ANNEX 6: REPORT 6 - POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS MASTER PLAN STUDY FOR EGYPT FUTURE NATIONAL AIRPORTS DEVELOPMENT AND IDENTIFICATION OF A PIPELINE OF POTENTIAL PUBLIC- PRIVATE PARTNERSHIPS PRESENTED TO: THE WORLD BANK EGYPTIAN HOLDING COMPANY FOR AIRPORTS AND AIR NAVIGATION (EHCAAN) PRESENTED BY: In association with DECEMBER 2018 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 VERSION HISTORY Version # Developed by Date Description 1.0 IOS Partners, Inc. <14/12/2018> Draft Version 1.1 IOS Partners, Inc. <30/12/2018> Final Version IOS PARTNERS, INC. REPORT 6 - PAGE | 2 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 TABLE OF CONTENTS APPROVAL ........................................................................................................................................................................................ 5 ACKNOWLEDGEMENTS ................................................................................................................................................................ 6 DISCLAIMER ..................................................................................................................................................................................... 6 GLOSSARY OF ABBREVIATIONS ................................................................................................................................................ 7 1. INTRODUCTION .................................................................................................................................................................... 8 1.1. OVERALL PROGRAM AND ASSIGNMENT BACKGROUND ................................................................................................. 8 1.2. PURPOSE OF REPORT ..................................................................................................................................................................... 8 2. PROJECT SCREENING AND IDENTIFICATION ............................................................................................................. 9 2.1. INITIAL SCREENING OF POTENTIAL PROJECTS .................................................................................................................. 9 2.2. ASSESSMENT OF POTENTIAL PPP SCHEMES .................................................................................................................... 11 3. FINANCIAL ANALYSIS........................................................................................................................................................ 13 3.1. GENERAL APPROACH .................................................................................................................................................................. 13 3.2. CAIRO AIRPORT COMPANY (CAC) AIRPORT....................................................................................................................... 16 3.2.1. Assumptions ..................................................................................................................................................................................... 16 3.2.2. Results ................................................................................................................................................................................................ 17 3.3. EGYPTIAN AIRPORT COMPANY (EAC) AIRPORTS ........................................................................................................... 19 3.3.1. Assumptions ..................................................................................................................................................................................... 19 3.3.2. Results for Individual Airports ................................................................................................................................................. 20 3.3.3. Results for Airport Groupings ................................................................................................................................................... 24 3.4. SUMMARY OF RESULTS .............................................................................................................................................................. 26 4. RECOMMENDED TRANSACTION STRUCTURES ....................................................................................................... 28 4.1. CAIRO INTERNATIONAL AIRPORT MANAGEMENT CONTRACT ................................................................................ 29 4.2. REGIONAL AIRPORT GROUP BOT CONCESSION ............................................................................................................... 30 APPENDIX A – ANNUAL CASH FLOW SHEETS ..................................................................................................................... 33 IOS PARTNERS, INC. REPORT 6 - PAGE | 3 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 LIST OF TABLES Table 1 –Applicability of PPP Options as Each Airport on an Individual Basis ................................................12 Table 2 – Summary of Financial Analysis Results for Cairo (CAI) ..........................................................................17 Table 3 – Distribution of Operational Expenditures in Base Year (2016) ..........................................................19 Table 4 – Assumed Growth Ratios for OPEX as a Percentage of Passenger Growth ......................................20 Table 5 – Summary of Financial Analysis Results for Borg El-Arab (HBE) ........................................................21 Table 6 – Summary of Financial Analysis Results for Sharm El-Sheik (SSH) ....................................................22 Table 7 – Summary of Financial Analysis Results for Hurghada (HRG) ..............................................................23 Table 8 – Summary of Financial Analysis Results for Sohag (HMB) .....................................................................24 Table 9 – Summary of Financial Analysis Results for Group 1 ................................................................................25 Table 10 – Summary of Financial Analysis Results for Group 2..............................................................................26 Table 11 – Summary of Financial Implications for Government (in US$ ‘000) ................................................26 Table 12 – Risk Assessment for CAI ....................................................................................................................................30 Table 13 – Risk Assessment for Airport Group ..............................................................................................................31 LIST OF FIGURES Figure 1: – Location of Potential PPP Projects ...............................................................................................................10 IOS PARTNERS, INC. REPORT 6 - PAGE | 4 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 APPROVAL We, the undersigned, acknowledge that we have reviewed the Report 6: Potential PPP Alternative Schemes For a Selection of Airports for the Consulting Services for Master Plan Study for Egypt Future National Airports Development and identification of a Pipeline of Potential Public-Private Partnerships and hereby provide our approval. Signature: Date: Print Name: Title: Role: REMARKS AND OBSERVATIONS (if any): IOS PARTNERS, INC. REPORT 6 - PAGE | 5 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 ACKNOWLEDGEMENTS This document was prepared by the team led by IOS Partners, Inc., an international economic development consultancy firm, together with Talaat & Imam Consulting Engineers, for the World Bank (WB) and the Egyptian Holding Company for Airports and Air Navigation (EHCAAN). This document presents the sixth deliverable for the project, with the different potential PPP alternative schemes for the targeted airports, leading to the recommendation of preferred PPP schemes. The report intends to serve as an important milestone for the ongoing effort to provide the Consulting Services for Master Plan Study for Egypt Future National Airports Development and identification of a Pipeline of Potential Public-Private Partnerships. The Project has been funded by the World Bank. We would like to express our appreciation for the collaboration and facilitation of project documents and meetings, and support provided during field mission in Egypt, which we received from the World Bank and the Egyptian Holding Company for Airports and Air Navigation (EHCAAN). In particular, we would like to extend special thanks to Mr. Charles Schlumberger, WB TTL; Mr. Sami Ali, WB Senior Operations Officer; Mr. Sherif Fathy, The Minister of Civil Aviation; Eng. Mohamed Said Mahrous, Chairman of EHCAAN; Mr. Magdy Ishak Azzer, Chairman of CAC; Mr. Mohamed Sallam Musilhy, Chairman of EAC; Mr. Mohamed Abbas Soliman, Chairman of NANSC; Eng. Abdelhamid Allam, Chairman of AVIT; Mr. Mohsen E. Zaki, EHCAAN PMU Director; Mr. Tarek Abd El Hady, EHCAAN PMU; Mr. Hossam Soliman, EHCAAN, Procurement Officer; Mr. Atter Hannoura, Director of the PPPCU, Ministry of Finance; Ms. Affaf Ghabbour, Director of Passenger Services, Egyptian Airports Company; the Ministry of Civil Aviation and other relevant stakeholders. DISCLAIMER The findings, interpretations, and conclusions expressed in this document are entirely those of the authors and should not be attributed in any manner to the World Bank or to the Egyptian Holding Company for Airports and Air Navigation (EHCAAN). The World Bank and the EHCAAN do not guarantee the accuracy of the data included in this document nor do they accept responsibility for any consequence of its use. IOS PARTNERS, INC. REPORT 6 - PAGE | 6 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 GLOSSARY OF ABBREVIATIONS ABS Abu Simbel Airport ASW Aswan Airport ATM Aircraft Movements AVIT Aviation Information Technology AZT Asyut Airport BOT Build-Operate-Transfer CAC Cairo Airport Company CAI Cairo International Airport EAC Egyptian Airports Company EHCAAN Egyptian Holding Company for Airports and Air Navigation HBE Borg El-Arab Airport HMB Sohag International Airport HRG Hurghada International Airport IRR Internal Rates of Return LXR Luxor International Airport LE Egyptian Pound LP Limited Partnerships NANSC National Air Navigation Services Company NPV Net Present Values OECD Organization for Economic Co-operation and Development PPP Public-Private Partnerships PPPCU Public Private Partnerships Central Unit, Ministry of Finance PSC Public Sector Comparator SDF Service Development Fund SSH Sharm El-Sheik Airport TDA Tourism Development Authority TOR Terms of Reference VfM Value for Money WB World Bank IOS PARTNERS, INC. REPORT 6 - PAGE | 7 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 1. INTRODUCTION 1.1. OVERALL PROGRAM AND ASSIGNMENT BACKGROUND The main objective of this project is to support the Government of Egypt’s efforts to rationalize its future interventions in the Egyptian aviation sector, through the development of a National Airports Master Plan for Egypt and identify a pipeline of potential Public-Private Partnerships. Air Transport plays an important role in the Egyptian Economy, particularly, for the development of tourism and tourist related activities given that 80 percent of tourists arrive in Egypt by air. The fast growth in Tourism traffic during the 2000’s, reaching an all-time record in year 2010, led to the planning of several airport extensions intended to eliminate capacity constraints. However, the drop-in air traffic in 2011 following collapse of tourism in the aftermath of the Egyptian Revolution, and the sluggish recovery ever since, exacerbated by other more recent events, has pushed the Government to rethink its programs in light of emerging priorities. In particular, the Government would like to rationalize its future interventions in the sector through the development of a financially sustainable Airport Master Plan to guide long-term planning and the prioritization investments. The proposed Plan will assess and prioritize options for accommodating future capacity and level of service requirements, including increasing capacities of existing sites vs. developing new locations, as well as optimizing the operational patterns to harness potential complementarities between airports with the aim of enhancing the economic and financial viability of the investments and the sustainability of the Egyptian aviation sector. Parallel to this, the Government also intends to boost airport productivity and efficiency, through the involvement of private sector in the management of some of the country’s largest international airports, as well as the cargo facilities. The latter’s knowhow and innovative capacity will benefit the sector through the introduction of state-of-the art management techniques and the development of airports revenue streams, especially for areas dedicated to commercial activities. Finally, large capital amounts that may be required for some planned developments that could be raised off Government balance sheet, through the private investment, allowing Egypt to diversify sources and keep scarce public resources for social needs like education or health. A particular challenge will be to explore the possibility of grouping airports that do not have enough passengers with that of main airports to become financially self-sustainable and feasible as a PPP. For the Government’s policies to succeed, conditions related to the legal and regulatory framework will need to be conducive to private sector participation. Optimal procurement options that achieve value for money will be identified. Schemes that are more conducive to PPP shall be identified, along with an assessment of financial feasibility. 1.2. PURPOSE OF REPORT This report corresponds to the sixth deliverable of the study and covers Task 6: Appraisal of Different Potential PPP Alternative Schemes. The primary objectives of this task/report are to conduct an appraisal of the different potential PPP alternative schemes for the targeted airports identified in the previous task, leading to the recommendation of preferred PPP schemes. As defined in the Terms of Reference, this appraisal includes two primary components: 1. A detailed cash flow analysis to determine the financial feasibility of each potential project and PPP scheme from the point of view of both the government and private investor 2. An assessment of the allocation of risks between the public and private sector for each project. IOS PARTNERS, INC. REPORT 6 - PAGE | 8 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 2. PROJECT SCREENING AND IDENTIFICATION 2.1. INITIAL SCREENING OF POTENTIAL PROJECTS During the previous task of this consultancy, the IOS Partners team carried out a preliminary screening of potential projects in the Egyptian Airport sector in terms of the applicability of utilizing PPP modalities from the point of view of both the Government and the private sector. This initial screening covered all the large and medium sized airports currently managed by CAC and EAC, based on the categorization utilized in this study.1 The airports were:  Cairo (CAI)  Borg El-Arab (HBE), serving the Alexandria area  Sharm El Sheik (SSH), serving the primary tourism destination in South Sinai  Hurghada (HRG), serving the primary tourism destination on the Red Sea  Aysut (AZT), serving the Nile Region  Sohag (HMB), serving the Nile Region  Luxor (LXR), in Upper Egypt  Aswan (ASW) in Upper Egypt  Abu Simbel (ABS) in Upper Egypt The primary conclusions of this preliminary screening can be summarized as follows:  HBE, SSH, HRG and CAI all offer good potential for a possible PPP and deserve further consideration both on an individual basis and possibly as part of a group of airports. There are some differences between these airports worth noting: o Only SSH received greater than 60% of the points available for meeting government objectives. The relatively low points received for that criteria is that none of these airports require outside financing or private sector involvement to be able to finance the estimate required capex. o SSH and HRG may be somewhat less attractive to the private sector than CAI or HBE because future revenues are more highly dependent on a single sector of the economy (tourism) and have proved very sensitive to the impact of exogenous events.  The three Upper Nile Airports (LXR, AWS and ABS) very clearly did not meet the minimum requirements for further consideration. They are also much less likely to work as a PPP for a group of airports. The primary constraint is that the traffic risk is too high to attract investors given the extremely high variability in traffic in recent years and a large uncertainty over whether the tourism markets will recover anytime soon (if ever).  The same is not quite as true for HMB, whose traffic growth has generally been much more stable even with the occasional off year, and whose hinterland overlaps significantly with the smaller AZT (and in fact, traffic was diverted to HMB when AZT closed for major works during much of 2015). But the preliminary financial analysis carried out as part of Step 1 would indicate HMB and AZT may not be feasible on an individual basis, but may be more attractive if included as part of a PPP covering a group of airports. 1 While the grouping of larger and smaller airports under the same PPP is a strategy that has been applied successfully elsewhere. in this case insufficient information was available to apply the initial screening criteria to the smaller airports. Though usually in these cases, even the smaller airports do have more scheduled traffic than most of those in the current EAC system. Marsa Alam Airport was not included both due to lack of financial information and because it is currently being operated successfully under a BOT concession. IOS PARTNERS, INC. REPORT 6 - PAGE | 9 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 o AZT will likely require outside financing (whether government subsidies or private capital), which makes its inclusion in a PPP more attractive from the point of view of the EAC and the Government, but much less attractive from the point of view a private investor. o HMB is in a slightly better financial situation, which means it may be less critical to obtain private capital, but it is also unlikely to generate significant returns for that investor. In sum, the airports passed through this initial screening as having potential for an individual airport PPP were CAI, HBE, SSH, HRG, and HMB, though this last has to be considered a borderline case. In addition, two groups of airports were considered: Group 1: HBE, HRG, SSH and AZT, Group 2: HMB and AZT. By grouping AZT into one PPP covering multiple airports, at least investors who would be reluctant to go into AZT with the larger HMB as competition for part of their market can be convinced otherwise. As seen from the analysis, such bundling is needed anyway to get revenues for AZT which operates in the red year in and out. The following map shows the location of each of the airports and groups analyzed in this report. Figure 1: – Location of Potential PPP Projects These projects that passed this first hurdle have been subjected to a more detailed analysis in this report that includes a more detailed assessment of risks and a more complete financial modeling of different potential PPP alternative schemes applicable at the targeted airports and. In effect, the main IOS PARTNERS, INC. REPORT 6 - PAGE | 10 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 criteria evaluated in the initial screening cover the questions addressed by these other criteria more generally, while the final assessment in in this report addresses these questions in much greater detail. 2.2. ASSESSMENT OF POTENTIAL PPP SCHEMES As indicated previously in Figure 1, Step 2 in the screening process involves assessing the applicability of alternate PPP options or schemes to each of the preselected projects in the pipeline. An initial assessment of the applicability of different PPP modalities given the existing legal and institutional framework was carried out as part of Task 4 of this study. This assessment identified the following three models of PPPs that can be considered potentially most appropriate for application in the Egyptian airports: 1. BOT Concession: For cases of Greenfield or Brownfield Airport facilities with significant infrastructure investment requirements to be developed by the EAC or CAC, the establishment of BOT concessions regulated by Law No. 3 of 1997 remains a valid option to consider. The Marsa-Alam airport would represent a successful application of this model that already exists in Egypt. As an alternative for cases of the future conversion of airports operated by the Ministry of Defence to civilian use, BOTs regulated by the Public Private Partnership Law No. 97 of 2010 would also be an option to consider. 2. Management or Operation & Maintenance Contracts: In which the EAC contracts with a private partner to manage, operate and/or maintain the airport. Unlike previous Egyptian experiences, key factors that should be considered as part this scheme include: a) Having longer contracting periods (in the order of at least 10 years), which allow the development of medium and long-term business strategies; b) Ensure the independence and autonomy of the operator in decision making, planning, budget management, human resources, among others; c) The establishment of mandatory minimum service standards, which adequately represent the PPP success criteria, in the short term (for example, profitability) as the long term (for example, sustainability). Management contracts can call for all future capital improvements to be carried out by the contracting party (CAC or EAC) as has been the case of previous such contracts in Egypt, or alternatively require the PPP to manage and finance any needed expansions, rehabilitations and other improvements to airport facilities with at least some private resources. This last alternative allows accessing private sector knowhow and capital without implementing a full BOT concession. 3. Corporatization: The establishment of public corporations to develop and operate the airports. A first step in corporatization has already been taken, by creating the EAC and transforming the Cairo Airport Authority into the CAC. However, one of the possible PPP schemes to be used would involve converting the EAC into a holding company, composed of companies, each of which has as its object the operation of an airport (or a group of airports whose grouping is economic and operationally advisable), so that this facilitates the development of PPPs through the sale of subsidiary companies share packages, which allow the incorporation of "strategic" partners, whether they are experienced in airport operations or with the ability to generate traffic volumes that could be key to make the operation of the airport profitable (as they could be large charter companies or tour operators). The applicability of each of these modalities to the prospective PPP airport projects when taken on their own is summarized in the following table. The applicability of each PPP option at each airport is rated as High, Medium, Low, or None. IOS PARTNERS, INC. REPORT 6 - PAGE | 11 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Table 1 –Applicability of PPP Options as Each Airport on an Individual Basis Airport Applicable PPP Options Discussion (1) (2) (3) BOT Mgmnt Corp. Cairo (CAI) Low High n/a Cairo already operates as a public corporation, with several PPP and strategic partners for offering specific services. With recent infrastructure expansions, including a new passenger terminal, it has enough capacity to handle forecasted traffic through 2037. Given the lack of required major infrastructure expansions during the planning period, the primary alternative would be a Management or O&M contract, with the characteristics outlined in this section (in contrast with the previous management contracts signed with FRAPORT and Munich). These contracts could include potentially responsibility for all major rehabilitation works investments. Borg El-Arab (HBE) High Med. Low As HBE requires significant investments right from the beginning of a potential PPP and throughout the concession period, a BOT type concession would be very applicable. A Management Contract might offer potential operational improvements, but would require a more complex financing of these works. Sharm El Sheik (SSH) High Med. Low Very similar to HBE, with large significant investments required from the beginning of the period up through the mid-2030’s. Hurghada (HRG) Med. High Low Hurghada only requires capacity related expansion of facilities in the longer-term, though there may be significant rehabilitation works in the short to medium-term. A management or administration contract that gives a private operator the responsibility for these investments may be the most appropriate option. Aysut (AZT) None Low Low AZT does require important expansions of the apron, so a BOT type concession could be applicable. The primary limitation in this case is that the airport is very unlikely to be financially self-sufficient if bid out on its own, requiring significant subsidies. Even then it may be too small and with limited growth potential to be attractive to private investors. Sohag (HMB) Low Med Low Sohag Airport is similar to Cairo in that it should have sufficient capacity to handle projected traffic levels through 2037. Therefore, a similar management or operations contract would be suitable. But unlike Cairo, the airport does not generate significant cash flows, and given its smaller size, may not be as attractive as an investment opportunity. It should be noted that while HGR, AZT, and HMB were not found suited to a BOT type contract on an individual basis, this does not preclude them from being included in one of the groups described in the previous section under a BOT concession. IOS PARTNERS, INC. REPORT 6 - PAGE | 12 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 3. FINANCIAL ANALYSIS 3.1. GENERAL APPROACH This section presents details of financial cash flow modelling developed to assess the feasibility of the potential airport PPP projects that made it through the first step of the screening process, considering different PPP schemes. Models were developed to estimate the value of cash flows generated from data furnished in official financial statements, over the project horizon for individual airports and groups of airports, from the perspective of both the government and potential private parties. While prior analyses for Reports 2 and 5 provided input on the condition of projected/assumed financial sustainability (or not) for the individual assets, the purpose of the more detailed analysis carried out for this report is to indicate measures for the airport owners’ regarding a scope of transaction value – either individually or as grouped, with the private sector. Audited financial documents and additional current and historical financial information provided by EHCAAN and the EAC for existing rate structures, revenues and operating expenditures at the subject airports were used as input to the modelling. The cash flow projections developed are based on traffic demand forecasts prepared by IOS Partners and presented earlier in Report 2 of this consultancy. The analysis of the cash flows focuses on yearly EBITDA performance. The Earnings that were modeled are net “free” cash flows, after operating revenues and expenses and after capital expenditures (assumed by the models), but are before Interest, Taxes, Depreciation and Amortization. EBITDA is the standard parameter of free cash flow which is viewed the most important for measuring operating performance and sustainability of both public and private operators of commercial airports. Net Present Values (NPV) and Internal Rates of Return (IRR) of the net cash flows generated were calculated for the range between 2020 to 2037, after application of the capex assumptions presented in Task 5 of this report. Therefore EBITDA – CAPEX generally, is the “net annual” item in the cash flow (See note regarding the Service Development Fund, below). It should be noted that as traditional PPP decision making falls importantly to those in view of value- for-money (VfM) propositions made from the private sector – viewed against a well-established Public Sector Comparator (PSC), the “transactions” visualized herein do not involve a presumption of needed external financing to be raised or of major risk taking by the private parties in view of significant capex requirement over the years – which significant requirement does not exist. Value will be from premiums paid for either leasehold or operating exclusivity of the assets in view of the NPV’s, proposed cost efficiencies and the quality of infrastructure services proposed. Regarding the cash flow projections and discounting, all values computed are in current dollar terms at the time of this writing, and current cost of capital for the discount rate (Egyptian government/owner’s perspective), as well as presumed discount rates required by the private participants in relation to perceived risk at the respective airports or group of airports. The viewpoint of the private participant or “Concessionaire” is presumed to reflect best practice infrastructure investment. As stated, the impact of depreciation, interest payments and tax payments has not been considered in this net free cash flow analysis. The analysis conducted should not be considered an “investment” grade analysis and the results should not be used for making investment decisions. The inputs and methodology for extrapolation and analysis are summarized as follows:  The accounting statements furnished by ECHAAN and EAC provide two base years of financial performance for the modelling. These base years’ performances are more fully discussed in those previous reports. IOS PARTNERS, INC. REPORT 6 - PAGE | 13 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  The base years were extrapolated over a 20-year horizon from 2018 to 3037, with 2020 presumed to be the first year of a contract with the private sector – and hence the beginning of the above-mentioned range and PSC that represents the owners’ value during the selected horizon under a “continue as is” scenario.  The detailed traffic demand data were embedded in the models, providing inputs on international and domestic passenger traffic, departures and in-transit, and international and domestic air traffic movements (ATM)s over the study horizon. While data were installed into the models for analyses of low, medium and more ambitious scenarios, the results of this study were from activating the medium “most likely” demand scenario.  Two years (2016 and 2017 for CAC; 2015 and 2016 for EAC) of base year Egyptian Pound (LE) accounting data for financial performance (all revenues and costs) were made available for most airports (excepting HMB, as explained below). These figures were converted to $US using the appropriate exchange rate for each of the years.  The most recent year of accounting data (i.e. 2017 for CAC; and 2016 for EAC) became the base year performances to extrapolate.  The two years of accounting data were averaged and divided by either total departing passengers, or in the case of landings, parking and harbourage – one half of total ATM’s as an estimate of aircraft landings. These provided line by line ratios for operating performance for all years after the base year for each journal item of accounting data – covering all operating revenues and costs.  Tariffs for departing passengers provided unit rates for aeronautical passenger revenue. Revenue multipliers were also created that established the factors for average landing fee, parking and harbourage revenue per landing. Landing fee revenues per aircraft landing were made to grow 0.5% each year as a reflection of expected changes in the fleet mix over time. Parking and harbourage were estimated as a fixed percentage of annual landing fees.  Similarly, base year and ratios were established for all non-aeronautical revenue items being ground handling, jetway, car parking, rents and concessions and miscellaneous revenues (misc. revenues being the actual journal name used in the CAC accounting statements).  With the exception of landing fees as mentioned above, the revenue modelling unit prices were not escalated. This is consistent with a regime of regulated, stable passenger tariff. Revenues in the model grew by virtue of demand growth.  Once all unit rates were established, they were multiplied annually by the factors either annual departing passengers from the demand projections (for computing annual departure fees, all non-aeronautical revenues and all opex), or one-half of annual ATM’s for landings also from the demand projections (for computing annual landing fees, parking and harbourage).  In a similar fashion to revenue items, all cost accounting items were established, and ratios computed for their extrapolation over the years. As the cost accounting convention differs somewhat between CAC and EAC, and capital expenditure (capex) are unique to each airport, these costs are summarized more in detail in the CAC and EAC analysis discussions presented below.  The analyses involve more than one fundamental independent variable. Chief among them are traffic scenarios, discount rate, revenue enhancement and O&M efficiencies. These variations extend to and change in the private participant modelling that was performed – that simulated the growth in both revenues (non-aero) and cost efficiencies assumed under the private participant scenarios.  Discrete variations in the accounting treatment of and therefore effects on cash flow of the Service Development Fund (SDF) for CAC, and “Burdens and Losses” by EAC, also exist as main independent variables – and are discussed below.  For the base case PSC analyses, for both CAC and EAC: cost stabilization is assumed attained and for 2020 and beyond further gain in cost efficiencies is therefore zero. IOS PARTNERS, INC. REPORT 6 - PAGE | 14 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  Further gains in both cost and non-aeronautical revenue efficiencies are assumed under the private participant scenarios. The extent of these gains was estimated utilizing an IOS Partners database containing operational expenditure and revenue data in the years immediately prior to and during the first 5 to 10 years following a transfer from a parastatal airport authority to a private operator. Data was used from a sample of over 20 international airports in low to high middle-income countries worldwide with traffic levels ranging from 0.5 million to over 20 million annual passengers.2 Though there are some clear variations in the data from country to country (i.e. efficiencies in personnel costs tended to be higher in India than in Latin America), there are some clear general trends that allow extrapolating potential efficiencies in Egyptian airports.  Economies of scale assumptions were also made in the case of operational expenses for both the PSC and PPP analysis. These took the form of assumptions as to the rate of growth of these cost items in comparison to the projected rate of growth of passenger traffic. Because many OPEX items are more closely related to the size of facilities than traffic levels, airports that require less infrastructure expansion can potentially achieve a greater difference between expenses and traffic growth.  The main dependent variables in the analyses are the resulting NPV’s of the owners (CAC and EAC) and NPV’s of the presumed private parties and the estimated threshold return on investment for the private parties or IRR’s.  Assumptions were made that help target the private parties’ IRR. Research indicates perhaps a current 13% equity risk premium in Egypt. This is for market securities. Added to an OECD PPP private equity return requirement of assumed 12% for infrastructure investment (with demand risk), an IRR of 25% could be the likely result.  It was assumed that traffic risk is particularly high for tourism-oriented airports such as HRG and SSH, as the historical data shows a high sensitivity to exogenous events. The traffic risk is considerably lower at airports with more diverse traffic such as CAI and HBE. Airports like AZT and HMB are somewhere in between, particularly if grouped together. These two airports have overlapping hinterlands and while they have had high variability in historical traffic levels when looked at individually, traffic growth has been more consistent when they are summed together. Considering the potential impact of traffic demand risk on equity (and debt) risk premiums, it was assumed reasonable to target the following minimum IRR’s for a private concessionaire/investor (the same being their discount rates): o HRG, SSH, HMB (on its own) 25% o The two groupings 22% o CAI and HBE 20%  Note that these IRR targets are associated with the overall weighted average cost of capital (WACC), considering that the private equity combines with leveraging (ideally provided as much as possible from the domestic commercial banking sector). The use of “private participant or party” in the Report is in fact meant to reflect the fact that returns are not just to the private operator but include earnings to both lenders and operators. (The term private party is used interchangeably in the Report with “Concessionaire”)  The actual returns to the private equity component will be proportionally higher due to the leveraging. Considering a customary split of overall capitalization in airport PPP’s to be 2/3 debt which is lower in cost than the equity (1/3 of the balance amount), the weighted effect of cost- times-size benefits the equity. The 2/3 size of debt at lower cost however, for all practical purposes, keeps the WACC for the private party at the above levels for IRR, and these were used in the cash flow analyses. 2 The sample includes airports such as New Delhi, Mumbai, and Bangalore (India), Belo Horizonte, Rio de Janeiro, Guarulhos, Brasilia (Brazil), Lima (Peru), Santiago (Chile), San Jose (Costa Rica), the 9 airports that conform the Southeastern Airport Group based in Cancun (Mexico), as well as additional Asian airports for which the information was provided on a confidential basis. IOS PARTNERS, INC. REPORT 6 - PAGE | 15 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  Considering current conditions in the country, these are assumed the minimum acceptable. For their part, banks will add substantial basis points for specific country risk premium when pricing their loans. For an airport PPP in Egypt, where there has been a historical reluctance at times to allow foreign involvement in some airports for “security reasons”, such risk premiums could even be cost prohibitive for that airport. One method for mitigating this risk and possibly these premiums is that the concession contract protects the foreign investor by assuring that they will be properly compensated should the GOE terminate the contract prematurely for security or other issues. The current airport BOT contracts do include clauses to this effect.  Significant tranching with subordinated debt or mezzanine capital (each at higher cost), in addition to senior loans would not be unusual and could be entirely likely to see in PPP transaction financings for these airports under those circumstances – because the senior lenders would require such credit enhancement to comfort their debt service coverage projections in view of the risks. All in all, the costs of financing add up and if too high they render a project financially infeasible.  Considering the different capitalizations of debt and equity financing was beyond the scope of this study – it is noted however that in an era of infrastructure funds that are growing globally including albeit to a lesser degree in Africa … all with institutionally funded Limited Partnerships (LP)’s, equity risk premium is lower for the quantum of domestic borne pension and insurance LP sources investing in the funds. There are a number of funds already investing in Africa, funded by LP’s outside of Egypt who will have appetite for these airports if there is sufficient risk transfer in their favour (shown by continued government attention to the fundamental sovereign-based risks of infra investment for which Egypt officials are well aware that it will absorb in risk-transfer – and sufficient Multi-Lateral Development Bank partial risk guarantees and backstop that the LP’s may need to see). What this means is the potential for a higher transaction payment to the Egyptian government by each such capitalization (for lower WACC) compared to those currently assumed in this study. . 3.2. CAIRO AIRPORT COMPANY (CAC) AIRPORT Further assumptions and methodology particularly for extrapolating both PSC and Concessionaire net annual cash flows at CAI are explained, followed by a discussion of the analysis results for both the PSC and Concessionaire, and resulting transaction values for CAI. 3.2.1. Assumptions Revenues and costs at CAC were extrapolated out to 2037as discussed above, for CAC operations under the medium traffic forecast scenario. For operating costs, the CAC accounting ledger includes labor, materials and fuel, maintenance and headquarters expense. For the base case (“continue as is” owner model), conservatively headquarters expense was modeled to increase somewhat each year as a fraction of increases in revenue, specifically 50% of the rate of growth in revenue for the year … e.g. 50% of roughly an annual 4% rate of growth in revenue increased HQ expense by 2% each year (HQ expense in all represents about 13% of revenue). CAC pays into the aforementioned SDF at the rate of 30% of aeronautical revenues earned yearly. Ordinarily for purposes of this type of analysis of free cash flow this would be considered a form of capitalization after free cash flow, so therefore would be added back in to operating revenues – reflecting the true magnitude of operating capacity. To be conservative for this analysis, it was maintained (further comment is provided below). Major CAPEX investment for capacity increases is not expected over the time horizon, but the modeling objective was to assume a reasonable program for rehabilitation. The major maintenance plans for CAC were not provided to allow the identification of the required CAPEX for airfield periodic major maintenance works (runway rehab, aircraft apron rehab, etc.) that will certainly be required at some point during the study period (20 years) given the expected use life of asphalt and concrete pavements. IOS PARTNERS, INC. REPORT 6 - PAGE | 16 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 As it was difficult to pinpoint the timing of these investments without further information on the current condition of this infrastructure, broad assumptions were made for purposes of the financial cash flow analyses. For CAI, rehabilitation was assumed to take place for one runway at a time, with Runway 1 being rehabilitated in 2022, Runway 2 in 2027 and Runway 3 in 2032. The apron works were also split up evenly into two distinct projects in between these runway projects so that the capex doesn’t all fall in the same year. For private participation assumptions, the “PPP scenario”, the following adjustments were made to the base case CAC cash flow model throughout the life of the concession (cash flow horizon), beginning in 2020 to reflect both commercial enhances and efficiency gains by the Concessionaire compared to current operations:  Non-aeronautical revenues car parking and commercial activities, rents and concessions were increased 20% (ground handling and miscellaneous revenues, not increased).  A flat 5% opex efficiency was assumed.  Economies of scale assumptions are that the growth rates in OPEX labor costs were assumed at 60%, materials and fuel at 65%, and maintenance & other, at 60% of the growth rate of passengers.  The above HQ expense adjustment (increase) was maintained.  The “concessionaire’s” discount rate was an assumed at approximately 20% as discussed above. 3.2.2. Results The summary of results is shown in the table below demarcated by the five-year investment modules used in Report 5.3 The full cash flow sheets showing all years are provided in Appendix A. Table 2 – Summary of Financial Analysis Results for Cairo (CAI) CAC ($US 000)'s Annual cash flow, CAC operations* 2022 2027 2032 2037 2020 168,890 218,275 274,002 358,354 Public Sector NPV 1,096,518 * Net cash flow from operations after SDF and capex Discount rate 18% Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 171,960 221,747 277,851 362,561 Concessionaire NPV^ 1,001,151 ** Net cash flow from Concessionaire operations ^ Discount rate % NPV Paid 120% (after same SDF and capex as above) 20% Yields IRR of 20.0% = 1,201,381 Transaction payment to CAC Sensitivity Analysis (Concessionaire NPV and IRR) NPV Reductions in O&M Expenses 1,001,151 0% 5% 10% 15% 20% Discount 18% 1,096,518 1,113,750 1,130,982 1,148,214 1,165,446 Rates 20% 985,539 1,001,151 1,016,764 1,032,376 1,047,989 22% 892,383 906,624 920,864 935,105 949,345 Concessionaire's IRR %'s of NPV Paid by Concessionaire 20.0% 90% 100% 110% 120% 130% Discount 18% 24.6% 21.8% 19.5% 17.6% 16.0% Rates 20% 27.8% 24.7% 22.1% 20.0% 18.2% 22% 31.1% 27.6% 24.8% 22.4% 20.4% 3 Some key investment years may occur between the five-year module years shown and are more evident in the full cash flows shown in the Appendix. IOS PARTNERS, INC. REPORT 6 - PAGE | 17 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 For the base case, starting in 2020, EBITDA margin before capex is 70% of revenue and grows consistently to 77% in year 2037. Revenues are 3 to 4 times operating costs (before SDF deferral and capex spending) year in and year out. As discussed in the prior Reports, CAI is in no need for external financing and value propositions for delivery of significant capex over the years. The analysis demonstrates (as noted in Report 5) that CAI can cover all expenses including projected capex, with ample reserves. Value will be from a premium paid for either leasehold or operating exclusivity of the airport (for purposes of this study are estimated and stated below, using the concessionaire’s target IRR), and quality of infrastructure services and increased operating efficiencies proposed. For the base case PSC (where CAC continues operating the airport), as no upfront CAPEX is included, an IRR was not calculated – as investment outflow is required to compute an IRR calculation. A NPV is computed to $1.1B. A discount rate of 18% was used – sourced from Bloomberg for 2018 average Egyptian sovereign bond financing cost. Average annual net cash flow for CAC is computed at $251M. These are the PSC values for consideration by the owners (that include continued assumed binding payments made into SDF.) The Concessionaire’s cash flow model was then simulated with the previously listed assumptions included for the prescribed PPP scenario of private party operation of the airport. Projecting market value, the analysis computed the Concessionaire’s NPV of the resulting cash flow at its discount rate stated above, 20%. The average annual net cash flow of the PPP scenario was $256M. The model assumed a private transaction proffered at 120% of the NPV ($1.0B) or $1.2B, representing a lump sum payment to the government in exchange for the rights to operate the airport until 2037. This returns an IRR to the private Concessionaire/party of 20%. Given the increased net annual cash flow with the PPP, the estimated transaction payment to the government would be slightly higher than the base case PSC NPV. Sensitivity analyses were run that simulated the impact of: 1. Changes in the discount rate by the Concessionaire. Just a 2% reduction in the discount rate down to 18% can affect NPV positively by $10M 2. An increase is assumed operating efficiencies under private operation. Each 5% increase in efficiencies appears to add approximately $15M in NPV terms. 3. The tradeoffs of change in discount rate and decreases or increases in the percentage of the NPV paid by the Concessionaire for the rights to operate the airport. Interestingly if a Concessionaire perceives risk premium of 2% in either direction there appears a band of negotiating room for CAC between payments of 110% to130% of NPV; with positive outlook on project/sovereign risks more in favor of CAC. Note that if SDF payments are eliminated in the analysis (and added back in to free cash flow), greater value (30% higher in aeronautical revenue each year) is discounted to 2020, resulting in a higher Concessionaire payment to the government. This may be rational considering the analysis also considers the rehabilitation investments detailed in Report 5. With the PPP both carrying out these investments and paying into the SDF, there could likely be duplication. Avoiding the annual SDF deferrals translates to an additional, considerable sum of $415 million (42% additional) in net present value to the Concessionaire, and a similar increase in the upfront payment to the CAC. IOS PARTNERS, INC. REPORT 6 - PAGE | 18 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 3.3. EGYPTIAN AIRPORT COMPANY (EAC) AIRPORTS Further assumptions and methodology for extrapolating both PSC and Concessionaire net annual cash flows at the EAC airports are explained, followed by a discussion of the analysis results for both the PSC and Concessionaire, and resulting transaction values for EAC. 3.3.1. Assumptions As noted in the first section of this report, the four main EAC airports identified as offering potential for individual PPP are HBE, HMB, HRG and SSH. Each of these airports were modeled similarly as CAI above. Two alternate groupings of airports were also modeled: 1. HBE, HRG, SSH and AZT, 2. HMB with AZT. The main inputs and methodology for extrapolation of financial data are as discussed above. For each of these individual EAC airports and groupings under the base case operating scenarios, the following additional assumptions were made, and methodology undertaken.  As discussed in Report 2, EAC accounting convention includes a cost item named ‘Burdens and Losses’ as a part of operating costs, that is not insignificant. Requests for clarification were made to determine its makeup, without response. Conservatively for this analysis, the costs were maintained – but ordinarily it would be assumed that burdens are likely a form of capitalization – such as loans and commitments and should not be deducted when reflecting free cash flow. The following table shows the Burdens & Losses percentage of-total revenue for the base year (2016) at each airport; in view of the other cost percentages, which are valid operating costs according to convention, the magnitudes for Burdens affect this analysis. The ‘results of analysis’ discussed below include the effects of reducing the Burdens & Losses line item by 50%, in the alternate combined airport groupings of the PPP Scenario(s). Table 3 – Distribution of Operational Expenditures in Base Year (2016) Operational Expenditures HRG SSH HMB HBE AZT Labor costs 6% 7% 4% 4% 44% Materials & Fuel 4% 5% 0% 2% 11% Maintenance & Other 20% 15% 1% 11% 44% Burdens & Losses 13% 26% 12% 17% 107% Headquarter Expenses 5% 4% 0% 6% 5% The following assumptions were made as regards the estimated subject EAC airport CAPEX used in the analysis:  CAPEX investment for capacity increases is taken from Report 5 (with exception of HMB, where no capacity investments were projected).  In addition, as was the case with CAI, the airports were modelled assuming a reasonable program of major maintenance and rehabilitation (runway rehab, aircraft apron rehab, etc.), using broad assumptions as to the timing of works given the lack of information on the current condition of airside pavements. As runway rehabilitation tends not to be spread out over multiple years, the airports with one asphalt runway were assumed, for purposes of the analysis, to have entire resurfacing taking place in 2027. Concrete aprons were assumed to be rehabilitated in two equal parts, in 2022 and 2032, to spread out the CAPEX.  In the case of SSH and HRG, the capex for Runway 1 was assumed in 2025 and Runway 2 in 2030, with the apron works split between 2027 and 2032. The results of the financial cash flow analyses for the subject airports are summarized as follows. IOS PARTNERS, INC. REPORT 6 - PAGE | 19 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  With the exception of AZT, the airports are in no need for external financing, and none warrant value propositions for delivery of significant capex over the years. The analysis confirms that the airports cover all expenses including projected CAPEX, with reserves remaining. Value will be from a premium paid for either leasehold or operating exclusivity of the airport(s), and quality of infrastructure services and increased operating efficiencies proposed.  Summary PSC NPV and annual net cash flow are shown within the Tables of the PPP scenario discussion below, for ease of comparison between the PSC and PPP scenarios. As in CAC above, the summary of results is for the five-year investment modules used in Report 5, for sake of simplicity.4 The full cash flow sheets showing all years are provided in Appendix A.) For the PPP scenario(s) of each of these individual airports and groupings the following was undertaken upon the above discussed base case cash flow models. As was the case with CAI, the following adjustments were made to the EAC airports base case revenue and cost accounting items throughout the life of the concessions (cash flow horizons), beginning in 2020 to reflect both commercial enhancements and efficiency gains compared to current operations:  Non-aeronautical revenues car parking and commercial activities, rents and concessions were increased 20% (ground handling and miscellaneous revenues were not increased).  A flat 5% OPEX efficiency was assumed.  The above discussed HQ expense adjustment (increase) was maintained. Additionally, the growth rate of operating costs as a percentage of passenger growth were assumed as follows to these levels compared to the base case for each of the EAC airports: Table 4 – Assumed Growth Ratios for OPEX as a Percentage of Passenger Growth HBE SSH HRG HMB AZT Labour Costs 80.0% 80.0% 70.0% 60.0% 60.0% Materials & Fuel 70.0% 75.0% 70.0% 65.0% 65.0% Maintenance & Other 80.0% 80.0% 70.0% 60.0% 60.0% The net annual cash flows were discounted for the Concessionaires’ NPV’s. The Concessionaires’ discount rates were input in accordance with the above discussed rate of return targets for each airport or grouping. A projection of market value was then made, for which the analyses assumed private transactions proffered at a percentage of the Concessionaire’s computed NPV … in the form of a lump sum payment to the government in exchange for the rights to operate the airport (or airports) until 2037. The IRR to the Concessionaire was computed, which generally is equal to the discount rates. Similar to CAC, sensitivity analyses were run that viewed the impact on NPV of changes in discount rates and increased operating efficiencies, as well as the impacts of changes in the percentage of NPV paid by the Concessionaire. 3.3.2. Results for Individual Airports The results of the financial cash flow analyses for each of the four individual airports are summarized below. 4 As in CAC, some key investment years may occur between the five year module years. IOS PARTNERS, INC. REPORT 6 - PAGE | 20 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Borg El-Arab Airport (HBE)  Starting in 2020 EAC operating EBITDA margin before capex is 59% of revenue (which is $40M) and grows to 69% in year 2037. Revenues are 2.5 to 3 times operating costs (before capex spending) year in and year out. The estimated PSC NPV is $142M.  The average annual net free cash flow after CAPEX is an estimated $35M under a PSC scenario, while it is an estimated $37M for the PPP scenario.  Projecting market value upon the completed Concessionaire’s cash flow analysis, the model assumed a private transaction proffered in year 2020 at 120% of the airport NPV ($134M), representing a lump sum payment to the government in exchange for the rights to operate the airport until 2037 of $161M. This returns an estimated IRR to the private party of 20%.  Given the increased net annual cash flow, the Concessionaire transaction payment to the government is higher than the base case PSC NPV. The lower risk translating to lower discount rate assumption (equal to that for CAI) moreover is the driver for the relatively significant premium to EAC. The following table summarizes the results of the financial cash flow analysis including sensitives for HBE. Table 5 – Summary of Financial Analysis Results for Borg El-Arab (HBE) HBE ($US 000)'s Annual cash flow, EAC operations* 2022 2027 2032 2037 2020 1,131 17,411 34,914 55,808 Public Sector NPV 141,485 * Net cash flow from operations after capex Discount rate 18% Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 2,757 19,415 37,328 58,676 Concessionaire NPV^ 133,885 ** Net cash flow from Concessionaire operations ^ Discount rate % NPV Paid 120% (after same capex as above) 20% Yields IRR of 20.0% = 160,662 Transaction payment to CAC Sensitivity Analysis (Concessionaire NPV and IRR) NPV Reductions in O&M Expenses 133,885 0% 5% 10% 15% 20% Discount 18% 146,121 149,882 153,643 157,404 161,164 Rates 20% 130,532 133,885 137,237 140,590 143,942 22% 117,540 120,548 123,557 126,566 129,575 Concessionaire's IRR %'s of NPV Paid by Concessionaire 20.0% 90% 100% 110% 120% 130% Discount 18% 24.1% 21.6% 19.4% 17.7% 16.1% Rates 20% 27.2% 24.3% 22.0% 20.0% 18.3% 22% 30.5% 27.2% 24.6% 22.4% 20.5% Sharm El-Sheik (SSH)  Starting in 2020 EAC operating EBITDA margin before capex is 63% of revenue (which is $92M) and grows to 71% in year 2037. Revenues are 2 to 3.5 times operating costs (before capex spending) year in and year out. The estimated PSC NPV is $364M. IOS PARTNERS, INC. REPORT 6 - PAGE | 21 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  The average annual net free cash flow after CAPEX is an estimated $83M under a PSC scenario, while it is an estimated $91M for the PPP scenario.  Projecting market value upon the completed Concessionaire’s cash flow analysis, the model assumed a private transaction proffered in year 2020 at 125% of the airport NPV ($283M), representing a lump sum payment to the government in exchange for the rights to operate the airport until 2037 of $354M. This returns an estimated IRR to the private party of 25%.  Despite increased net annual cash flow, the Concessionaire’s transaction payment as estimated to EAC is lower than the base case PSC NPV due to the assumed discount rate and return requirement. As shown by the sensitivity results in the table below, a 2% reduction in discount rate drives the Concessionaire’s NPV up to $310M. A 23% return would increase the transaction payment offer to $380M. Table 6 – Summary of Financial Analysis Results for Sharm El-Sheik (SSH) SSH ($US 000)'s Annual cash flow, EAC operations* 2022 2027 2032 2037 2020 57,654 55,666 75,559 117,440 Public Sector NPV 363,700 * Net cash flow from operations after capex Discount rate 18% Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 64,317 63,816 85,174 128,041 Concessionaire NPV^ 283,404 ** Net cash flow from Concessionaire operations ^ Discount rate % NPV Paid 125% (after same capex as above) 25% Yields IRR of 25.0% = 354,254 Transaction payment to CAC Sensitivity Analysis (Concessionaire NPV and IRR) NPV Reductions in O&M Expenses 283,404 0% 5% 10% 15% 20% Discount 23% 303,497 309,601 315,705 321,809 327,913 Rates 25% 277,870 283,404 288,937 294,470 300,004 27% 255,886 260,929 265,972 271,014 276,057 Concessionaire's IRR %'s of NPV Paid by Concessionaire 25.0% 100% 110% 120% 130% 140% Discount 23% 29.2% 26.2% 23.7% 21.6% 19.8% Rates 25% 32.4% 29.0% 26.2% 23.9% 21.9% 27% 35.7% 31.9% 28.8% 26.3% 24.1% Hurghada (HRG)  Starting in 2020 EAC operating EBITDA margin before capex is 51% of revenue (which is $100M) and grows to 59% in year 2037. Revenues are 2 to 3 times operating costs (before capex spending) year in and year out. The estimated PSC NPV is $352M.  The average annual net free cash flow after CAPEX is an estimated $79M under a PSC scenario, while it is an estimated $90M for the PPP scenario.  Projecting market value upon the completed Concessionaire’s cash flow analysis, the model assumed a private transaction proffered in year 2020 at 125% of the airport NPV ($282M), representing a lump sum payment to the government in exchange for the rights to operate the airport until 2037 of $353M. This returns an estimated IRR to the private party of 25%. IOS PARTNERS, INC. REPORT 6 - PAGE | 22 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  Despite increased net annual cash flow, the Concessionire’s transaction payment as estimated to EAC is relatively equivalent at best to the base case PSC NPV. This is due to the assumed discount rate and return requirement. As shown by the sensitivity results in the table below a 2% reduction in discount rate drives the Concessionaire’s NPV up to $309M. A 23% return would forward a transaction payment of $380M. Table 7 – Summary of Financial Analysis Results for Hurghada (HRG) HRG ($US 000)'s Annual cash flow, EAC operations* 2022 2027 2032 2037 2020 60,589 66,264 83,843 104,789 Public Sector NPV 351,471 * Net cash flow from operations after capex Discount rate 18% Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 69,235 77,538 97,480 119,947 Concessionaire NPV^ 282,381 ** Net cash flow from Concessionaire operations ^ Discount rate % NPV Paid 125% (after same capex as above) 25% Yields IRR of 25.0% = 352,976 Transaction payment to CAC Sensitivity Analysis (Concessionaire NPV and IRR) NPV Reductions in O&M Expenses 282,381 0% 5% 10% 15% 20% Discount 23% 300,018 308,916 317,814 326,712 335,610 Rates 25% 274,312 282,381 290,450 298,519 306,589 27% 252,234 259,590 266,946 274,301 281,657 Concessionaire's IRR %'s of NPV Paid by Concessionaire 25.0% 100% 110% 120% 130% 140% Discount 23% 29.1% 26.1% 23.7% 21.6% 19.8% Rates 25% 32.2% 28.9% 26.2% 23.9% 22.0% 27% 35.4% 31.8% 28.8% 26.3% 24.2% Sohag (HMB) It’s important to note first that accounting data was not provided for HMB recent years’ operations. The most recent provided that was journaled was for 2014, which was used as a base year for this analysis. (It stood in as “the average” of the “two most recent years” … for the ratio computations for the cash flow extrapolation).  Upon the results of the cash flow extrapolation, starting in 2020 EAC operating EBITDA margin before capex is 82% of revenue (which is $7M) and grows to 87% in year 2037. Revenues are 5 to 7.5 times operating costs (before capex spending) year in and year out. The estimated PSC NPV is $35M.  The average annual net free cash flow after CAPEX is an estimated $8.0M under a PSC scenario, while it is an estimated $8.4M for the PPP scenario.  Projecting market value upon the completed Concessionaire’s cash flow analysis, the model assumed a private transaction proffered in year 2020 at 125% of the airport NPV ($25M), representing a lump sum payment to the government in exchange for the rights to operate the airport until 2037 of $31M. This returns an estimated IRR to the private party of 25%.  The net annual cash flow increases only marginally, and the Concessionaire’s transaction payment as estimated to EAC is lower than the base case PSC NPV – due again as in above mostly to the assumed discount rate and return requirement. As shown by the sensitivity results in the IOS PARTNERS, INC. REPORT 6 - PAGE | 23 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 table below a 2% reduction in discount rate drives the Concessionaire’s NPV up to $27M. A 23% return would forward a transaction payment of $33M – still falling short of the PSC NPV. Table 8 – Summary of Financial Analysis Results for Sohag (HMB) HMB ($US 000)'s Annual cash flow, EAC operations* 2022 2027 2032 2037 2020 4,008 (6,164) 8,362 13,054 Public Sector NPV 34,625 * Net cash flow from operations after capex Discount rate 18% Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 4,121 (6,004) 8,571 13,311 Concessionaire NPV^ 25,006 ** Net cash flow from Concessionaire operations ^ Discount rate % NPV Paid 125% (after same capex as above) 25% Yields IRR of 25.0% = 31,332 Transaction payment to CAC Sensitivity Analysis (Concessionaire NPV and IRR) NPV Reductions in O&M Expenses 25,066 0% 5% 10% 15% 20% Discount 23% 27,141 27,388 27,636 27,883 28,131 Rates 25% 24,841 25,066 25,290 25,514 25,739 27% 22,877 23,082 23,286 23,491 23,695 Concessionaire's IRR %'s of NPV Paid by Concessionaire 25.0% 100% 110% 120% 130% 140% Discount 23% 29.2% 26.2% 23.7% 21.6% 19.8% Rates 25% 32.5% 29.0% 26.2% 23.9% 21.9% 27% 35.9% 32.0% 28.8% 26.3% 24.1% 3.3.3. Results for Airport Groupings Group 1 (HBE, HRG, SSH, AZT) The primary results of the cash flow analysis for this first group of airports are generally positive, as can be seen in the table below. The financial analysis results can be summarized as follows:  The combined PSC NPV for EAC for these airports discounted at 18% is $807M.  For the PPP scenario, the model assumed a private transaction in year 2020 for the four airports at 120% of the combined airports Concessionaire’s NPV ($731M) representing a lump sum payment to the government of $878M in exchange for the rights to operate the airports until 2037. This returns an estimated IRR to the private party of 22.4%.  Beginning in 2020 average annual cash flow from the combined operations under the Concessionaire is $207M.  Demonstrating the effect of reducing the Burdens & Losses line item by 50%, the private transaction for the four airports remains at 120% of the combined airports NPV ($1.36B) representing a lump sum payment to the EAC of $1.63B in exchange for the rights to operate the airports until 2037. The estimated IRR to the private operator should be the same as above and is at 22.4%. IOS PARTNERS, INC. REPORT 6 - PAGE | 24 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  Under this scenario of reduced Burdens & Losses assumed by the PPP, the average annual net free cash flow after capex increases to an estimated $401M.  It is noted also, that judging from the low relative percentage of revenue cost magnitude occupied in each of the headquarters expense accounting lines (see Table 3 above), assuming a reduction of from gained efficiencies from the consolidated leasehold and operations would return proportionally little to the bottom line. Table 9 – Summary of Financial Analysis Results for Group 1 HBE + AZT + HRG + SSH ($US 000)'s UNADJUSTED Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 125,792 136,450 209,356 299,636 Concessionaire NPV^ 731,415 ** Net cash flow from Concessionaire ^ Discount rate % NPV Paid 120% operations (after same capex as above) 22% Yields IRR of 22.4% = 877,698 Transaction payment to CAC ^ average annual is 209,428 HBE + AZT + HRG + SSH ($US 000)'s ADJUSTED - Reduce 50% 'Burdens & Losses' Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 270,409 277,567 407,661 568,485 Concessionaire NPV^ 1,358,989 ** Net cash flow from Concessionaire ^ Discount rate % NPV Paid 120% operations (after same capex as above) 22% Yields IRR of 22.4% = 1,630,786 Transaction payment to CAC ^ average annual is 400,782 Group 2 (HMB and AZT)  The combined PSC NPV for EAC for these airports discounted at 18% is negative $16M.  Upon the results of combining the cash flow extrapolations of two airports under PPP scenario, the average annual net free cash flow after capex is still negative though significantly improved, at negative $28 thousand.  Reducing Burdens and Losses by 50% however allows the average annual net free cash flow to increase to a positive $4.5M, which would generate a NPV of $9.9M. This would translate into a lump sum payment to of $12.0M to the EAC in exchange for the rights to operate the two airports until 2037. This returns an estimated IRR to the private party of 22.3%. In effect, this group would be feasible as a PPP under two scenarios: 1. The EAC or Government provides a subsidy with an NPV of at least $28,000 per year, which is still far below the combined losses that can be expected to be incurred at HMB and AZT with a continuation of the current operating scheme. 2. Only 50% of current Burdens and Losses associated with these airports is passed on to the PPP. These results of the cash flow analysis for key investment years for this second group of airports are presented in the following table. IOS PARTNERS, INC. REPORT 6 - PAGE | 25 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Table 10 – Summary of Financial Analysis Results for Group 2 HMB + AZT ($US 000)'s UNADJUSTED Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 (6,397) (30,323) (2,055) 6,283 Concessionaire NPV^ (8,638) ** Net cash flow from Concessionaire ^ Discount rate % NPV Paid n/a operations (after same capex as above) 22% Yields IRR of n/a = n/a Transaction payment to CAC ^ average annual is (28) HMB + AZT ($US 000)'s ADJUSTED - Reduce 50% 'Burdens & Losses' Annual cash flow Concessionaire** 2022 2027 2032 2037 2020 (2,388) (25,886) 2,746 11,403 Concessionaire NPV^ 9,980 ** Net cash flow from Concessionaire ^ Discount rate % NPV Paid 120% operations (after same capex as above) 22% Yields IRR of 22.3% = 11,976 Transaction payment to CAC ^ average annual is 4,505 3.4. SUMMARY OF RESULTS The following table presents a summary of the results of the financial cash-flow analysis of a potential PPP project at each individual airport, as well as for the two airport groups. This table allows comparison of the projects in terms of the potential generation of revenue for the CAC and EAC under a PPP scheme in comparison to a continuation of the current corporatized and centralized operational scheme. Table 11 – Summary of Financial Implications for Government (in US$ ‘000) Projects PPP Current Scheme Net Difference for Payment to IRR for Net Present Value CAC/EAC CAC/EAC PPP CAC/EAC (*) Individual Airports CAI $1,201,381 20.0% $1,096,518 $104,863 HBE $160,662 20.0% $141,485 $19,177 SSH $354,254 25.0% $363,700 ($9,446) HRG $352,976 25.0% $351,471 $1,505 HMB $31,332 25.0% $34,625 ($3,293) Groups 1 (HBE/SSH/HRG/AZT) $877,698 22.4% $805,223 $72,475 2 (HMB/AZT) ($8,638) negative ($16,808) $8,170 (*) net present value to operations after CAPEX (and SDF in the case of Cairo) Key findings include the following:  For the Cairo, Borg El-Arab and Hurghada Airports, individual PPPs in which a private operator is also responsible for making future CAPEX investments would allow an increase in the net present value for the public corporations responsible for those airports in comparison to the current operational scheme. IOS PARTNERS, INC. REPORT 6 - PAGE | 26 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  In the cases of Sharm El Sheik and Sohag, continued public sector corporatized operation would net available cash flow over the long-term in NPV terms in comparison to individual airport PPPs, though there may still be some value to receiving an almost equal amount up front NPV of the cash flow as payment from the Concessionaire.  The highest net gain from the point of view of the Government (EAC), would be a PPP involving Group 1, which not only would allow receiving an upfront payment of $877M from the Concessionaire, but would net over $72M more than the net present value of available cash flow from those airports under the current scheme. Additionally, this grouping would include the Aysut Airport, which is currently represents a financial burden for the EAC.  Group 2 would require a subsidy from the EAC to the PPP, but one that is less than the subsidies for these two airports required under the current scheme.  It should be also noted that these results for the two airport groupings would be significantly improved under a scenario in which only 50% of the current level of “Burdens and Losses” is passed on to the PPP. Based on these findings, it is recommended that the following two PPP projects be considered by EHCAAN: 1. A Management Contract for a private operator for the Cairo International Airport (CAI), that includes responsibility for major maintenance and rehabilitation. 2. A BOT concession contract for a group of the following medium airports: Borg El-Arab (HBE), Hurghada (HRG), Sharm El Sheik (SSH), and Aysut (AZT). As an option, Sohag (HMB) could also be included in this group without affecting the financial feasibility of the project from either the private sector or government point of view. Though HMB does not require any major infrastructure construction or expansion during the planning period, its market does overlap with that of AZT. The following section presents more details on the recommended preliminary transaction structures for these two projects. IOS PARTNERS, INC. REPORT 6 - PAGE | 27 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 4. RECOMMENDED TRANSACTION STRUCTURES PPPs use market-based approaches to transfer a variety of risks from the public sector to private operators. PPPs operate under legally enforceable contracts between the public and private sectors in which the private business provides a service traditionally furnished by government in exchange for payments which may be made contingent on the delivery of that service. Under a PPP, the government remains accountable for seeing that the given public service is delivered, but it delegates the responsibility for delivery to the private sector through a contract that transfers key risks – such as design, engineering, construction, financing, insurance, maintenance, and operation – in exchange for payments dependent on the private partner’s meeting specified service quality and performance standards. To ensure private partner accountability, PPP contracts include clear payment deduction formulae, as well as penalties or liquidated damages for failure to deliver the required contracted services. There is no single PPP contracting structure, and the PPP approach may involve an assortment of contracting modalities that contemplate a wide range of differing levels of service responsibility delegation, risk allocation and reversibility of asset-ownership. Having identified the PPP options and run them through our financial model, the next step was to develop Recommended Transaction Structures for each of the two selected projects to adequately reflect the associated costs, risks, and ramifications. The preliminary PPP scheme of investment and operations are identified, along with associated forms of public support and other approaches to ensure bankability being clearly documents. Allocating risk within this scheme is critical. In essence, the public and private sectors allocate roles to whichever party is assessed as most competent in delivery in order to achieve the best possible result. In order for a PPP to function appropriately for the benefit of both the private and public partner, it must be structured so the risks (qualitative or quantitative) of the project are borne by the party most capable of managing it at a minimum cost. These risks are both implicit and explicit. The allocation of risk must be carefully incorporated into the project structuring, during initial project identification, sponsor/partner evaluation and contract development. For governments to benefit, they must ensure the risk allocation arrangement embedded in the PPP structure has minimal negative fiscal impact at lowest cost to the public sector. This must be reinforced by a transparent bonus/penalty structure. In a PPP scheme in which the private operator will be responsible for making significant investments in infrastructure and equipment, the primary risks to be to be considered include:  Political/Country  Demand  Planning and Design  Construction  Land Acquisition  Indemnities (to current airport workers or contractors not assumed by private operator)  Operation and Commercial  Foreign Currency  Regulatory  Financing  Payment & Credit Below is an outline of the general transaction structure recommended for each of the two projects selected in the previous section. IOS PARTNERS, INC. REPORT 6 - PAGE | 28 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 4.1. CAIRO INTERNATIONAL AIRPORT MANAGEMENT CONTRACT The basic PPP scheme suggested for CAI is that the CAC contract with a private partner to manage, operate and maintain the airport, given that no major infrastructure expansions were found to be required during the 17-year planning horizon of this study. But unlike with previous similar contracts at CAI, key elements that should be considered as part this contract include:  Having longer contracting periods in the order of 10 to 20 years to allow the development of medium and long-term business strategies;  Ensure the independence and autonomy of the operator in decision making, planning, budget management, and human resources, among others;  Add the responsibility for carrying out all major maintenance and rehabilitation works on existing infrastructure (including airside pavements), as well as the replacement or purchase of electro-mechanical and other equipment.  The establishment of mandatory minimum service standards, which adequately represent the PPP success criteria, in the short term (for example, profitability) as the long term (for example, sustainability).  Allow the private operator to collect or receive key airport regulated income, such as the passenger departure fee, landing fee, parking fee, etc.  Allow the private operator to directly collect and manage all non-regulated revenues (such as those from non-aeronautical and commercial activities).  Include an up-front lump-sum payment from the private operator, possibly in combination with subsequent annual payments. Though there is currently no law establishing the basis for this type of PPP, the CAC or EHCAAN, as corporatized entities, can develop such a contract under the current legal and regulatory framework (see Report 4 of this consultancy). Under this structure, the minimum scope for roles of PPP partners would be as follows:  Government: The financing and construction of any infrastructure expansion or new infrastructure than may be required should demand exceeded projections, as well as any associated land acquisition; title clearance; primary utility connections for provision of drainage, sewage, electricity, telecommunications, access roads;5  Private Sector: Manage, operate and maintain the facility; making the agreed investments and providing services that meet or exceed the defined standards. The main risks for the project to be allocated to the partners under a PPP would be as follows (with a preliminary assessment of risk level): 5 This does not preclude the Government negotiating with the private operator a contract amendment that assigns responsibility of the construction of new infrastructure to the private party. IOS PARTNERS, INC. REPORT 6 - PAGE | 29 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Table 12 – Risk Assessment for CAI Risk Level Moderate to high, given the political instability in recent Political/Country years. Moderate. Some sensitivity to exogenous events, Demand particularly for tourism market. Low. Primarily for rehabilitation works as no major new Planning and Design facilities are required. Low. Primarily for rehabilitation works as no major new Construction facilities are required Land Acquisition None. Not required. Moderate to High, given complexity of handling CAC Labor and Indemnities workforce currently assigned to the airport. Operation and Commercial Low, as this is an airport currently under operation. Foreign Currency Low, as most inputs can be sourced locally. Moderate, given lack of experience in regulating this type Regulatory of PPP in the Egyptian airport sector. Low. It should be possible to finance investments out of Financing cash flow, without resorting to major loans. Low. Most supplies of goods and services are well Payment & Credit established in the market. The following strategies could be followed to mitigate the higher risk categories identified above:  That the contract includes minimum traffic thresholds throughout the contract period, below which an adjustment is made to assure the financial solvency of the project. This can include a combination of rate and tariff adjustments or reduced annual payments to the CAC/EHCAAN. In extreme cases, a termination of the contract including compensation to the Operator for any losses incurred as a result of termination and as a result of any third-party claim arising from such termination.  That the government (or CAC/EHCAAN) be responsible for negotiating any indemnities or settlement with current airport employees.  That the CAC/EHCAAN or designated public agency, receive technical assistance and training in the regulation of this type of PPP. 4.2. REGIONAL AIRPORT GROUP BOT CONCESSION A BOT concession contract regulated by Law No. 3 of 1997 would be bid out that would group the following airports:  Borg El-Arab (HBE),  Hurghada (HRG),  Sharm El Sheik (SSH),  Aysut (AZT)  Sohag (HMB) - OPTIONAL This contract could be structured very similarly to the existing BOT contract for the Marsa Alam Airport, with a similar distribution of responsibilities and risks between the owner (EAC) and the private operator. Key elements that should be considered as part this contract include:  Strong incentives in place to increase efficiency, while ensuring the provision of services in compliance with established performance standards; IOS PARTNERS, INC. REPORT 6 - PAGE | 30 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018  Properly identify the risks and assign them to each party, depending on which is better able to manage them, as the case may be;  Maintain a balance between the allocation of risks and the level of remuneration, making the project viable from the perspective of the private investor, operator and financial sector.  In general, assign commercial risks to the private sector and regulatory risks to the public sector;  Design, construction, compliance with deadlines and operational risks should, in principle, be assigned to the private party;  Given the uncertainty of the demand, to make the PPP feasible and reduce the risk premium, it would be desirable to establish a limit to the risk that the private party would bear (risk sharing), introducing minimum guaranteed demand levels;  Assign specific responsibilities to the parties and provide incentives to fulfil those responsibilities;  Establish adequate monitoring and supervision mechanisms that guarantee accountability;  In view of the fact that important aspects of service quality are not directly verifiable with ease, the requirement of customer satisfaction surveys, carried out by independent third parties, is recommended, with minimum performance values that must be met, reinforced by the application of penalties in case of non-compliance;  Ensure to the government the means to regulate tariffs and oversee performance standards;  Include an up-front lump-sum payment from the private operator, possibly in combination with subsequent annual payments.  Allow the private operator to collect or receive key airport regulated income (passenger departure fee, landing fee, parking fee, etc.) as well as all non-regulated revenues (such as those from non-aeronautical and commercial activities). The main risks for the project to be allocated to the partners under a PPP would be as follows (with a preliminary assessment of risk level): Table 13 – Risk Assessment for Airport Group Risk Level Moderate to high, given the political instability in recent Political/Country years. Moderate to High. Demand at airports such as SSH and HRG can be highly sensitive to exogenous events, which Demand may be compensated somewhat by HBE being somewhat less sensitive to those types of events. Low to Medium. Multiple significant expansions of Planning and Design existing infrastructure are only required at HBE and SSH. Low to Medium. Multiple significant expansions of Construction existing infrastructure are only required at HBE and SSH. Land Acquisition None. Not required Moderate to High, given complexity of handling CAC Labor and Indemnities workforce currently assigned to the airport Operation and Commercial Low, as these are airports currently under operation Foreign Currency Low, as most inputs can be sourced locally IOS PARTNERS, INC. REPORT 6 - PAGE | 31 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Risk Level Low to Moderate. While the EAC does have experience Regulatory with individual BOT airports, regulating a group does imply some challenges. Low. It should be possible to finance investments out of Financing the cash flow of the group, without resorting to major loans. Low. Most supplies of goods and services are well Payment & Credit established in the market Risk mitigation strategies would be similar to those identified for Cairo. IOS PARTNERS, INC. REPORT 6 - PAGE | 32 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 APPENDIX A – ANNUAL CASH FLOW SHEETS Financial Results (for Airport Operator) (Free cash flow) CAI Key Parameters Inflation Alternative 1 (1-Real-no inflation, 2-Nominal) Discount Rate 18% Egyptian current coupon rate is 18% http://cbonds.com/emissions/issue/474013 Duration of Analysis 17 years Operational Efficiency 5% of the base 2016-2017 costs if PPP Scenario = yes First Year of Investment 2020 (all costs are the products of the applicable year traffic * cost ratios of the 2016-2017 accounting years) First Year Concession 2020 1 PPP yes (1) or no (0) 20% Estimated private party discount rate Demand Scenario 2 (1=Low; 2=Medium; 3=High) Taxes 0% on income Annual Inflation 0% Selected Alternative (US $ Thousands) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Operational Revenues Aeronautical Revenues $232,751 $246,367 $260,346 $273,454 $285,619 $296,768 $308,189 $319,188 $330,493 $342,110 $354,036 $366,299 $378,829 $391,630 $403,484 $415,553 $427,905 $440,549 Non-Aeronautical Revenues $105,561 $111,547 $117,695 $123,465 $128,828 $133,749 $138,791 $143,665 $148,674 $153,821 $159,106 $164,495 $169,956 $175,487 $180,579 $185,714 $190,968 $196,344 Total $338,312 $357,914 $378,041 $396,919 $414,447 $430,517 $446,981 $462,853 $479,167 $495,931 $513,143 $530,794 $548,785 $567,117 $584,063 $601,266 $618,873 $636,893 Operational Expenditures % rev Labour Costs 8% $25,583 $26,454 $27,330 $28,135 $28,868 $29,531 $30,199 $30,836 $31,481 $32,135 $32,798 $33,465 $34,133 $34,800 $35,407 $36,012 $36,625 $37,244 Materials & Fuel 3% $10,874 $11,275 $11,680 $12,052 $12,393 $12,701 $13,012 $13,309 $13,611 $13,918 $14,229 $14,542 $14,856 $15,171 $15,457 $15,744 $16,034 $16,328 Maintenance 5% $18,098 $18,714 $19,333 $19,903 $20,422 $20,890 $21,363 $21,814 $22,270 $22,733 $23,202 $23,674 $24,146 $24,618 $25,047 $25,475 $25,909 $26,347 Previous years costs 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Headquarter Expenses 13% $45,228 $46,539 $47,847 $49,042 $50,125 $51,096 $52,073 $52,998 $53,932 $54,875 $55,828 $56,788 $57,750 $58,715 $59,592 $60,470 $61,355 $62,248 Total 29% $99,782 $102,982 $106,190 $109,131 $111,808 $114,218 $116,648 $118,956 $121,294 $123,661 $126,056 $128,469 $130,885 $133,304 $135,504 $137,701 $139,922 $142,167 Operating Margin (EBITDA) 71% $238,530 $254,932 $271,851 $287,787 $302,639 $316,299 $330,333 $343,897 $357,872 $372,270 $387,086 $402,325 $417,900 $433,813 $448,559 $463,565 $478,951 $494,725 EBITDA margin 71% 71% 72% 73% 73% 73% 74% 74% 75% 75% 75% 76% 76% 76% 77% 77% 77% 78% SDF deferral 30% 21% ($69,825) ($73,910) ($78,104) ($82,036) ($85,686) ($89,030) ($92,457) ($95,757) ($99,148) ($102,633) ($106,211) ($109,890) ($113,649) ($117,489) ($121,045) ($124,666) ($128,372) ($132,165) of aero rev Capital Investments $0 $0 ($21,787) $0 ($54,147) $0 $0 ($26,393) $0 $0 ($54,147) $0 ($26,400) $0 $0 $0 $0 $0 Financial Return 1 PPP yes (1) or no (0) Annual Cash Flow After SDF Deferral $168,704 $181,022 $171,960 $205,751 $162,807 $227,268 $237,876 $221,747 $258,724 $269,637 $226,729 $292,435 $277,851 $316,324 $327,514 $338,900 $350,579 $362,561 Cummulative Cash Flow $168,704 $349,726 $521,686 $727,438 $890,245 $1,117,513 $1,355,389 $1,577,136 $1,835,860 $2,105,497 $2,332,226 $2,624,661 $2,902,513 $3,218,837 $3,546,351 $3,885,251 $4,235,830 $4,598,391 Financial Internal Rate of Return (1) #NUM! Net Present Value 20% $1,001,151 Average Annual Cash Flow $255,466 If PPP is yes = (1) Concessionaire pays 120% of NPV 1,201,381 Concessionaire's Cash Flow (1,032,677) 181,022 171,960 205,751 162,807 227,268 237,876 221,747 258,724 269,637 226,729 292,435 277,851 316,324 327,514 338,900 350,579 362,561 Concessionaire's IRR 20.0% (1) If #NUM! error - the range for the IRR calc did not start with sufficient negative outflow IOS PARTNERS, INC. REPORT 6 - PAGE | 33 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Financial Results (for Airport Operator) (Free cash flow) HBE Key Parameters Inflation Alternative 1 (1-Real-no inflation, 2-Nominal) Discount Rate 18% Egyptian current coupon rate is 18% http://cbonds.com/emissions/issue/474013 Durantion of Analysis 17 years Operational Efficiency 5% of the base 2016-2017 costs if PPP Scenario = yes First Year of Investment 2020 (all costs are the products of the applicable year traffic * cost ratios of the 2016-2017 accounting years) First Year Concession 2020 1 PPP yes (1) or no (0) 20% Estimated private party discount rate Demand Scenario 2 (1=Low; 2=Medium; 3=High) Taxes 0% on income Annual Inflation 0% Selected Alternative (US $ Thousands) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Operational Revenues Aeronautical Revenues $32,192 $34,633 $36,473 $38,391 $40,590 $42,463 $44,388 $46,372 $47,968 $50,236 $52,551 $54,913 $57,316 $59,761 $62,228 $64,736 $67,286 $69,887 Non-Aeronautical Revenues $8,022 $9,472 $9,975 $10,499 $11,097 $11,607 $12,131 $12,671 $13,109 $13,725 $14,355 $14,997 $15,650 $16,312 $16,975 $17,646 $18,328 $19,022 Total $40,215 $44,105 $46,448 $48,890 $51,687 $54,070 $56,519 $59,043 $61,076 $63,961 $66,905 $69,910 $72,966 $76,073 $79,203 $82,383 $85,614 $88,910 Operational Expenditures Labour Costs 4% $1,716 $1,729 $1,802 $1,878 $1,964 $2,036 $2,110 $2,185 $2,245 $2,330 $2,415 $2,502 $2,589 $2,676 $2,763 $2,851 $2,939 $3,028 Materials & Fuel 2% $700 $700 $726 $752 $782 $808 $833 $859 $880 $909 $938 $967 $997 $1,026 $1,056 $1,085 $1,114 $1,144 Maintenance & other 12% $4,703 $4,737 $4,938 $5,146 $5,380 $5,578 $5,780 $5,986 $6,151 $6,382 $6,617 $6,854 $7,092 $7,333 $7,571 $7,811 $8,052 $8,297 Burdens & losses 17% $6,869 $6,772 $6,951 $7,134 $7,337 $7,506 $7,675 $7,846 $7,982 $8,169 $8,357 $8,544 $8,730 $8,915 $9,096 $9,276 $9,455 $9,635 Headquarter Expenses 6% $2,385 $2,501 $2,567 $2,635 $2,710 $2,772 $2,835 $2,898 $2,948 $3,018 $3,087 $3,157 $3,226 $3,295 $3,362 $3,430 $3,497 $3,564 Total 41% $16,373 $16,438 $16,985 $17,545 $18,173 $18,700 $19,233 $19,774 $20,206 $20,808 $21,414 $22,023 $22,634 $23,245 $23,848 $24,453 $25,058 $25,668 Operating Margin (EBITDA) 59% $23,841 $27,667 $29,463 $31,345 $33,513 $35,370 $37,286 $39,269 $40,871 $43,153 $45,491 $47,887 $50,333 $52,829 $55,355 $57,930 $60,556 $63,242 EBITDA margin 59% 63% 63% 64% 65% 65% 66% 67% 67% 67% 68% 68% 69% 69% 70% 70% 71% 71% SDF deferral 0% 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital Investments $0 $0 ($26,706) ($3,024) ($3,024) ($3,024) ($3,024) ($19,854) ($3,579) ($3,579) ($3,579) ($3,579) ($13,005) ($4,566) ($4,566) ($4,566) ($4,566) ($4,566) Financial Return 1 PPP yes (1) or no (0) Annual Cash Flow $23,841 $27,667 $2,757 $28,321 $30,489 $32,346 $34,262 $19,415 $37,292 $39,574 $41,913 $44,308 $37,328 $48,263 $50,789 $53,365 $55,990 $58,676 Cummulative Cash Flow $23,841 $51,508 $54,266 $82,586 $113,076 $145,421 $179,684 $199,099 $236,390 $275,965 $317,877 $362,185 $399,513 $447,776 $498,565 $551,930 $607,920 $666,597 Financial Internal Rate of Return (1) #NUM! Net Present Value 20% $133,885 Average Annual Cash Flow $37,033 If PPP is yes = (1) Concessionaire pays 120% of NPV 160,662 Concessionaire's Cash Flow (136,820) 27,667 2,757 28,321 30,489 32,346 34,262 19,415 37,292 39,574 41,913 44,308 37,328 48,263 50,789 53,365 55,990 58,676 Concessionaire's IRR 20.0% (1) If #NUM! error - the range for the IRR calc did not start with sufficient negative outflow IOS PARTNERS, INC. REPORT 6 - PAGE | 34 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Financial Results (for Airport Operator) (Free cash flow) SSH Key Parameters Inflation Alternative 1 (1-Real-no inflation, 2-Nominal) Discount Rate 18% Egyptian current coupon rate is 18% http://cbonds.com/emissions/issue/474013 Durantion of Analysis 17 years Operational Efficiency 5% of the base 2016-2017 costs if PPP Scenario = yes First Year of Investment 2020 (all costs are the products of the applicable year traffic * cost ratios of the 2016-2017 accounting years) First Year Concession 2020 1 PPP yes (1) or no (0) 25% Estimated private party discount rate Demand Scenario 2 (1=Low; 2=Medium; 3=High) Taxes 0% on income Annual Inflation 0% Selected Alternative (US $ Thousands) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Operational Revenues Aeronautical Revenues $66,523 $70,206 $73,943 $77,751 $81,650 $85,615 $89,646 $92,552 $96,360 $99,957 $103,591 $107,264 $110,963 $114,688 $116,899 $119,119 $121,349 $123,601 Non-Aeronautical Revenues $26,115 $32,387 $34,037 $35,718 $37,460 $39,226 $41,015 $42,331 $44,030 $45,643 $47,274 $48,924 $50,574 $52,221 $53,216 $54,201 $55,175 $56,158 Total $92,637 $102,593 $107,980 $113,469 $119,110 $124,841 $130,661 $134,883 $140,389 $145,599 $150,865 $156,188 $161,537 $166,910 $170,115 $173,320 $176,524 $179,759 Operational Expenditures Labour Costs 5% $4,223 $4,184 $4,355 $4,527 $4,704 $4,881 $5,059 $5,189 $5,356 $5,513 $5,671 $5,829 $5,987 $6,143 $6,237 $6,329 $6,420 $6,512 Materials & Fuel 3% $3,072 $3,036 $3,152 $3,269 $3,389 $3,509 $3,629 $3,716 $3,828 $3,933 $4,039 $4,145 $4,250 $4,354 $4,416 $4,477 $4,538 $4,598 Maintenance & other 9% $7,929 $7,856 $8,177 $8,500 $8,832 $9,166 $9,500 $9,744 $10,058 $10,352 $10,649 $10,946 $11,242 $11,535 $11,711 $11,884 $12,055 $12,227 Burdens & losses 17% $15,468 $15,089 $15,474 $15,856 $16,243 $16,627 $17,006 $17,279 $17,626 $17,949 $18,270 $18,589 $18,903 $19,211 $19,394 $19,574 $19,750 $19,926 Headquarter Expenses 4% $3,574 $3,767 $3,865 $3,964 $4,062 $4,160 $4,257 $4,326 $4,414 $4,496 $4,577 $4,658 $4,738 $4,816 $4,863 $4,908 $4,954 $4,999 Total 37% $34,266 $33,932 $35,023 $36,116 $37,230 $38,342 $39,452 $40,255 $41,282 $42,244 $43,206 $44,167 $45,118 $46,059 $46,620 $47,172 $47,716 $48,262 Operating Margin (EBITDA) 63% $58,371 $68,662 $72,957 $77,353 $81,879 $86,498 $91,209 $94,628 $99,107 $103,355 $107,660 $112,021 $116,418 $120,851 $123,495 $126,148 $128,807 $131,497 EBITDA margin 63% 67% 68% 68% 69% 69% 70% 70% 71% 71% 71% 72% 72% 72% 73% 73% 73% 73% SDF deferral 0% 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital Investments $0 $0 ($8,640) ($6,048) ($6,048) ($21,299) ($6,048) ($30,812) ($6,480) ($6,480) ($21,731) ($6,480) ($31,244) ($3,456) ($3,456) ($3,456) ($3,456) ($3,456) Financial Return 1 PPP yes (1) or no (0) Annual Cash Flow $58,371 $68,662 $64,317 $71,305 $75,831 $65,199 $85,161 $63,816 $92,627 $96,875 $85,929 $105,541 $85,174 $117,395 $120,039 $122,692 $125,351 $128,041 Cummulative Cash Flow $58,371 $127,033 $191,350 $262,655 $338,486 $403,686 $488,847 $552,663 $645,291 $742,166 $828,094 $933,635 $1,018,810 $1,136,204 $1,256,243 $1,378,935 $1,504,286 $1,632,327 Financial Internal Rate of Return (1) #NUM! Net Present Value 25% $283,404 Average Annual Cash Flow $90,685 If PPP is yes = (1) Concessionaire pays 125% of NPV 354,254 Concessionaire's Cash Flow (295,883) 68,662 64,317 71,305 75,831 65,199 85,161 63,816 92,627 96,875 85,929 105,541 85,174 117,395 120,039 122,692 125,351 128,041 Concessionaire's IRR 25.0% (1) If #NUM! error - the range for the IRR calc did not start with sufficient negative outflow IOS PARTNERS, INC. REPORT 6 - PAGE | 35 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Financial Results (for Airport Operator) (Free cash flow) HRG Key Parameters Inflation Alternative 1 (1-Real-no inflation, 2-Nominal) Discount Rate 18% Egyptian current coupon rate is 18% http://cbonds.com/emissions/issue/474013 Durantion of Analysis 17 years Operational Efficiency 5% of the base 2016-2017 costs if PPP Scenario = yes First Year of Investment 2020 (all costs are the products of the applicable year traffic * cost ratios of the 2016-2017 accounting years) First Year Concession 2020 1 PPP yes (1) or no (0) 25% Estimated private party discount rate Demand Scenario 2 (1=Low; 2=Medium; 3=High) Taxes 0% on income Annual Inflation 0% Selected Alternative (US $ Thousands) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Operational Revenues Aeronautical Revenues $69,484 $74,283 $79,198 $84,250 $88,331 $92,496 $96,744 $98,989 $102,190 $105,699 $109,237 $112,803 $116,386 $119,985 $121,860 $123,737 $125,618 $127,513 Non-Aeronautical Revenues $31,020 $38,308 $40,728 $43,214 $45,240 $47,301 $49,395 $50,527 $52,119 $53,876 $55,648 $57,435 $59,219 $60,999 $61,954 $62,898 $63,830 $64,769 Total $100,504 $112,591 $119,926 $127,463 $133,570 $139,796 $146,140 $149,515 $154,309 $159,575 $164,884 $170,237 $175,605 $180,984 $183,814 $186,635 $189,447 $192,282 Operational Expenditures Labour Costs 6% $5,848 $5,815 $6,072 $6,332 $6,540 $6,749 $6,958 $7,070 $7,226 $7,397 $7,567 $7,737 $7,906 $8,072 $8,160 $8,248 $8,333 $8,419 Materials & Fuel 4% $3,866 $3,844 $4,014 $4,186 $4,323 $4,461 $4,600 $4,673 $4,777 $4,889 $5,002 $5,114 $5,226 $5,336 $5,394 $5,452 $5,508 $5,565 Maintenance & other 21% $21,066 $20,944 $21,872 $22,808 $23,557 $24,309 $25,064 $25,466 $26,028 $26,642 $27,256 $27,869 $28,476 $29,076 $29,394 $29,708 $30,016 $30,326 Burdens & losses 13% $13,436 $13,188 $13,606 $14,021 $14,350 $14,678 $15,003 $15,175 $15,414 $15,674 $15,932 $16,188 $16,440 $16,687 $16,818 $16,946 $17,072 $17,197 Headquarter Expenses 5% $4,685 $4,967 $5,128 $5,290 $5,416 $5,543 $5,668 $5,734 $5,826 $5,925 $6,024 $6,121 $6,218 $6,313 $6,362 $6,411 $6,460 $6,508 Total 49% $48,901 $48,757 $50,691 $52,636 $54,187 $55,739 $57,293 $58,118 $59,271 $60,528 $61,781 $63,030 $64,265 $65,484 $66,129 $66,764 $67,389 $68,015 Operating Margin (EBITDA) 51% $51,603 $63,834 $69,235 $74,827 $79,384 $84,057 $88,847 $91,398 $95,038 $99,047 $103,103 $107,207 $111,340 $115,500 $117,684 $119,871 $122,059 $124,267 EBITDA margin 51% 57% 58% 59% 59% 60% 61% 61% 62% 62% 63% 63% 63% 64% 64% 64% 64% 65% SDF deferral 0% 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital Investments $0 $0 $0 $0 $0 ($19,800) $0 ($13,860) $0 $0 ($26,400) $0 ($13,860) ($4,320) ($4,320) ($4,320) ($4,320) ($4,320) Financial Return 1 PPP yes (1) or no (0) Annual Cash Flow $51,603 $63,834 $69,235 $74,827 $79,384 $64,257 $88,847 $77,538 $95,038 $99,047 $76,703 $107,207 $97,480 $111,180 $113,364 $115,551 $117,739 $119,947 Cummulative Cash Flow $51,603 $115,437 $184,672 $259,500 $338,884 $403,141 $491,987 $569,525 $664,563 $763,610 $840,313 $947,520 $1,045,000 $1,156,180 $1,269,545 $1,385,096 $1,502,834 $1,622,781 Financial Internal Rate of Return (1) #NUM! Net Present Value 25% $282,381 Average Annual Cash Flow $90,155 If PPP is yes = (1) Concessionaire pays 125% of NPV 352,976 Concessionaire's Cash Flow (301,373) 63,834 69,235 74,827 79,384 64,257 88,847 77,538 95,038 99,047 76,703 107,207 97,480 111,180 113,364 115,551 117,739 119,947 Concessionaire's IRR 25.0% (1) If #NUM! error - the range for the IRR calc did not start with sufficient negative outflow IOS PARTNERS, INC. REPORT 6 - PAGE | 36 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Financial Results (for Airport Operator) (Free cash flow) HMB Key Parameters Inflation Alternative 1 (1-Real-no inflation, 2-Nominal) Discount Rate 18% Egyptian current coupon rate is 18% http://cbonds.com/emissions/issue/474013 Durantion of Analysis 17 years Operational Efficiency 5% of the base 2016-2017 costs if PPP Scenario = yes First Year of Investment 2020 (all costs are the products of the applicable year traffic * cost ratios of the 2016-2017 accounting years) First Year Concession 2020 1 PPP yes (1) or no (0) 25% Estimated private party discount rate Demand Scenario 2 (1=Low; 2=Medium; 3=High) Taxes 0% on income Annual Inflation 0% Selected Alternative (US $ Thousands) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Operational Revenues Aeronautical Revenues $6,876 $7,260 $7,668 $8,103 $8,565 $9,037 $9,519 $10,011 $10,463 $10,923 $11,389 $11,862 $12,342 $12,829 $13,322 $13,765 $14,212 $14,663 Non-Aeronautical Revenues $191 $229 $242 $255 $270 $284 $299 $315 $329 $343 $357 $372 $387 $402 $417 $431 $444 $458 Total $7,067 $7,489 $7,910 $8,359 $8,835 $9,321 $9,818 $10,326 $10,792 $11,265 $11,746 $12,234 $12,729 $13,231 $13,739 $14,196 $14,656 $15,121 Operational Expenditures Labour Costs 4% $293 $287 $297 $307 $317 $327 $338 $348 $357 $367 $376 $385 $395 $404 $413 $421 $429 $437 Materials & Fuel 0% $6 $6 $6 $6 $7 $7 $7 $7 $8 $8 $8 $8 $8 $9 $9 $9 $9 $9 Maintenance & other 1% $78 $77 $79 $82 $85 $88 $90 $93 $96 $98 $101 $103 $106 $108 $111 $113 $115 $117 Burdens & losses 12% $880 $859 $883 $908 $933 $958 $984 $1,009 $1,031 $1,053 $1,076 $1,098 $1,120 $1,141 $1,163 $1,182 $1,201 $1,219 Headquarter Expenses 0% $19 $19 $20 $20 $21 $21 $22 $23 $23 $24 $24 $25 $25 $26 $26 $26 $27 $27 Total 18% $1,275 $1,248 $1,285 $1,323 $1,363 $1,402 $1,441 $1,480 $1,515 $1,550 $1,584 $1,619 $1,653 $1,687 $1,721 $1,751 $1,781 $1,810 Operating Margin (EBITDA) 82% $5,792 $6,241 $6,625 $7,035 $7,472 $7,920 $8,378 $8,846 $9,277 $9,716 $10,162 $10,615 $11,076 $11,543 $12,018 $12,445 $12,876 $13,311 EBITDA margin 82% 83% 84% 84% 85% 85% 85% 86% 86% 86% 87% 87% 87% 87% 87% 88% 88% 88% SDF deferral 0% 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital Investments $0 $0 ($2,505) $0 $0 $0 $0 ($14,850) $0 $0 $0 $0 ($2,505) $0 $0 $0 $0 $0 Financial Return 1 PPP yes (1) or no (0) Annual Cash Flow $5,792 $6,241 $4,121 $7,035 $7,472 $7,920 $8,378 ($6,004) $9,277 $9,716 $10,162 $10,615 $8,571 $11,543 $12,018 $12,445 $12,876 $13,311 Cummulative Cash Flow $5,792 $12,032 $16,153 $23,189 $30,661 $38,581 $46,958 $40,954 $50,231 $59,947 $70,109 $80,724 $89,295 $100,838 $112,856 $125,301 $138,176 $151,487 Financial Internal Rate of Return (1) #NUM! Net Present Value 25% $25,066 Average Annual Cash Flow $8,416 If PPP is yes = (1) Concessionaire pays 125% of NPV 31,332 Concessionaire's Cash Flow (25,540) 6,241 4,121 7,035 7,472 7,920 8,378 (6,004) 9,277 9,716 10,162 10,615 8,571 11,543 12,018 12,445 12,876 13,311 Concessionaire's IRR 25.0% (1) If #NUM! error - the range for the IRR calc did not start with sufficient negative outflow IOS PARTNERS, INC. REPORT 6 - PAGE | 37 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Financial Results (for PPP Airport Party) (Free cash flow) Group 1: HBE + AZT + HRG + SSH (US $ Thousands) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Annual Cash Flow HBE $23,841 $27,667 $2,757 $28,321 $30,489 $32,346 $34,262 $19,415 $37,292 $39,574 $41,913 $44,308 $37,328 $48,263 $50,789 $53,365 $55,990 $58,676 Annual Cash Flow AZT ($7,820) ($6,925) ($10,518) ($6,966) ($6,982) ($6,992) ($6,996) ($24,319) ($7,112) ($7,104) ($7,092) ($7,076) ($10,626) ($7,154) ($7,124) ($7,096) ($7,063) ($7,028) Annual Cash Flow HRG $51,603 $63,834 $69,235 $74,827 $79,384 $64,257 $88,847 $77,538 $95,038 $99,047 $76,703 $107,207 $97,480 $111,180 $113,364 $115,551 $117,739 $119,947 Annual Cash Flow SSH $58,371 $68,662 $64,317 $71,305 $75,831 $65,199 $85,161 $63,816 $92,627 $96,875 $85,929 $105,541 $85,174 $117,395 $120,039 $122,692 $125,351 $128,041 Total Cash Flow $125,996 $153,238 $125,792 $167,487 $178,722 $154,810 $201,274 $136,450 $217,845 $228,393 $197,453 $249,979 $209,356 $269,684 $277,068 $284,511 $292,017 $299,636 Cummulative Cash Flow $125,996 $279,234 $405,026 $572,512 $751,234 $906,044 $1,107,319 $1,243,768 $1,461,614 $1,690,006 $1,887,459 $2,137,438 $2,346,794 $2,616,478 $2,893,546 $3,178,058 $3,470,075 $3,769,710 Financial Internal Rate of Return #NUM! If #NUM! error - the range for the IRR calc does not begin with negative outflow/investment Net Present Value 22% $731,415 Average Annual Cash Flow $209,428 Concessionaire pays 120% of NPV = $877,698 Concessionaire's Cash Flow (751,702) 153,238 125,792 167,487 178,722 154,810 201,274 136,450 217,845 228,393 197,453 249,979 209,356 269,684 277,068 284,511 292,017 299,636 Concessionaire's IRR 22.4% Add portion of "Burdens and Losses" to free cash flow HBE Burdens & Losses (from OPEX) 6,869 6,772 6,951 7,134 7,337 7,506 7,675 7,846 7,982 8,169 8,357 8,544 8,730 8,915 9,096 9,276 9,455 9,635 AZT Burdens & Losses 7,226 6,998 7,135 7,278 7,428 7,575 7,721 7,865 7,990 8,115 8,238 8,361 8,483 8,603 8,722 8,822 8,921 $9,021 HRG Burdens & Losses 13,436 13,188 13,606 14,021 14,350 14,678 15,003 15,175 15,414 15,674 15,932 16,188 16,440 16,687 16,818 16,946 17,072 17,197 SSH Burdens & Losses 15,468 15,089 15,474 15,856 16,243 16,627 17,006 17,279 17,626 17,949 18,270 18,589 18,903 19,211 19,394 19,574 19,750 19,926 Add back in 50% = HBE Burdens & Losses 3,435 3,386 3,476 3,567 3,669 3,753 3,838 3,923 3,991 4,085 4,178 4,272 4,365 4,457 4,548 4,638 4,728 4,817 AZT Burdens & Losses 3,613 3,499 3,568 3,639 3,714 3,788 3,860 3,933 3,995 4,057 4,119 4,181 4,241 4,301 4,361 4,411 4,461 4,510 HRG Burdens & Losses 6,718 6,594 6,803 7,011 7,175 7,339 7,502 7,588 7,707 7,837 7,966 8,094 8,220 8,344 8,409 8,473 8,536 8,599 SSH Burdens & Losses 7,734 7,544 7,737 7,928 8,122 8,313 8,503 8,640 8,813 8,975 9,135 9,295 9,451 9,606 9,697 9,787 9,875 9,963 Adjusted Cash Flow HBE $27,276 $156,624 $129,267 $171,054 $182,390 $158,563 $205,112 $140,373 $221,836 $232,477 $201,631 $254,251 $213,721 $274,142 $281,616 $289,149 $296,744 $304,453 Adjusted Cash Flow AZT ($4,207) ($3,426) ($6,950) ($3,328) ($3,268) ($3,204) ($3,135) ($20,387) ($3,117) ($3,047) ($2,973) ($2,896) ($6,385) ($2,853) ($2,764) ($2,685) ($2,603) ($2,518) Adjusted Cash Flow HRG $58,321 $70,428 $76,038 $81,838 $86,559 $71,596 $96,348 $85,125 $102,745 $106,884 $84,669 $115,301 $105,700 $119,524 $121,773 $124,024 $126,274 $128,546 Adjusted Cash Flow SSH $66,105 $76,206 $72,054 $79,233 $83,953 $73,513 $93,664 $72,456 $101,440 $105,850 $95,064 $114,835 $94,626 $127,000 $129,736 $132,478 $135,226 $138,003 Total Cash Flow $147,495 $299,833 $270,409 $328,797 $349,634 $300,467 $391,989 $277,567 $422,905 $442,165 $378,391 $481,492 $407,661 $517,813 $530,362 $542,967 $555,642 $568,485 Cummulative Cash Flow $147,495 $447,328 $717,737 $1,046,534 $1,396,168 $1,696,635 $2,088,624 $2,366,191 $2,789,096 $3,231,261 $3,609,652 $4,091,144 $4,498,805 $5,016,619 $5,546,981 $6,089,948 $6,645,590 $7,214,074 Financial Internal Rate of Return (1) #NUM! Net Present Value 22% $1,358,989 Average Annual Cash Flow $400,782 Concessionaire pays 120% of NPV = $1,630,786 Concessionaire's Cash Flow (1,483,291) 299,833 270,409 328,797 349,634 300,467 391,989 277,567 422,905 442,165 378,391 481,492 407,661 517,813 530,362 542,967 555,642 568,485 Concessionaire's IRR 22.4% (1) If #NUM! error - the range for the IRR calc did not start with sufficient negative outflow IOS PARTNERS, INC. REPORT 6 - PAGE | 38 POTENTIAL PPP ALTERNATIVE SCHEMES FOR A SELECTION OF AIRPORTS DECEMBER 2018 Financial Results (for PPP Airport Party) (Free cash flow) Group 2: HMB + AZT (US $ Thousands) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Annual Cash Flow HMB $5,792 $6,241 $4,121 $7,035 $7,472 $7,920 $8,378 ($6,004) $9,277 $9,716 $10,162 $10,615 $8,571 $11,543 $12,018 $12,445 $12,876 $13,311 Annual Cash Flow AZT ($7,820) ($6,925) ($10,518) ($6,966) ($6,982) ($6,992) ($6,996) ($24,319) ($7,112) ($7,104) ($7,092) ($7,076) ($10,626) ($7,154) ($7,124) ($7,096) ($7,063) ($7,028) Total Cash Flow ($2,028) ($684) ($6,397) $69 $490 $928 $1,382 ($30,323) $2,165 $2,612 $3,070 $3,539 ($2,055) $4,389 $4,894 $5,349 $5,812 $6,283 Cummulative Cash Flow ($2,028) ($2,713) ($9,110) ($9,041) ($8,551) ($7,623) ($6,241) ($36,564) ($34,399) ($31,787) ($28,718) ($25,179) ($27,234) ($22,845) ($17,951) ($12,602) ($6,790) ($507) Financial Internal Rate of Return 0% If #NUM! error - the range for the IRR calc does not begin with negative outflow/investment Net Present Value 22% ($8,638) Average Annual Cash Flow ($28) Concessionaire pays of NPV (If NPV > 0) = $0 Concessionaire's Cash Flow (if NPV > 0) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Concessionaire's IRR #NUM! Add portion of "Burdens and Losses" to free cash flow HMB Burdens & Losses 880 859 883 908 933 958 984 1,009 1,031 1,053 1,076 1,098 1,120 1,141 1,163 1,182 1,201 1,219 AZT Burdens & Losses 7,226 6,998 7,135 7,278 7,428 7,575 7,721 7,865 7,990 8,115 8,238 8,361 8,483 8,603 8,722 8,822 8,921 9,021 Add back in 50% = HMB Burdens & Losses 440 429 441 454 467 479 492 504 516 527 538 549 560 571 582 591 600 610 AZT Burdens & Losses 3,613 3,499 3,568 3,639 3,714 3,788 3,860 3,933 3,995 4,057 4,119 4,181 4,241 4,301 4,361 4,411 4,461 4,510 Adjusted Cash Flow HMB $6,232 $6,670 $4,562 $7,489 $7,939 $8,399 $8,869 ($5,500) $9,793 $10,242 $10,699 $11,164 $9,131 $12,114 $12,600 $13,036 $13,476 $13,921 Adjusted Cash Flow AZT ($4,207) ($3,426) ($6,950) ($3,328) ($3,268) ($3,204) ($3,135) ($20,387) ($3,117) ($3,047) ($2,973) ($2,896) ($6,385) ($2,853) ($2,764) ($2,685) ($2,603) ($2,518) Total Cash Flow $2,025 $3,244 ($2,388) $4,162 $4,670 $5,195 $5,734 ($25,886) $6,676 $7,196 $7,727 $8,268 $2,746 $9,261 $9,836 $10,351 $10,873 $11,403 Cummulative Cash Flow $2,025 $5,269 $2,881 $7,043 $11,713 $16,908 $22,642 ($3,244) $3,431 $10,627 $18,353 $26,622 $29,368 $38,629 $48,465 $58,816 $69,690 $81,092 Financial Internal Rate of Return (1) #NUM! Net Present Value 22% $9,980 Average Annual Cash Flow $4,505 Concessionaire pays 120% of NPV = $11,976 Concessionaire's Cash Flow (9,951) 3,244 (2,388) 4,162 4,670 5,195 5,734 (25,886) 6,676 7,196 7,727 8,268 2,746 9,261 9,836 10,351 10,873 11,403 Concessionaire's IRR 22.3% (1) If #NUM! error - the range for the IRR calc did not start with sufficient negative outflow IOS PARTNERS, INC. REPORT 6 - PAGE | 39