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Terminal and runway

Larnaka and Pafos airport development, Cyprus

We provided lenders’ technical advisory services for two new terminals at Larnaka and Pafos airports. Our role began with due diligence and continued with operational monitoring when the new facilities entered service.

The Republic of Cyprus is served by two major airports, Larnaka (opened in 1975) and Pafos (opened in 1983), situated at the eastern and western extents of the island respectively. After 20 years of operations the original terminals were getting to the end of their useful lives and were fast running out of capacity. To address this issue, the Cypriot government began looking for a suitable concessionaire to design, build and operate two new terminals – one at each airport – as well as to undertake the operation of the airports themselves.

Key facts

We were appointed by a consortium of lenders to undertake due diligence on the proposed development and operations at the airports. Our aviation experts provided technical advice to the lenders in their consultations with the potential concessionaire – including reviews of the terminal plans, opinions related to potential air traffic levels, and assistance with the project contracts.

The project reached financial close in May 2006. Post financial close we continued in our lenders’ technical advisory role throughout construction. This phase of our role culminated with the opening in November 2008 of the new terminal in Pafos, capable of serving an estimated 2.7M passengers annually, and a year later, the new 7.5M passenger Larnaka terminal.

Since the terminals became operational we've performed an ongoing operational monitoring role. Larnaka Airport has a throughput of around 5M passengers per annum, whilst Pafos serves 2mppa.

Challenges and solutions

In delivering a project of this kind the main challenge is inter-party relationships. During the due diligence process we act for the lenders in their negotiations with sponsors, with the aim of ensuring that the main risks of the potential investment are identified and assessed properly. Post financial close, the relationship issue expands to include requiring a working relationship with the lenders, the concessionaire, the construction contractor, and the grantor.

Throughout the process, particularly in the construction phase, it was essential to maintain good relationships with stakeholders, while fulfilling our obligations to the lenders. Sometimes this meant assisting in resolving disagreements between parties in an attempt for the project to meet the common aim – an on-time and on-budget completion.

We contracted to undertake monthly visits to the site to review progress against schedule, and also against the monthly payment milestones set up. The assessment as to completion of the milestones was in all cases undertaken fairly with regard to both the lenders and the concessionaire.

2004
preferred bidder identified, start of due diligence
2006
project successfully reaches financial close
2008
new Pafos terminal opens
2009
new Larnaka terminal opens

Value and benefits

Through our due diligence work we identified and advised the lenders of potential risks and the best way to mitigate against these without endangering the project as a whole.

Our assistance during the negotiation process assisted in forming a reasonable agreement between the contracted parties which helped the project to reach financial close.

Our due diligence work enabled us to advise the lenders of potential risks and how best to mitigate them without endangering the project.

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