. Then if they operate 40%, they will earn 40% of the incentives and then so on and so forth, up to 100% of the incentive, always applying on the landing element of the airport charge. The landing element of the airport charge is roughly 25% of the total airport charges. And we believe that's much more consistent with the reality we are living through and that will be a good help to the airlines. And we are very pleased to announce that. Clearly, we didn't include it in the presentation today because it came at the same time.And honestly-speaking, we don't expect that to have a material impact. But if it has a very material impact, for instance, if they reach 100% of the operations of 2019, we will be more than happy to celebrate that. So -- but we are helping in a way that we believe is totally -- is meeting the needs of the airlines at this moment in time.Then CapEx. Well, CapEx, you mentioned something that confused me a little bit. You said that whether we expect traffic in Q4 and 2021 to be --
The question is just what do you expect for CapEx, for maintenance CapEx for Q4 and 2021? Is it in line with your original projections from the DORA document?
Exactly. Exactly. Remember, when we -- back in July, we said that we were restarting the investment plan. And clearly, we wanted to catch up because the plan was halted by -- for 3 months. So our intention is to catch up and to deliver the entire CapEx commitment for DORA 1. Clearly, we keep an eye on that, as you can imagine, we need to monitor what's the situation of the traffic. And I don't mean we are going to be, I don't know, you like, coming hell or high water, we are going to keep the same position. If the poor traffic figures remain in place for many, many months, we will see. But for the time being, that's our commitment and our objective.And then in terms of the MAGs, we can think of 2 different scenarios: Scenario number one, with any operator that by the end of this year or by the time we are due to invoice charge the MAGs. With any operator, we haven't reached an agreement, we will sent the -- we will send the invoice, and we will charge the MAGs, and we expect to collect them in full. For any operator in which -- with which we have achieved an agreement, the agreement will apply. As part of that agreement, I'm pretty sure at least partially the MAGs that were due for January next year, won't be due anymore. But that will be on a case-by-case basis.
And the next question comes from the line of Patrick Creuset from Goldman Sachs.
Just one question from me. If we can come back to your thinking on the DORA reset. So just your thoughts basically on -- some of the parameters, I mean, for example, do you care to argue for higher cost of capital in the current context, high cost of equity, do you actually see a way to possibly even ask for higher aviation fees in the next DORA despite the cap you have in place until 2026? And do you see potentially also mechanisms to reclaim some of the losses or underhand during the COVID period 2020-'21 basically for the next DORA in terms of the credit?
Okay. You want me to show the cards? Well, now being serious. I don't think it would be sensible and indeed, clever or smart to discuss some of these things because we will need to submit our proposal in due course. Until then, we have time to run the scenarios, to review figures, to update our position with the latest information, particularly now that things are evolving very, very rapidly. And so I'm afraid I won't be able to answer any of your questions. But at the same time, I won't rule out anything. What is true, in my view, and this is a general comment, is that the level of risks that this business carries is higher than many people thought so one year ago. So these things should be reflected in the right way. I'm sorry.
No, I understand. Perhaps simply in terms of kind of, do you actually see a procedural way to get around the capital and raising tariffs in the next store. Because I think that's the cap till 2026. So wanted to simply procedure, do you see a way to, for example, get it credit under -- or to raise the fees apart from this negotiation stand?
Well, I think, the only -- initially, the only element of costs that could support a scenario of, let's say, exceeding the cap would be the COVID-related costs. The legislation approved some months ago, stated very clearly that the cap won't apply to any COVID-related cost recovery process.Beyond that, I frankly struggled to see that change. But I don't think we will need it. Honestly, I don't think we will need it. If -- because the driver for everything will be the passenger forecast. And if you -- if the passenger forecast is really, really awful, the investment plan would -- should be commensurate with that pretty bad scenario. So I believe it would be probably run to preempt that we will need to exceed the cap.
[Operator Instructions] And the next question comes from the line of José Arroyas from Santander.
Just a couple of questions. First one is on taxation. The Spanish government announced its budget for 2021 yesterday. And there appears to be some confusion on whether there will be new taxation on Spanish corporates, particularly on dividends. Does it have an assessment of what this might mean for the company? That's question number one. And question number two, on the MAGs. If you can give us some flavor as to what categories of retailers are being harder to negotiate with, is it the food and beverage retailers, is it the specialty shops, I mean, if you can quantify that, that would be helpful?
Okay. Our understanding, our assessment of the changes in taxation is that there will be close to nothing. There will be close to no impact on us. The point you mentioned on the taxation on dividends from subsidiaries, we understand that in practical terms what will happen is that they will -- they won't be anymore -- there will be no 100% relief on that, but there will be 95% relief on that. So in practical terms, the impact is not material at all.And the rest of the changes in the taxation landscape are not very relevant to us. So no, the answer is we don't expect at this stage any relevant impact to come up.With regard to retailers, yes, there are some people more difficult than others, but I'm not going to share that with you, I'm afraid, José.
And the next question comes from the line of Stephanie D'Ath from RBC.
The first one is on retailer. Can you remind us of the average length of the contracts? And how big the biggest retailer is? And am I right to understand that your negotiation on commercial agreements would therefore cover the remainder of the contract therefore probably in the years to come? And a subsidiary question to that is how long do retailers have to pay MAG between the moment it's billed and is it per quarter? And how long -- what's the time lag between, I guess, the quarter receivable and the payment?Secondly, in terms of 2021, would you still expect to be able to breakeven or book positive operating cash flow? And what about free cash flow? And then last question is, could you please give us a little bit more of understanding on the third-party contractors? So to which extent can you flex those contracts today? And so I remember well, there's quite a high number of people working at the airports within the infrastructure, which are not contracted by Aena, but on those third-party constructors contracts. And yes, to which extent can you just get those on? Because my understanding was that you had renegotiated a lot of third-party contractors for the years to come. And I would add also to that those contracts were, therefore -- not really will negotiable in the near term?
Sorry, Stephanie, but I'm likely to ask you to refresh some of your questions because I was unable to. I couldn't cope with the speed. So I'm afraid. But anyway, starting with -- maybe Emilio can you remind me of some.
Retailers and the length of the contracts and what...
Okay. The length of the contract. Well, I cannot tell you about any average length of the contract. Clearly, there are contracts that are still running for 5 years. Some others for 3 years, for 2 years. There is a variety of them. So there is not such a thing as an average. For instance, World Duty Free or Dufry contract will run till 4, 5 years.Then what I can tell you is that the most important retailers in this business are in no particular order, other than the first one that I'm sure is in the right place, which is World Duty Free group. But then you have Aelia, SSP, [indiscernible] Lagardère. So those are the outer grill, so [indiscernible]. So those are the main retailers, the main commercial operators. And indeed, they represent very material, very significant chunk of the total minimum guarantee rent revenues that you are seeing today in our accounts.So with no more than 10, 15 retailers or operators, you can cover well in excess of 85% of the minimum guarantees. So those are the most critical ones. But each and every one of them have different views, different interests, different lengths of contracts. So it would be misleading probably to give you a one-size-fits-all answer to that.
Then the next one is -- the second one was related to the MAGs and the time line, but I didn't get exactly what do you mean -- you meant. So maybe if you can --
Yes, you mean that from billing to collection is what you mean. Yes. Well, 30 days, 30 days. Then which one?
The 2021 was cash flow breakeven or...
Okay. The cash flow -- free cash flow breakeven levels is something that you mean in terms of traffic, I suppose, is something that it was asked already before and I committed to provide you with some more color. I don't want to get it wrong. But rest assured, we will share that information with you. Obviously, subject to -- because one thing is traffic and the second point is cost. So by sharing that information with you, we will give you a proviso -- we will make a proviso as to what is the level of operating cost savings we are contemplating otherwise and this scenario would be different for different levels of cost savings. So I would like you to take it as a sort of academic and helpful exercise rather than a forecast of anything.
Flexibility of the contracts of the suppliers.
Okay. With regard to the suppliers, definitely it has been a very challenging process. The -- we have been in tough discussions with them. But I believe that overall it has been successful. We have no -- to build that way, we haven't faced any legal action, any issue of this kind. So everybody has been very, very committed, of course. The air test, the follow scheme in Spain is always helpful to that end. But I think there is -- my feeling is that we have been working relatively well together, everybody has suffered -- has pressure of paying. But I don't feel there are major issues. Some of the contractual agreements that we will be entering into in the future as part of the new tender model will incorporate provisions for this kind of situations and that will also be helpful. And that will add flexibility to our ability to manage the costs.
And maybe just following up on that last point, please, the follow scheme. So that basically means that your third-party contractors were able to use the space for those schemes in order to survive, I guess. How long is that state for those scheme in place? And once it starts, would you then expect other operating expenses to increase?
Well, definitely that helped a great deal. This is coming to an end, I believe, in some of the businesses. In the end -- first quarter of 2021, first quarter, that was being held by Emilio. So by the end of the first quarter of 2021. Hopefully, by that time, we will need it, but it's true. Without that instrument in place, things will get more complicated. I cannot deny that.
And the next question comes from the line of Andrew Lobbenberg from HSBC.
Sorry, I did come late into the call. So you may have answered this already. But what's the status of the MAG revenues that relates to the period of emergency, which I think is EUR 196 million? Because I think earlier in some questions, you spoke with confident that other than some very modest impairments, you didn't expect to have -- you expected to claim and get paid all of the revenue subject to negotiations. So what's the status with that block of EUR 196 million, please?
Well, the status is that we accounted for following us, probably you, Andrew, managed to listen before. Because the contractual rights are there for everything, for every element of the MAGs, including the EUR 198 million of MAGs over the state of alarm. So our plan is for every operator that by the end of the year or by the time we are due to charge or to send the invoice, for any operator with which we haven't reached an agreement, we will send the bill and we will collect the monies. That's the plan.As I said before, the impairment element of that will be -- won't stop us from claiming that, from invoicing and from claiming that. Simply, the impairment element of that will be the way we are due to treat any credit risks in accounting terms, that's all. So if we feel we should provide for something because there is a risk, there is a credit risk associated, we will provide. But that won't mean we are not going to send the invoice and to pursue the collection. We will do it. Different thing is when we have reached an agreement with a particular operator, in that case, the agreement will supersede the previous contract or will amend the previous contract and potentially will waive part of those minimum guarantees. And then, of course, we won't send the invoice and we won't try to collect that particular element.
Does that mean that if we if we get an agreement with people, and you end up waiving a portion of those fees, I know you spoke earlier about moving that impact over the remaining life of the contract. And indeed, if you send the contract, which is part of your goal, that would make it smaller. But does that mean that we're going to -- I mean, is there a risk of a write-back of that EUR 196 million in the fiscal '20 results? Or no, you'll stand by that and you'll reverse it out over the remaining 5 years, 7 years, whatever you extend to?
Exactly. Well, there is -- there will be a write-back for sure. For every particular contract, this is not a general solution. It's just -- for every particular contract, when you reach an agreement, I'm pretty sure that there will be a restructuring of the contract, you will need to account for that and there will be a write-back for sure. And also importantly, the cash that would otherwise be received in January, February time, won't be received anymore. But that will be on a case-by-case basis. And I cannot anticipate. I understand that can be -- this can be a little bit confusing, but believe me, there is no other way around. We cannot account. We have been discussing that long and hard. And you probably know that 3 months ago, I was myself still trying to get my head around. But the reality is that this is the way we should account for that. There is no other way around.
And in terms of the adjustments that end up being made and you spoke of impairment previously. Would they be excluded from an EBITDA and would write-back be excluded from EBITDA? Or would they be in EBITDA? And I'm just wondering about the sensitivities around the covenant? Or do you think by year-end, it's all irrelevant because you all have got the waivers. So it does it matter that?
No, no. It will impact the EBITDA for sure.
Andrew, let me clarify in terms of these impairments, I think, it's important to know that when you have any collection pending, the first analysis is compared with the guarantees that we have. That's the reason why maybe in terms of the numbers or the risk that we have in order to -- of that impairment would be the amount or the difference between the amount pending and the guarantees, not the whole amount pending. That's the reason why the numbers we are talking about are maybe lower or smaller than maybe you could expect.
That's a very good point, Emilio, exactly. Yes.
The next question comes from the line of Arthur Truslove from Crédit Suisse.
Just a quick follow-up from me. I mean, obviously, in Q3, you delivered cost savings of just over EUR 40 million a month. Once again, is that something that we should assume you're going to achieve through the winter as well? Is that a reasonable assumption? And if not, then what would be more sensible?
Well, I believe what we can tell you is that if the traffic levels don't recover beyond the point we are today, that's our target to be able to save no less than this amount or something in the region of. Yes. Different thing is when the -- if there is a ramp-up, if there is a recovery, I always said that it would be harder to commit to any particular level of cost. Obviously, committing to be extremely, extremely focused on cost, but it's much more difficult to anticipate how costs will evolve in response to a particular percentage of traffic recovery. But to the extent that we remain at the current levels, which, as you know, are really, really poor, and of course, we will work hard to get at least that level of savings.
And the next question comes from the line of Nicolas Mora from Morgan Stanley.
Just a few quick follow-ups. First one on OpEx. I mean, so far, you've done great on the third-party services cost, but -- and staff costs that remain a bit sacrosanct. I mean, how long do you see that continuing? Is it still basically flat year-to-date? Second one, sorry to come back to the MAGs, but just considering the different environments where your clients or the travel retailers, food and beverage concessionaires are, some have done a couple of rights issues already, some just one, some not at all. I mean, are they more interested in a cash rebate or on lower fees? Just forced to understand a little bit the risk on basically the cash into -- cash collection in '21 and '22? And follow-up on that, just noticing that the working cap for the first time is a bit unusually high in terms of outflow in Q3. What's the expectations for the full year and into next year? Can you give us a ballpark figure of the risk around not collecting the MAGs? Are we talking about EUR 100 million shortfall, EUR 400 million, I mean, the whole EUR 800 million. What's your gut feeling from here?
Well, you are right that so far, the staff cost or this development of our cost base has been sacrosanct. And I don't think there is a need to change that approach. Now I shared with you some time ago that -- well, there were a number of reasons for that. Of course, some of them have to do with a very limited amount of savings that you can reach through that unless you disbanded a significant part of the organization. But also the fact that at the point in time, it was the right approach to be able to deal with the rest of the challenges in terms of cost savings coming from third parties. So, so far, no change in our mind. We need to keep vigilant because we don't know where we will be in one year from now. Hopefully, we will be celebrating the recovery and also the return of a healthy work.With regard to whether -- I understand that your question about whether they prefer cash or lower fees, you mean from the point of view of the operators, our customers, not ourselves?
Exactly. Exactly, yes.
Yes. Well, I think probably, they -- I think it's a case-by-case basis. And, I guess, what really matters to them is cash, I guess. But don't forget that this accounting standards that apply to us, they also apply to them. IFRS 16, for instance, can be terribly complicated for some of them. So -- and that can only be cured through fees adjustments. You know what I mean, no?. Because they don't follow cash or the cash don't follow the countering rule, as we have been discussing before. And probably that generates confusion. But that means that for some of them, adjustments to the fee regime can be very, very relevant in terms of how that will impact the level of debt in their balance sheets and the ratios and so on and so forth. But I guess, I might be wrong, honestly, but for them, cash is king.
And then just -- yes, on the working cap, just forced to fine tune a bit expectation?
The expectation is that we will be collecting the MAGs. We will get all the money back and then the working capital will evolve accordingly. I cannot tell you -- well, honestly, if we feel at any point in time, that there is risk of collection, we will need to reflect that in the accounts through providing for that. There is now -- that IFRS 9 will be will force us to provide for that, to create provisions and then to show that openly to yourselves. So far, we don't believe there is such a risk so far.
No, no, I understand the nuance, but I was more talking about within agreements, you might be -- I mean, I'm aggressively enticed to sign before you invoice anything by the end of the year. I mean, there's going to be a big part of that focused on cash collection, whether or not they pay 0%, 50%, 100% of what they own?
It will depend on the number of agreements. But you are right, if we agree. Let's assume that we agree with everybody before the end of the year. That -- well, in that case, there will be a significant impact on those collections. I don't deny that. That's exactly what we have been discussing for months already. And I know that can give you some degree of, I don't know, can generate confusion, but it is what it is. If the agreements take place, we will be waiving part of that cash in exchange for longer term commitments. That's the approach. Because we are conscious of the difficulties of -- for the end of the current times. We don't ignore that situation.
And the next question comes from the line of Charles Maynadier from Kempen.
This is Charles Maynadier from Kempen. Just actually one last one on my end. And it's not about the MAGs, don't worry. More a boring topic, I'd say, on real estate. Can you give us an update on the project? Is everything on hold now? And if you expect to resume the process, do you expect to make any changes to your initial plans? But just maybe a quick update on that business segment?
Charles, I really appreciate you changing directions. Thank you very much. Well, the real estate plan, on one side, it was halted for obvious reasons. And we are now thinking -- I'm not telling you that decision has been made finally, but then what we see is that the logistics markets are very, very active, and there is a -- if you like, is a market that is still strong. And we have premium locations available. So we may well reactivate the plan in 2021. And when I say we may well, I don't mean the decision has been made. But clearly focusing on the logistics. That's what would make a great deal of difference to the original plans because, frankly, in the first stage of that plan, the offices and hotels played a part, but still, it was relatively minor. So that would make a big change to the original plan. But yes, yes, we believe that ironically, so the logistics business is benefiting from the current situation.
Yes. Okay. And maybe on the follow-up on that logistics. I mean, do you expect to actually be in your operations as well? Or just rather lease the land? So what sort of risk profile you want to take there?
No, the model -- the base case model, that doesn't mean we can't take a different role on a case-by-case basis. But the base case model is, we would contribute, we will create a JV vehicle with a partner, whichever partner wins any particular tender process. And then we will contribute the right to use the land over a number of years, let's say, 75 years or whatever or 50 or 25, depending on the nature of the business that is meant to be run on that line. And we won't contribute any euro at all. The partner will be taking care of the rest of the development investment, then we will get -- we will be collecting -- well, we will be getting the return out of the global business, not only out of the right-to-use rent element. But beyond that, we will be hopefully collecting dividends as a result of the global business. Okay. We are running out of time, probably if -- well, we have 2 more people queuing, but let's deal with those 2 individuals. And we will close the call, if you don't mind.
Absolutely. So the next question comes from the line of Dario Maglione from BNP Paribas.
Question from me on cost. You mentioned you had negotiated some of the contracts. What percentage of this contract are under renegotiation, especially against the third-party suppliers? And can we expect this to last for the remaining of the contract? Or is it a temporary effect? And also what rate -- what cost savings or increase are you seeing as you renegotiate these contracts?
Maybe there is some confusion on -- one side, we have been in discussions and in some cases, we have been making decisions. With very little discussion with the existing contracts and the existing suppliers over the second quarter. If you remember, March, April, we were imposing, so to speak, or making decisions to reduce the level of service, the level of resources and obviously, the cost associated to that with every single third-party supplier of the main services we are provided with. And that will be the case. Going forward, we will be adjusting the level of service and the costs to the traffic conditions. That will be it across the board. And then what I said before, and as a result of that, we have achieved the savings that you can see today, the savings that over quarter 3 has been EUR 127 million, in the previous quarter was something close to EUR 160 million. And then on the other hand, with new tenders, new tenders that will take place over a number of months and potentially years, we are adjusting some of the terms and conditions of the contractual arrangements, including provisions to deal with significant reductions in traffic. So to be able, from day 1, from the outset of any problem to be able to just adjust the contract down to the new reality we felt the need to provide any discussions. But that will be the case from now on. What is true is that the security contract that we tender some weeks ago and that are now about to be awarded, they already incorporate that provisions. And that's important because those contracts represent no less than -- well, EUR 400 million costs over 3 years. So they are very significant ones.
And the last question comes from the line of Stephanie D'Ath from RBC.
Just a quick follow-up. I understood that from billing to collection, there is 30 days for the retail operators. But what I still didn't get is the time between you recognize MAG in your P&L and the time to send the invoice? Because I understand some of the invoices related to the state of alarm has not been set yet. So could you please help me understand how long that takes? And then you were mentioning that you have guarantees from your retailers. I guess, those might be depleted over time. So could you specify in more detail how those work?
Well, all the MAGs are built in January, February, the year after, they are accrued. So any MAG accrued in 2020 being that in January, February, March, whatever, will be built in January 2021. And then collected one month later and that's the approach.And clearly, in previous years, the amount of MAGs to be built and collected next year was significantly lower than now for -- and that's the challenge, if you like.And then with regard to the guarantees, they remain in place for the entire life of the contract. And they only decay when the contract comes to an end and all the obligations have been fulfilled. So they are in place all the time, all the time. Obviously, they are not protecting you against everything because if you accumulate that, what you have to do is just to execute the guarantee and to move on. But for the time being, they are extremely helpful because when providing for the impairment -- any potential impairment, they are there to protect us.
So that does concludes the Q&A. So please go ahead.
Okay. Then thank you, everybody, for joining us today. I really hope -- well, Merry Christmas, and we get back in February with full year '20 results. Thank you. Bye.
Thank you so much. That does conclude our conference for today. Thank you for participating. You may all disconnect.